TRANSOCEAN LTD. Forward-Looking Information
The statements included in this quarterly report regarding future financial performance and results of operations and other statements that are not historical facts are forward-looking statements within the meaning of Section 27A ofthe United States ("U.S.") Securities Act of 1933 and Section 21E of theU.S. Securities Exchange Act of 1934. Forward-looking statements in this quarterly report include, but are not limited to, statements about the following subjects: ?the effect, impact, potential duration or other implications of the outbreak of a novel strain of coronavirus ("COVID-19") and disputes and actions with respect to production levels by, among or between major oil and gas producing countries and any expectations we may have with respect thereto; ?our results of operations, our revenue efficiency and other performance indicators and our cash flow from operations; ?the offshore drilling market, including the effects of declines in commodity prices, supply and demand, utilization rates, dayrates, customer drilling programs, stacking and reactivation of rigs, effects of new rigs on the market, the impact of changes to regulations in jurisdictions in which we operate and changes in the global economy or market outlook for the various geographies in which we operate or for our classes of rigs; ?customer drilling contracts, including contract backlog, force majeure provisions, contract awards, commencements, extensions, terminations, renegotiations, contract option exercises, contract revenues, early termination payments, indemnity provisions and rig mobilizations; ?liquidity, including availability under our bank credit agreement, and adequacy of cash flows for our obligations; ?debt levels, including impacts of the current financial and economic downturn, and interest rates; ?newbuild, upgrade, shipyard and other capital projects, including completion, relinquishment or abandonment, delivery and commencement of operation dates, expected downtime and lost revenue, the level of expected capital expenditures and the timing and cost of completion of capital projects; ?the cost and timing of acquisitions and the proceeds and timing of dispositions; ?the optimization of rig-based spending; ?tax matters, including our effective tax rate, changes in tax laws, treaties and regulations, tax assessments and liabilities for tax issues, including those associated with our activities inBrazil ,Norway ,Switzerland , theUnited Kingdom ("U.K."), theU.S. ,Canada ,Angola , andIndia , among other jurisdictions; ?legal and regulatory matters, including results and effects of current or potential legal proceedings and governmental audits and assessments, outcomes and effects of internal and governmental investigations, customs and environmental matters; ?insurance matters, including adequacy of insurance, renewal of insurance, insurance proceeds and cash investments of our wholly owned captive insurance company; ?effects of accounting changes and adoption of accounting policies; and ?investment in recruitment, retention and personnel development initiatives, defined benefit pension plan contributions, the timing of severance payments and benefit payments.
Forward-looking statements in this quarterly report are identifiable by use of the following words and other similar expressions:
? anticipates ? budgets ? estimates ? forecasts ? may ? plans ? projects ? should ? believes ? could ? expects ? intends ? might ? predicts ? scheduled
Such statements are subject to numerous risks, uncertainties and assumptions, including, but not limited to:
?those described under "Item 1A. Risk Factors" included in Part I of our annual report on Form 10-K for the year endedDecember 31, 2019 and in Part II of our quarterly report on Form 10-Q for the quarterly period endedMarch 31, 2020 ; ?the effects of public health threats, pandemics and epidemics, such as the outbreak of COVID-19, and the adverse impact thereof on our business, financial condition and results of operations, including, but not limited to, our growth, operating costs, supply chain, labor availability, logistical capabilities, customer demand for our services and industry demand generally, our liquidity, the price of our securities and trading markets with respect thereto, our ability to access capital markets, and the global economy and financial markets generally; ?the effects of actions by, or disputes among or between, members of theOrganization of Petroleum Exporting Countries and other oil and natural gas producing countries with respect to production levels or other matters related to the prices of oil and natural