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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549  

Form 10-Q

☒    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021
OR
☐    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission File Number: 001-36590
Independence Contract Drilling, Inc.
(Exact name of registrant as specified in its charter)
Delaware 37-1653648
(State or other jurisdiction of
incorporation or organization) 		(I.R.S. Employer
Identification No.)
20475 State Highway 249, Suite 300
Houston, TX 77070
(Address of principal executive offices)

(281) 598-1230
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading symbol(s) Name of each exchange where registered
Common Stock, $0.01 par value per share ICD New York Stock Exchange
    Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes   x    No  ¨
    Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨
    Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer ¨ Accelerated Filer ☐
Non-Accelerated Filer
☒ 
Smaller Reporting Company ☒
Emerging Growth Company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
    Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐  No x
    6,518,180 shares of the registrant’s Common Stock were outstanding as of April 30, 2021.


INDEPENDENCE CONTRACT DRILLING, INC.
Index to Form 10-Q
Part I. FINANCIAL INFORMATION
4
5
6
7
9
23
33
34
Part II. OTHER INFORMATION
35
35
36
36
36
36
36
37

 
2


CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Various statements contained in this Quarterly Report on Form 10-Q, including those that express a belief, expectation or intention, as well as those that are not statements of historical fact, may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may include projections and estimates concerning the timing and success of specific projects and our future revenues, income and capital spending. Our forward-looking statements are generally accompanied by words such as “estimate,” “project,” “predict,” “believe,” “expect,” “anticipate,” “potential,” “plan,” “goal,” “will” or other words that convey the uncertainty of future events or outcomes. We have based these forward-looking statements on our current expectations and assumptions about future events. While our management considers these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict and many of which are beyond our control. These and other important factors may cause our actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements. These risks, contingencies and uncertainties include, but are not limited to, the following:
•inability to predict the duration or magnitude of the effects of the COVID-19 pandemic on our business, operations, and financial condition and when or if worldwide oil demand will stabilize and begin to improve;
•a decline in or substantial volatility of crude oil and natural gas commodity prices;
•a sustained decrease in domestic spending by the oil and natural gas exploration and production industry;
•fluctuation of our operating results and volatility of our industry;
•inability to maintain or increase pricing of our contract drilling services, or early termination of any term contract for which early termination compensation is not paid;
•our backlog of term contracts declining rapidly;
•the loss of any of our customers, financial distress or management changes of potential customers or failure to obtain contract renewals and additional customer contracts for our drilling services;
•overcapacity and competition in our industry;
•an increase in interest rates and deterioration in the credit markets;
•our inability to comply with the financial and other covenants in debt agreements that we may enter into as a result of reduced revenues and financial performance;
•unanticipated costs, delays and other difficulties in executing our long-term growth strategy;
•the loss of key management personnel;
•new technology that may cause our drilling methods or equipment to become less competitive;
•labor costs or shortages of skilled workers;
•the loss of or interruption in operations of one or more key vendors;
•the effect of operating hazards and severe weather on our rigs, facilities, business, operations and financial results, and limitations on our insurance coverage;
•increased regulation of drilling in unconventional formations;
•the incurrence of significant costs and liabilities in the future resulting from our failure to comply with new or existing environmental regulations or an accidental release of hazardous substances into the environment; and
•the potential failure by us to establish and maintain effective internal control over financial reporting.
All forward-looking statements are necessarily only estimates of future results, and there can be no assurance that actual results will not differ materially from expectations, and, therefore, you are cautioned not to place undue reliance on such statements. Any forward-looking statements are qualified in their entirety by reference to the factors discussed throughout this Form 10-Q and Part I, “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020. Further, any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events.

 
3


PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Independence Contract Drilling, Inc.
Consolidated Balance Sheets
(Unaudited)
(in thousands, except par value and share amounts)
March 31, 2021 December 31, 2020
Assets
Cash and cash equivalents $ 5,440  $ 12,279 
Accounts receivable, net 10,340  10,023 
Inventories 1,071  1,038 
Assets held for sale 507  — 
Prepaid expenses and other current assets 3,920  4,102 
Total current assets 21,278  27,442 
Property, plant and equipment, net 373,749  382,239 
Other long-term assets, net 3,271  3,528 
Total assets $ 398,298  $ 413,209 
Liabilities and Stockholders’ Equity
Liabilities
Current portion of long-term debt $ 12,093  $ 7,637 
Accounts payable 4,837  4,072 
Accrued liabilities 9,472  10,723 
Total current liabilities 26,402  22,432 
Long-term debt 132,954  137,633 
Merger consideration payable to an affiliate 2,902  2,902 
Deferred income taxes, net 539  505 
Other long-term liabilities 2,655  2,704 
Total liabilities 165,452  166,176 
Commitments and contingencies (Note 12)
Stockholders’ equity
Common stock, $0.01 par value, 50,000,000 shares authorized; 6,594,158 and 6,254,396 shares issued, respectively, and 6,515,580 and 6,175,818 shares outstanding, respectively
65  62 
Additional paid-in capital 519,783  517,948 
Accumulated deficit (283,089) (267,064)
Treasury stock, at cost, 78,578 shares and 78,578 shares, respectively
(3,913) (3,913)
Total stockholders’ equity 232,846  247,033 
Total liabilities and stockholders’ equity $ 398,298  $ 413,209 
The accompanying notes are an integral part of these consolidated financial statements.
4


Independence Contract Drilling, Inc.
Consolidated Statements of Operations
(Unaudited)
(in thousands, except per share amounts)
Three Months Ended March 31,
2021 2020
Revenues $ 15,542  $ 38,494 
Costs and expenses
Operating costs 14,541  30,229 
Selling, general and administrative 3,686  3,761 
Severance expense —  1,076 
Depreciation and amortization 9,989  11,516 
Asset impairment 43  16,619 
Gain on disposition of assets, net (435) (46)
Total costs and expenses 27,824  63,155 
Operating loss (12,282) (24,661)
Interest expense (3,709) (3,604)
Loss before income taxes (15,991) (28,265)
Income tax expense (benefit) 34  (42)
Net loss $ (16,025) $ (28,223)
Loss per share:
Basic and diluted $ (2.58) $ (7.53)
Weighted average number of common shares outstanding:
Basic and diluted 6,215  3,750 
The accompanying notes are an integral part of these consolidated financial statements.
 
