Quarterly Report (Form 10-Q)

10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022

OR

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 1-13926

DIAMOND OFFSHORE DRILLING, INC.

(Exact name of registrant as specified in its charter)

Delaware		76-0321760
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

15415 Katy Freeway

Houston, Texas

77094

(Address of principal executive offices)

(Zip Code)

(281) 492-5300

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Exchange Act:

Title of each class		Trading Symbol		Name of each exchange on which registered
Common Stock, $0.0001 par value per share		DO		New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐		Accelerated filer	☐
Non-accelerated filer	☒		Smaller reporting company	☐
			Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐No ☒

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☒No ☐

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

As of May 6, 2022 Common stock, $0.0001 par value per share 100,074,948shares

DIAMOND OFFSHORE DRILLING, INC.

TABLE OF CONTENTS FOR FORM 10-Q

QUARTER ENDED MARCH 31, 2022

				PAGE NO.
COVER PAGE		1
TABLE OF CONTENTS		2
PART I. FINANCIAL INFORMATION		3
	ITEM 1.	Financial Statements (Unaudited)		3
		Condensed Consolidated Balance Sheets		3
		Condensed Consolidated Statements of Operations		4
		Condensed Consolidated Statements of Stockholders' Equity		5
		Condensed Consolidated Statements of Cash Flows		6
		Notes to Unaudited Condensed Consolidated Financial Statements		7
	ITEM 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations		18
	ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk		28
	ITEM 4.	Controls and Procedures		28
PART II. OTHER INFORMATION		29
	ITEM 1.	Legal Proceedings		29
	ITEM 1A.	Risk Factors		29
	ITEM 6.	Exhibits		30
SIGNATURES		31

2

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements.

DIAMOND OFFSHORE DRILLING, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except par value amounts)

		Successor
		March 31,			December 31,
		2022			2021
ASSETS
Current assets:
Cash and cash equivalents		$	53,771			$	38,388
Restricted cash			19,202				24,341
Accounts receivable			124,998				151,917
Less: allowance for credit losses			(5,572	)			(5,582	)
Accounts receivable, net			119,426				146,335
Prepaid expenses and other current assets			62,275				61,440
Asset held for sale			-				1,000
Total current assets			254,674				271,504
Drilling and other property and equipment, net of
accumulated depreciation			1,175,357				1,175,895
Other assets			82,705				84,041
Total assets		$	1,512,736			$	1,531,440
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable		$	46,365			$	38,661
Accrued liabilities			137,513				143,736
Taxes payable			33,942				34,500
Current finance lease liabilities			16,130				15,865
Total current liabilities			233,950				232,762
Long-term debt			286,338				266,241
Noncurrent finance lease liabilities			144,280				148,358
Deferred tax liability			2,462				1,626
Other liabilities			107,883				114,748
Commitments and contingencies (Note 8)
Total liabilities			774,913				763,735
Stockholders' equity:
Preferred stock (par value $0.0001, 50,000shares authorized, noneissued and outstanding at March 31, 2022 and December 31, 2021)			-				-
Common stock (par value $0.0001, 750,000shares authorized; 100,075shares issued and outstanding at March 31, 2022 and December 31, 2021)			10				10
Additional paid-in capital			949,511				945,039
Accumulated deficit			(211,698	)			(177,344	)
Total stockholders' equity			737,823				767,705
Total liabilities and stockholders' equity		$	1,512,736			$	1,531,440

The accompanying notes are an integral part of the condensed consolidated financial statements.

3

DIAMOND OFFSHORE DRILLING, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except per share data)

		Successor				Predecessor
		Three Months				Three Months
		Ended				Ended
		March 31, 2022				March 31, 2021
Revenues:
Contract drilling		$	150,252				$	122,553
Revenues related to reimbursable expenses			35,987					12,264
Total revenues			186,239					134,817
Operating expenses:
Contract drilling, excluding depreciation			144,902					141,573
Reimbursable expenses			35,613					11,837
Depreciation			26,952					74,626
General and administrative			16,732					12,366
Impairment of assets			-					197,027
Gain on disposition of assets			(4,044	)				(5,401	)
Total operating expenses			220,155					432,028
Operating loss			(33,916	)				(297,211	)
Other income (expense):
Interest income			1					30
Interest expense, net of amounts capitalized (excludes $28,266of contractual interest expense on debt subject to compromise for the Predecessor three-month period ended March 31, 2021)			(8,325	)				(32,562	)
Foreign currency transaction (loss) gain			(2,129	)				625
Reorganization items, net			-					(35,252	)
Other, net			1,362					489
Loss before income tax benefit			(43,007	)				(363,881	)
Income tax benefit			8,653					2,200
Net loss		$	(34,354	)			$	(361,681	)
Loss per share, Basic and Diluted		$	(0.34	)			$	(2.62	)
Weighted-average shares outstanding, Basic and Diluted			100,075					138,054

The accompanying notes are an integral part of the condensed consolidated financial statements.

