Income Taxes

3 Months Ended

Mar. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

Note 9— Income Taxes

At March 31, 2023, the Company had deferred tax assets of $151.3 million net of valuation allowance. Additionally, the Company also had deferred tax liabilities of $9.4 million inclusive of a valuation allowance of $19.2 million.

During the three months ended March 31, 2023, the Company recognized additional deferred tax benefits of $44.0 million and $6.1 million in Guyana and Switzerland, respectively, and recognized a $4.5 million deferred tax expense adjustment in Luxembourg.

In deriving the above net deferred tax benefits, the Company relied on sources of income attributable to the projected taxable income for the period covered by the Company’s relevant existing drilling contracts based on the assumption that the relevant rigs will be owned by the current rig owners during the relevant existing drilling contract periods. Given the mobile nature of the Company’s assets, we are not able to reasonably forecast the jurisdictions in which taxable income from future drilling contracts may arise. We also have limited objective positive evidence in historical periods. Accordingly, in determining the amount of additional deferred tax assets to recognize, we did not consider projected book income beyond the conclusion of existing drilling contracts. As new drilling contracts are executed or as current contracts are extended, we will reassess the amount of deferred tax assets that are realizable. Finally, once we have established sufficient objective positive evidence for historical periods, we may consider reliance on forecasted taxable income from future drilling contracts.

At March 31, 2023, the reserves for uncertain tax positions totaled $188.6 million (net of related tax benefits of $0.1 million). At December 31, 2022, the reserves for uncertain tax positions totaled $175.9 million (net of related tax benefits of $0.3 million).

During the three months ended March 31, 2023, we booked purchase price adjustments that resulted in a net increase to reserves for uncertain tax positions of $14.2 million.

It is reasonably possible that our existing liabilities related to our reserve for uncertain tax positions may fluctuate in the next 12 months primarily due to the completion of open audits or the expiration of statutes of limitation.

During the current quarter, our tax provision included a Luxembourg valuation allowance increase of $4.5 million, deferred tax expense related to contract fair value amortization of $4.2 million and current and deferred tax expense related to various recurring quarterly accruals of $25.6 million primarily in Guyana, Luxembourg, and Switzerland. Such tax expenses were offset by a deferred tax benefit of $50.1 million related to a release of valuation allowance in Guyana and Switzerland.

During the three months ended March 31, 2022, our tax provision included net tax benefits of $3.8 million related to a release of valuation allowance for Guyana deferred tax benefits, $0.9 million related to an adjustment to Swiss deferred tax benefits, and $1.3 million related primarily to deferred tax adjustments. Such tax benefits were partially offset by tax expenses of $0.8 million related to various recurring items.