5


Independence Contract Drilling, Inc.
Consolidated Statements of Stockholders’ Equity
(Unaudited)
(in thousands, except share amounts)
Common Stock
Shares Amount Additional Paid-in Capital Accumulated Deficit Treasury Stock Total Stockholders’ Equity
Balances at December 31, 2020 6,175,818  $ 62  $ 517,948  $ (267,064) $ (3,913) $ 247,033 
RSUs vested, net of shares withheld for taxes 25,285  —  (11) —  —  (11)
Issuance of common stock through at-the-market facility, net of offering costs 140,377  1  520  —  —  521 
Issuance of common stock under purchase agreement 174,100  2  872  —  —  874 
Stock-based compensation —  —  454  —  —  454 
Net loss —  —  —  (16,025) —  (16,025)
Balances at March 31, 2021 6,515,580  $ 65  $ 519,783  $ (283,089) $ (3,913) $ 232,846 

Common Stock
Shares Amount Additional Paid-in Capital Accumulated Deficit Treasury Stock Total Stockholders’ Equity
Balances at December 31, 2019 3,812,050  $ 38  $ 505,831  $ (170,426) $ (3,847) $ 331,596 
RSUs vested, net of shares withheld for taxes 11,941  —  (26) —  —  (26)
Purchase of treasury stock (14,443) —  —  —  (66) (66)
Stock-based compensation —  —  570  —  —  570 
Net loss —  —  —  (28,223) —  (28,223)
Balances at March 31, 2020 3,809,548  $ 38  $ 506,375  $ (198,649) $ (3,913) $ 303,851 
The accompanying notes are an integral part of these consolidated financial statements.
6


Independence Contract Drilling, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
Three Months Ended March 31,
2021 2020
Cash flows from operating activities
Net loss $ (16,025) $ (28,223)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities
Depreciation and amortization 9,989  11,516 
Asset impairment 43  16,619 
Stock-based compensation 537  570 
Gain on disposition of assets, net (435) (46)
Deferred income taxes 34  (42)
Amortization of deferred financing costs 279  204 
Bad debt expense —  16 
Changes in operating assets and liabilities
Accounts receivable (317) 8,925 
Inventories (33) (27)
Prepaid expenses and other assets 323  (462)
Accounts payable and accrued liabilities (685) (5,959)
Net cash (used in) provided by operating activities (6,290) 3,091 
Cash flows from investing activities
Purchases of property, plant and equipment (1,742) (9,139)
Proceeds from the sale of assets 654  628 
Collection of principal on note receivable —  145 
Net cash used in investing activities (1,088) (8,366)
Cash flows from financing activities
Borrowings under Revolving ABL Credit Facility —  11,038 
Repayments under Revolving ABL Credit Facility (8) (38)
Proceeds from issuance of common stock through at-the-market facility, net of issuance costs 521  — 
Proceeds from issuance of common stock under purchase agreement 874  — 
Purchase of treasury stock —  (66)
RSUs withheld for taxes (11) (26)
Payments for finance lease obligations (837) (1,086)
Net cash provided by financing activities 539  9,822 
Net (decrease) increase in cash and cash equivalents (6,839) 4,547 
Cash and cash equivalents
Beginning of period 12,279  5,206 
End of period $ 5,440  $ 9,753 
7


Three Months Ended March 31,
(in thousands) 2021 2020
Supplemental disclosure of cash flow information
Cash paid during the period for interest $ 3,171  $ 3,541 
Supplemental disclosure of non-cash investing and financing activities
Change in property, plant and equipment purchases in accounts payable $ 70  $ (5,285)
Additions to property, plant and equipment through finance leases $ 376  $ 55 
Extinguishment of finance lease obligations from sale of assets classified as finance leases $ —  $ (204)
Transfer of assets from held and used to held for sale $ (550) $ — 
The accompanying notes are an integral part of these consolidated financial statements.
8