4

DIAMOND OFFSHORE DRILLING, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Unaudited)

(In thousands)

		Three Months Ended March 31, 2022
								Additional						Total
		Common Stock			Paid-In			(Accumulated			Stockholders'
		Shares			Amount			Capital			Deficit)			Equity
January 1, 2022 (Successor)			100,075				10				945,039				(177,344	)			767,705
Net loss			-				-				-				(34,354	)			(34,354	)
Stock-based compensation, net of tax			-				-				4,472				-				4,472
March 31, 2022 (Successor)			100,075			$	10			$	949,511			$	(211,698	)		$	737,823

		Three Months Ended March 31, 2021
								Additional			Retained Earnings									Total
		Common Stock			Paid-In			(Accumulated			Treasury Stock			Stockholders'
		Shares			Amount			Capital			Deficit)			Shares			Amount			Equity
January 1, 2021 (Predecessor)			145,264			$	1,453			$	2,029,979			$	157,297				7,210			$	(206,163	)		$	1,982,566
Net loss			-				-				-				(361,681	)			-				-				(361,681	)
March 31, 2021 (Predecessor)			145,264			$	1,453			$	2,029,979			$	(204,384	)			7,210			$	(206,163	)		$	1,620,885

The accompanying notes are an integral part of the condensed consolidated financial statements.

5

DIAMOND OFFSHORE DRILLING, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

		Successor				Predecessor
		Three Months Ended				Three Months Ended
		March 31,				March 31,
		2022				2021
Operating activities:
Net loss		$	(34,354	)			$	(361,681	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation			26,952					74,626
Loss on impairment of assets			-					197,027
Gain on disposition of assets			(4,044	)				(5,401	)
Deferred tax provision			(5,217	)				(5,565	)
Stock-based compensation expense			4,531					-
Contract liabilities, net			(13,411	)				6,974
Contract assets, net			(334	)				(326	)
Deferred contract costs, net			1,850					(9,176	)
Collateral deposits			(1,482	)				-
Other assets, noncurrent			(302	)				1,279
Other liabilities, noncurrent			2,992					(110	)
Other			418					282
Changes in operating assets and liabilities:
Accounts receivable			26,909					(14,993	)
Prepaid expenses and other current assets			1,378					(1,340	)
Accounts payable and accrued liabilities			11,129					68,274
Taxes payable			(7,957	)				922
Net cash provided by (used in) operating activities			9,058					(49,208	)
Investing activities:
Capital expenditures			(20,046	)				(40,617	)
Proceeds from disposition of assets, net of disposal costs			5,045					7,400
Net cash used in investing activities			(15,001	)				(33,217	)
Financing activities:
Borrowings under revolving credit facility			20,000					-
Principal payments of finance lease liabilities			(3,813	)				-
Debt issuance costs and arrangement fees			-					(2,290	)
Net cash provided by financing activities			16,187					(2,290	)
Net change in cash, cash equivalents and restricted cash			10,244					(84,715	)
Cash, cash equivalents and restricted cash, beginning of period			62,729					430,380
Cash, cash equivalents and restricted cash, end of period		$	72,973				$	345,665

The accompanying notes are an integral part of the condensed consolidated financial statements.

6

DIAMOND OFFSHORE DRILLING, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

17

ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion should be read in conjunction with our unaudited condensed consolidated financial statements (including the notes thereto) included in Item 1 of Part I of this report and Item 1A, "Risk Factors" included in our Annual Report on Form 10-K for the year ended December 31, 2021, as amended by Amendment No. 1 on Form 10-K/A. References to "Diamond Offshore," "Company," "we," "us" or "our" mean Diamond Offshore Drilling, Inc., a Delaware corporation, and its subsidiaries.

We provide contract drilling services to the energy industry around the globe with a fleet of 15 floater rigs (four owned drillships, eight semisubmersibles and three managed rigs). See "- Market Overview."

Fresh Start Accounting

Upon emergence from bankruptcy on April 23, 2021 (or the Effective Date), we met the criteria for and were required to adopt fresh start accounting in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic No. 852 - Reorganizations. As a result of the application of fresh start accounting and the effects of the implementation of our restructuring plan, the financial statements for the period after April 23, 2021 will not be comparable with the financial statements prior to and including April 23, 2021. References to "Successor" refer to the Company and its financial position and results of operations after the Effective Date (including December 31, 2021, March 31, 2022 and the three-month period ended March 31, 2022). References to "Predecessor" refer to the Company and its financial position and results of operations on or before the Effective Date (including the three-month period ended March 31, 2021). See Note 1 "General Information" to our unaudited condensed consolidated financial statements included in Item 1 of Part I of this report.