gas; ?the adequacy of and access to our sources of liquidity; ?our inability to obtain drilling contracts for our rigs that do not have contracts; ?our inability to renew drilling contracts at comparable dayrates; ?operational performance; ?the cancellation of drilling contracts currently included in our reported contract backlog; ?losses on impairment of long-lived assets; ?shipyard, construction and other delays; ?the results of meetings of our shareholders; ?changes in political, social and economic conditions; ?the effect and results of litigation, regulatory matters, settlements, audits, assessments and contingencies; and ?other factors discussed in this quarterly report and in our other filings with theU.S. Securities and Exchange Commission ("SEC"), which are available free of charge on theSEC website at www.sec.gov. The foregoing risks and uncertainties are beyond our ability to control, and in many cases, we cannot predict the risks and uncertainties that could cause our actual results to differ materially from those indicated by the forward-looking statements. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those indicated. All subsequent written and oral forward-looking statements attributable to us or to persons acting on our behalf are expressly qualified in their entirety by reference to these risks and uncertainties. You should not place undue reliance on forward-looking statements. Each forward-looking statement speaks only as of the date of the particular statement. We expressly disclaim any obligations 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, except as required by law. - 14 - Table of Contents BusinessTransocean Ltd. (together with its subsidiaries and predecessors, unless the context requires otherwise, "Transocean", "we," "us" or "our") is a leading international provider of offshore contract drilling services for oil and gas wells. As ofJuly 23, 2020 , we owned or had partial ownership interests in and operated 39 mobile offshore drilling units, including 27 ultra-deepwater floaters and 12 harsh environment floaters. As ofJuly 23, 2020 , we were constructing two ultra-deepwater drillships. We provide contract drilling services in a single, global operating segment, which involves contracting our mobile offshore drilling fleet, related equipment and work crews primarily on a dayrate basis to drill oil and gas wells. We specialize in technically demanding regions of the offshore drilling business with a particular focus on ultra-deepwater and harsh environment drilling services. Our drilling fleet is one of the most versatile in the world, consisting of drillships and semisubmersible floaters used in support of offshore drilling activities and offshore support services on a worldwide basis. Our contract drilling services operations are geographically dispersed in oil and gas exploration and development areas throughout the world. Although rigs can be moved from one region to another, the cost of moving rigs and the availability of rig-moving vessels may cause the supply and demand balance to fluctuate somewhat between regions. Still, significant variations between regions do not tend to persist long term because of rig mobility. Our fleet operates in a single, global market for the provision of contract drilling services. The location of our rigs and the allocation of resources to operate, build or upgrade our rigs are determined by the activities and needs of our customers.
Significant Events
Debt issuance-OnJanuary 17, 2020 , we issued$750 million aggregate principal amount of 8.00% senior unsecured notes dueFebruary 2027 (the "8.00% Senior Notes"), and we received aggregate cash proceeds of$743 million , net of issue costs. See "-Liquidity and Capital Resources-Sources and uses of liquidity." Early debt retirement-OnJanuary 17, 2020 , we provided a notice to redeem in full our outstanding 9.00% senior notes dueJuly 2023 (the "9.00% Senior Notes"). OnFebruary 18, 2020 , we made a payment of$767 million , including the make-whole provision, to redeem the 9.00% Senior Notes, and in the three months endedMarch 31, 2020 , we recognized a loss of$65 million associated with the retirement of debt. See "-Operating Results" and "-Liquidity and Capital Resources-Sources and uses of liquidity." In the six months endedJune 30, 2020 , we repurchased in the open market$76 million aggregate principal amount of certain of our debt securities. We made an aggregate cash payment of$63 million and recognized an aggregate net gain of$12 million associated with the retirement of such debt. See "-Operating Results" and "-Liquidity and Capital Resources-Sources and uses of liquidity."
