Derivative Instruments and Hedging Activities

9 Months Ended

Sep. 30, 2014

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments and Hedging Activities

Note 12 — Derivative Instruments and Hedging Activities

We periodically enter into derivative instruments to manage our exposure to fluctuations in interest rates and foreign currency exchange rates. We have documented policies and procedures to monitor and control the use of derivative instruments. We do not engage in derivative transactions for speculative or trading purposes, nor are we a party to leveraged derivatives.

For foreign currency forward contracts, hedge effectiveness is evaluated at inception based on the matching of critical terms between derivative contracts and the hedged item. Any change in fair value resulting from ineffectiveness is recognized immediately in earnings.

Cash Flow Hedges

Our North Sea and Brazil operations have a significant amount of their cash operating expenses payable in local currencies. To limit the potential risk of currency fluctuations, we periodically enter into forward contracts, which settle monthly in the operations’ respective local currencies. All of these contracts have a maturity of less than 12 months. The forward contract settlements in the remainder of 2014 represent approximately 60 percent of these forecasted local currency requirements. The notional amount of the forward contracts outstanding, expressed in U.S. Dollars, was approximately $13 million at September 30, 2014. Total unrealized losses related to these forward contracts were approximately $0.3 million as of September 30, 2014 and were recorded as part of “Accumulated other comprehensive loss” (“AOCL”).

Financial Statement Presentation

The following table, together with Note 13, summarizes the financial statement presentation and fair value of our derivative positions as of September 30, 2014 and December 31, 2013:

			Estimated fair value
	Balance sheet classification		September 30, 2014		December 31, 2013
Asset derivatives
Cash flow hedges
Short-term foreign currency forward contracts		Other current assets	$	60	$	—
Liability derivatives
Cash flow hedges
Short-term foreign currency forward contracts		Other current liabilities	$	333	$	—

To supplement the fair value disclosures in Note 13, the following summarizes the recognized gains and losses of cash flow hedges and non-designated derivatives through AOCL or through “contract drilling services” expense for the three months ended September 30, 2014 and 2013:

	Gain/(loss) recognized through AOCL					Gain/(loss) reclassified from AOCL to “contract drilling services” expense					Gain/(loss) recognized through “contract drilling services” expense
	2014			2013		2014		2013			2014		2013
Cash flow hedges
Foreign currency forward contracts	$	(2,125	)	$	2,022	$	1,852	$	(1,433	)	$	—	$	—

To supplement the fair value disclosures in Note 13, the following summarizes the recognized gains and losses of cash flow hedges and non-designated derivatives through AOCL or through “contract drilling services” expense for the nine months ended September 30, 2014 and 2013:

	Gain/(loss) recognized through AOCL					Gain/(loss) reclassified from AOCL to “contract drilling services” expense					Gain/(loss) recognized through “contract drilling services” expense
	2014			2013		2014		2013			2014		2013
Cash flow hedges
Foreign currency forward contracts	$	(4,904	)	$	2,207	$	4,631	$	(1,618	)	$	—	$	—