INDEPENDENCE CONTRACT DRILLING, INC.
Notes to Consolidated Financial Statements
(Unaudited)
1.    Nature of Operations and Recent Events
Except as expressly stated or the context otherwise requires, the terms “we,” “us,” “our,” “ICD,” and the “Company” refer to Independence Contract Drilling, Inc. and its subsidiary.
We provide land-based contract drilling services for oil and natural gas producers targeting unconventional resource plays in the United States. We own and operate a premium fleet comprised of modern, technologically advanced drilling rigs.
We currently focus our operations on unconventional resource plays located in geographic regions that we can efficiently support from our Houston, Texas and Midland, Texas facilities in order to maximize economies of scale. Currently, our rigs are operating in the Permian Basin, the Haynesville Shale and the Eagle Ford Shale; however, our rigs have previously operated in the Mid-Continent and Eaglebine regions as well.
Our business depends on the level of exploration and production activity by oil and natural gas companies operating in the United States, and in particular, the regions where we actively market our contract drilling services. The oil and natural gas exploration and production industry is historically cyclical and characterized by significant changes in the levels of exploration and development activities. Oil and natural gas prices and market expectations of potential changes in those prices significantly affect the levels of those activities. Worldwide political, regulatory, economic and military events, as well as natural disasters have contributed to oil and natural gas price volatility historically, and are likely to continue to do so in the future. Any prolonged reduction in the overall level of exploration and development activities in the United States and the regions where we market our contract drilling services, whether resulting from changes in oil and natural gas prices or otherwise, could materially and adversely affect our business.
COVID-19 Pandemic and Market Conditions Update
On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus (“COVID-19”) and the risks to the international community as the virus spread globally. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally. The continued spread of the COVID-19 virus and the responses taken to try to contain the virus, such as travel bans and restrictions, quarantines, shelter in place orders, and shutdowns, caused significant declines in global demand for crude oil. This reduction in demand occurred concurrent with the initiation of a crude oil price war between members of the Organization of the Petroleum Exporting Countries (“OPEC”) and Russia (collectively, the “OPEC+” group). Even with the production cuts announced by the OPEC+ group and others on April 9, 2020, and the cessation to the crude oil price war, crude oil inventories continued to rise and to test storage capacity and logistics networks. These factors led to a collapse in oil prices, with the WTI price for May 2020 delivery closing at negative $37.63 per barrel on April 20, 2020. Oil prices have recently recovered with the WTI price reaching $63.33 on April 19, 2021 supported by production cuts by OPEC+.
The long-term effects of the pandemic on production and demand are unknown at this time. While vaccinations have become available and made progress in certain regions during the first quarter of 2021, considerable uncertainty remains regarding ongoing measures to contain the virus, including travel restrictions, as well as uncertainty on how long OPEC+ will continue to maintain current production cuts. Accordingly, we cannot predict when worldwide supply and demand for oil will stabilize.
In response to these adverse market conditions and uncertainty, our customers reduced planned capital expenditures and drilling activity throughout 2020. During the first quarter of 2020, our operating rig count reached a peak of 22 rigs and temporarily reached a low of three rigs during the third quarter of 2020. During the third quarter, oil and natural gas prices began to stabilize, and demand for our products began to modestly improve from their historic lows, which allowed us to reactivate additional rigs during the back half of 2020. As of April 30, 2021, we had 13 contracted rigs. However, due to the lack of visibility and confidence towards customer intentions and the unknown future impacts of COVID-19 and changes to OPEC+ production cuts on economic conditions and oil and gas demand and drilling activity, we cannot assure you that we will be able to maintain this operating rig count or that our operating rig count will continue to improve in the future. Two contracts that expired at the end of 2020 had higher dayrates than prevailing spot rates. As a result, although our operating rig count has been increasing, these rigs are being contracted at prevailing market rates that remain depressed, and we expect to see our average revenue per day decline.
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Due to these rapidly declining market conditions, we took the following actions at the end of the first quarter of 2020 in order to reduce our cost structure:
•Salary or compensation reductions for substantially all our employees, including members of executive management;
•Suspension of all cash-based incentive compensation, including all members of executive management;
•Reduced the number of executive management positions by two;
•Reduced the number of directors from seven to five, which became effective following director elections at our 2020 Annual Meeting of Stockholders;
•Annual compensation reductions for our directors; and
•Reduced headcount significantly for non-field-based personnel.
On March 27, 2020, President Trump signed into law the “Coronavirus Aid, Relief, and Economic Security (CARES) Act.” The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations, increased limitations on qualified charitable contributions, and technical corrections to tax depreciation methods for qualified improvement property. The social security deferral program ended December 31, 2020. We deferred $0.8 million of employer side social security payments during the year ended December 31, 2020.
The CARES Act did not have a material impact on our income taxes.  Management will continue to monitor future developments and interpretations for any further impacts on our financial condition, results of operations, or liquidity.
We cannot predict the length of time that the market disruptions resulting from the COVID-19 pandemic will continue; or when, or if, oil and gas prices and demand for our contract drilling services will decline, continue to improve or return to pre-COVID-19 levels. The extent to which our operating and financial results are affected by the COVID-19 pandemic will depend on various factors and consequences beyond our control, such as the duration and scope of the pandemic; additional actions by businesses and governments in response to the pandemic; and the speed and effectiveness of responses to combat the virus. As a result, our business, operating results and financial conditions are subject to various risks, many of which are aggravated as a result of the declining market conditions and significant uncertainty caused by the COVID-19 pandemic.
ATM Offering
On June 5, 2020, we entered into an equity distribution agreement (the “Agreement”) with Piper Sandler & Co. (the “Agent”), through its Simmons Energy division. Pursuant to the Agreement, we were able to offer and sell through the Agent shares of our common stock, par value $0.01 per share, having an aggregate offering price of up to $11,000,000 (the “Shares”). We issued and sold approximately $11 million in shares of common stock during 2020.
On March 8, 2021, in conjunction with the equity distribution agreement entered into on June 5, 2020, our board of directors authorized an additional $2.2 million in shares of common stock to be sold in transactions that are deemed to be “at the market offerings.” As of March 31, 2021, we raised gross proceeds of $0.7 million from the sale of shares in the offering.
Common Stock Purchase Agreement
On November 11, 2020, we entered into a Common Stock Purchase Agreement (the “Commitment Purchase Agreement”) and a Registration Rights Agreement (the “Registration Rights Agreement”) with Tumim Stone Capital LLC (“Tumim”). Pursuant to the Commitment Purchase Agreement, the Company has the right to sell to Tumim up to $5,000,000 (the “Total Commitment”) in shares of its common stock, par value $0.01 per share (the “Shares”) (subject to certain conditions and limitations) from time to time during the term of the Commitment Purchase Agreement. Sales of common stock pursuant to the Commitment Purchase Agreement, and the timing of any sales, are solely at our option and we are under no obligation to sell securities pursuant to this arrangement. Shares may be sold by the Company pursuant to this arrangement over a period of up to 24 months, commencing on December 1, 2020.
Under the applicable rules of the New York Stock Exchange (“NYSE”), in no event may we issue more than 1,234,546 shares of our common stock, which represents 19.99% of the shares of our common stock outstanding immediately prior to the execution of the Commitment Purchase Agreement (the “Exchange Cap”), to Tumim under the Commitment Purchase Agreement, unless (i) we obtain stockholder approval to issue shares of our common stock in excess of the Exchange Cap or (ii) the price of all applicable sales of our common stock to Tumim under the Commitment Purchase Agreement equals or exceeds the lower of (A) the official closing price on the NYSE immediately preceding the delivery by us of an applicable