Settlement-In
In connection with the settlement, among other things, our customer agreed to pay us$185 million in four equal installments throughJanuary 15, 2023 . See "-Operating Results." Impairments-In the six months endedJune 30, 2020 , we recognized an aggregate loss of$556 million primarily associated with the impairment of one ultra-deepwater floater, two harsh environment floaters and three midwater floaters, along with related assets, which we determined were impaired at the time we classified the assets as held for sale. See "-Operating Results." In the three months endedJune 30, 2020 , we recognized a loss of$59 million , which had no tax effect, recorded in other, net, associated with the impairment of our investment inOrion Holdings (Cayman) Limited (together with its subsidiary, "Orion") since we determined that the carrying amount of our investment exceeded the estimated fair value. See "-Operating Results.". During the three months endedMarch 31, 2020 , we identified indicators that the asset groups in our contract drilling services reporting unit may not be recoverable. As a result of our testing, we determined that the carrying amount of the remaining drilling rig and related assets in our midwater floater asset group was impaired. In the six months endedJune 30, 2020 , we recognized a loss of$31 million associated with the impairment of these held and used assets. See "-Operating Results". Outlook
Drilling market-During the latter part of 2019, the demand for our drilling
services steadily increased and contract durations and dayrates substantially
improved in all geographic market sectors. This momentum was interrupted, late
in the first quarter 2020, by the economic disruption associated with the global
COVID-19 pandemic and the significant decline of commodity prices spurred both
by this pandemic and by production disputes among major oil producing countries,
driving significant oversupply.
Since initiating efforts to mitigate the spread of COVID-19 many governments
have begun to lift some of the restrictions on business and individual movement,
and demand for hydrocarbons has begun to improve, although it has still not
recovered to pre-pandemic levels. The market also remains in an oversupplied
state due to the peak global production that coincided with a significant
reduction in consumption. Additionally, the effects of COVID-19 continue to
develop and change at a rapid pace. For instance, many countries that re-opened
their economies beginning in the second quarter of 2020 have subsequently seen
significant increases in the number of reported cases of COVID-19, causing
governments to reimpose certain restrictions that had previously been lifted.
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As a result, many of our customers have reduced capital expenditures and delayed
investment decisions for the remainder of 2020 resulting in several previously
sanctioned offshore projects being either delayed or cancelled. These actions
have an adverse impact on our near-term market outlook., reversing the positive
trends experienced in 2019. It is currently unclear how long these reductions
and delays will persist.
Longer term, as the negative effects of these global events eventually subside,
and oil prices improve and stabilize, we believe the prospects of the offshore
drilling floater market will significantly improve, especially for the highest
specification vessels. The structural efficiency gains achieved by the offshore
oil and gas industry in the past six years have materially improved the
economics of offshore development projects, and we believe such efficiency gains
will make these projects attractive again when the commodity prices sufficiently
recover from the current levels.
Fleet status-We refer to the availability of our rigs in terms of the
uncommitted fleet rate. The uncommitted fleet rate is defined as the number of
uncommitted days divided by the total number of rig calendar days in the
measurement period, expressed as a percentage. An uncommitted day is defined as
a calendar day during which a rig is idle or stacked, is not contracted to a
customer and is not committed to a shipyard. The uncommitted fleet rates
exclude the effect of priced options. As of July 15, 2020 , the uncommitted
fleet rates for the remainder of 2020 and each of the four years in the period
ending December 31, 2024 were as follows:
2020 2021 2022 2023 2024
Uncommitted fleet rate
Ultra-deepwater floaters 47 % 67 % 84 % 83 % 83 %
Harsh environment floaters 35 % 51 % 63 % 80 % 98 %
Performance and Other Key Indicators
Contract backlog-Contract backlog is defined as the maximum contractual
operating dayrate multiplied by the number of days remaining in the firm
contract period, excluding revenues for mobilization, demobilization, contract
preparation, other incentive provisions or reimbursement revenues, which are not
expected to be significant to our contract drilling revenues. The contract
backlog represents the maximum contract drilling revenues that can be earned
considering the contractual operating dayrate in effect during the firm contract
period. The contract backlog for our fleet was as follows:
July 15, April 16, February 14,
2020 2020 2020
Contract backlog (In millions)
Ultra-deepwater floaters $ 6,487 $ 6,936 $ 7,282
Harsh environment floaters 2,403 2,662 2,836
Midwater floaters - - 45
Total contract backlog $ 8,890 $ 9,598 $ 10,163
We believe our industry-leading contract backlog sets us apart from the
competition. Our contract backlog includes only firm commitments, which are
represented by signed drilling contracts or, in some cases, by other definitive
agreements awaiting contract execution. Our contract backlog includes amounts
associated with our contracted newbuild unit that is currently under
construction but excludes amounts related to the conditional agreement we have
for our second newbuild unit under construction. The contractual operating
dayrate may be higher than the actual dayrate we ultimately receive or an
alternative contractual dayrate, such as a waiting on weather rate, repair rate,
standby rate or force majeure rate, may apply under certain circumstances. The
contractual operating dayrate may also be higher than the actual dayrate we
ultimately receive because of a number of factors, including rig downtime or
suspension of operations. In certain contracts, the dayrate may be reduced to
zero if, for example, repairs extend beyond a stated period of time.
