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FAIR VALUE MEASUREMENT OF FINANCIAL INSTRUMENTS

3 Months Ended

Dec. 31, 2022

FAIR VALUE MEASUREMENT OF FINANCIAL INSTRUMENTS

NOTE 11 FAIR VALUE MEASUREMENT OF FINANCIAL INSTRUMENTS

We have certain assets and liabilities that are required to be measured and disclosed at fair value. Fair value is defined as the exchange price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. We use the fair value hierarchy established in ASC 820-10 to measure fair value to prioritize the inputs:

•Level 1 — Quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity can access at the measurement date.

•Level 2 — Observable inputs, other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets; quoted prices for similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

•Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

The Company's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

Recurring Fair Value Measurements

The following tables summarize our financial assets and liabilities measured at fair value on a recurring basis and indicate the level in the fair value hierarchy in which we classify the fair value measurement.


	December 31, 2022
(in thousands)	Fair Value		Level 1		Level 2		Level 3
Assets
Short-term investments:
Corporate debt securities	$	99,746	—		99,746		—
U.S. government and federal agency securities	18,711		18,711		—		—
Total short-term investments	118,457		18,711		99,746		—

Investments:
Non-qualified supplemental savings plan	15,627		15,627		—		—
Equity investment in ADNOC Drilling	129,130		129,130		—		—
Equity investment in Tamboran	17,228		17,228		—		—
Debt security investment in Galileo	33,000		—		—		33,000
Other debt securities	107		—		—		107
Total investments	195,092		161,985		—		33,107

Liabilities
Contingent consideration	$	3,780	$	—	$	—	$	3,780


	September 30, 2022
(in thousands)	Fair Value		Level 1		Level 2		Level 3
Assets
Short-term investments:
Corporate debt securities	$	98,264	$	—	$	98,264	$	—
U.S. government and federal agency securities	18,837		18,837		—		—
Total short-term investments	117,101		18,837		98,264		—

Investments:
Non-qualified supplemental savings plan	14,301		14,301		—		—
Equity investment in ADNOC Drilling	147,370		147,370		—
Debt security investment in Galileo	33,000				—		33,000
Other debt securities	565						565
Total investments	195,236		161,671		—		33,565

Liabilities
Contingent consideration	$	4,022	$	—	$	—	$	4,022

Short-term Investments

Short-term investments primarily include securities classified as trading securities. Both realized and unrealized gains and losses on trading securities are included in other income (expense) in the Unaudited Condensed Consolidated Statements of Operations. These securities are recorded at fair value. Level 1 inputs include U.S. agency issued debt securities with active markets and money market funds. For these items, quoted current market prices are readily available. Level 2 inputs include corporate bonds measured using broker quotations that utilize observable market inputs.

Long-term Investments

Equity Securities Our long-term investments include debt and equity securities and assets held in a Non-Qualified Supplemental Savings Plan ("Savings Plan") and are recorded within Investments on our Unaudited Condensed Consolidated Balance Sheets. Our assets that we hold in the Savings Plan are comprised of mutual funds that are measured using Level 1 inputs.

During September 2021, the Company made a $100.0 million cornerstone investment in ADNOC Drilling in advance of its announced initial public offering, 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 initial public offering 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 Unaudited Condensed Consolidated Balance Sheets and measured at fair value with any gains or losses recognized through net income (loss) and recorded within Gain (Loss) on Investment Securities on our Unaudited Condensed Consolidated Statement of Operations. During the three months ended December 31, 2022, we early adopted ASU No. 2022-03 which states that the contractual restriction on the sale of an equity security that is publicly traded is not considered in measuring fair value. The provisions of ASU No. 2022-03 were consistent with our historical accounting for our investment in ADNOC Drilling. During the three months ended December 31, 2022, we recognized a loss of $18.2 million on our Unaudited Condensed Consolidated Statements of Operations, as a result of the change in fair value of the investment compared to a gain of $47.8 million during the three months ended December 31, 2021. As of December 31, 2022, this investment is classified as a Level 1 investment based on the quoted stock price on the Abu Dhabi Securities Exchange.

Equity Securities with Fair Value Option In October 2022, we purchased a $14.1 million equity investment, representing 106.0 million common shares (approximately 7.5 percent ownership stake), in Tamboran Resources Limited ("Tamboran"), a publicly traded company on the Australian Securities Exchange Ltd under the ticker "TBN." Tamboran is focused on playing a constructive role in the global energy transition towards a lower carbon future, by developing a significantly low CO2 gas resource within Australia's Beetaloo Sub-basin. Concurrent with the investment agreement, we entered into a fixed-term drilling services agreement with the same investee for which mobilization is expected to commence later this fiscal year. Approximately $30.3 million in revenue is expected to be earned over the term of the contract, and, as such, this amount is included within our contract backlog as of December 31, 2022.

We believe we have a significant influence but not control or joint control over the investee due to several factors, including our ownership percentage, operational involvement and our role as an observer on the investee's board of directors. We consider this investment to have a readily determinable fair value and have elected to account for this investment using the fair value option with any changes in fair value recognized through net income (loss). Our investment is classified as a long-term equity investment within Investments in our Unaudited Condensed Consolidated Balance Sheet as of December 31, 2022. Under the guidance, Topic 820, Fair Value Measurement, this investment is classified as a Level 1 investment based on the quoted stock price which is publicly available. During the three months ended December 31, 2022, we recognized a gain of $3.1 million recorded within Gain (Loss) on Investment Securities on our Unaudited Condensed Consolidated Statements of Operations, as a result of the change in fair value of the investment during the period.