Relisting on NYSE

We received approval in the first quarter of 2022 to relist our unrestricted common stock on the New York Stock Exchange (or NYSE) under the ticker symbol "DO." Our common stock commenced trading on the NYSE on March 30, 2022.

Market Overview

In the first quarter of 2022, commodity prices continued to improve, supporting global demand for offshore drilling services. Brent oil prices in the first quarter of 2022 averaged approximately $100 per barrel compared to approximately $80 per barrel in the fourth quarter of 2021. Some third-party experts have predicted that improvement in commodity pricing will bolster capital spending by over 35% in 2023, as compared to 2022, although there can be no assurance as to whether and such increases may occur. In addition to commodity prices, demand for offshore drilling appears to be supported by geopolitical events, such as Russia's invasion of Ukraine, the related economic sanctions imposed on Russia and a renewed interest in energy security across Europe and the United States.

Coupled with increased demand for floating drilling rigs, supply has continued to wane from historical highs, albeit at a slower pace than previously experienced. Offshore drilling contractors continue to remove less capable, less efficient, rigs from the market while at the same time reactivating certain stacked rigs that are awarded contracts. In addition, as dayrates continue to improve, the likelihood that idle capacity stranded in shipyards around the world may enter the market increases materially.

Although it appears that demand for floaters continues to grow, we remain cautious as headwinds to a recovery continue to loom. Costs to operate our business have continued to see upward inflationary pressure. From raw materials such as steel to both offshore and onshore labor, the industry continues to grapple with higher than previously experienced cost inflation. The majority of these costs cannot be passed on to our clients as we are in fixed dayrate contracts that have little to no room for adjustment with regard to cost inflation. Headwinds are also present from client capital allocation choices which continue to focus on renewable energy sources. These investments could lead to a degradation in the demand profile for our services in the long term as offshore hydrocarbons are replaced with alternative forms of energy. Notwithstanding these challenges, global energy demand continues to improve, and we expect both traditional and renewable sources of energy to be needed to meet the world's energy needs, much of which we expect to be produced offshore.

See "- Contract Drilling Backlog" for future commitments of our rigs during 2022 through 2024.

18

Contract Drilling Backlog

We believe that our contract drilling backlog provides a useful indicator of our future revenue-earning opportunities. Our contract drilling backlog, as presented below, includes only firm commitments (typically represented by signed contracts) and is calculated by multiplying the contracted operating dayrate by the firm contract period. The contract period is based on the number of stated days for fixed-term contracts or an estimated duration (in days) for contracts based on a fixed number of wells. Our calculation also assumes full utilization of our drilling equipment for the contract period (excluding scheduled shipyard and survey days); however, the amount of actual revenue earned and the actual periods during which revenues are earned may be different than the amounts and periods shown in the tables below due to various factors. Our utilization rates, which generally have approached 92-98% during contracted periods, can be adversely impacted by downtime due to various operating factors including unscheduled repairs and maintenance, weather conditions and effects of COVID-19 and related delays. Contract drilling backlog excludes revenues for mobilization, demobilization, contract preparation and customer reimbursables. No revenue is generally earned during periods of downtime for regulatory surveys. Changes in our contract drilling backlog between periods are generally a function of the performance of work on term contracts, as well as the extension or modification of existing term contracts and the execution of additional contracts. In addition, under certain circumstances, our customers may seek to terminate or renegotiate our contracts, which could adversely affect our reported backlog.

The backlog information presented below does not, nor is it intended to, align with the disclosures related to revenue expected to be recognized in the future related to unsatisfied performance obligations, which are presented in Note 2 "Revenue from Contracts with Customers" to our unaudited condensed consolidated financial statements included in Item 1 of Part I of this report. Contract drilling backlog includes only future dayrate revenue as described above, while the disclosure in Note 2 "Revenue from Contracts with Customers" excludes dayrate revenue and reflects expected future revenue for mobilization, demobilization and capital modifications to our rigs, which are related to non-distinct promises within our signed contracts. See "- Important Factors That May Impact Our Operating Results, Financial Condition or Cash Flows."

The following table reflects our contract drilling backlog as of April 1, 2022 (and does not include any contracts signed after April 1, 2022 but prior to the date of this report), January 1, 2022 (the date reported in our Annual Report on Form 10-K for the year ended December 31, 2021), and April 1, 2021 (the date reported in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2021) (in millions).

		April 1, 2022 (1)			January 1, 2022 (1)			April 1, 2021 (2)
Contract Drilling Backlog		$	1,152			$	1,191			$	1,092

The following table reflects the amount of revenue related to our contract drilling backlog by year as of April 1, 2022 (in millions).