The COVID-19 pandemic and the volatility in oil prices in the first half of
2020, which have included precipitous drops in oil prices could have significant
adverse consequences for the financial condition of our customers. This may
result in contract cancellations, early terminations, customers seeking price
reductions or more favorable economic terms, a reduced ability to ultimately
collect receivables, or entry into lower dayrate contracts or having to idle,
stack or retire more of our rigs.
Average daily revenue-Average daily revenue is defined as contract drilling
revenues, excluding revenues for contract terminations, reimbursements and
contract intangible amortization, earned per operating day. An operating day is
defined as a calendar day during which a rig is contracted to earn a dayrate
during the firm contract period after commencement of operations. The average
daily revenue for our fleet was as follows:
Three months ended
June 30, March 31, June 30,
2020 2020 2019
Average daily revenue
Ultra-deepwater floaters $ 296,500 $ 332,600 $ 335,400
Harsh environment floaters $ 331,900 $ 303,100 $ 301,700
Midwater floaters $ 99,400 $ 112,600 $ 163,700 Total fleet average daily revenue$ 307,800 $ 314,900 $ 314,900
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Our average daily revenue fluctuates relative to market conditions and our
revenue efficiency. The average daily revenue may be affected by revenues for
lump sum bonuses or demobilization fees received from our customers. Our total
fleet average daily revenue is also affected by the mix of rig classes being
operated, as deepwater floaters, midwater floaters and high-specification
jackups are typically contracted at lower dayrates compared to ultra-deepwater
floaters and harsh environment floaters. We no longer operate deepwater
floaters, midwater floaters or high-specification jackups. We include newbuilds
in the calculation when the rigs commence operations upon acceptance by the
customer. We remove rigs from the calculation upon disposal or classification
as held for sale, unless we continue to operate rigs subsequent to sale, in
which case we remove the rigs at the time of completion or novation of the
contract.
Revenue efficiency-Revenue efficiency is defined as actual contract drilling
revenues, excluding revenues for contract terminations and reimbursements, for
the measurement period divided by the maximum revenue calculated for the
measurement period, expressed as a percentage. Maximum revenue is defined as
the greatest amount of contract drilling revenues, excluding revenues for
contract terminations and reimbursements, the drilling unit could earn for the
measurement period, excluding amounts related to incentive provisions. The
revenue efficiency rates for our fleet were as follows:
Three months ended
June 30, March 31, June 30,
2020 2020 2019
Revenue efficiency
Ultra-deepwater floaters 98 % 97 % 98 %
Harsh environment floaters 97 % 89 % 95 %
Midwater floaters 79 % 87 % 130 %Total fleet average revenue efficiency 97 % 94 %
98 %
Revenue efficiency measures our ability to ultimately convert our contractual opportunities into revenues. Our revenue efficiency rate varies due to revenues earned under alternative contractual dayrates, such as a waiting on weather rate, repair rate, standby rate, force majeure rate or zero rate, that may apply under certain circumstances. Our revenue efficiency rate is also affected by incentive performance bonuses or penalties. We include newbuilds in the calculation when the rigs commence operations upon acceptance by the customer.
