Thursday, December 1 2022
The following discussion should be read in conjunction with Part I of this
Form 10­K as well as the Consolidated Financial Statements and related notes
thereto included in Part II, Item 8- "Financial Statements and Supplementary
Data" of this Form 10­K. Our future operating results may be affected by various
trends and factors which are beyond our control. Our actual results may differ
materially from those anticipated in these forward-looking statements as a
result of a variety of risks and uncertainties, including those described in
this Form 10-K under "Cautionary Note regarding Forward-Looking Statements" and
Item 1A- "Risk Factors." Accordingly, past results and trends should not be used
by investors to anticipate future results or trends.

Summary


Helmerich & Payne, Inc. ("H&P," which, together with its subsidiaries, is
identified as the "Company," "we," "us," or "our," except where stated or the
context requires otherwise) through its operating subsidiaries provides
performance-driven drilling solutions and technologies that are intended to make
hydrocarbon recovery safer and more economical for oil and gas exploration and
production companies. As of September 30, 2022, our drilling rig fleet included
a total of 271 drilling rigs. Our reportable operating business segments consist
of the North America Solutions segment with 236 rigs, the Offshore Gulf of
Mexico segment with seven offshore platform rigs and the International Solutions
segment with 28 rigs as of September 30, 2022. At the close of fiscal year 2022,
we had 192 active contracted rigs, of which 125 were under a fixed-term contract
and 67 were working well-to-well, compared to 137 contracted rigs at
September 30, 2021. Our long-term strategy remains focused on innovation,
technology, safety, operational excellence and reliability. As we move forward,
we believe that our advanced uniform rig fleet, technology offerings, financial
strength, contract backlog and strong customer and employee base position us
very well to respond to continued cyclical and often times volatile market
conditions and to take advantage of future opportunities.
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Market Outlook


Our revenues are primarily derived from the capital expenditures of companies
involved in the exploration, development and production of crude oil and natural
gas ("E&Ps"). Generally, the level of capital expenditures is dictated by
current and expected future prices of crude oil and natural gas, which are
determined by various supply and demand factors. Both commodities have
historically been, and we expect them to continue to be, cyclical and highly
volatile.

Our drilling services operations are organized into the following reportable
operating segments: North America Solutions, Offshore Gulf of Mexico, and
International Solutions. With respect to North America Solutions, the resurgence
of oil and natural gas production coming from the United States brought about by
unconventional shale drilling for oil has significantly impacted the supply of
oil and natural gas and the type of rig utilized in the U.S. land drilling
industry.

The technical requirements of drilling longer lateral unconventional shale wells
often necessitate the use of rigs that are commonly referred to in the industry
as super-spec rigs and have the following specific characteristics: AC drive,
minimum of 1,500 horsepower drawworks, minimum of 750,000 lbs. hookload rating,
7,500 psi mud circulating system, and multiple-well pad capability.

There is a strong customer preference for super-spec rigs not only due to the
higher rig specifications that enable more technical drilling, but also due to
the drilling efficiencies gained in utilizing a super-spec rig. As a result,
there has been a structural decline in the use of non-super-spec rigs across the
industry. We are the largest provider of super-spec rigs in the industry and,
accordingly, we believe we are well positioned to respond to various market
conditions.

Historically there has been a strong correlation between crude oil and natural
gas prices and the demand for drilling rigs with the rig count increasing and
decreasing with the up and down movements in the commodity prices. However,
beginning in 2021, rig activity has not moved in tandem with crude oil prices to
the same extent it had historically as a large portion of our customers
instituted a more disciplined approach to their operations and capital spending
in order to enhance their own financial returns. Those customers established
capital budgets based upon commodity price assumptions for the upcoming year and
adhered to them, not adjusting activity plans as commodity prices moved.

The capital budgets for calendar year 2023 have not yet been established by many
of our customers; however, based upon the crude oil and natural gas pricing
environment and many of our customers' desire to at least maintain their current
production levels, we expect the level of capital spending and activity in
calendar year 2023 to be similar to modestly higher than that experienced in
calendar year 2022. In recent years the U.S. demand for super-spec rigs has
strengthened. Despite this increased demand for super-spec rigs there is still
idle super-spec rig capacity in the market; however, much of that idle capacity
represents rigs that have not been active during the preceding two years and in
some cases even longer. Consequently, there have been additional costs incurred
to bring those long-idled rigs back into working condition, which contributed to
upward pricing for super-spec rigs. This supply-demand dynamic combined with the
value proposition we provide our customers through our drilling expertise,
high-quality FlexRig® fleet, and automation technology resulted in an
improvement in our underlying contract economics.

Our North America Solutions active rig count has more than tripled from COVID
pandemic lows of 47 rigs in August 2020 to 176 rigs at September 30, 2022. Given
the current market dynamics, our disciplined approach to deploying capital, and
our fiscal year 2023 capital budget of $425 to $475 million, we project that our
active rig count could reach 192 rigs during the first half of calendar 2023.
While H&P stands ready to respond to the future demand for its super-spec rigs,
we will do so by applying the same disciplined approach, focusing on financial
returns. That said, the market for our rigs and others like them in the industry
will likely remain tight as supply-chain challenges and labor constraints
experienced across the energy industry may inhibit the industry's ability
overall to supply a significant quantity of super-specs rigs. As the largest
provider of super-spec rigs in the U.S., H&P is not immune from supply-chain
challenges or potential labor constraints, or inflationary pressures that can
arise as a result of these matters. However, we believe we are well positioned
to address these challenges and do not believe they are a limiting factor
relative to our activity plans for fiscal 2023 nor believe they will have a
significant adverse impact on our financial results. As a result of increased
customer demand and limited supply additions given high required rig
reactivation expenditures and supply chain constraints, we expect the momentum
of the upward pressure on pricing to continue into fiscal 2023.

Collectively, our other business segments, Offshore Gulf of Mexico and
International Solutions, are exposed to the same macro commodity price
environment affecting our North America Solutions segment; however, activity
levels in the International Solutions segment are also subject to other various
geopolitical and financial factors specific to the countries of our operations.
While we do not expect much activity change in our Offshore Gulf of Mexico
segment, we do expect margin improvements based on recent rate increases.
Regarding our International Solutions segment, we see opportunities for
improvement in activity and the related corresponding margin improvement, but
those will likely occur on a more extended timeline compared to what we have
experienced in the North America Solutions segment.
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Recent Developments


Investment in Tamboran

In October 2022, we purchased a $14.1 million equity investment, representing
approximately 106 million shares, in Tamboran Resources Limited ("Tamboran").
Tamboran's shares are listed and publicly traded on the Australian Securities
Exchange. Additionally, during September 2022, we entered into a fixed-term
drilling services agreement with Tamboran. The expected $30.3 million of revenue
to be earned over the term of the contract is included within our contract
backlog as of September 30, 2022, as mobilization is expected to commence in
fiscal year 2023.

Investments in geothermal energy

During the fiscal year ended September 30, 2022, we purchased an additional
$18.2 million in geothermal energy investments consisting of both debt and
equity securities. Investments were made in five separate companies that are
pursuing technological concepts to make unconventional geothermal energy a
viable economic renewable energy source. These companies are developing enhanced
geothermal system ("EGS") and closed loop concepts. The EGS concepts use one or
more of the following: horizontal drilling, induced permeability, and fiber
optic sensing. The closed loop concepts use multilateral wellbores, proprietary
working fluid, or coaxial pipe configurations. All of these concepts are
designed to harvest geothermal heat to create carbon-free, 24/7 geothermal
energy. The aggregate balance of our investments in geothermal energy companies
was $23.7 million and $2.7 million at September 30, 2022 and 2021, respectively.
At this time, we expect the quantity and pace of our geothermal investments to
be reduced relative to fiscal year 2022.