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purchase notice under the Commitment Purchase Agreement and (B) the average of the closing prices of our common stock on the NYSE for the five business days immediately preceding the delivery by us of an applicable purchase notice under the Commitment Purchase Agreement, in each case plus $0.128, such that the transactions contemplated by the Commitment Purchase Agreement are exempt from the Exchange Cap limitation under applicable NYSE rules. In any event, the Commitment Purchase Agreement specifically provides that we may not issue or sell any shares of our common stock under the Commitment Purchase Agreement if such issuance or sale would breach any applicable rules or regulations of the NYSE. The Company has also limited the aggregate number of shares of common stock reserved for issuance under the Commitment Purchase Agreement to 1,500,000 shares without subsequent board approval.
In all instances, we may not sell shares of our common stock to Tumim under the Commitment Purchase Agreement if it would result in Tumim beneficially owning more than 4.99% of the common stock (the “Beneficial Ownership Cap”).
The proceeds under the Commitment Purchase Agreement will depend on the frequency and prices at which the Company sells shares of its stock to Tumim. We determined that the right to sell additional shares represents a freestanding put option under ASC 815 Derivatives and Hedging, but has a fair value of zero, and therefore no additional accounting was required. Transaction costs of $0.5 million, incurred in connection with entering into the Purchase Agreement were expensed as selling, general and administrative expense during the fourth quarter of 2020. During the first quarter of 2021, we sold 174,100 shares for a total of $0.9 million in proceeds.
2.    Interim Financial Information
These unaudited consolidated financial statements include the accounts of ICD and its subsidiary, and have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). These consolidated financial statements should be read along with our audited consolidated financial statements for the year ended December 31, 2020, included in our Annual Report on Form 10-K for the year ended December 31, 2020. In management’s opinion, these financial statements contain all adjustments necessary to fairly present our financial position, results of operations, cash flows and changes in stockholders’ equity for all periods presented.
As we had no items of other comprehensive income in any period presented, no other components of comprehensive income is presented.
Interim results for the three months ended March 31, 2021 may not be indicative of results that will be realized for the full year ending December 31, 2021.
Segment and Geographical Information
Our operations consist of one reportable segment because all of our drilling operations are located in the United States and have similar economic characteristics. Corporate management administers all properties as a whole rather than as discrete operating segments. Operational data is tracked by rig; however, financial performance is measured as a single enterprise and not on a rig-by-rig basis. Further, the allocation of capital resources is employed on a project-by-project basis across our entire asset base to maximize profitability without regard to individual geographic areas.
Asset Impairment
During the first quarter of 2021, our management committed to a plan to sell one of our field location facilities. As a result, we reclassified an aggregate $0.5 million of land and buildings to assets held for sale on our March 31, 2021 balance sheet and recognized a $43 thousand impairment charge representing the difference between the carrying value and the fair value, less the costs to sell the related property.
During the three months ended March 31, 2020, as a result of the rapidly deteriorating market conditions described in “COVID-19 Pandemic and Market Conditions Update”, we concluded that a triggering event occurred and, accordingly, an interim asset impairment test was performed as of March 31, 2020. As a result, we further impaired $3.3 million associated with the decline in the market value of our assets held for sale and $13.3 million related to the remaining assets on rigs removed from our marketed fleet, as well as certain other component equipment and inventory.
Recent Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments, as additional guidance on the measurement of credit losses on financial instruments. The new guidance requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions and reasonable supportable forecasts. In addition, the guidance amends the accounting for credit losses on available-for-sale debt
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securities and purchased financial assets with credit deterioration. The new guidance is effective for public companies for interim and annual periods beginning after December 15, 2019, with early adoption permitted for interim and annual periods beginning after December 15, 2018. In October 2019, the FASB approved a proposal which grants smaller reporting companies additional time to implement FASB standards on current expected credit losses (CECL) to January 2023. As a smaller reporting company, we will defer adoption of ASU 2016-13 until January 2023. We are currently evaluating the impact this guidance will have on our consolidated financial statements.
In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes, to simplify the accounting for income taxes. The amendments in the update are effective for public companies for interim and annual periods beginning after December 15, 2020, with early adoption permitted. We adopted this guidance on January 1, 2021 and there has been no material impact on our consolidated financial statements.
On April 1, 2020, we adopted the standard, ASU 2020-04, Reference Rate Reform: Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform (e.g., discontinuation of LIBOR) if certain criteria are met. In January 2021, the FASB issued ASU No. 2021-01, Reference Rate Reform to provide clarifying guidance regarding the scope of Topic 848, effective immediately. As of March 31, 2021, we have not yet elected any optional expedients provided in the standard. We will apply the accounting relief as relevant contract and hedge accounting relationship modifications are made during the reference rate reform transition period. We do not expect the standard to have a material impact on our consolidated financial statements.
In August 2020, the FASB issued ASU No. 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity, to simplify the accounting for convertible instruments by removing certain separation models in Subtopic 470-20, Debt-Debt with Conversion and Other Options, for convertible instruments. The pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2021, with early adoption permitted. We are currently evaluating the impact this guidance will have on our consolidated financial statements.
3.     Revenue from Contracts with Customers
The following table summarizes revenues from our contracts disaggregated by revenue generating activity contained therein for the three months ended March 31, 2021 and 2020:
Three Months Ended March 31,
(in thousands) 2021 2020
Dayrate drilling $ 14,261  $ 34,478 
Mobilization 522  1,541 
Reimbursables 759  2,448 
Early termination —  27 
Total revenue $ 15,542  $ 38,494 
The following table provides information about receivables, contract assets and contract liabilities related to contracts with customers:
(in thousands) March 31, 2021 December 31, 2020
Receivables, which are included in “Accounts receivable, net” $ 10,261  $ 9,772 
Contract assets, which are included in "Prepaid expenses and other current assets" $ 32  $ — 
Contract liabilities, which are included in “Accrued liabilities - deferred revenue” $ (208) $ (119)
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Significant changes in contract assets and contract liabilities balances during the period are as follows:
Three Months Ended March 31,
(in thousands) 2021 2020
Revenue recognized that was included in contract liabilities at beginning of period $ 119  $ 311 
Decrease (increase) in contract liabilities due to cash received, excluding amounts recognized as revenue $ (208) $ (505)
The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) as of March 31, 2021. The estimated revenue does not include amounts of variable consideration that are constrained.
Year Ending December 31,
(in thousands) 2021 2022 2023 2024
Revenue $ 217  $ —  $ —  $ — 
The amounts presented in the table above consist only of fixed consideration related to fees for rig mobilizations and demobilizations, if applicable, which are allocated to the drilling services performance obligation as such performance obligation is satisfied. We have elected the exemption from disclosure of remaining performance obligations for variable consideration. Therefore, dayrate revenue to be earned on a rate scale associated with drilling conditions and level of service provided for each fractional-hour time increment over the contract term and other variable consideration such as penalties and reimbursable revenues, have been excluded from the disclosure.
Contract Costs