We exclude rigs that are not operating under contract, such as those that are stacked.
Rig utilization-Rig utilization is defined as the total number of operating days
divided by the total number of rig calendar days in the measurement period,
expressed as a percentage. The rig utilization rates for our fleet were as
follows:
Three months ended
June 30, March 31, June 30,
2020 2020 2019
Rig utilization
Ultra-deepwater floaters 61 % 61 % 50 %
Harsh environment floaters 80 % 63 % 76 %
Midwater floaters 25 % 39 % 39 %
Total fleet average rig utilization 66 % 60 % 56 %
Our rig utilization rate declines as a result of idle and stacked rigs and
during shipyard and mobilization periods to the extent these rigs are not
earning revenues. We include newbuilds in the calculation when the rigs
commence operations upon acceptance by the customer. We remove rigs from the
calculation upon disposal or classification as held for sale. Accordingly, our
rig utilization can increase when idle or stacked units are removed from our
drilling fleet.
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Operating Results
Three months ended
The following is an analysis of our operating results. See "-Performance and
Other Key Indicators" for definitions of operating days, average daily revenue,
revenue efficiency and rig utilization.
Three months ended June 30,
2020 2019 Change % Change
(In millions, except day amounts and percentages)
Operating days 2,401 2,411 (10) nm
Average daily revenue $ 307,800 $ 314,900 $ (7,100) (2) %
Revenue efficiency 97 % 98 %
Rig utilization 66 % 56 %
Contract drilling revenues $ 930 $ 758 $ 172 23 %
Operating and maintenance expense (525) (510) (15) (3) % Depreciation and amortization expense (196) (219) 23 11 % General and administrative expense (45) (45) - nm Loss on impairment (429) (1) (428) nm Gain (loss) on disposal of assets, net 1
(10) 11 nm Operating loss (264) (27) (237) nm Other income (expense), net Interest income 4 12 (8) (67) % Interest expense, net of amounts capitalized (153) (168) 15 9 % Gain (loss) on retirement of debt 4 (9) 13 nm Other, net (56) 23 (79) nm Loss before income tax expense (465)
(169) (296) nm Income tax expense (32) (37) 5 14 % Net loss$ (497) $ (206) $ (291) nm "nm" means not meaningful. Contract drilling revenues-Contract drilling revenues increased for the three months endedJune 30, 2020 , compared to the three months endedJune 30, 2019 , primarily due to the following: (a)$177 million resulting from the settlement of disputes in the three months endedJune 30, 2020 , (b) approximately$35 million resulting from the reactivations of two ultra-deepwater floaters inBrazil , (c) approximately$25 million resulting from a harsh environment floater that we placed into service inAugust 2019 and (d) approximately$21 million resulting from the early termination of a contract for the convenience of a customer. These increases were partially offset by the following decreases: (a) approximately$70 million resulting from lower activity and (b) approximately$20 million resulting from rigs sold or classified as held for sale. Costs and expenses-Operating and maintenance costs and expenses increased for the three months endedJune 30, 2020 , compared to the three months endedJune 30, 2019 , primarily due to the following: (a) approximately$30 million resulting from personnel and related costs associated with the COVID-19 pandemic, (b)$30 million resulting from litigation and settlement costs, (c) approximately$25 million resulting from the operations of the harsh environment floater that we placed into service inAugust 2019 , (d) approximately$10 million resulting from offshore and onshore severance costs and (e) approximately$10 million resulting from the reactivations of two ultra-deepwater floaters inBrazil . These increases were partially offset by the following decreases: (a) approximately$45 million resulting from reduced shipyard costs and delayed in-service maintenance costs, (b) approximately$25 million resulting from rigs now stacked or idle and (c) approximately$20 million resulting from rigs sold or classified as held for sale.