ADNOC Drilling Investment

During September 2021, the Company made a $100.0 million cornerstone investment
in ADNOC Drilling in advance of its announced IPO, representing 159.7 million
shares of ADNOC Drilling, equivalent to a one percent ownership stake and
subject to a three-year lockup period. ADNOC Drilling's IPO was completed on
October 3, 2021, and its shares are listed and traded on the Abu Dhabi
Securities Exchange. Our investment is classified as a long-term equity
investment within Investments in our Consolidated Balance Sheets. During the
fiscal year ended September 30, 2022, we recognized a gain of $47.4 million on
our Consolidated Statements of Operations, as a result of the change in fair
value of the investment during the period. As of September 30, 2022, this
investment is classified as a Level 1 investment based on the quoted stock price
on the Abu Dhabi Securities Exchange. During the fiscal year ended September 30,
2022, we also received dividends in the amount of $6.6 million as a result of
this investment.

Investment in Galileo Technologies

During the fiscal year ended September 30, 2022, the Company made a
$33.0 million cornerstone investment in Galileo Holdco 2 Limited Technologies
("Galileo Holdco 2"), part of the group of companies known as Galileo
Technologies ("Galileo") in the form of a convertible note. Galileo specializes
in liquification, natural gas compression and re-gasification modular systems
and technologies to make the production, transportation, and consumption of
natural gas, biomethane, and hydrogen more economically viable. The convertible
note bears interest at 5% per annum with a maturity date of the earlier of April
2027 or an exit event (as defined in the agreement as either an initial public
offering or a sale of Galileo). If the conversion option is exercised, the note
would convert into common shares of the parent of Galileo Holdco 2 ("Galileo
Parent"). We do not intend to sell this investment prior to its maturity date or
an exit event. Two of our Directors are independent directors of Galileo Parent.
Neither Director has a direct or indirect material interest in the transaction.

Pension plan Lump-sum distribution

During March 2022, the Company's domestic noncontributory defined benefit
pension plan was amended to include a limited lump sum distribution option and a
special eligibility window to be available to certain participants. During the
period beginning on May 2, 2022 and ending on June 30, 2022, these participants
could elect the limited lump sum distribution. This one-time lump sum was
subsequently paid in August 2022 and resulted in a pension settlement charge of
$7.8 million during the year ended September 30, 2022.
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Contract Backlog


Drilling contract backlog is the expected future dayrate revenue from executed
contracts. We calculate backlog as the total expected revenue from fixed-term
contracts and do not include any anticipated contract renewals or expected
performance bonuses as part of its calculation. Additionally, contracts that
currently contain month-to-month terms are represented in our backlog as one
month of unsatisfied performance obligations. In addition to depicting the total
expected revenue from fixed-term contracts, backlog is indicative of expected
future cash flow that the Company expects to receive regardless of whether a
customer honors the fixed-term contract to expiration of a contract or decides
to terminate the contract early and pay an early termination payment. In the
event of an early termination payment, the timing of the recognition of backlog
and the total amount of revenue may differ; however, the overall associated
gross margin is preserved. As such, management finds backlog a useful metric for
future planning and budgeting, whereas investors consider it useful in
estimating future revenue and cash flows of the Company. As of September 30,
2022 and 2021, our contract drilling backlog was $1.2 billion and $0.6 billion,
respectively. The increase in backlog at September 30, 2022 from September 30,
2021 is primarily due to an increase in the number of fixed term drilling
contracts executed. Approximately 30.8 percent of the September 30, 2022 total
backlog is reasonably expected to be fulfilled in fiscal year 2024 and
thereafter.

The following table sets forth the total backlog by reportable segment as of
September 30, 2022 and 2021, and the percentage of the September 30, 2022
backlog reasonably expected to be fulfilled in fiscal year 2024 and thereafter:

                                                                                                    Percentage Reasonably
                                                                                                  Expected to be Fulfilled
                                                      September 30,         September 30,            in Fiscal Year 2024
(in millions)                                             2022                   2021                  and Thereafter
North America Solutions                              $      863.6          $       429.6                            26.0  %
Offshore Gulf of Mexico                                       7.6                   17.2                               -
International Solutions                                     301.2                  125.2                            45.3
                                                     $    1,172.4          $       572.0



The early termination of a contract may result in a rig being idle for an
extended period of time, which could adversely affect our financial condition,
results of operations and cash flows. In some limited circumstances, such as
sustained unacceptable performance by us, no early termination payment would be
paid to us. Early terminations could cause the actual amount of revenue earned
to vary from the backlog reported. See Item 1A-"Risk Factors-Our current backlog
of drilling services and solutions revenue may decline and may not be ultimately
realized as fixed­term contracts and may, in certain instances, be terminated
without an early termination payment" within this Form 10-K regarding fixed term
contract risk. Additionally, see Item 1A-"Risk Factors-The impact and effects of
public health crises, pandemics and epidemics, such as the COVID-19 pandemic,
could have a material adverse effect on our business, financial condition and
results of operations" within this Form 10-K.

Results of operations for the years ended September 30, 2022 and 2021

Consolidated operating results

Net Income (Loss) We reported income from continuing operations of $6.6 million
($0.05 per diluted share) from operating revenues of $2.1 billion for the fiscal
year ended September 30, 2022 compared to a loss from continuing operations of
$337.5 million ($3.14 loss per diluted share) from operating revenues of $1.2
billion for the fiscal year ended September 30, 2021. Included in net income for
the fiscal year ended September 30, 2022 is income of $0.4 million (with no
impact on a per diluted share basis) from discontinued operations. Including
discontinued operations, we recorded net income of $7.0 million ($0.05 per
diluted share) for the fiscal year ended September 30, 2022 compared to a net
loss of $326.2 million ($3.04 loss per diluted share) for the fiscal year ended
September 30, 2021.

Operating Revenue Consolidated operating revenues were $2.1 billion in fiscal
year 2022 and $1.2 billion in fiscal year 2021, including early termination
revenue of $0.7 million and $7.7 million in each respective fiscal
year. Excluding early termination revenue, operating revenue increased $0.8
billion in fiscal year 2022 compared to fiscal year 2021. The increase in fiscal
year 2022 from fiscal year 2021 was primarily driven by an increase in average
rig pricing and activity levels in our North America Solutions segment and
increased activity levels in our International Solutions segment. Refer to
segment results below for further details.

Direct Operating Expenses, Excluding Depreciation and Amortization Direct
operating expenses in fiscal year 2022 were $1.4 billion, compared with $1.0
billion in fiscal year 2021. The increase in fiscal year 2022 from fiscal year
2021 was primarily attributable to the previously mentioned higher activity
levels.
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Depreciation and Amortization Depreciation and amortization expense was $403.2
million in fiscal year 2022 and $419.7 million in fiscal year 2021. The decrease
in depreciation and amortization during the fiscal year ended September 30, 2022
compared to the fiscal year ended September 30, 2021 was primarily attributable
to the termination of depreciation on eight rigs that were included in the ADNOC
sale during the fourth quarter of fiscal year 2021 coupled with ongoing
relatively low levels of capital expenditures. Depreciation and amortization
includes amortization of intangible assets of $7.2 million in fiscal years 2022
and 2021, and abandonments of equipment of $6.6 million and $2.0 million in
fiscal years 2022 and 2021, respectively.