	For the Years Ending December 31,
	Total		2022 (1)		2023		2024
Contract Drilling Backlog (2)	$	1,152		$	570		$	447		$	135

19

The following table reflects the percentage of rig days per year committed as of April 1, 2022. The percentage of rig days committed is calculated as the ratio of total days committed under contracts, as well as scheduled shipyard, survey and mobilization days for all rigs in our fleet, to total available days (number of rigs, including cold-stacked rigs, multiplied by the number of days in a particular year).

		For the Years Ending December 31,
		2022 (1)			2023			2024
Percentage of Rig Days Committed (2)			56	%			37	%			11	%

Important Factors That May Impact Our Operating Results, Financial Condition or Cash Flows

COVID-19 Pandemic. The COVID-19 outbreak and efforts to mitigate the spread of the virus continue to adversely impact our business as a result of risks to the safety of our personnel, as well as travel restrictions that may continue to arise, challenging the ability to move personnel, equipment, supplies and service personnel to-and-from our drilling rigs. In response, we have adopted COVID-19 vaccination and testing requirements, as well as other health protocols designed to ensure the safety of our offshore personnel based on the regions in which our rigs are operating. In the current environment, we have been able to modify and/or eliminate some of our initial protocols implemented early after the onset of the pandemic. We incurred incremental costs of approximately $2.4 million and $3.2 million related to the COVID-19 pandemic during the Successor quarters ended March 31, 2022 and December 31, 2021, respectively. We expect to incur similar types of costs during the remainder of 2022 but cannot predict the future financial impact of our response to the COVID-19 pandemic nor its duration or potential effects in this fluid environment. As such, costs may be more than projected, perhaps by a material amount.

Regulatory Surveys and Planned Downtime. We perform certain regulatory inspections, which we refer to as a special survey, that are due every five years for most of our rigs and every two-and-one-half years for our North Sea rigs. Our operating income is negatively impacted when we perform these required regulatory surveys due to planned downtime during the inspection period. Our operating income is also reduced by planned downtime for upgrades, contract preparation and mobilization of rigs; however, in some cases, we may be compensated for all or a portion of this downtime. During the remainder of 2022, we expect to spend approximately 146 days of planned downtime, including approximately 64 days for mobilization and contract preparation activities for the Ocean BlackHawk, approximately 39 days for an intermediate survey and anchor winch repairs for the Ocean Patriot, approximately 30 days for the demobilization of the Ocean Onyxand approximately 13 days for mobilizations between contracts for the Ocean Apex. Subject to ongoing assessments, the Ocean Endeavormay require an additional out-of-service period in the latter part of 2022 for further repairs and enhancements. We can provide no assurance as to the exact timing and/or duration of downtime associated with regulatory inspections, repairs, contract preparation, rig mobilizations and other shipyard projects. See " - Contract Drilling Backlog."

Physical Damage and Marine Liability Insurance. We are self-insured for physical damage to rigs and equipment caused by named windstorms in the U.S. Gulf of Mexico, as defined by the relevant insurance policy. If a named windstorm in the U.S. Gulf of Mexico causes significant damage to our rigs or equipment, it could have a material adverse effect on our financial condition, results of operations and cash flows. Under our current insurance policy, we carry physical damage insurance for certain losses other than those caused by named windstorms in the U.S. Gulf of Mexico for which our deductible for physical damage is $10.0 million per occurrence. In addition, we currently carry loss-of-hire insurance on certain rigs to cover lost cash flow when a rig is damaged (other than when caused by named windstorms in the U.S. Gulf of Mexico) but have not purchased loss-of-hire insurance for our entire fleet.

In addition, we carry marine liability insurance covering certain legal liabilities, including coverage for certain personal injury claims, collisions, and wreck removals, and generally covering liabilities arising out of or relating to

20

pollution and/or environmental risk. We believe that the policy limit for our marine liability insurance is within the range that is customary for companies of our size in the offshore drilling industry and is appropriate for our business. Under these marine liability policies, we self-insure $1.0 million to $5.0 million per occurrence, depending on jurisdiction, but up to $25.0 million for liabilities arising out of named windstorms in the U.S. Gulf of Mexico. Depending on the nature, severity, and frequency of claims that might arise during the policy year, if the aggregate level of claims exceed certain thresholds, we may self-insure up to $100.0 million for each subsequent occurrence.

Critical Accounting Policies

Our significant accounting policies are discussed in Note 1 "General Information" of our notes to the audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2021.

Results of Operations

We have elected to present a comparison of our results of operations for the current quarter with that of the immediately preceding quarter, as permitted underItem 303(c)(2)(ii) of Regulation S-K.We believe this comparison is more useful in identifying business trends and provides a more meaningful analysis of our business as our results are largely driven by market changes rather than seasonal business activity. We continue to present the required comparison of current year-to-date results with the same period of the prior year.