Debt Securities During April 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 5.0 percent 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. We do not intend to sell this investment prior to its maturity date or an exit event. As of December 31, 2022, the fair value of the convertible note was approximately equal to the cost basis.

All of our long-term debt securities, including our investment in Galileo, are classified as available-for-sale and are measured using Level 3 unobservable inputs based on the absence of market activity. The following table reconciles changes in the fair value of our Level 3 assets for the periods presented below:


	Three Months Ended December 31,
(in thousands)	2022		2021
Assets at beginning of period	$	33,565	$	500
Purchases	42		3,000
Transfers out1	(500)		—
Assets at end of period	$	33,107	$	3,500

(1)We reclassified a portion of our long-term debt securities to short-term notes receivable and is recorded in Accounts Receivable on the Unaudited Condensed Consolidated Balance Sheets.

The following table provides quantitative information (in thousands) about our Level 3 unobservable significant inputs related to our debt security investment with Galileo at December 31, 2022 and September 30, 2022:


Fair Value		Valuation Technique	Unobservable Inputs
$	33,000	Black-Scholes-Merton model	Discount rate	22.4	%
			Risk-free rate	4.0	%
			Equity volatility	92.5	%

The above significant unobservable inputs are subject to change based on changes in economic and market conditions. The use of significant unobservable inputs creates uncertainty in the measurement of fair value as of the reporting date. Significant increases or decreases in the discount rate, risk-free rate, and equity volatility in isolation would result in a significantly lower or higher fair value measurement. It is not possible for us to predict the effect of future economic or market conditions on our estimated fair values.

Contingent Consideration

Other financial instruments measured using Level 3 unobservable inputs primarily consist of potential earnout payments associated with our business acquisitions in fiscal year 2019 and certain consulting services. Contingent consideration is recorded in Accrued Liabilities and Other Noncurrent Liabilities on the Unaudited Condensed Consolidated Balance Sheets based on the expected timing of milestone achievements. The following table reconciles changes in the fair value of our Level 3 liabilities for the periods presented below:


	Three Months Ended December 31,
(in thousands)	2022		2021
Liabilities at beginning of period	$	4,022	$	2,996
Additions	500		500
Total gains or losses:
Included in earnings	8		(150)
Settlements1	(750)		(250)
Liabilities at end of period	$	3,780	$	3,096

(1)Settlements represent earnout payments that have been paid or earned during the period.

Nonrecurring Fair Value Measurements

We have certain assets that are subject to measurement at fair value on a nonrecurring basis. For these nonfinancial assets, measurement at fair value in periods subsequent to their initial recognition is applicable if they are determined to be impaired. These assets generally include property, plant and equipment, goodwill, intangible assets, and operating lease right-of-use assets. If measured at fair value in the Unaudited Condensed Consolidated Balance Sheets, these would generally be classified within Level 2 or 3 of the fair value hierarchy. Further details on any changes in valuation of these assets is provided in their respective footnotes.

Other Equity Securities

We also hold various other equity securities without readily determinable fair values. These equity securities are measured at cost, less any impairments, on a nonrecurring basis. As of December 31, 2022 and 2021, the aggregate balance of these equity securities was $25.8 million and $8.9 million, respectively. During the three months ended December 31, 2022 and 2021, we did not record any impairments on these investments.

The following table reconciles changes in the balance of our equity securities, without readily determinable fair values, for the periods presented below:


	Three Months Ended December 31,
(in thousands)	2022		2021
Assets at beginning of period	$	23,745	$	2,865
Purchases	2,055		6,016


Assets at end of period	$	25,800	$	8,881

Geothermal Investments

As of December 31, 2022 and September 30, 2022 the aggregate balance of our debt and equity security investments in geothermal energy was $25.3 million and $23.7 million, respectively. These investments include assets measured on both a recurring and nonrecurring basis (discussed in the subsections above). In circumstances where we are required to revalue these investments based on observable changes in fair market value, these investments would be classified Level 3 based on the absence of market activity.

Other Financial Instruments

The carrying amount of cash and cash equivalents and restricted cash approximates fair value due to the short-term nature of these items. The majority of cash equivalents are invested in highly liquid money-market mutual funds invested primarily in direct or indirect obligations of the U.S. Government and in federally insured deposit accounts. The carrying value of accounts receivable, other current and noncurrent assets, accounts payable, accrued liabilities and other liabilities approximated fair value at December 31, 2022 and September 30, 2022.

The following information presents the supplemental fair value information for our long-term fixed-rate debt at December 31, 2022 and September 30, 2022:


(in millions)	December 31, 2022	September 30, 2022
Long-term debt, net
Carrying value	542.9	542.6
Fair value	446.5	430.7

The fair values of the long-term fixed-rate debt is based on broker quotes at December 31, 2022 and September 30, 2022. The notes are classified within Level 2 of the fair value hierarchy as they are not actively traded in markets.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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