Selling, General and Administrative Expense Selling, general and administrative
expenses increased to $182.4 million in the fiscal year ended September 30, 2022
compared to $172.2 million in the fiscal year ended September 30, 2021. The
$10.2 million increase in fiscal year 2022 compared to fiscal year 2021 is
primarily due to a $6.0 million increase in IT infrastructure spending, and a
$5.6 million increase in labor and travel expense.

Asset Impairment Charges During the fiscal year ended September 30, 2022, we
identified various assets that met the asset held-for-sale criteria and were
reclassified as assets held-for-sale on our Consolidated Balance Sheets. The
combined net book value of these assets was $5.4 million and were written down
to their estimated fair value less cost to sell of $1.0 million, resulting in a
non-cash impairment charge of $4.4 million, within our North America Solutions
and International Solutions segments. The impairment charge was recorded in the
Consolidated Statement of Operations for the fiscal year ended September 30,
2022. Comparatively, during the fiscal year ended September 30, 2021, the
Company developed a plan to sell 71 Domestic non-super-spec rigs, all within our
North America Solutions segment, the majority of which were previously
decommissioned, written down and/or held as capital spares, which resulted in an
impairment charge of $56.4 million. Also, during the fiscal year ended
September 30, 2021, we formalized a plan to sell assets related to two of our
lower margin service offerings, trucking and casing running services, all within
our North America Solutions segment, which resulted in a non-cash impairment
charge of $14.4 million.

Gain on Investment Securities During the fiscal year ended September 30, 2022,
we recognized an aggregate gain of $57.9 million on investment securities. This
gain was primarily comprised of a $47.4 million gain on our equity investment in
ADNOC Drilling caused by an increase in the fair market value of the stock. In
September 2021, the Company made a cornerstone equity investment consisting of
159.7 million shares for $100.0 million as part of ADNOC Drilling's initial
public offering. This investment is subject to a three-year lock-up period.
Additionally, during the fiscal year ended September 30, 2022, we sold our
remaining equity securities of approximately 467.5 thousand shares in
Schlumberger, Ltd. and received proceeds of approximately $22.0 million. We
recognized an aggregate gain of $8.2 million related to this investment, which
included a $0.5 million gain recognized upon the sale and a $7.7 million gain as
a result of the change in the fair value of the investment during the fiscal
year ended September 30, 2022.

Restructuring Charges During the fiscal years ended September 30, 2022 and 2021,
we incurred $0.8 million and $5.9 million, respectively, in restructuring
charges. The charges incurred during the fiscal year ended September 30, 2021
included $1.5 million in one-time severance benefits paid to employees who were
voluntarily or involuntarily terminated primarily as a result of the
reorganization of our IT operations coupled with charges of $4.5 million
primarily related to the relocation of our Houston assembly facility and the
downsizing of our storage yards used for idle rigs.

Interest and Dividend Income Interest and dividend income was $18.1 million and
$10.3 million in fiscal years 2022 and 2021, respectively. The increase in
interest and dividend income in fiscal year 2022 was primarily due to
$6.6 million of dividend income received as a result of our investment in ADNOC
drilling.

Interest Expense Interest expense totaled $19.2 million in fiscal year 2022 and
$24.0 million in fiscal year 2021. The decrease in interest expense is primarily
attributable to a lower interest rate on our 2.90% Senior Notes due 2031 (issued
in September 2021) as compared to our 4.65% Senior Notes due 2025, which was
fully redeemed in October 2021.

Income Taxes We had an income tax expense of $24.4 million in fiscal year 2022
compared to an income tax benefit of $103.7 million in fiscal year 2021. The
effective income tax rate was 78.8 percent in fiscal year 2022 compared to 23.5
percent in fiscal year 2021. The effective rates differ from the U.S. federal
statutory rate (21.0 percent for the fiscal years 2022 and 2021) primarily due
to non-deductible permanent items, the foreign derived intangible income
deduction (in fiscal year 2022), state and foreign income taxes, and adjustments
to the deferred state income tax rate. Additionally, the effective income tax
rate is higher in fiscal year 2022 as the low level of net income before tax
increases the impact of the rate differences.

Deferred income taxes are provided for temporary differences between the
financial reporting basis and the tax basis of our assets and liabilities.
Recoverability of any tax assets are evaluated, and necessary allowances are
provided. The carrying values of the net deferred tax assets are based on
management's judgments using certain estimates and assumptions that we will be
able to generate sufficient future taxable income in certain tax jurisdictions
to realize the benefits of such assets. If these estimates and related
assumptions change in the future, additional valuation allowances may be
recorded against the deferred tax assets resulting in additional income tax
expense in the future. See Note 8-Income Taxes to our Consolidated Financial
Statements for additional income tax disclosures.
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Discontinued Operations Income from discontinued operations was $0.4 million and
$11.3 million in fiscal years 2022 and 2021, respectively. Expenses incurred
within the country of Venezuela are reported as discontinued operations. Our
wholly-owned subsidiaries, Helmerich & Payne International Drilling Co.
("HPIDC") and Helmerich & Payne de Venezuela, C.A., filed a lawsuit in the
United States District Court for the District of Columbia on September 23, 2011
against the Bolivarian Republic of Venezuela, Petroleos de Venezuela, S.A. and
PDVSA Petroleo, S.A. We are seeking damages for the seizure of our Venezuelan
drilling business in violation of international law and for breach of contract.
While there exists the possibility of realizing a recovery, we are currently
unable to determine the timing or amounts we may receive, if any, or the
likelihood of recovery. In March 2016, the Venezuelan government implemented the
previously announced plans for a new foreign currency exchange system. Activity
within discontinued operations for both fiscal years 2022 and 2021 is caused by
exchange rate fluctuations due to the remeasurement of an uncertain tax
liability.

North American Solutions

The following table presents certain information regarding our reportable North America Solutions segment:

(in thousands, except operating statistics)           2022             2021          % Change
Operating revenues                                $ 1,788,167      $ 1,026,364         74.2  %
Direct operating expenses                           1,218,134          773,507         57.5
Depreciation and amortization                         375,250          392,415         (4.4)
Research and development                               26,728           21,811         22.5
Selling, general and administrative expense            43,796           51,089        (14.3)
Asset impairment charges                                1,868           70,850        (97.4)
Restructuring charges                                     498            3,868        (87.1)
Segment operating income (loss)                   $   121,893      $  

(287,176) (142.4)

Financial Data and Other Operating Statistics1:
Direct margin (Non-GAAP)2                         $   570,033      $   252,857        125.4
Revenue days3                                          59,672           39,199         52.2
Average active rigs4                                      163              107         52.3
Number of active rigs at the end of period5               176              127         38.6
Number of available rigs at the end of period             236              236            -

Reimbursement of “out-of-pocket” expenses $232,092 $113,897 103.8


(1)These operating metrics and financial data, including average active rigs,
are provided to allow investors to analyze the various components of segment
financial results in terms of activity, utilization and other key results.
Management uses these metrics to analyze historical segment financial results
and as the key inputs for forecasting and budgeting segment financial results.

(2)Direct margin, which is considered a non-GAAP metric, is defined as operating
revenues less direct operating expenses and is included as a supplemental
disclosure because we believe it is useful in assessing and understanding our
current operational performance, especially in making comparisons over time. See
- Non-GAAP Measurements below for a reconciliation of segment operating income
(loss) to direct margin.

(3)Defined as the number of contract days for which we recognized revenue during the period.

(4)Active rigs generate revenue for the Company; accordingly, 'average active
rigs' represents the average number of rigs generating revenue during the
applicable time period. This metric is calculated by dividing revenue days by
total days in the applicable period (i.e., 365 days).

(5)Defined as the number of rigs generating revenue at the applicable period end date.

