Archer 2021 Annual Report
16 17
Board of Directors’ Report
Risk factors
The Group has recorded substantial goodwill as the result of
its acquisitions and goodwill is subject to periodic reviews of
impairment.
The Group performs purchase price allocations to intangible assets
when it makes acquisitions. The excess of the purchase price after
allocation of fair values to tangible assets is allocated to identiiable
intangibles and thereafter to goodwill. The Group conducts periodic
reviews of goodwill for impairment in value. Any impairment would
result in a non-cash charge against earnings in the period reviewed,
which may or may not create a tax beneit, and would cause a
corresponding decrease in shareholders’ equity. In the event that
market conditions deteriorate or there is a prolonged downturn,
the Group may be required to record an impairment of goodwill,
and such impairment could be material.
The Group has operated at a loss in the past and recently, and
there is no assurance of its proitability in the future.
Historically, the Group has experienced periods of low demand
for its services and has incurred operating losses. In the future,
it may not be able to reduce its costs, increase its revenues, or
reduce its debt service obligations suicient to achieve or maintain
proitability and generate positive operating income. Under such
circumstances, the Group may incur further operating losses and
experience negative operating cash low.
The Group may be subject to litigation if another party claims
that the Group has infringed upon its intellectual property rights.
Third parties could assert that the tools, techniques, methodologies,
programs and components the Group uses to provide its services
infringe upon the intellectual property rights of others. Infringement
claims generally result in signiicant legal and other costs and may
distract management from running the Group’s core business.
Additionally, if any of these claims were to be successful, developing
non-infringing technologies and/or making royalty payments
under licenses from third parties, if available, would increase the
Group’s costs.
The Group could be adversely aected if it fails to keep pace
with technological changes and changes in technology could
have a negative result on the Group’s market share.
The Group provides drilling and well services in increasingly
challenging onshore and oshore environments. To meet its
clients’ needs, the Group must continually develop new, and
update existing, technology for the services it provides. In addition,
rapid and frequent technology and market demand changes can
render existing technologies obsolete, requiring substantial new
capital expenditures, and could have a negative impact on the
Group’s market share.
The Group may be subject to claims for personal injury and
property damage, which could materially adversely aect the
Group’s inancial condition and results of operations.
Substantially all of the Group’s operations are subject to hazards
that are customary for exploration and production activity,
including blowouts, reservoir damage, loss of well control, cratering,
oil and gas well ires and explosions, natural disasters, pollution and
mechanical failure. Any of these risks could result in damage to
or destruction of drilling equipment, personal injury and property
damage, suspension of operations, or environmental damage.
The Group may also be subject to property, environmental and
other damage claims by oil and natural gas companies and other
businesses operating oshore and in coastal areas. Litigation
arising from an accident at a location where the Group’s products or
services are used or provided may cause the Group to be named as
a defendant in lawsuits asserting potentially large claims. Generally,
the Group’s contracts provide for the division of responsibilities
between the Group and its customer, and consistent with standard
industry practice, the Group’s clients generally assume, and
indemnify the Group against, some of these risks. There can be no
assurance, however, that these clients will necessarily be inancially
able to indemnify the Group against all risks. Also, the Group may
be eectively prevented from enforcing these indemnities because
of the nature of the Group’s relationship with some of its larger
clients. Additionally, from time to time the Group may not be able
to obtain agreement from its customers to indemnify the Group for
such damages and risks.
To the extent that the Group is unable to transfer such risks to
customers by contract or indemniication agreements, the Group
generally seeks protection through customary insurance to protect
its business against these potential losses. However, the Group has
a signiicant amount of self-insured retention or deductible for
certain losses relating to general liability and property damage.
There is no assurance that such insurance or indemniication
agreements will adequately protect the Group against liability from
all of the consequences of the hazards and risks described above.
The occurrence of an event for which the Group is not fully insured
or indemniied against, or the failure of a customer or insurer to
meet its indemniication or insurance obligations, could result in
substantial losses.
The Group’s insurance coverage may become more expensive,
may become unavailable in the future, and may be inadequate
to cover the Group’s losses.
The Group’s insurance coverage is subject to certain signiicant
deductibles and levels of self-insurance, does not cover all types
of losses and, in some situations, may not provide full coverage for
losses or liabilities resulting from the Group’s operations.
Archer Limited is a holding company, and as a result is dependent
on dividends from its subsidiaries to meet its obligations.
Archer Limited is a holding company and does not conduct any
business operations of its own. Archer Limited’s principal assets
are the equity interests it owns in its operating subsidiaries, either
directly or indirectly. As a result, the Archer Limited is dependent
upon cash dividends, distributions or other transfers it receives
from its subsidiaries to repay any debt it may incur, and to meet
its other obligations. The ability of Archer’s subsidiaries to pay
dividends and make payments to Archer Limited will depend on
their operating results and may be restricted by, among other
things, applicable corporate, tax and other laws and regulations
and agreements of those subsidiaries. For example, the corporate
laws of some jurisdictions prohibit the payment of dividends by
any subsidiary unless the subsidiary has a capital surplus or
net proits in the current or immediately preceding iscal year.
Payments or distributions from Archer’s subsidiaries also could
be subject to restrictions on dividends or repatriation of earnings
under applicable local law, and monetary transfer restrictions in
the jurisdictions in which Archer’s subsidiaries operate. Archer’s
subsidiaries are separate and distinct legal entities. Any right that
Archer Limited has to receive any assets of or distributions from
any subsidiary upon the bankruptcy, dissolution, liquidation or
reorganization of such subsidiary, or to realize proceeds from the
sale of the assets of any subsidiary, will be junior to the claims of
that subsidiary’s creditors, including trade creditors.
Regarding payment of dividends to Archer shareholders, under
the Bermuda Companies Act, dividends cannot be paid if there
are reasonable grounds for believing that (a) The company is, or
would after the payment be, unable to pay its liabilities as they
become due; or (b) The realizable value of the company’s assets
would thereby be less than its liabilities The Company has not
declared a dividend since its inception, and there are restrictions
in the inancing arrangement eectively preventing the Company
from distributing dividend to its shareholders before the loan has
been repaid, reinanced or a dividend distribution is approved by
our Lenders.
The Group’s tax liabilities could increase as a result of tax audits,
inquiries or settlements.
The Group’s operations are, and may in the future become,
subject to audit, inquiry and possible re-assessment by dierent
tax authorities. In accordance with applicable accounting rules
relating to contingencies, management provides for taxes in the
amounts that it considers probable of being payable as a result
of these audits and for which a reasonable estimate may be
made. Management also separately considers if taxes payable in
relation to ilings not yet subject to audit may be higher than the
amounts stated in the Group’s iled tax return and makes additional
provisions for probable risks if appropriate. As forecasting the
ultimate outcome includes some uncertainty, the risk exists that
adjustments will be recognized to the Group’s tax provisions in later
years as and when these and other matters are inalized with the
appropriate tax authorities.
The Group’s operations are subject to a signiicant number of tax
regimes, and changes in legislation or regulations in any one of
the countries in which the Group operates could negatively and
adversely aect the Group’s results of operations.
The Group’s operations are carried out in several countries across
the world, and the Group’s tax ilings are therefore subject to the
jurisdiction of a signiicant number of tax authorities and tax
regimes, as well as cross-border tax treaties between governments.
Furthermore, the nature of the Group’s operations means that
the Group routinely has to deal with complex tax issues (such as
transfer pricing, permanent establishment or similar issues) as well
as competing and developing tax systems where tax treaties may
not exist or where the legislative framework is unclear. In addition,