We capitalize costs incurred to fulfill our contracts that (i) relate directly to the contract, (ii) are expected to generate resources that will be used to satisfy our performance obligations under the contract and (iii) are expected to be recovered through revenue generated under the contract. These costs, which principally relate to rig mobilization costs at the commencement of a new contract, are deferred as a current or noncurrent asset (depending on the length of the contract term), and amortized ratably to contract drilling expense as services are rendered over the initial term of the related drilling contract. Such contract costs, recorded as “Prepaid expenses and other current assets”, amounted to $0.2 million and $0.1 million on our consolidated balance sheets at March 31, 2021 and December 31, 2020, respectively. During the three months ended March 31, 2021, contract costs increased by $0.5 million, and we amortized $0.4 million of contract costs. During the three months ended March 31, 2020, contract costs increased by $1.2 million, and we amortized $0.8 million of contract costs.
4.     Leases
We have multi-year operating and financing leases for corporate office space, field location facilities, land, vehicles and various other equipment used in our operations. We also have a significant number of rentals related to our drilling operations that are day-to-day or month-to-month arrangements. Our multi-year leases have remaining lease terms of greater than one year to four years.
The components of lease expense were as follows:
Three Months Ended March 31,
(in thousands) 2021 2020
Operating lease expense $ 235  $ 149 
Short-term lease expense 550  1,281 
Variable lease expense 97  134 
Finance lease expense:
Amortization of right-of-use assets $ 259  $ 392 
Interest expense on lease liabilities 166  195 
Total finance lease expense 425  587 
Total lease expense $ 1,307  $ 2,151 
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Supplemental cash flow information related to leases is as follows:
Three Months Ended March 31,
(in thousands) 2021 2020
Cash paid for amounts included in measurement of lease liabilities:
Operating cash flows from operating leases $ 241  $ 160 
Operating cash flows from finance leases $ 164  $ 194 
Financing cash flows from finance leases $ 837  $ 1,086 
Right-of-use assets obtained or recorded in exchange for lease obligations:
Operating leases $ —  $ 178 
Finance leases $ 376  $ 54 
Supplemental balance sheet information related to leases is as follows:
(in thousands) March 31, 2021 December 31, 2020
Operating leases:
Other long-term assets, net $ 1,966  $ 2,150 
Accrued liabilities $ 908  $ 964 
Other long-term liabilities 1,544  1,729 
Total operating lease liabilities $ 2,452  $ 2,693 
Finance leases:
Property, plant and equipment $ 14,076  $ 13,700 
Accumulated depreciation (1,239) (981)
Property, plant and equipment, net $ 12,837  $ 12,719 
Current portion of long-term debt $ 3,522  $ 3,351 
Long-term debt 3,940  4,570 
Total finance lease liabilities $ 7,462  $ 7,921 
Weighted-average remaining lease term
Operating leases 3.0 years 3.2 years
Finance leases 1.8 years 2.0 years
Weighted-average discount rate
Operating leases 10.68  % 8.25  %
Finance leases 8.89  % 8.88  %
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Maturities of lease liabilities at March 31, 2021 were as follows:
(in thousands) Operating Leases Finance Leases
2021 $ 888  $ 3,043 
2022 840  4,377 
2023 760  662 
2024 372  74 
2025 —  — 
Thereafter —  — 
Total cash lease payment 2,860  8,156 
Less: imputed interest (408) (694)
Total lease liabilities $ 2,452  $ 7,462 
5.    Financial Instruments and Fair Value
Fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, there exists a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
Level 1    Unadjusted quoted market prices for identical assets or liabilities in an active market;
Level 2     Quoted market prices for identical assets or liabilities in an active market that have been adjusted for items such as effects of restrictions for transferability and those that are not quoted but are observable through corroboration with observable market data, including quoted market prices for similar assets or liabilities; and
Level 3    Unobservable inputs for the asset or liability only used when there is little, if any, market activity for the asset or liability at the measurement date.
This hierarchy requires us to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value.
The carrying value of certain of our assets and liabilities, consisting primarily of cash and cash equivalents, accounts receivable, accounts payable and certain accrued liabilities approximates their fair value due to the short-term nature of such instruments.
The fair value of our long-term debt and merger consideration payable to an affiliate are determined by Level 3 measurements based on quoted market prices and terms for similar instruments, where available, and on the amount of future cash flows associated with the debt, discounted using our current borrowing rate for comparable debt instruments (the Income Method). Based on our evaluation of the risk free rate, the market yield and credit spreads on comparable company publicly traded debt issues, we used an annualized discount rate, including a credit valuation allowance, of 10.4%. The following table summarizes the carrying value and fair value of our long-term debt and merger consideration payable to an affiliate as of March 31, 2021 and December 31, 2020.
March 31, 2021 December 31, 2020
(in thousands) Carrying Value Fair Value Carrying Value Fair Value
Term Loan Facility $ 130,000  $ 124,599  $ 130,000  $ 106,854 
Revolving ABL Credit Facility $ —  $ —  $ 8  $ 6 
PPP Loan $ 10,000  $ 9,154  $ 10,000  $ 8,589 
Merger consideration payable to an affiliate $ 2,902  $ 3,873  $ 2,902  $ 3,490 
The fair value of our assets held for sale is determined using Level 3 measurements. Fair value measurements are applied with respect to our non-financial assets and liabilities measured on a non-recurring basis, which would consist of measurements primarily of long-lived assets.
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6.    Inventories
All of our inventory as of March 31, 2021 and December 31, 2020 consisted of supplies held for use in our drilling operations.
7.    Accrued Liabilities
Accrued liabilities consisted of the following:
(in thousands) March 31, 2021 December 31, 2020
Accrued salaries and other compensation $ 1,961  $ 1,472 
Insurance 1,008  2,127 
Deferred revenues 208  119 
Property and other taxes 1,651  2,166 
Interest 3,472  3,573 
Operating lease liability - current 908  964 
Other 264  302 
$ 9,472  $ 10,723 
8.    Long-term Debt
Our long-term debt consisted of the following:
(in thousands) March 31, 2021 December 31, 2020
Term Loan Facility due October 1, 2023 $ 130,000  $ 130,000 
Revolving ABL Credit Facility due October 1, 2023 —  8 
PPP Loan 10,000  10,000 
Finance lease obligations 7,462  7,921 
147,462  147,929 
Less: current portion of PPP Loan (8,571) (4,286)
Less: current portion of finance leases (3,522) (3,351)
Less: Term Loan Facility deferred financing costs (2,415) (2,659)
Long-term debt $ 132,954  $ 137,633 
Credit Facilities
On October 1, 2018, we entered into a term loan Credit Agreement (the “Term Loan Credit Agreement”) for an initial term loan in an aggregate principal amount of $130.0 million, (the “Term Loan Facility”) and (b) a delayed draw term loan facility in an aggregate principal amount of up to $15.0 million (the “DDTL Facility”, and together with the Term Loan Facility, the “Term Facilities”). The Term Facilities have a maturity date of October 1, 2023, at which time all outstanding principal under the Term Facilities and other obligations become due and payable in full.
At our election, interest under the Term Loan Facility is determined by reference at our option to either (i) a “base rate” equal to the higher of (a) the federal funds effective rate plus 0.05%, (b) the London Interbank Offered Rate (“LIBOR”) with an interest period of one month, plus 1.0%, and (c) the rate of interest as publicly quoted from time to time by the Wall Street Journal as the “prime rate” in the United States, plus an applicable margin of 6.5%, or (ii) a “LIBOR rate” equal to LIBOR with an interest period of one month, plus an applicable margin of 7.5%.
The Term Loan Credit Agreement contains financial covenants, including a liquidity covenant of $10.0 million and a springing fixed charge coverage ratio covenant of 1.00 to 1.00 that is tested when availability under the ABL Credit Facility (defined below) and the DDTL Facility is below $5.0 million at any time that a DDTL Facility loan is outstanding. The Term Loan Credit Agreement also contains other customary affirmative and negative covenants, including limitations on indebtedness, liens, fundamental changes, asset dispositions, restricted payments, investments and transactions with affiliates. The Term Loan Credit Agreement also provides for customary events of default, including breaches of material covenants, defaults under the ABL Credit Facility or other material agreements for indebtedness, and a change of control. We are in compliance with our covenants as of March 31, 2021.
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The obligations under the Term Loan Credit Agreement are secured by a first priority lien on collateral (the “Term Priority Collateral”) other than accounts receivable, deposit accounts and other related collateral pledged as first priority collateral (“Priority Collateral”) under the ABL Credit Facility (defined below) and a second priority lien on such Priority Collateral, and are unconditionally guaranteed by all of our current and future direct and indirect subsidiaries. MSD PCOF Partners IV, LLC (an affiliate of MSD Partners, L.P. "MSD Partners") is the lender of our $130.0 million Term Loan Facility. 
In July 2019, we revised our Term Loan Credit Agreement to explicitly permit the repurchase of equity interests by the Company pursuant to the stock purchase program that was approved by our Board of Directors.