Operating income Operating income was $1.8 billion and $1.0 billion in fiscal years 2022 and 2021, respectively. Operating revenue increased $0.8 billion in fiscal 2022 compared to fiscal 2021. This increase is primarily due to higher prices and higher activity levels.

Direct Operating Expenses Direct operating expenses increased to $1.2 billion
during the fiscal year ended September 30, 2022 as compared to $0.8 billion
during the fiscal year ended September 30, 2021. This increase was primarily
driven by an increase of $241.0 million in labor expense and an increase of
$87.0 million in materials and supplies as we experienced higher activity levels
and had an increase in field wages beginning in December 2021.

Depreciation and Amortization Depreciation expense decreased to $375.3 million
during the fiscal year ended September 30, 2022 as compared to $392.4 million
during the fiscal year ended September 30, 2021. The decrease was primarily
attributable to the termination of depreciation on eight rigs located in the
U.S. that were included in the ADNOC sale during the fourth quarter of fiscal
year 2021 coupled with ongoing relatively low levels of capital expenditures
during the 2022 fiscal year.

Selling, General and Administrative Expenses We had a $7.3 million decrease in
selling, general and administrative costs during the fiscal year ended
September 30, 2022 compared to the fiscal year ended September 30, 2021. This
decrease was primarily driven by a $5.3 million decrease in professional
services fees.
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Asset Impairment Charges During the fiscal year ended September 30, 2022, we
identified two partial rig substructures that met the asset held-for-sale
criteria and were reclassified as assets held-for-sale on our Consolidated
Balance Sheets. The combined net book value of these assets of $2.0 million were
written down to their estimated scrap value of $0.1 million, resulting in a
non-cash impairment charge of $1.9 million during the fiscal year ended
September 30, 2022 in the Consolidated Statement of Operations. Comparatively,
during the fiscal year ended September 30, 2021, the Company developed a plan to
sell 71 Domestic non-super-spec rigs, all within our North America Solutions
segment, the majority of which were previously decommissioned, written down
and/or held as capital spares. This resulted in an impairment charge of $56.4
million during the year ended September 30, 2021. During the same period, we
also formalized a plan to sell assets related to two of our lower margin service
offerings, trucking and casing running services, all within our North America
Solutions segment, which resulted in a non-cash impairment charge of
$14.4 million during the year ended September 30, 2021.

Restructuring Charges For the fiscal years ended September 30, 2022 and 2021, we
incurred $0.5 million and $3.9 million, respectively, in restructuring charges.
The charges incurred during the fiscal year ended September 30, 2021 primarily
included charges of $3.8 million related to the relocation of the Houston
assembly facility and the downsizing of storage yards used for idle rigs.

Offshore Gulf of Mexico

The following table presents certain information relating to our offshore activities
Gulf of Mexico segment to declare:

(in thousands, except operating statistics)          2022             2021           % Change
Operating revenues                                $ 125,465        $ 126,399           (0.7) %
Direct operating expenses                            90,415           97,249           (7.0)
Depreciation                                          9,175           10,557          (13.1)
Selling, general and administrative expense           2,661            2,624            1.4

Segment operating income                          $  23,214        $  15,969           45.4

Financial Data and Other Operating Statistics1:
Direct margin (Non-GAAP)2                         $  35,050        $  29,150           20.2
Revenue days3                                         1,460            1,552           (5.9)
Average active rigs4                                      4                4              -
Number of active rigs at the end of period5               4                4              -
Number of available rigs at the end of period             7                7              -

Reimbursement of “out-of-pocket” expenses $26,077 $27,388

           (4.8)


(1)These operating metrics and financial data, including average active rigs,
are provided to allow investors to analyze the various components of segment
financial results in terms of activity, utilization and other key results.
Management uses these metrics to analyze historical segment financial results
and as the key inputs for forecasting and budgeting segment financial results.

(2)Direct margin, which is considered a non-GAAP metric, is defined as operating
revenues less direct operating expenses and is included as a supplemental
disclosure because we believe it is useful in assessing and understanding our
current operational performance, especially in making comparisons over time. See
- Non-GAAP Measurements below for a reconciliation of segment operating income
(loss) to direct margin.

(3)Defined as the number of contract days for which we recognized revenue during the period.

(4)Active rigs generate revenue for the Company; accordingly, 'average active
rigs' represents the average number of rigs generating revenue during the
applicable time period. This metric is calculated by dividing revenue days by
total days in the applicable period (i.e., 365 days).

(5)Defined as the number of rigs generating revenue at the applicable period end date.

Operating Revenues Operating revenues were $125.5 million and $126.4 million in
the fiscal year ended September 30, 2022 and 2021, respectively. The 0.7 percent
decrease in operating revenue is primarily driven by lower reimbursable expenses
and the mix of rigs working at full rates as opposed to being on lower standby
or mobilization rates, partially offset by pricing increases which occurred in
the later portion of the 2022 fiscal year.

Direct Operating Expenses Direct operating expenses decreased to $90.4 million
during the fiscal year ended September 30, 2022 as compared to $97.2 million
during the fiscal year ended September 30, 2021. The decrease was primarily
driven by a $6.3 million favorable adjustment in self-insurance liabilities
related to prior period claims coupled with the factors described above.


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International solutions

The following table presents certain information about our International Solutions reportable segment:

(in thousands, except operating statistics)          2022           2021         % Change
Operating revenues                                $ 136,072      $  57,917        134.9  %
Direct operating expenses                           120,780         68,672         75.9
Depreciation                                          4,156          2,013        106.5
Selling, general and administrative expense           8,779          8,028          9.4
Asset impairment charges                              2,495              -            -
Restructuring charges                                     -            207       (100.0)
Segment operating loss                            $    (138)     $ (21,003)       (99.3)

Financial Data and Other Operating Statistics1:
Direct margin (Non-GAAP)2                         $  15,292      $ (10,755)      (242.2)
Revenue days3                                         3,036          1,815         67.3
Average active rigs4                                      8              5         60.0
Number of active rigs at the end of period5              12              6  

100.0

Number of available rigs at the end of period            28             30  

(6.7)

Reimbursement of “out-of-pocket” expenses $4,910 $6,693

(26.6)


(1)These operating metrics and financial data, including average active rigs,
are provided to allow investors to analyze the various components of segment
financial results in terms of activity, utilization and other key results.
Management uses these metrics to analyze historical segment financial results
and as the key inputs for forecasting and budgeting segment financial results.

(2)Direct margin, which is considered a non-GAAP metric, is defined as operating
revenues less direct operating expenses and is included as a supplemental
disclosure because we believe it is useful in assessing and understanding our
current operational performance, especially in making comparisons over time. See
- Non-GAAP Measurements below for a reconciliation of segment operating income
(loss) to direct margin.

(3)Defined as the number of contract days for which we recognized revenue during the period.

(4)Active rigs generate revenue for the Company; accordingly, 'average active
rigs' represents the average number of rigs generating revenue during the
applicable time period. This metric is calculated by dividing revenue days by
total days in the applicable period (i.e., 365 days).

(5)Defined as the number of rigs generating revenue at the applicable period end date.

Operating Revenues Operating revenues increased $78.2 million in fiscal year
2022 compared to fiscal year 2021. This increase is primarily driven by higher
activity levels. Additionally, in the first quarter of fiscal year 2022, we
recognized $16.4 million in revenue related to the settlement of a contract
drilling dispute related to drilling services provided from fiscal years 2016
through 2019 with YPF S.A. Refer to Note 10-Revenue from Contracts with
Customers for additional details.

Operating Expenses Direct operating expenses increased to $120.8 million during
the fiscal year ended September 30, 2022 as compared to $68.7 million during the
fiscal year ended September 30, 2021. This increase was primarily driven by an
increase of $25.9 million in labor expense and an increase of $25.4 million in
materials and supplies as we experienced higher activity levels.