Depreciation and amortization expense decreased for the three months ended
Loss on impairment of assets-In the three months endedJune 30, 2020 , we recognized a loss on the impairment of assets, including an aggregate net loss of$419 million associated with assets that we determined were impaired at the time we classified them as held for sale. Other income and expense-Interest expense, net of amounts capitalized, decreased in the three months endedJune 30, 2020 , compared to the three months endedJune 30, 2019 , primarily due to a decrease of$34 million resulting from debt retired or repaid, including the full redemption of the 9.00% Senior Notes inFebruary 2020 , partially offset by an increase of$19 million resulting from debt issued, including the 8.00% Senior Notes inJanuary 2020 and the 5.375% senior secured notes dueMay 2023 (the "5.375% Senior Secured Notes") inMay 2019 . In the three months endedJune 30, 2020 , we recognized an aggregate net gain of$4 million associated with the retirement of$21 million aggregate principal amount of our debt securities repurchased in the open market. In the three months endedJune 30, 2019 , - 18 -
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we recognized an aggregate net loss of$9 million resulting from the retirement of$130 million aggregate principal amount of our debt securities repurchased in the open market. Other expense, net, increased in the three months endedJune 30, 2020 , compared to the three months endedJune 30, 2019 , primarily due to the following: (a) a loss of$59 million associated with the impairment of our equity-method investment in Orion, (b) net increased loss of$10 million resulting from currency exchange rates and (c) a gain of$10 million recognized in the prior-year period resulting from the bargain purchase of Ocean Rig UDW Inc. ("Ocean Rig"), completed in the year endedDecember 31, 2018 . Income tax expense-In the three months endedJune 30, 2020 and 2019, our effective tax rate was (6.8) percent and (21.9) percent, respectively, based on loss before income tax expense. In the three months endedJune 30, 2020 and 2019, the effect of various discrete period tax items was a net tax expense of$11 million and a net tax benefit of$5 million , respectively. In the three months endedJune 30, 2020 , such discrete items included the revenues recognized for the settlement of disputes, the loss on impairment of investment in an unconsolidated affiliate, certain return to provision adjustments, withholding tax accruals, gains and losses on currency exchange rates and changes to valuation allowances. In the three months endedJune 30, 2019 , such discrete items included settlements of various uncertain tax positions, partially offset by changes in the valuation allowance related to deferred tax assets and adjustments to our deferred taxes for operating structural changes made in theU.S. In the three months endedJune 30, 2020 and 2019, our effective tax rate, excluding discrete items, was (15.0) percent and (25.4) percent, respectively, based on loss before income tax expense.
Due to our operating activities and organizational structure, our income tax expense does not change proportionally with our income before income taxes.
Significant decreases in our income before income taxes typically lead to higher effective tax rates, while significant increases in income before income taxes can lead to lower effective tax rates, subject to the other factors impacting income tax expense noted above. With respect to the effective tax rate calculation for the three months endedJune 30, 2020 , a significant portion of our income tax expense was generated in countries in which income taxes are imposed on gross revenues, with the most significant of these countries beingAngola andIndia . Conversely, the countries in which we incurred the most significant income taxes during this period that were based on income before income tax includeBrazil ,Canada , theU.S. ,Switzerland , and theU.K. Our rig operating structures further complicate our tax calculations, especially in instances where we have more than one operating structure for the taxing jurisdiction and, thus, more than one method of calculating taxes depending on the operating structure utilized by the rig under the contract.
Six months ended
The following is an analysis of our operating results. See "-Performance and
Other Key Indicators" for definitions of operating days, average daily revenue,
revenue efficiency and rig utilization.