In June 2020, we revised our Term Loan Credit Agreement to elect to pay accrued and unpaid interest, solely during one three-consecutive-month period immediately following such notice, in kind (the “PIK Amount”). We agreed to pay an additional amount equal to 0.75% of the aggregate principal amount of the loans under the Term Loan Credit Agreement plus all PIK Amounts, if any, that are added to such principal amount being repaid or prepaid on either the maturity date or upon the occurrence of an acceleration of obligations under the Term Loan Credit Agreement. As such, the additional amount, approximately $1.0 million, was recorded as a direct deduction from the face amount of the Term Loan Facility and as a long-term payable on our consolidated balance sheets. The additional amount will be amortized as interest expense over the term of the Term Loan Facility. On April 1, 2021, we elected to pay in kind the $2.8 million interest payment due under our Term Loan, which will increase our Term Loan balance accordingly.
Additionally on October 1, 2018, we entered into a $40.0 million revolving credit agreement (the “ABL Credit Facility”), including availability for letters of credit in an aggregate amount at any time outstanding not to exceed $7.5 million. Availability under the ABL Credit Facility is subject to a borrowing base calculated based on 85% of the net amount of our eligible accounts receivable, minus reserves. The ABL Credit Facility has a maturity date of the earlier of October 1, 2023 or the maturity date of the Term Loan Credit Agreement.
At our election, interest under the ABL Credit Facility is determined by reference at our option to either (i) a “base rate” equal to the higher of (a) the federal funds effective rate plus 0.05%, (b) LIBOR with an interest period of one month, plus 1.0%, and (c) the prime rate of Wells Fargo, plus in each case, an applicable base rate margin ranging from 1.0% to 1.5% based on quarterly availability, or (ii) a revolving loan rate equal to LIBOR for the applicable interest period plus an applicable LIBOR margin ranging from 2.0% to 2.5% based on quarterly availability. We also pay, on a quarterly basis, a commitment fee of 0.375% (or 0.25% at any time when revolver usage is greater than 50% of the maximum credit) per annum on the unused portion of the ABL Credit Facility commitment.
The ABL Credit Facility contains a springing fixed charge coverage ratio covenant of 1.00 to 1.00 that is tested when availability is less than 10% of the maximum credit. The ABL Credit Facility also contains other customary affirmative and negative covenants, including limitations on indebtedness, liens, fundamental changes, asset dispositions, restricted payments, investments and transactions with affiliates. The ABL Credit Facility also provides for customary events of default, including breaches of material covenants, defaults under the Term Loan Agreement or other material agreements for indebtedness, and a change of control. We are in compliance with our financial covenants as of March 31, 2021.
The obligations under the ABL Credit Facility are secured by a first priority lien on Priority Collateral, which includes all accounts receivable and deposit accounts, and a second priority lien on the Term Priority Collateral, and are unconditionally guaranteed by all of our current and future direct and indirect subsidiaries.  As of March 31, 2021, the weighted-average interest rate on our borrowings was 9.00%.  At March 31, 2021, the borrowing base under our ABL Credit Facility was $7.9 million, and we had $7.7 million of availability remaining of our $40.0 million commitment on that date.
On April 27, 2020, we entered into an unsecured loan in the aggregate principal amount of $10.0 million (the “PPP Loan”) pursuant to the Paycheck Protection Program (the “PPP”), sponsored by the Small Business Administration (the “SBA”) as guarantor of loans under the PPP. The PPP is part of the CARES Act, and it provides for loans to qualifying businesses in a maximum amount equal to the lesser of $10.0 million and 2.5 times the average monthly payroll expenses of the qualifying business. The proceeds of the loan may only be used for payroll costs, rent, utilities, mortgage interests, and interest on other pre-existing indebtedness (the “permissible purposes”) during the covered period that ended on or about October 13, 2020. Interest on the PPP loan is equal to 1.0% per annum. All or part of the loan is forgivable based upon the level of permissible expenses incurred during the covered period and changes to the Company's headcount during the covered period to headcount during the period from January 1, 2020 to February 15, 2020. On October 7, 2020, the SBA released guidance clarifying the deferral period for PPP loan payments. The Paycheck Protection Flexibility Act of 2020 extended the deferral period for loan payments to either (1) the date that the SBA remits the borrower's loan forgiveness amount to the lender or (2) if the borrower does not apply for loan forgiveness, 10 months after the end of the borrower's loan forgiveness covered period. While there can be no assurance that such PPP loan can be forgiven, we submitted our application for forgiveness during the first quarter of 2021. Given the nature of the process, we do not know when a final determination on
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our application will be made, but we believe our first payment related to any unforgiven portion would be due during the fourth quarter of 2021, with a loan maturity date of April 27, 2022.
9.    Stock-Based Compensation
Prior to June 2019, we issued common stock-based awards to employees and non-employee directors under our 2012 Long-Term Incentive Plan adopted in March 2012 (the “2012 Plan”). In June 2019, we adopted the 2019 Omnibus Incentive Plan (the “2019 Plan”) providing for common stock-based awards to employees and non-employee directors. The 2019 Plan permits the granting of various types of awards, including stock options, restricted stock, restricted stock unit awards, and stock appreciation rights (“SARs”), and up to 275,000 shares were authorized for issuance. Restricted stock and restricted stock units may be granted for no consideration other than prior and future services. The purchase price per share for stock options may not be less than the market price of the underlying stock on the date of grant. As of March 31, 2021, approximately 48,687 shares were available for future awards under the 2019 Plan. In connection with the adoption of the 2019 Plan, no further awards will be made under the 2012 Plan. Our policy is to account for forfeitures of share-based compensation awards as they occur.
A summary of compensation cost recognized for stock-based payment arrangements is as follows:
Three Months Ended March 31,
(in thousands) 2021 2020
Compensation cost recognized:
Restricted stock and restricted stock units $ 454  $ 570 
Cash-settled stock appreciation rights 83  — 
Total stock-based compensation $ 537  $ 570 
No stock-based compensation was capitalized in connection with rig construction activity during the three months ended March 31, 2021 or 2020.
Stock Options
We use the Black-Scholes option pricing model to estimate the fair value of stock options granted to employees and non-employee directors. The fair value of the options is amortized to compensation expense on a straight-line basis over the requisite service periods of the stock awards, which are generally the vesting periods.
There were no stock options granted during the three months ended March 31, 2021 or 2020.
A summary of stock option activity and related information for the three months ended March 31, 2021 is as follows:
Three Months Ended March 31, 2021
Options Weighted
Average
Exercise
Price
Outstanding at January 1, 2021 33,458  $ 254.80 
Granted —  — 
Exercised —  — 
Forfeited/expired —  — 
Outstanding at March 31, 2021 33,458  $ 254.80 
Exercisable at March 31, 2021 33,458  $ 254.80 
The number of options vested at March 31, 2021 was 33,458 with a weighted average remaining contractual life of 0.8 years and a weighted average exercise price of $254.80 per share. There were no unvested options or unrecognized compensation cost related to outstanding stock options at March 31, 2021.
Time-based Restricted Stock and Restricted Stock Units
We have granted time-based restricted stock and restricted stock units to key employees under the 2012 Plan and 2019 Plan.
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Time-based Restricted Stock
Time-based restricted stock awards consist of grants of our common stock that vest over five years. We recognize compensation expense on a straight-line basis over the vesting period. The fair value of restricted stock awards is determined based on the estimated fair market value of our shares on the grant date. As of March 31, 2021, there was $1.4 million in unrecognized compensation cost related to unvested restricted stock awards. This cost is expected to be recognized over a weighted-average period of 1.4 years.
A summary of the status of our time-based restricted stock awards and of changes in our time-based restricted stock awards outstanding for the three months ended March 31, 2021 is as follows:
Three Months Ended March 31, 2021
Shares Weighted
Average
Grant-Date
Fair Value
Per Share
Outstanding at January 1, 2021 40,334  $ 64.40 
Granted —  — 
Vested —  — 
Forfeited —  — 
Outstanding at March 31, 2021 40,334  $ 64.40 
Time-based Restricted Stock Units
