·

Net income attributable to controlling interest was $36 million, $0.52 per unit, compared with net income attributable to controlling interest of $31 million, $0.45 per unit, in the previous quarter;

·

Cash flows from operating activities were $95 million, up from $78 million in the first quarter of 2016;

·

Distributable cash flow attributable to controlling interest was $36 million, compared with $34 million in the prior quarter;

·

A quarterly distribution of $0.3625 per unit has been declared;

·

Fleet revenue efficiency(1) was 99.7 percent, up from 92.8 percent in the previous quarter;

·

Fleet utilization(2) was 100 percent, unchanged from the first quarter of 2016;

·

Revenues were $155 million, up from $144 million in the prior quarter;

·

Operating and maintenance expense was $53 million, down from $55 million in the previous quarter; and

·

The Annual Effective Tax Rate(3) was 5.4 percent, unchanged from the first quarter of 2016.

Three months ended 

Six months ended 

June 30, 

June 30, 

2016

2015

2016

2015

Operating revenues

Contract drilling revenues

$

$

$

$

Other revenues

Costs and expenses

Operating and maintenance

Depreciation

General and administrative

Loss on impairment

—

—

—

Loss on disposal of assets

—

—

Operating income

Other income

Interest income

—

Interest expense

Income before income tax expense

Income tax expense

Net income

Net income attributable to noncontrolling interest

Net income attributable to controlling interest

$

$

$

$

Earnings per unit—basic

Earnings per common unit

$

$

$

$

Earnings per subordinated unit

$

$

$

$

Earnings per unit—diluted

Earnings per common unit

$

$

$

$

Earnings per subordinated unit

$

$

$

$

Weighted-average units outstanding—basic

Common units

Subordinated units

Weighted-average units outstanding—diluted

Common units

Subordinated units

June 30, 

December 31, 

2016 

2015 

Assets

Cash and cash equivalents

$

$

Accounts receivable

Accounts receivable from affiliates

—

Materials and supplies, net of allowance for obsolescence of $6 at June 30, 2016 and December 31, 2015

Prepaid assets

Total current assets

Property and equipment

Less accumulated depreciation

Property and equipment, net

Deferred income taxes, net

Other assets

Total assets

$

$

Liabilities and equity

Accounts payable to affiliates

$

$

Deferred revenues

Other current liabilities

Total current liabilities

Long-term tax liability

Drilling contract intangible liability

Other long-term liabilities

Total long-term liabilities

Commitments and contingencies

Common units, 40,914,962 and 41,287,810 issued and outstanding at June 30, 2016 and December 31, 2015, respectively

Subordinated units, 27,586,207 issued and outstanding at June 30, 2016 and December 31, 2015

Total members’ equity

Noncontrolling interest

Total equity

Total liabilities and equity

$

$

Six months ended 

June 30, 

2016

2015

Cash flows from operating activities

Net income

$

$

Adjustments to reconcile to net cash provided by operating activities

Amortization of drilling contract intangible

Depreciation

Patent royalties expense

Loss on impairment

—

Deferred income taxes

Other, net

—

Changes in deferred revenues, net

Changes in deferred costs, net

—

Changes in operating assets and liabilities

Net cash provided by operating activities

Cash flows from investing activities

Payments to affiliates for capital expenditures

Proceeds from affiliates for disposal of assets, net

Net cash used in investing activities

Cash flows from financing activities

Distributions of available cash to unitholders

Distributions to holder of noncontrolling interests

Payments to repurchase common units

—

Contributions for parent indemnification of lost revenues

—

Net cash used in financing activities

Net increase in cash and cash equivalents

Cash and cash equivalents at beginning of period

Cash and cash equivalents at end of period

$

$

2Q 2016

1Q 2016

2Q 2015

FY 2015

FY 2014

Discoverer Clear Leader

%  

%  

%  

%  

%

Discoverer Inspiration

%  

%  

%  

%  

%

Development Driller III

%  

%  

%  

%  

%

Total fleet

%  

%  

%  

%  

%

(1)

Revenue efficiency is defined as actual contract drilling revenues for the measurement period divided by the maximum revenue calculation for the measurement period, expressed as a percentage.  Maximum revenue is defined as the greatest amount of contract drilling revenues the drilling unit could earn for the measurement period, excluding amounts related to incentive provisions.