Six months ended June 30,
2020 2019 Change % Change
(In millions, except day amounts and percentages)
Operating days 4,820 4,861 (41) (1) %
Average daily revenue $ 311,300 $ 310,700 $ 600 nm
Revenue efficiency 96 % 98 %
Rig utilization 63 % 56 %
Contract drilling revenues $ 1,689 $ 1,512 $ 177 12 %
Operating and maintenance expense (1,065) (1,018) (47) (5) % Depreciation and amortization expense (402) (436) 34 8 % General and administrative expense (88) (94) 6 6 % Loss on impairment (597) (1) (596) nm Loss on disposal of assets, net -
(3) 3 nm
Operating loss (463) (40) (423) nm
Other income (expense), net
Interest income 13 22 (9) (41) %
Interest expense, net of amounts capitalized (313) (334) 21 6 % Loss on retirement of debt (53) (27) (26) (96) % Other, net (44) 31 (75) nm
Loss before income tax expense (860)
(348) (512) nm Income tax expense (28) (29) 1 3 % Net loss$ (888) $ (377) $ (511) nm "nm" means not meaningful. Contract drilling revenues-Contract drilling revenues increased for the six months endedJune 30, 2020 , compared to the six months endedJune 30, 2019 , primarily due to the following: (a)$177 million resulting from the settlement of disputes in the six months endedJune 30, 2020 , (b) approximately$65 million resulting from the reactivations of two ultra-deepwater floaters inBrazil , (c) approximately$40 million resulting from the operations of the harsh environment floater that we placed into service inAugust 2019 , (d) approximately$35 million resulting from increased dayrates and (e) approximately$21 million resulting from the early termination of a contract for the - 19 - Table of Contents convenience of a customer. These increases were partially offset by the following decreases: (a) approximately$115 million resulting from lower revenues on rigs stacked or idle, (b) approximately$35 million resulting from lower revenue efficiency, (c) approximately$30 million resulting from rigs sold or classified as held for sale. Costs and expenses-Operating and maintenance costs and expenses increased for the six months endedJune 30, 2020 , compared to the six months endedJune 30, 2019 , primarily due to the following: (a) approximately$55 million resulting from the harsh environment floater that we placed into service inAugust 2019 , (b) approximately$40 million resulting from the reactivations of two ultra-deepwater floaters inBrazil , (c) approximately$30 million resulting from personnel and related costs associated with the COVID-19 pandemic, (d)$30 million related to settlements and litigation and (e) approximately$15 million resulting from offshore and onshore severance costs. These increases were partially offset by the following decreases: (a) approximately$75 million resulting from reduced shipyard and delayed in-service maintenance costs, (b) approximately$35 million resulting from rigs sold or classified as held for sale and (c) approximately$15 million resulting from rigs now stacked or idle. Depreciation and amortization expense decreased for the six months endedJune 30, 2020 , compared to the six months endedJune 30, 2019 , primarily due to$31 million resulting from rigs sold or classified as held for sale subsequent toJune 30, 2019 . General and administrative costs and expenses decreased for the six months endedJune 30, 2020 , compared to the six months endedJune 30, 2019 , primarily due to the following: (a)$5 million resulting from costs recognized in the prior-year period related to the integration of Ocean Rig and (b)$5 million resulting from reduced legal and professional fees, partially offset by (c) $4 million resulting from increased costs related to our cybersecurity program. Loss on impairment of assets-In the six months endedJune 30, 2020 , we recognized a loss on the impairment of assets, including an aggregate net loss of$556 million associated with assets that we determined were impaired at the time we classified them as held for sale, a loss of$31 million associated with the impairment of our midwater floater asset group and a loss of$10 million associated with the impairment of other assets. Other income and expense-Interest expense, net of amounts capitalized, decreased in the six months endedJune 30, 2020 , compared to the six months endedJune 30, 2019 , primarily due to a decrease of$61 million resulting from the debt retired or repaid, including the full redemption of the 9.00% Senior Notes inFebruary 2020 , partially offset by an increase of$42 million resulting from debt issued, including the 8.00% Senior Notes inJanuary 2020 , the 5.375% Senior Secured Notes inMay 2019 and the 6.875% senior secured notes dueFebruary 2027 (the "6.875% Senior Secured