Asset Impairment Charges During the fiscal year ended September 30, 2022, we
identified two international FlexRig® drilling rigs that met the asset
held-for-sale criteria and were reclassified as assets held-for-sale on our
Consolidated Balance Sheets. In conjunction with establishing a plan to sell
these rigs we recognized a non-cash impairment charge of $2.5 million during the
fiscal year ended September 30, 2022 in the Consolidated Statement of
Operations, as the rigs aggregate net book value of $3.4 million exceeded the
fair value of the rigs less estimated cost to sell of $0.9 million. During the
fiscal year ended September 30, 2021, we recorded no impairment charges.
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Other operations

Results of our other operations, excluding corporate selling, general and
administrative costs, corporate restructuring, and corporate depreciation, are
as follows:

(in thousands)                                     2022            2021          % Change
Operating revenues                              $ 66,287        $ 43,304           53.1  %
Direct operating expenses                         50,683          50,064            1.2
Depreciation                                       1,701           1,426           19.3
Research and development                               -             127         (100.0)
Selling, general and administrative expense        1,183           1,205           (1.8)
Restructuring charges                                  -             186         (100.0)
Operating income (loss)                         $ 12,720        $ (9,704)        (231.1)


Operating Revenues We continue to use our Captive insurance companies to insure
the deductibles for our domestic workers' compensation, general liability,
automobile liability claims programs, and medical stop-loss program and to
insure the deductibles from the Company's international casualty and rig
property programs. Intercompany premium revenues recorded by the Captives during
the fiscal years ended September 30, 2022 and 2021 amounted to $57.0 million and
$35.4 million, respectively, which were eliminated upon consolidation.

Direct Operating Expenses Direct operating expenses consisted primarily of $7.0
million and $12.6 million in adjustments to accruals for estimated losses
allocated to the Captives and rig and casualty insurance premiums of
$35.6 million and $21.9 million during the fiscal years ended September 30, 2022
and 2021, respectively. The change to accruals for estimated losses is primarily
due to actuarial valuation adjustments by our third-party actuary.

Results of operations for the years ended September 30, 2021 and 2020


A discussion of our results of operations for the fiscal year ended
September 30, 2021 compared to the fiscal year ended September 30, 2020 is
included in Part II, Item 7- "Management's Discussion and Analysis of Financial
Condition and Results of Operations" of our Annual Report on Form 10-K for the
fiscal year ended September 30, 2021, filed with the Securities and Exchange
Commission ("SEC") on November 18, 2021.

Cash and capital resources

Sources of liquidity

Our sources of available liquidity include existing cash balances on hand, cash
flows from operations, and availability under the 2018 Credit Facility. Our
liquidity requirements include meeting ongoing working capital needs, funding
our capital expenditure projects, paying dividends declared, and repaying our
outstanding indebtedness. Historically, we have financed operations primarily
through internally generated cash flows. During periods when internally
generated cash flows are not sufficient to meet liquidity needs, we may utilize
cash on hand, borrow from available credit sources, access capital markets or
sell our investments. Likewise, if we are generating excess cash flows or have
cash balances on hand beyond our near-term needs, we may invest in highly rated
short­term money market and debt securities. These investments can include U.S.
Treasury securities, U.S. Agency issued debt securities, highly rated corporate
bonds and commercial paper, certificates of deposit and money market funds.
However, in some international locations we may make short-term investments that
are less conservative, as equivalent highly rated investments are unavailable.
See-Note 2-Summary of Significant Accounting Policies, Risks and
Uncertainties-International Solutions Drilling Risks.

We may seek to access the debt and equity capital markets from time to time to
raise additional capital, increase liquidity as necessary, fund our additional
purchases, exchange or redeem senior notes, or repay any amounts under the 2018
Credit Facility. Our ability to access the debt and equity capital markets
depends on a number of factors, including our credit rating, market and industry
conditions and market perceptions of our industry, general economic conditions,
our revenue backlog and our capital expenditure commitments.
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Cash flow

Our cash flows fluctuate depending on a number of factors, including, among
others, the number of our drilling rigs under contract, the revenue we receive
under those contracts, the efficiency with which we operate our drilling rigs,
the timing of collections on outstanding accounts receivable, the timing of
payments to our vendors for operating costs, and capital expenditures. As our
revenues increase, operating net working capital is typically a use of capital,
while conversely, as our revenues decrease, operating net working capital is
typically a source of capital. To date, general inflationary trends have not had
a material effect on our operating margins or cash flows as we have been able to
more than offset these cumulative cost trends with rate increases.

As of September 30, 2022 and 2021, we had cash and cash equivalents of $232.1
million and $917.5 million and short-term investments of $117.1 million and
$198.7 million, respectively. During the fiscal year ended September 30, 2022,
our cash, cash equivalents, and restricted cash balance decreased approximately
$667.7 million compared to our balance at September 30, 2021. This change was
primarily driven by the redemption of all the outstanding 2025 Notes, resulting
in a cash outflow of $487.1 million during the during the fiscal year ended
September 30, 2022. Additionally, the associated make-whole premium of $56.4
million was paid during the first fiscal quarter of 2022 contemporaneously with
the October 27, 2021 debt extinguishment.

Our cash flows for the fiscal years ended September 30, 2022, 2021 and 2020 are
presented below:

                                                                           Year Ended September 30,
(in thousands)                                                    2022                2021               2020
Net cash provided by (used in):
Operating activities                                          $  233,913          $ 136,440          $ 538,881
Investing activities                                            (167,315)          (161,994)           (87,885)
Financing activities                                            (734,305)           425,523           (297,220)
Net increase (decrease) in cash and cash equivalents and
restricted cash                                               $ (667,707)         $ 399,969          $ 153,776


Operating Activities

Our operating net working capital (non-GAAP) as of September 30, 2022, 2021, and
2020 is presented below:

                                                                   Year Ended September 30,
(in thousands)                                           2022                 2021                2020
Total current assets                                $ 1,002,944          $ 1,586,566          $  963,327
Less:
Cash and cash equivalents                               232,131              917,534             487,884
Short-term investments                                  117,101              198,700              89,335
Assets held-for-sale                                      4,333               71,453                   -
                                                        649,379              398,879             386,108

Total current liabilities                               394,810              866,306             219,136
Less:
Dividends payable                                        26,693               27,332              27,226
Current portion of long-term debt, net                        -              483,486                   -
Advance payment for sale of property, plant and
equipment                                                   600               86,524                   -
                                                    $   367,517          $   268,964          $  191,910

Operating net working capital (non-GAAP)            $   281,862          $  

129,915 $194,198


Cash flows provided by operating activities were approximately $233.9 million,
$136.4 million, and $538.9 million for the fiscal year ended September 30, 2022,
2021, and 2020 respectively. The change in cash provided by operating activities
between fiscal years 2022 and 2021 is primarily driven by higher activity and
rates, partially offset by changes in working capital. The decrease in cash
provided by operating activities between fiscal years 2021 and 2020 was
primarily driven by lower operating activity and lower pricing. For the purpose
of understanding the impact on our cash flows from operating activities,
operating net working capital is calculated as current assets, excluding cash
and cash equivalents, short-term investments, and assets held-for-sale, less
current liabilities, excluding dividends payable, short-term debt and advance
payments for sale of property, plant and equipment.
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Operating net working capital was $281.9 million, $129.9 million and $194.2
million as of September 30, 2022, 2021 and 2020, respectively. This metric is
considered a non-GAAP measure of the Company's liquidity. The Company considers
operating net working capital to be a supplemental measure for presenting and
analyzing trends in our cash flows from operations over time. Likewise, the
Company believes that operating net working capital is useful to investors
because it provides a means to evaluate the operating performance of the
business using criteria that are used by our internal decision makers. The
increase in operating net working capital between fiscal years 2022 and 2021 was
primarily driven by higher rig activity and rates. Included in accounts
receivable as of September 30, 2022 was $27.8 million of income tax receivables,
of which $24.9 million was received subsequent to fiscal year end. The remainder
is expected to be collected within the next fiscal year.