21

Our operating results for contract drilling services are dependent on three primary metrics or key performance indicators: revenue-earning (or R-E) days, rig utilization and average daily revenue. We believe that R-E days provide a comparative measurement of the activity level of our fleet, rig utilization is an indicator of our ability to secure work for and the operational efficiency of our fleet and average daily revenue provides a comparative measure for our revenue-earning performance. We utilize these performance indicators in the review of our business and operating results and believe these are useful metrics for investors to utilize in evaluating our performance. The tables presented below include these three key performance indicators and other comparative data relating to our revenues and operating expenses for the respective periods (in thousands, except days, daily amounts and percentages) for the Successor three-month periods ended March 31, 2022 and December 31, 2021 and the Predecessor three-month period ended March 31, 2021.

Results for the three-month periods ended March 31, 2022, December 31, 2021 and March 31, 2021.

		Successor				Predecessor
		Three Months Ended March 31,			Three Months Ended December 31,				Three Months Ended March 31,
		2022			2021				2021
REVENUE-EARNING DAYS (1)			668				878					580
UTILIZATION (2)			53	%			68	%				54	%
AVERAGE DAILY REVENUE (3)		$	224,900			$	209,700				$	211,300
CONTRACT DRILLING REVENUE		$	150,252			$	184,139				$	122,553
REVENUE RELATED TO REIMBURSABLE EXPENSES			35,987				43,139					12,264
TOTAL REVENUES		$	186,239			$	227,278				$	134,817
CONTRACT DRILLING EXPENSE, EXCLUDING DEPRECIATION		$	144,902			$	138,647				$	141,573
REIMBURSABLE EXPENSES		$	35,613			$	42,640				$	11,837
OPERATING INCOME (LOSS)
Contract drilling services, net		$	5,350			$	45,492				$	(19,020	)
Reimbursable expenses, net			374				499					427
Depreciation			(26,952	)			(24,618	)				(74,626	)
General and administrative expense			(16,732	)			(16,301	)				(12,366	)
Impairment of assets			-				(132,449	)				(197,027	)
Gain on disposition of assets			4,044				81					5,401
Total Operating Loss		$	(33,916	)		$	(127,296	)			$	(297,211	)
Other income (expense):
Interest income			1				1					30
Interest expense, net of amounts capitalized			(8,325	)			(9,306	)				(32,562	)
Foreign currency transaction gain (loss)			(2,129	)			(1,256	)				625
Reorganization items, net			-				(635	)				(35,252	)
Other, net			1,362				60					489
Loss before income tax benefit			(43,007	)			(138,432	)				(363,881	)
Income tax benefit			8,653				13,564					2,200
NET LOSS		$	(34,354	)		$	(124,868	)			$	(361,681	)

22

Three Months Ended March 31, 2022 Compared to Three Months Ended December 31, 2021

Contract Drilling Revenue. Comparing the two quarters, contract drilling revenue decreased $33.9 million, primarily due to 210 fewer R-E days ($44.1 million), partially offset by higher average daily revenue earned ($10.2 million). The reduction in R-E days is a result of incremental downtime for shipyard projects for the Ocean Endeavorand Ocean Patriot (138 fewer R-E days), which were both out of service for repairs, including a special survey for the Ocean Patriot, during the first quarter of 2022. R-E days for the 2022 period also reflect incremental non-productive time for the Ocean Apex (88 fewer R-E days), which was warm stacked, awaiting contract commencement, and other net incremental non-productive time (14 days). The West Auriga, one of the rigs managed under the MMSA, commenced a one-year contract in the GOM in March 2022 (30 R-E days). Higher average daily revenue earned in the first quarter of 2022, compared to the fourth quarter of 2021, is primarily due to the operation of the managed rig, combined with a performance bonus earned by one of our owned drillships in 2022.

Revenue Related to Reimbursable Expenses. During the first quarter of 2022 and fourth quarter of 2021, we recognized gross reimbursable revenue and expenses of $23.2 million and $25.1 million, respectively, pursuant to the MMSA.

Contract Drilling Expense, Excluding Depreciation. Contract drilling expense, excluding depreciation, increased $6.3 million during the first quarter of 2022 compared to the fourth quarter of 2021, reflecting higher repair, maintenance and mobilization costs ($9.0 million), primarily for the Ocean Endeavorand Ocean Patriot, and costs associated with the operations of the West Auriga($6.7 million). The increased expense was partially offset by lower equipment rental expense for our owned drillships ($6.8 million) and a net reduction in shorebase support and other costs ($2.6 million).

Impairment of Assets.During the fourth quarter of 2021, we recognized an impairment charge of $132.4 million to write down the carrying value of two semisubmersible rigs to their estimated fair value. No impairment charge was recognized in the first quarter of 2022.

Gain on Disposition of Assets. During the first quarter of 2022, we sold the Ocean Valorfor aggregate proceeds of approximately $6.6 million and recognized a net gain on the transaction of $4.2 million.