Three months ended

Six months ended

June 30,

March 31,

June 30,

June 30,

June 30,

2016

2016

2015

2016

2015

Income (loss) before income taxes

$

$

$

$

$

Add back (subtract):

Loss on impairment of goodwill

— 

— 

— 

— 

Adjusted income before income taxes

$

$

$

$

$

Income tax (benefit) expense

Add back (subtract):

Changes in estimates (1)

— 

— 

— 

— 

— 

Adjusted income tax expense

$

$

$

$

$

Effective Tax Rate (2)

%  

%  

%  

%  

Annual Effective Tax Rate (3)

%  

%  

%  

%  

(1)

Our estimates change as we file tax returns, settle disputes with tax authorities or become aware of other events and include changes in (a) deferred taxes, (b) valuation of allowances on deferred taxes and (c) other tax liabilities.

(2)

Effective Tax Rate is income tax expense for continuing operations, divided by income from continuing operations before income taxes.

(3)

Annual Effective Tax Rate is income tax expense for continuing operations, excluding various discrete items (such as changes in estimates and tax on items excluded from income before income taxes) divided by income from continuing operations before income tax expense excluding gains and losses on sales and similar items pursuant to the accounting standards for income taxes and estimating the annual effective tax rate.

Trailing

Year

Three months ended

12

ended

06/30/16

03/31/16

12/31/15

09/30/15

months

12/31/15

Net income (loss)

$

$

$

$

$

$

Plus:

Income tax expense

Interest income

— 

— 

— 

Interest expense

— 

— 

— 

Depreciation expense

EBITDA

Plus:

Recognition of prior certification costs and license fees

— 

Recognition of patent royalties expense

Loss on impairment of goodwill

— 

— 

— 

Less:

Recognition of drilling contract intangible

Recognition of pre-operating revenues

Adjusted EBITDA

Plus:

Planned out-of-service operating and maintenance expense

— 

Cash proceeds from pre-operating revenues associated with long-term receivables

Less:

Estimated maintenance and replacement capital expenditures

Cash interest income, net

— 

— 

— 

Cash income taxes

Distributable Cash Flow

Distributable cash flow attributable to noncontrolling interest

Distributable cash flow attributable to controlling interest

$

$

$

$

$

$

Aggregate declared distribution to unitholders

$

$

$

$

$

$

Distribution coverage ratio

1.44x

1.37x

1.51x

0.64x

1.24x

1.25x

Trailing

Year

Three months ended

12

ended

06/30/16

03/31/16

12/31/15

09/30/15

months

12/31/15

Net cash provided by operating activities

$

$

$

$

$

$

Plus:

Changes in operating assets and liabilities

Changes in deferred revenues, net

Changes in deferred costs, net

Interest income, net of interest expense

— 

— 

— 

Income tax expense, current

— 

Recognition of drilling contract intangible

Recognition of patent royalties expense

Loss on impairment of goodwill

— 

— 

— 

Other, net

— 

EBITDA

Plus:

Recognition of prior certification costs and license fees

— 

Recognition of patent royalties expense

Loss on impairment of goodwill

— 

— 

— 

Less:

Recognition of drilling contract intangible

Recognition of pre-operating revenues

Adjusted EBITDA

Plus:

Planned out-of-service operating and maintenance expense

— 

Cash proceeds from pre-operating revenues associated with long-term receivables

Less:

Estimated maintenance and replacement capital expenditures

Cash interest income, net

— 

— 

— 

Cash income taxes

Distributable Cash Flow

Distributable cash flow attributable to noncontrolling interest

Distributable cash flow attributable to controlling interest

$

$

$

$

$

$

Aggregate declared distribution to unitholders

$

$

$

$

$

$

Distribution coverage ratio

1.44x

1.37x

1.51x

0.64x

1.24x

1.25x

YTD

QTD

QTD

06/30/16

06/30/16

03/31/16

Adjusted Net Income

Net income attributable to controlling interest, as reported

$

$

$

Add back (subtract):

Discrete tax items and other, net

— 

— 

— 

Net income, as adjusted

$

$

$

Adjusted Diluted Earnings Per Unit:

Diluted earnings per unit, as reported

$

$

$

Add back (subtract):