Investing activities

Capital Expenditures Our capital expenditures were $250.9 million, $82.1 million
and $140.8 million in fiscal years 2022, 2021 and 2020, respectively. The
increase in capital expenditures between fiscal years 2022 and 2021 is driven by
higher activity and spending on walking rig conversions. The decrease in capital
expenditures between fiscal years 2021 and 2020 was driven by lower maintenance
capital expenditures as a result of lower activity. Our fiscal year 2023 capital
spending is currently estimated to be between $425 million and $475 million.
This estimate includes normal capital maintenance requirements, information
technology spending, skidding to walking conversions for a limited number of
rigs and plans to reactivate several super-spec rigs.

Purchases & Sales of Short-Term Investments Our net sales of short-term
investments during fiscal year 2022 were $79.6 million compared to net purchases
of $107.4 million and $40.0 million in fiscal years 2021 and 2020, respectively.
The change is driven by our ongoing liquidity management.

Purchases of Long-Term Investments Our net purchases of long-term investments
were $29.2 million, $102.5 million and $0.6 million in fiscal years 2022, 2021
and 2020, respectively. The decrease in net purchases between fiscal years 2022
and 2021 is primarily driven by our $100.0 million cornerstone investment in
ADNOC Drilling purchased during fiscal year 2021, the $22.0 million of proceeds
received from the liquidation of our remaining equity securities in
Schlumberger, Ltd, during the fiscal year ended September 30, 2022, offset by
the purchase of a $33.0 million cornerstone investment in a convertible note in
Galileo Holdco 2 and the purchase of $18.2 million in various geothermal
investments during fiscal year 2022. The increase in net purchases between
fiscal years 2021 and 2020 is primarily driven by our purchase of ADNOC Drilling
equity securities (as mentioned above) during fiscal year 2021 and the absence
of such activity in fiscal year 2020.

Sale of Assets Our proceeds from asset sales totaled $62.3 million, $43.5
million and $78.4 million in fiscal year 2022, 2021 and 2020, respectively. The
increase in proceeds between fiscal years 2022 and 2021 is mainly driven by
higher rig activity which drives higher reimbursement from customers for lost or
damaged drill pipe. The increase is also attributable to the sale of our casing
running and trucking assets that occurred during the fiscal year ended
September 30, 2022. During the fiscal year ended September 30, 2020, we closed
on the sale of a portion of our real estate investment portfolio, including six
industrial sites, for total consideration, net of selling related expenses, of
$40.7 million, which was the primary driver in the decrease in proceeds between
fiscal years 2021 and 2020.

Advance Payment for Sale of Property, Plant and Equipment During September 2021,
the Company agreed to sell eight FlexRig land rigs with an aggregate net book
value of $55.6 million to ADNOC Drilling for $86.5 million. We received the
$86.5 million in cash consideration in advance of delivering the rigs.

Fundraising activities

Repurchase of Shares We have an evergreen authorization from the Board of
Directors (the "Board") for the repurchase of up to four million common shares
in any calendar year. The repurchases may be made using our cash and cash
equivalents or other available sources. During the fiscal year ended
September 30, 2022 and 2020, we repurchased 3.2 million common shares at an
aggregate cost of $77.0 million and 1.5 million common shares at an aggregate
cost of $28.5 million, respectively, which are held as treasury shares. There
were no purchases of common shares in fiscal year 2021.

Dividends We paid dividends of $1.00 per share during fiscal years 2022 and 2021
compared to $2.38 per share during fiscal year 2020. Total dividends paid were
$107.4 million, $109.1 million and $260.3 million in fiscal years 2022, 2021 and
2020, respectively. A cash dividend of $0.25 per share was declared on September
7, 2022 for shareholders of record on November 15, 2022, payable on December 1,
2022.

Debt Issuance Proceeds and Costs On September 29, 2021, we issued $548.7 million
aggregate principal amount of the 2031 Notes in an offering to persons
reasonably believed to be qualified institutional buyers in the United States
pursuant to Rule 144A under the Securities Act ("Rule 144A") and to certain
non-U.S. persons in transactions outside the United States pursuant to
Regulation S under the Securities Act ("Regulation S"). Debt issuance fees paid
as of September 30, 2021 were $3.9 million.
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Redemption of 4.65% Senior Notes due 2025 On October 27, 2021, we redeemed all
of the outstanding 2025 Notes, resulting in a cash outflow of $487.1 million. As
a result, the associated make-whole premium of $56.4 million was paid during the
first fiscal quarter of 2022 contemporaneously with the October 27, 2021 debt
extinguishment. The Company financed the redemption of the 2025 Notes with the
net proceeds from the offering of the 2031 Notes, together with cash on hand.
Additional details are fully discussed in Note 7-Debt.

Credit facilities

On November 13, 2018, we entered into a credit agreement by and among the
Company, as borrower, Wells Fargo Bank, National Association, as administrative
agent, and the lenders party thereto, which was amended on November 13, 2019,
providing for an unsecured revolving credit facility (as amended, the "2018
Credit Facility"), that was set to mature on November 13, 2024. On April 16,
2021, lenders with $680.0 million of commitments under the 2018 Credit Facility
exercised their option to extend the maturity of the 2018 Credit Facility from
November 13, 2024 to November 12, 2025. No other terms of the 2018 Credit
Facility were amended in connection with this extension. Additionally, on March
8, 2022, we entered into the second amendment to the 2018 Credit Facility,
which, among other things, raised the number of potential future extensions of
the maturity date applicable to extending lenders from one to two such potential
extensions and replaced provisions in respect of interest rate determinations
that were based on the London Interbank Offered Rate with provisions based on
the Secured Overnight Financing Rate. Lenders with $680.0 million of commitments
under the 2018 Credit Facility also exercised their option to extend the
maturity of the 2018 Credit Facility from November 12, 2025 to November 11,
2026. The remaining $70.0 million of commitments under the 2018 Credit Facility
will expire on November 13, 2024, unless extended by the applicable lender
before such date.

The 2018 Credit Facility has $750.0 million in aggregate availability with a
maximum of $75.0 million available for use as letters of credit. As of
September 30, 2022, there were no borrowings or letters of credit outstanding,
leaving $750.0 million available to borrow under the 2018 Credit Facility. For a
full description of the 2018 Credit Facility, see Note 7-Debt to the
Consolidated Financial Statements.

As of September 30, 2022, we had $55.0 million in uncommitted bilateral credit
facilities, for the purpose of obtaining the issuance of international letters
of credit, bank guarantees, and performance bonds. Of the $55.0 million, $38.1
million of financial guarantees were outstanding as of September 30,
2022. Separately, we had $2.0 million in standby letters of credit and bank
guarantees outstanding. In total, we had $40.1 million outstanding as of
September 30, 2022. In October 2022, we increased one of our standby letters of
credit by $1.9 million.

The applicable agreements for all unsecured debt contain additional terms,
conditions and restrictions that we believe are usual and customary in unsecured
debt arrangements for companies that are similar in size and credit quality. At
September 30, 2022, we were in compliance with all debt covenants and we
anticipate that we will continue to be in compliance during the next quarter of
fiscal year 2023.