Income Tax Benefit. We estimate our annual effective tax rate (or AETR) for continuing operations in recording our interim quarterly income tax provision taking into account the various jurisdictions in which we operate. Discrete tax adjustments are excluded from the computation of the AETR and recorded in the quarter in which they occur.

We recorded a net income tax benefit of $8.7 million (20.1% effective tax rate) for the quarter ended March 31, 2022, inclusive of a $3.6 million benefit reflecting remeasurement of unrecognized tax benefits due to strengthening of the U.S. dollar relative to foreign currencies. For the three months ended December 31, 2021, we recorded a net income tax benefit of $13.6 million (9.8% effective tax rate). The higher effective tax rate for the quarter ended March 31, 2022 reflects our domestic and international jurisdictional mix of estimated pre-tax income and losses for the period.

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Three Months Ended March 31, 2022 (Successor) Compared to Three Months Ended March 31, 2021 (Predecessor)

Contract Drilling Revenue. Contract drilling revenue increased $27.7 million during the first quarter of 2022 compared to the first quarter of 2021, primarily due to 88 incremental R-E days ($18.6 million), combined with an increase in average daily revenue ($9.1 million). The increase in R-E days in 2022 was primarily as a result of rigs commencing contracts subsequent to the first quarter of 2021 in Senegal (Ocean BlackRhino), Brazil (Ocean Courage) and the GOM (West Auriga) (203 days) and incremental R-E days for the Ocean Onyx, which had commenced its contract during the first quarter of 2021 (52 days). R-E days during the first quarter of 2022, compared to the first quarter of 2021, were reduced by incremental downtime for repairs (167 fewer days), primarily associated with shipyard projects for the Ocean Endeavorand Ocean Patriot. Average daily revenue increased in the first quarter of 2022 compared to the first quarter of 2021, primarily due to contracts renegotiated after the first quarter of 2021.

Contract Drilling Expense, Excluding Depreciation. During the first quarter of 2022, contract drilling expense, excluding depreciation, was $144.9 million compared to $141.6 million for the first quarter of 2021. The $3.3 million increase in costs in the first quarter of 2022, compared to the same period of 2021, is primarily attributable to incremental contract drilling expense for the managed rigs ($6.7 million) and higher labor and related costs ($4.7 million), integrated services costs associated with the current contract for the Ocean Courage($2.4 million) and other net cost ($0.4 million). The increase in contract drilling expense was partially offset by reduced equipment rental costs ($10.9 million), reflecting the impact of a lease modification for our blowout preventer and related well control equipment leases on our drillships.

Depreciation Expense. Depreciation expense for the first quarter of 2022 and 2021 was $26.9 million and $74.6 million, respectively. The decline in depreciation expense in the 2022 quarter was primarily due to the reduction in depreciable value of our rigs and equipment as a result of the fair value remeasurement of such assets from the application of fresh start accounting on the Effective Date and asset impairments recognized in the fourth quarter of 2021.

General and Administrative Expense. During the first quarter of 2022, we incurred general and administrative costs of $16.7 million compared to $12.4 million in the first quarter of 2021. The increase in expense in the first quarter of 2022 is primarily attributable to higher legal and other professional costs, combined with incremental compensation expense associated with stock-based compensation awards subsequent to the first quarter of 2021.

Impairment of Assets. During the first quarter of 2021, we recognized an aggregate impairment charge of $197.0 million to write down the carrying value of one of our rigs with indicators of impairment. No impairment charges were recognized during first quarter of 2022.

Interest Expense. Interest expense for the first quarter of 2022 included interest cost related to our exit financing ($5.7 million) and imputed interest expense related to our equipment finance leases ($2.7 million).

Upon filing for bankruptcy protection on April 26, 2020, we ceased accruing interest expense on our then outstanding long-term indebtedness and borrowings outstanding under our previous credit facility. However, due to provisions in our plan of reorganization, we resumed recognizing interest on our outstanding borrowings under the previous credit facility and accrued interest expense of $32.6 million for the Predecessor three months ended March 31, 2021, inclusive of a $23.4 million catch-up adjustment for the period from April 26, 2020 to December 31, 2020.

Income Tax Benefit. We recorded a net income tax benefit of $8.7 million (20.1% effective tax rate) for the quarter ended March 31, 2022, as compared with the Predecessor's income tax expense of $2.2 million (0.6% effective tax rate) for the first quarter of 2021. The effective tax rate for the first quarter of 2021 reflects certain consequences of the Predecessor's bankruptcy filing. The relatively larger income tax benefit for the first quarter of 2022 reflects changes in the domestic and international jurisdictional mix of our pre-tax income and loss, which are consequences, in part, of realigning substantially all of our assets and operations under a foreign subsidiary in the second quarter of 2021.