Notes") inFebruary 2019 . In the six months endedJune 30, 2020 , we recognized a loss of$65 million associated with the full redemption of the 9.00% Senior Notes, partially offset by an aggregate net gain of$12 million resulting from the retirement of$76 million aggregate principal amount of our debt securities repurchased in the open market. In the six months endedJune 30, 2019 , we recognized a loss of$18 million associated with the retirement of notes validly tendered in the tender offers made in the prior-year period (the "2019 Tendered Notes") and an aggregate net loss of$9 million resulting from the retirement of$130 million aggregate principal amount of our debt securities repurchased in the open market. Other expense, net, increased in the six months endedJune 30, 2020 , compared to the six months endedJune 30, 2019 , primarily due to the following: (a) a loss of$59 million associated with the impairment of our equity-method investment in Orion in the six months endedJune 30, 2020 and (b) a gain of$11 million recognized in the prior-year period resulting from the bargain purchase of Ocean Rig, completed in the year endedDecember 31, 2018 . Income tax expense-In the six months endedJune 30, 2020 and 2019, our effective tax rate was (3.2) percent and (8.3) percent, respectively, based on loss before income tax expense. In the six months endedJune 30, 2020 and 2019, the effect of various discrete period tax items was a net tax benefit of$9 million and$30 million , respectively. In the six months endedJune 30, 2020 , such discrete items included the revenues recognized for the settlement of disputes, the loss on impairment of investment in an unconsolidated affiliate, the carryback of net operating losses in theU.S. as a result of the Coronavirus Aid, Relief, and Economic Security Act which included the release of valuation allowances previously recorded, as well as settlements and expirations of various uncertain tax positions, gains and losses on currency exchange rates and changes to valuation allowances. In the six months endedJune 30, 2019 , such discrete items included settlements and reversals of various uncertain tax positions and adjustments to our deferred taxes for operating structural changes made in theU.S. In the six months endedJune 30, 2020 and 2019, our effective tax rate, excluding discrete items, was (12.0) percent and (18.0) percent, respectively, based on loss before income tax expense. Our effective tax rate in the six months endedJune 30, 2020 compared to the six months endedJune 30, 2019 , increased primarily due to the adoption of a new operating structure, which reduces our exposure to theU.S. base erosion and anti-abuse tax and other cash taxes in theU.S. in the current and future years. To a lesser extent, our effective tax rate decreased due to changes in the relative blend of income from operations in certain jurisdictions.
Due to our operating activities and organizational structure, our income tax expense does not change proportionally with our income before income taxes.
Significant decreases in our income before income taxes typically lead to higher effective tax rates, while significant increases in income before income taxes can lead to lower effective tax rates, subject to the other factors impacting income tax expense noted above. With respect to the effective tax rate calculation for the six months endedJune 30, 2020 , a significant portion of our income tax expense was generated in countries in which income taxes are imposed on gross revenues, with the most significant of these countries beingAngola andIndia . Conversely, the countries in which we incurred the most significant income taxes during this period that were based - 20 -
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on income before income tax includeBrazil ,Canada , theU.S. ,Switzerland , and theU.K. Our rig operating structures further complicate our tax calculations, especially in instances where we have more than one operating structure for the taxing jurisdiction and, thus, more than one method of calculating taxes depending on the operating structure utilized by the rig under the contract.
Liquidity and Capital Resources
Sources and uses of cash
AtJune 30, 2020 , we had$1.5 billion in unrestricted cash and cash equivalents and$437 million in restricted cash and cash equivalents. In the six months endedJune 30, 2020 , our primary sources of cash were (a) net cash proceeds from the issuance of debt and (b) net cash provided by our operating activities.
Our
primary uses of cash were (a) repayments of debt and (b) capital expenditures.
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