Senior Notes

2.90% Senior Notes due 2031 On September 29, 2021, we issued $550.0 million
aggregate principal amount of the 2.90 percent 2031 Notes in an offering to
persons reasonably believed to be qualified institutional buyers in the United
States pursuant to Rule 144A under the Securities Act ("Rule 144A") and to
certain non-U.S. persons in transactions outside the United States pursuant to
Regulation S under the Securities Act ("Regulation S"). Interest on the 2031
Notes is payable semi-annually on March 29 and September 29 of each year,
commencing on March 29, 2022. The 2031 Notes will mature on September 29, 2031
and bear interest at a rate of 2.90 percent annum. In June 2022, we settled a
registered exchange offer (the "Registered Exchange Offer") to exchange the 2031
Notes for new, SEC-registered notes that are substantially identical to the
terms of the 2031 Notes, except that the offer and issuance of the new notes
have been registered under the Securities Act and certain transfer restrictions,
registration rights and additional interest provisions relating to the 2031
Notes do not apply to the new notes. One hundred percent of the 2031 Notes were
exchanged in the Registered Exchange Offer.

The indenture governing the 2031 Notes contains certain covenants that, among
other things and subject to certain exceptions, limit the ability of the Company
and its subsidiaries to incur certain liens; engage in sale and lease-back
transactions; and consolidate, merge or transfer all or substantially all of the
assets of the Company. The indenture governing the 2031 Notes also contains
customary events of default with respect to the 2031 Notes.

4.65% Senior Notes due 2025 On December 20, 2018, we issued approximately $487.1
million in aggregate principal amount of the 2025 Notes. The debt issuance cost
was being amortized straight-line over the stated life of the obligation, which
approximated the effective interest method.

On September 27, 2021, the Company delivered a conditional notice of optional
full redemption for all of the outstanding 2025 Notes at a redemption price
calculated in accordance with the indenture governing the 2025 Notes, plus
accrued and unpaid interest on the 2025 Notes to be redeemed. The Company
financed the redemption of the 2025 Notes with the net proceeds from the
offering of the 2031 Notes, together with cash on hand. The Company's obligation
to redeem the 2025 Notes was conditioned upon the prior consummation of the
issuance of the 2031 Notes, which was satisfied on September 29, 2021.

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On October 27, 2021, we redeemed all of the outstanding 2025 Notes. As a result,
the associated make-whole premium of $56.4 million and the write off of the
unamortized discount and debt issuance costs of $3.7 million were recognized
during the first fiscal quarter of 2022 contemporaneously with the October 27,
2021 debt extinguishment and recorded in Loss on Extinguishment of Debt on our
Consolidated Statements of Operations during the fiscal year ended September 30,
2022.

Future Cash Requirements

Our operating cash requirements, scheduled debt repayments, interest payments,
any declared dividends, and estimated capital expenditures for fiscal year 2023
are expected to be funded through current cash and cash to be provided from
operating activities. However, there can be no assurance that we will continue
to generate cash flows at current levels. If needed, we may decide to obtain
additional funding from our $750.0 million 2018 Credit Facility. We currently do
not anticipate the need to draw on the 2018 Credit Facility. Our indebtedness
under our unsecured senior notes totaled $550.0 million at September 30, 2022
and matures on September 29, 2031.

As of September 30, 2022, we had a $537.7 million deferred tax liability on our
Consolidated Balance Sheets, primarily related to temporary differences between
the financial and income tax basis of property, plant and equipment. Our levels
of capital expenditures over the last several years have been subject to
accelerated depreciation methods (including bonus depreciation) available under
the Internal Revenue Code of 1986, as amended, enabling us to defer a portion of
cash tax payments to future years. Future levels of capital expenditures and
results of operations will determine the timing and amount of future cash tax
payments. We expect to be able to meet any such obligations utilizing cash and
investments on hand, as well as cash generated from ongoing operations.

At September 30, 2022, we had $3.9 million recorded for uncertain tax positions
and related interest and penalties. However, the timing of such payments to the
respective taxing authorities cannot be estimated at this time.

The long-term debt to total capitalization ratio was 16.6% at
September 30, 2022 compared to 15.9% at September 30, 2021. For more information on loan agreements, refer to Note 7- Debt to the consolidated financial statements.

There have been no other significant changes in our financial situation since
September 30, 2021.

Material Commitments


Our contractual obligations as of September 30, 2022 are summarized in the table
below:

                                                                          Obligations due by year
(in thousands)             Total               2023              2024              2025              2026              2027            Thereafter
Long-term debt            550,000                  -                 -                 -                 -                 -             550,000
Interest1                 144,724             16,066            16,069            16,073            16,076            16,080              64,360
Operating leases2          31,613              9,767             7,801             4,501             2,033             2,046               5,465
Purchase obligations3     148,600            148,600                 -                 -                 -                 -                   -
Total contractual
obligations             $ 874,937          $ 174,433          $ 23,870          $ 20,574          $ 18,109          $ 18,126          $  619,825

(1) Interest on the fixed-rate 2031 Bonds has been estimated on the basis of the main maturities. See Note 7- Debt to our consolidated financial statements.

(2)See Note 5 – Leases to our consolidated financial statements.

(3)See Note 16-Commitments and contingencies to our consolidated financial statements.

Significant Accounting Policies and Estimates


Accounting policies that we consider significant are summarized in Note
2-Summary of Significant Accounting Policies, Risks and Uncertainties to our
Consolidated Financial Statements included in Part II, Item 8-"Financial
Statements and Supplementary Data" of this Form 10-K. The preparation of our
financial statements in conformity with U.S. GAAP requires management to make
certain estimates and assumptions. These estimates and assumptions affect the
reported amounts of assets, liabilities, revenues and expenses and related
disclosures of contingent assets and liabilities. Estimates are based on
historical experience and on various other assumptions that we believe to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. These estimates and assumptions are
evaluated on an ongoing basis. Actual results may differ from these estimates
under different assumptions or conditions. The following is a discussion of the
critical accounting policies and estimates used in our financial statements.
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Fixed assets

Property, plant and equipment, including renewals and betterments, are
capitalized at cost, while maintenance and repairs are expensed as incurred. The
interest expense applicable to the construction of qualifying assets is
capitalized as a component of the cost of such assets. We account for the
depreciation of property, plant and equipment using the straight­line method
over the estimated useful lives of the assets considering the estimated salvage
value of the property, plant and equipment. Both the estimated useful lives and
salvage values require the use of management estimates. Assets held-for-sale are
reported at the lower of the carrying amount or fair value less estimated costs
to sell. Our estimate of fair value represents our best estimate based on
industry trends and reference to market transactions and is subject to
variability. Certain events, such as unforeseen changes in operations,
technology or market conditions, could materially affect our estimates and
assumptions related to depreciation or result in abandonments. For the fiscal
years presented in this Form 10-K, no significant changes were made to the
determinations of useful lives or salvage values. Upon retirement or other
disposal of fixed assets, the cost and related accumulated depreciation are
removed from the respective accounts and any gains or losses are recorded in the
results of operations.