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Liquidity and Capital Resources

We have available a senior secured revolving credit agreement (or the Exit Revolving Credit Agreement) that provides for a $400.0 million senior secured revolving credit facility with a $100.0 million sublimit for the issuance of letters of credit thereunder (or the Exit RCF). At May 6, 2022, we had borrowings of $103.5 million outstanding under the Exit RCF and had utilized $24.1 million for the issuance of letters of credit. As of May 6, 2022, approximately $275.9 million was available for borrowings or the issuance of letters of credit under the Exit RCF. However, the availability of borrowings and letters of credit under the Exit RCF is subject to the satisfaction of certain conditions (as specified in the Exit Revolving Credit Agreement), including restrictions on borrowings.

In addition, we have approximately $39.7 million in the form of delayed draw note commitments that may be issued as additional First Lien Notes, none which had been issued as of May 6, 2022.

We have also historically relied on our cash flows from operations and cash reserves to meet our liquidity needs, which primarily include funding of our working capital requirements and capital expenditures, as well as the servicing of our debt repayments and interest payments. As of May 6, 2022, all of our rigs, excluding managed rigs, are owned and operated, directly or indirectly, by DFAC. Our management has determined that we will permanently reinvest foreign earnings, which restricts the ability to utilize cash flows of DFAC on a company-wide basis. To the extent possible, we expect to utilize the operating cash flows and cash reserves of DFAC and the operating cash flows available to and cash reserves of Diamond Offshore Drilling, Inc. to meet each respective entity's working capital requirements and capital commitments.

As of April 1, 2022, our contractual backlog was $1.2 billion. At March 31, 2022, we had cash available for current operations of $73.0 million, including $19.2 million that is subject to restrictions pursuant to the MMSA.

Sources and Uses of Cash

Historical Cash Flow from Operations

For the Successor three-month period ended March 31, 2022, our operating activities generated cash flows of $9.1 million. Cash receipts from contract drilling services ($199.4 million) were partially offset by cash expenditures for contract drilling, shorebase support, general and administrative costs, cash collateral requirements and cash income taxes paid ($190.3 million).

Cash outlays for capital expenditures and finance lease obligations during the first three months of 2022 aggregated $20.0 million and $3.8 million, respectively. Asset sales, including the sale of the Ocean Valor, generated cash proceeds of $5.0 million during the same period. We borrowed $20.0 million under the Exit RCF during the first three months of 2022.

For the Predecessor three-month period ended March 31, 2021, cash outlays for contract drilling, shorebase support, and general and administrative costs ($137.1 million), professionals in connection with our bankruptcy filing ($35.3 million) and cash income taxes, net ($3.3 million) more than offset cash receipts from contract drilling services ($126.5 million).

Cash outlays for capital expenditures aggregated $40.6 million for the first three months of 2021, while proceeds from asset sales, including the sales of the Ocean Americaand Ocean Rover, were $7.4 million during the same period.

Upgrades and Other Capital Expenditures

As of the date of this report, we expect cash capital expenditures for 2022 to be approximately $54 million to $60 million pursuant to our capital maintenance programs.

Other Obligations

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As of March 31, 2022, the total net unrecognized tax benefits related to uncertain tax positions that could result in a future cash payment was $42.7 million. Due to the high degree of uncertainty regarding the timing of future cash outflows associated with the liabilities recognized in these balances, we are unable to make reasonably reliable estimates of the period of cash settlement with the respective taxing authorities.

Other Commercial Commitments - Letters of Credit

See Note 8 "Commitments and Contingencies" to our unaudited condensed consolidated financial statements included in Item 1 of Part I of this report for a discussion of certain of our other commercial commitments.

Forward-Looking Statements

We or our representatives may, from time to time, either in this report, in periodic press releases or otherwise, make or incorporate by reference certain written or oral statements that are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (or the Securities Act) and Section 21E of the Securities Exchange Act of 1934, as amended (or the Exchange Act). All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements. Forward-looking statements include, without limitation, any statement that may project, indicate or imply future results, events, performance or achievements, and may contain or be identified by the words "expect," "intend," "plan," "predict," "anticipate," "estimate," "believe," "should," "could," "would," "may," "might," "will," "will be," "will continue," "will likely result," "project," "forecast," "budget" and similar expressions. In addition, any statement concerning future financial performance (including, without limitation, future revenues, earnings or growth rates), ongoing business strategies or prospects, and possible actions taken by or against us, which may be provided by management, are also forward-looking statements as so defined. Statements made by us in this report that contain forward-looking statements may include, but are not limited to, information concerning our possible or assumed future results of operations and statements about the following subjects:

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These types of statements are based on current expectations about future events and inherently are subject to a variety of assumptions, risks and uncertainties, many of which are beyond our control, that could cause actual results to differ materially from those expected, projected or expressed in forward-looking statements. These risks and uncertainties include, among others, those described or referenced in Item 1A, "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2021, as amended by Amendment No. 1 on Form 10-K/A.