Depreciation of long-lived assets, Good will and other intangible assets

Management assesses the potential impairment of our long­lived assets and
finite-lived intangibles whenever events or changes in circumstances indicate
that the carrying value may not be recoverable. Changes that could prompt such
an assessment may include equipment obsolescence, changes in the market demand,
periods of relatively low rig utilization, declining revenue per day, declining
cash margin per day, completion of specific contracts, change in technology
and/or overall changes in general market conditions. If a review of the
long­lived assets and finite-lived intangibles indicates that the carrying value
of certain of these assets or asset groups is more than the estimated
undiscounted future cash flows, an impairment charge is made, as required, to
adjust the carrying value to the estimated fair value. Cash flows are estimated
by management considering factors such as prospective market demand, recent
changes in rig technology and its effect on each rig's marketability, any cash
investment required to make a rig marketable, suitability of rig size and makeup
to existing platforms, and competitive dynamics including utilization. The fair
value of drilling rigs is determined based upon either an income approach using
estimated discounted future cash flows, a market approach considering factors
such as recent market sales of rigs of other companies and our own sales of
rigs, appraisals and other factors, a cost approach utilizing new reproduction
costs adjusted for the asset age and condition, and/or a combination of multiple
approaches. The use of different assumptions could increase or decrease the
estimated fair value of assets and could therefore affect any impairment
measurement.

We review goodwill for impairment annually in the fourth fiscal quarter or more
frequently if events or changes in circumstances indicate it is more likely than
not that the carrying amount of the reporting unit holding such goodwill may
exceed its fair value. We initially assess goodwill for impairment based on
qualitative factors to determine whether the existence of events or
circumstances leads to a determination that it is more likely than not that the
fair value of one of our reporting units is greater than its carrying amount.

If further testing is necessary or a quantitative test is elected, we
quantitatively compare the fair value of a reporting unit with its carrying
amount, including goodwill. If the carrying amount exceeds the fair value, an
impairment charge will be recognized in an amount equal to the excess; however,
the loss recognized would not exceed the total amount of goodwill allocated to
that reporting unit.

Accumulation of self-insurance

We insure working land rigs and related equipment at values that approximate the
current replacement costs on the inception date of the policies. However, we
self-insure large deductibles under these policies. We also carry insurance with
varying deductibles and coverage limits with respect to stacked rigs, offshore
platform rigs, and "named wind storm" risk in the Gulf of Mexico. We self­insure
a number of other risks, including loss of earnings and business interruption.

We self­insure a significant portion of expected losses relating to workers'
compensation, general liability, employer's liability and automobile liability.
Generally, deductibles range from $1 million to $10 million per occurrence
depending on the coverage and whether a claim occurs outside or inside of the
United States. Insurance is purchased over deductibles to reduce our exposure to
catastrophic events but there can be no assurance that such coverage will apply
or be adequate in all circumstances. Estimates are recorded for incurred
outstanding liabilities for workers' compensation and other casualty claims.
Retained losses are estimated and accrued based upon our estimates of the
aggregate liability for claims incurred. Estimates for liabilities and retained
losses are based on adjusters' estimates, our historical loss experience and
statistical methods commonly used within the insurance industry that we believe
are reliable.

We also engage a third-party actuary to perform a periodic review of our
casualty losses. Nonetheless, insurance estimates include certain assumptions
and management judgments regarding the frequency and severity of claims, claim
development and settlement practices. Unanticipated changes in these factors may
produce materially different amounts of expense that would be reported under
these programs. Our wholly­owned captive insurance companies finance a
significant portion of the physical damage risk on company­owned drilling rigs
as well as casualty deductibles. An actuary reviews the loss reserves retained
by the Company and the captives on an annual basis.
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Revenue recognition

Drilling services revenues are primarily comprised of daywork drilling contracts
for which the related revenues and expenses are recognized as services are
performed and collection is reasonably assured. With most drilling contracts, we
receive payments contractually designated for the mobilization and
demobilization of drilling rigs and other equipment to and from the client's
drill site. Revenue associated with the mobilization and demobilization of our
drilling rigs to and from the client's drill site do not relate to a distinct
good or service. These revenues are deferred and recognized ratably over the
related contract term that drilling services are provided. The amount of
demobilization revenue that we ultimately collect is dependent upon the specific
contractual terms, most of which include provisions for reduced or no payment
for demobilization when, among other things, the contract is renewed or extended
with the same client, or when the rig is subsequently contracted with another
client prior to the termination of the current contract. Since revenues
associated with demobilization activity are typically variable, at each period
end, they are estimated at the most likely amount, and constrained when the
likelihood of a significant reversal is probable. Direct costs incurred for the
mobilization, are deferred and recognized on a straight-line basis as the
drilling service is provided. While costs incurred to relocate rigs and other
drilling equipment to areas in which a contract has not been secured are
expensed as incurred.

We also act as a principal for certain reimbursable services and auxiliary
equipment provided by us to our clients, for which we incur costs and earn
revenues. Many of these costs are variable, or dependent upon the activity that
is performed each day under the related contract. Accordingly, reimbursements
that we receive for out-of-pocket expenses are recorded as revenues and the
out-of-pocket expenses for which they relate are recorded as operating costs
during the period to which they relate within the series of distinct time
increments. For contracts that are terminated prior to the specified term, early
termination payments received by us are recognized as revenues when all
contractual requirements are met.

Income taxes

  Deferred income taxes are accounted for under the liability method, which
takes into account the differences between the basis of the assets and
liabilities for financial reporting purposes and amounts recognized for income
tax purposes. Our net deferred tax liability balance at year-end reflects the
application of our income tax accounting policies and is based on management's
estimates, judgments and assumptions. Included in our net deferred tax liability
balance are deferred tax assets that are assessed for realizability. If it is
more likely than not that a portion of the deferred tax assets will not be
realized in a future period, the deferred tax assets will be reduced by a
valuation allowance based on management's estimates.

  In addition, we operate in several countries throughout the world and our tax
returns filed in those jurisdictions are subject to review and examination by
tax authorities within those jurisdictions. We recognize uncertain tax positions
we believe have a greater than 50 percent likelihood of being sustained. We
cannot predict or provide assurance as to the ultimate outcome of any existing
or future assessments.

New Accounting Standards

See Note 2-Summary of Significant Accounting Policies, Risks and Uncertainties to our Consolidated Financial Statements for recently adopted accounting standards and new accounting standards not yet adopted.

Non-GAAP Measurements


Direct Margin

Direct margin is considered a non-GAAP metric. We define "Direct margin" as
operating revenues less direct operating expenses. Direct margin is included as
a supplemental disclosure because we believe it is useful in assessing and
understanding our current operational performance, especially in making
comparisons over time. Direct margin is not a substitute for financial measures
prepared in accordance with GAAP and should therefore be considered only as
supplemental to such GAAP financial measures.
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The following table reconciles direct margin to segment operating income (loss),
which we believe is the financial measure calculated and presented in accordance
with GAAP that is most directly comparable to direct margin.

                                                                     Year Ended September 30, 2022
                                                                                Offshore Gulf of         International
(in thousands)                                  North America Solutions              Mexico                Solutions
Segment operating income (loss)                $          121,893               $      23,214          $          (138)
Add back:
Depreciation and amortization                             375,250                       9,175                    4,156
Research and development                                   26,728                           -                        -
Selling, general and administrative expense                43,796                       2,661                    8,779
Asset impairment charges                                    1,868                           -                    2,495
Restructuring charges                                         498                           -                        -
Direct margin (Non-GAAP)                       $          570,033               $      35,050          $        15,292


                                                                  Year Ended September 30, 2021
                                                  North America          Offshore Gulf of         International
(in thousands)                                      Solutions                 Mexico                Solutions
Segment operating income (loss)                $       (287,176)         $      15,969          $       (21,003)
Add back:
Depreciation and amortization                           392,415                 10,557                    2,013
Research and development                                 21,811                      -                        -
Selling, general and administrative expense              51,089                  2,624                    8,028
Asset impairment charges                                 70,850                      -                        -
Restructuring charges                                     3,868                      -                      207
Direct margin (Non-GAAP)                       $        252,857          $      29,150          $       (10,755)

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