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The risks and uncertainties referenced above are not exhaustive. Other sections of this report and our other filings with the Securities and Exchange Commission include additional factors that could adversely affect our business, results of operations and financial performance. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements. Forward-looking statements included in this report speak only as of the date of this report. We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement to reflect any change in our expectations or beliefs with regard to the statement or any change in events, conditions or circumstances on which any forward-looking statement is based. In addition, in certain places in this report, we may refer to reports published by third parties that purport to describe trends or developments in energy production or drilling and exploration activity. While we believe that these reports are reliable, we have not independently verified the information included in such reports. We specifically disclaim any responsibility for the accuracy and completeness of such information and undertake no obligation to update such information.

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.

The information included in this Item 3 constitutes "forward-looking statements" for purposes of the statutory safe harbor provided in Section 27A of the Securities Act and Section 21E of the Exchange Act. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Forward-Looking Statements" in Item 2 of Part I of this report.

Interest Rate Risk. We have exposure to interest rate risk on our debt instruments arising from changes in the level or volatility of interest rates. As of March 31, 2022, our variable interest rate debt included $103.5 million of outstanding borrowings under the Exit RCF, $6.1 million for the issuance of letters of credit under the Exit RCF and $100.0 million outstanding under our senior secured term loan agreement we entered into on the Effective Date. At this level of variable-rate debt, the impact of a 100-basis point increase in market interest rates would not have a material effect (estimated $2.1 million increase in interest expense on an annualized basis). Our 9.00%/11.00%/13.00% Senior Secured First Lien PIK Toggle Notes due 2027 have been issued at fixed rates, and as such, interest expense would not be impacted by interest rate shifts.

There were no other material changes in our market risk components for the three months ended March 31, 2022. See "Quantitative and Qualitative Disclosures About Market Risk" included in Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2021, as amended by Amendment No. 1 on Form 10-K/A, for further information.

ITEM 4. Controls and Procedures.

We maintain a system of disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the federal securities laws, including this report, is recorded, processed, summarized and reported on a timely basis. These disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed by us under the federal securities laws is accumulated and communicated to our management on a timely basis to allow decisions regarding required disclosure.

Our Chief Executive Officer (or CEO) and Chief Financial Officer (or CFO) participated in an evaluation by our management of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of March 31, 2022. Based on their participation in that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of March 31, 2022.

There were no changes in our internal control over financial reporting identified in connection with the foregoing evaluation that occurred during our first fiscal quarter of 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHERINFORMATION

ITEM 1. LegalProceedings.

Information related to certain legal proceedings is included in Note 8 "Commitments and Contingencies" to our unaudited condensed consolidated financial statements included in Item 1 of Part I of this report, which is incorporated herein by reference.

ITEM 1A. Risk Factors.

Our Annual Report on Form 10-K for the year ended December 31, 2021, as amended by Amendment No. 1 on Form 10-K/A, includes a detailed discussion of certain material risk factors facing the Company. The risk factors included under Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021, as amended by Amendment No. 1 on Form 10-K/A, are incorporated herein by reference. No material changes have been made to such risk factors as of March 31, 2022.

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ITEM 6. Exhibits.

Exhibit No.		Description of Exhibit
3.1		Third Amended and Restated Certificate of Incorporation of Diamond Offshore Drilling, Inc. (incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K filed on April 29, 2021).
3.2		Second Amended and Restated Bylaws of Diamond Offshore Drilling, Inc. (incorporated by reference to Exhibit 3.2 to our Current Report on Form 8-K filed on April 29, 2021).
10.1*		Amendment No. 1, dated as of February 10, 2022, to Restricted Stock Award Agreement, dated as of May 8, 2021, between Diamond Offshore Drilling, Inc. and Bernie Wolford, Jr. with respect to the performance-vesting award.
31.1*		Rule 13a-14(a) Certification of the Chief Executive Officer.
31.2*		Rule 13a-14(a) Certification of the Chief Financial Officer.
32.1*		Section 1350 Certification of the Chief Executive Officer and Chief Financial Officer.
101.INS*		Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH*		Inline XBRL Taxonomy Extension Schema Document.
101.CAL*		Inline XBRL Taxonomy Calculation Linkbase Document.
101.LAB*		Inline XBRL Taxonomy Label Linkbase Document.
101.PRE*		Inline XBRL Presentation Linkbase Document.
101.DEF*		Inline XBRL Definition Linkbase Document.
104*		The cover page of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2022, formatted in Inline XBRL (included with the Exhibit 101 attachments).

* Filed or furnished herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

			DIAMOND OFFSHORE DRILLING, INC.
			(Registrant)
Date May 10, 2022			By:		/s/ Dominic A. Savarino
					Dominic A. Savarino
					Senior Vice President and Chief Financial Officer

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