We have granted three-year, time-vested restricted stock unit awards where each unit represents the right to receive, at the end of a vesting period, one share of ICD common stock. The fair value of time-based restricted stock unit awards is determined based on the estimated fair market value of our shares on the grant date. As of March 31, 2021, there was $1.1 million of total unrecognized compensation cost related to unvested time-based restricted stock unit awards. This cost is expected to be recognized over a weighted-average period of 0.7 years.
A summary of the status of our time-based restricted stock unit awards and of changes in our time-based restricted stock unit awards outstanding for the three months ended March 31, 2021 is as follows:
Three Months Ended March 31, 2021
RSUs Weighted
Average
Grant-Date
Fair Value
Per Share
Outstanding at January 1, 2021 63,897  $ 22.78 
Granted 77,938  4.95 
Vested and converted (25,285) 16.74 
Forfeited (1,809) 38.80 
Outstanding at March 31, 2021 114,741  $ 11.74 
Performance-Based and Market-Based Restricted Stock Units
We have granted three-year, performance-based and market-based restricted stock unit awards, where each unit represents the right to receive, at the end of a vesting period, up to two shares of ICD common stock. Vesting and conversion of the market-based restricted stock unit awards is based on our total shareholder return (“TSR”) as measured against the TSR of a defined peer group and vesting of the performance-based restricted stock unit awards is based on our cumulative return on invested capital (“ROIC”) as measured against ROIC performance goals determined by the compensation committee of our Board of Directors. We used a Monte Carlo simulation model to value the TSR market-based restricted stock unit awards. The fair value of the performance-based restricted stock unit awards is based on the market price of our common stock on the date of grant. During the restriction period, the performance-based and market-based restricted stock unit awards may not be transferred or encumbered, and the recipient does not receive dividend equivalents or have voting rights until the units vest. As of March 31, 2021, there was unrecognized compensation cost related to unvested performance-based or market-based
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restricted stock unit awards totaling $0.2 million. This cost is expected to be recognized over a weighted-average period of 0.8 years.
A summary of the status of our performance-based and market-based restricted stock unit awards and of changes in our restricted stock unit awards outstanding for the three months ended March 31, 2021 is as follows:
Three Months Ended March 31, 2021
RSUs Weighted
Average
Grant-Date
Fair Value
Per Share
Outstanding at January 1, 2021 38,559  $ 22.95 
Granted —  — 
Vested and converted —  — 
Forfeited (10,785) 18.92 
Outstanding at March 31, 2021 27,774  $ 24.51 
Time-Based Cash-Settled Stock Appreciation Rights
We have granted time-based, cash-settled stock appreciation rights (“SARs”) to certain employees. The SARs have a term of seven years, an exercise price of $5.73 per share, with the market price upon exercise capped at $10.00 per share, and vest ratably on the first, second and third anniversaries of the date of grant. Because these SARs are cash-settled, they are classified as “liability-classified awards” which are remeasured at their fair value at the end of each reporting period until settlement.
Time-based, cash-settled SARs have no effect on dilutive shares or shares outstanding as any appreciation of our common stock over the exercise price is paid in cash and not in common stock.
The fair value of time-based cash-settled SARs is revalued (mark-to-market) each reporting period using a Monte Carlo simulation model based on period-end stock price. Expected term of the SARs is calculated as the average of each vesting tranche’s midpoint between vesting date and expiration date plus the vesting period. Expected volatility is based on the historical volatility of our stock for the length of time corresponding to the expected term of the SARs. The risk-free interest rate is based on the U.S. treasury yield curve in effect as of the reporting date for the length of time corresponding to the expected term of the SARs.
The following weighted-average assumptions were used in calculating the fair value of time-based cash-settled SARs granted during the three months ended March 31, 2021 using the Monte Carlo simulation model:
Three Months Ended 
March 31, 2021
Expected term of cash-settled SARs 4.4 years
Expected volatility factor 113.3  %
Expected dividend yield 0.00  %
Risk-free interest rate 0.73  %
Changes to the company's non-vested time-based cash-settled SARs during the three months ended March 31, 2021 are as follows:
Three Months Ended March 31, 2021
Cash-settled SARs
(in thousands) 		Weighted Average
Fair Value Price
Per Share
Non-vested cash-settled SARs at January 1, 2021 —  $ — 
Granted 2,954  0.64 
Vested —  — 
Non-vested cash-settled SARs at March 31, 2021 2,954  $ 0.64 
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As of March 31, 2021, there was $1.8 million of unrecognized compensation cost related to non-vested time-based cash-settled SARs that is expected to be recognized over a weighted-average period of 1.5 years.
10.    Stockholders’ Equity and Earnings (Loss) per Share
As of March 31, 2021, we had a total of 6,515,580 shares of common stock, $0.01 par value, outstanding. We also had 78,578 shares held as treasury stock. Total authorized common stock is 50,000,000 shares.
Basic earnings (loss) per common share (“EPS”) are computed by dividing income (loss) available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that would occur if securities or other contracts to issue common stock were exercised or converted into common stock. A reconciliation of the numerators and denominators of the basic and diluted losses per share computations is as follows:
Three Months Ended March 31,
(in thousands, except per share data) 2021 2020
Net loss (numerator): $ (16,025) $ (28,223)
Loss per share:
Basic and diluted $ (2.58) $ (7.53)
Shares (denominator):
Weighted average common shares outstanding - basic 6,215  3,750 
Weighted average common shares outstanding - diluted 6,215  3,750 
For all periods presented, the computation of diluted loss per share excludes the effect of certain outstanding stock options and RSUs because their inclusion would be anti-dilutive. The number of options that were excluded from diluted loss per share were 33,458 during the three months ended March 31, 2021 and 33,458 during the three months ended March 31, 2020. The number of RSUs, which are not participating securities, that were excluded from our basic and diluted loss per share because they are anti-dilutive, were 142,515 for the three months ended March 31, 2021 and 142,715 for the three months ended March 31, 2020.
11.    Income Taxes
Our effective tax rate was (0.2)% and 0.1% for the three months ended March 31, 2021 and 2020, respectively. Taxes in both periods relate to Louisiana state income tax and Texas margin tax.
12.    Commitments and Contingencies
Purchase Commitments
As of March 31, 2021, we had outstanding purchase commitments to a number of suppliers totaling $0.4 million related primarily to the operation of drilling rigs. All of these commitments relate to equipment and services currently scheduled for delivery in 2021.
Contingencies
We may be the subject of lawsuits and claims arising in the ordinary course of business from time to time. Management cannot predict the ultimate outcome of such lawsuits and claims. While lawsuits and claims are asserted for amounts that may be material should an unfavorable outcome be the result, management does not currently expect that the outcome of any of these known legal proceedings or claims will have a material adverse effect on our financial position or results of operations.
13.    Related Parties
In conjunction with the closing of the Sidewinder Merger on October 1, 2018, we entered into the Term Loan Credit Agreement for an initial term loan in an aggregate principal amount of $130.0 million and a delayed draw term loan facility in an aggregate principal amount of up to $15.0 million. MSD PCOF Partners IV, LLC (an affiliate of MSD Partners) is the lender of our $130.0 million Term Loan Facility.
We made interest payments on the Term Loan Facility totaling $2.9 million and $3.2 million for the three months ended March 31, 2021 and 2020, respectively.
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Additionally, we have recorded merger consideration payable to an affiliate of $2.9 million related to proceeds received from the sale of specific assets earmarked in the Sidewinder Merger agreement, with the Sidewinder unitholders receiving the net proceeds. On June 4, 2020, we entered into a letter agreement with MSD Credit Opportunity Master Fund, L.P. to allow for the deferral of payment of the merger consideration payable, to the earlier of (i) June 30, 2022 and (ii) a Change of Control Transaction (the “Payment Date”), and requires us to pay an additional amount in connection with such deferred payment equal to interest accrued on the amount of merger consideration payable during the period between May 1, 2020 and the Payment Date, which interest shall accrue at a rate of 15% per annum, compounded quarterly, during the period beginning on May 1, 2020 and ending on December 31, 2020 and at a rate of 25% per annum, compounded quarterly, during any period following December 31, 2020. The merger consideration payable was previously payable in the second quarter of 2020. As of March 31, 2021, accrued interest payable on the merger consideration payable was $0.5 million.



ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of operations together with the financial statements and related notes that are included elsewhere in this Quarterly Report on Form 10-Q and with our audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the Securities and Exchange Commission on March 1, 2021 (the “Form 10-K”). This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those described in the section titled “Cautionary Statement Regarding Forward-Looking Statements” and those set forth under Part 1“Item 1A. Risk Factors” or in other parts of the Form 10-K.
Management Overview
We were incorporated in Delaware on November 4, 2011. We provide land-based contract drilling services for oil and natural gas producers targeting unconventional resource plays in the United States. We own and operate a premium fleet comprised of modern, technologically advanced drilling rigs. Our first rig began drilling in May 2012. On October 1, 2018, we completed a merger with Sidewinder Drilling LLC (“Sidewinder”). As a result of this merger, we more than doubled our operating fleet and personnel.
Our rig fleet includes 24 marketed AC powered (“AC”) rigs plus five additional AC rigs that require significant upgrades in order to meet our AC pad-optimal specifications that we do not plan to market absent a material improvement in market conditions.
We currently focus our operations on unconventional resource plays located in geographic regions that we can efficiently support from our Houston, Texas and Midland, Texas facilities in order to maximize economies of scale. Currently, our rigs are operating in the Permian Basin, the Haynesville Shale and the Eagle Ford Shale; however, our rigs have previously operated in the Mid-Continent and Eaglebine regions as well.
Our business depends on the level of exploration and production activity by oil and natural gas companies operating in the United States, and in particular, the regions where we actively market our contract drilling services. The oil and natural gas exploration and production industry is historically cyclical and characterized by significant changes in the levels of exploration and development activities. Oil and natural gas prices and market expectations of potential changes in those prices significantly affect the levels of those activities. Worldwide political, regulatory, economic, and military events, as well as natural disasters have contributed to oil and natural gas price volatility historically, and are likely to continue to do so in the future. Any prolonged reduction in the overall level of exploration and development activities in the United States and the regions where we market our contract drilling services, whether resulting from changes in oil and natural gas prices or otherwise, could materially and adversely affect our business.
Significant Developments
COVID-19 Pandemic and Market Conditions Update
On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus (“COVID-19”) and the risks to the international community as the virus spread globally. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally. The continued spread of the COVID-19 virus and the responses taken to try to contain the virus, such as travel bans and restrictions, quarantines, shelter in place orders, and shutdowns, caused significant declines in global demand for crude oil. This reduction in demand occurred concurrent with the initiation of a crude oil price war between members of the Organization of the Petroleum Exporting Countries (“OPEC”) and Russia (collectively, the “OPEC+” group). Even with the production cuts announced by the OPEC+ group and others on April 9, 2020, and the cessation to the crude oil price war, crude oil inventories continued to rise and to test storage capacity and logistics networks. These factors led to a collapse in oil prices, with the WTI price for May 2020 delivery closing at negative $37.63 per barrel on April 20, 2020. This resulted in an unprecedented decline in the U.S. land rig count reaching an all-time low of 244 on August 14, 2020. Although oil prices have recently recovered with the WTI price reaching $63.33 on April 19, 2021 supported by production cuts by OPEC, the U.S. land rig count remains very low and has only modestly improved, reaching 427 rigs on April 23, 2021.
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The long-term effects of the pandemic on production and demand are unknown at this time. While vaccinations have become available and made progress in certain regions during the first quarter of 2021, considerable uncertainty remains regarding ongoing measures to contain the virus, including travel restrictions, as well as uncertainty on how long OPEC+ will continue to maintain current production cuts. Accordingly, we cannot predict when worldwide supply and demand for oil will stabilize.
In response to these adverse market conditions and uncertainty, our customers reduced planned capital expenditures and drilling activity throughout 2020. During the first quarter of 2020, our operating rig count reached a peak of 22 rigs and temporarily reached a low of three rigs during the third quarter of 2020. During the third quarter, oil and natural gas prices began to stabilize, and demand for our products began to modestly improve from their historic lows, which allowed us to reactivate additional rigs during the back half of 2020. As of April 30, 2021, we had 13 contracted rigs. However, due to the lack of visibility and confidence towards customer intentions and the unknown future impacts of COVID-19 and changes to OPEC production cuts on economic conditions and oil and gas demand and drilling activity, we cannot assure you that we will be able to maintain this operating rig count or that our operating rig count will continue to improve in the future. Two contracts that expired at the end of 2020 had higher dayrates than prevailing spot rates. As a result, although our operating rig count has been increasing, these rigs are being contracted at prevailing market rates that remain depressed, and we expect to see our average revenue per day decline as compared to our legacy contracts.
Due to these rapidly declining market conditions, we took the following actions at the end of the first quarter of 2020 in order to reduce our cost structure:
•Salary or compensation reductions for substantially all our employees, including members of executive management;
•Suspension of all cash-based incentive compensation, including all members of executive management;
•Reduced the number of executive management positions by two;
•Reduced the number of directors from seven to five, which became effective following director elections at our 2020 Annual Meeting of Stockholders;
•Annual compensation reductions for our directors; and
•Reduced headcount for non-field-based personnel by approximately 40%.
On March 27, 2020, President Trump signed into law the “Coronavirus Aid, Relief, and Economic Security (CARES) Act.” The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations, increased limitations on qualified charitable contributions, and technical corrections to tax depreciation methods for qualified improvement property. The social security deferral program ended December 31, 2020. We deferred $0.8 million of employer side social security payments during the year ended December 31, 2020.
The CARES Act did not have a material impact on our income taxes.  Management will continue to monitor future developments and interpretations for any further impacts on our financial condition, results of operations, or liquidity.
We cannot predict the length of time that the market disruptions resulting from the COVID-19 pandemic will continue; or when, or if, oil and gas prices and demand for our contract drilling services will decline, continue to improve or return to pre-COVID-19 levels. The extent to which our operating and financial results are affected by the COVID-19 pandemic will depend on various factors and consequences beyond our control, such as the duration and scope of the pandemic; additional actions by businesses and governments in response to the pandemic; and the speed and effectiveness of responses to combat the virus. As a result, our business, operating results and financial conditions are subject to various risks, many of which are aggravated as a result of the declining market conditions and significant uncertainty caused by the COVID-19 pandemic.
ATM Offering
On June 5, 2020, we entered into an equity distribution agreement (the “Agreement”) with Piper Sandler & Co. (the “Agent”), through its Simmons Energy division. Pursuant to the Agreement, we were able to offer and sell through the Agent shares of our common stock, par value $0.01 per share, having an aggregate offering price of up to $11,000,000 (the “Shares”). We issued and sold approximately $11 million in shares of common stock during 2020.
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On March 8, 2021, in conjunction with the equity distribution agreement entered into June 5, 2020, our board of directors authorized an additional $2.2 million in shares of common stock to be sold in transactions that are deemed to be “at the market offerings”. As of March 31, 2021, we raised gross proceeds of $0.7 million from the sale of shares in the offering. We have used and plan to continue using the net proceeds from the sales pursuant to the Agreement, after deducting the sales agent’s commissions and our offering expenses, for general corporate purposes, which may include, among other things, repayment of indebtedness and capital expenditures.
The Agreement contains customary representations, warranties and agreements by the Company, indemnification obligations of the Company and the Agent, including for liabilities under the Securities Act, other obligations of the parties and termination provisions. Under the terms of the Agreement, we paid the Agent a commission equal to 3% of the gross sales price of the Shares sold.
Common Stock Purchase Agreement
On November 11, 2020, we entered into a Common Stock Purchase Agreement (the “Commitment Purchase Agreement”) and a Registration Rights Agreement (the “Registration Rights Agreement”) with Tumim Stone Capital LLC (“Tumim”). Pursuant to the Commitment Purchase Agreement, the Company has the right to sell to Tumim up to $5,000,000 (the “Total Commitment”) in shares of its common stock, par value $0.01 per share (the “Shares”) (subject to certain conditions and limitations) from time to time during the term of the Commitment Purchase Agreement. Sales of common stock pursuant to the Commitment Purchase Agreement, and the timing of any sales, are solely at our option and we are under no obligation to sell securities pursuant to this arrangement. Shares may be sold by the Company pursuant to this arrangement over a period of up to 24 months, commencing on December 1, 2020.
Under the applicable rules of the New York Stock Exchange (“NYSE”), in no event may we issue more than 1,234,546 shares of our common stock, which represents 19.99% of the shares of our common stock outstanding immediately prior to the execution of the Commitment Purchase Agreement (the “Exchange Cap”), to Tumim under the Commitment Purchase Agreement, unless (i) we obtain stockholder approval to issue shares of our common stock in excess of the Exchange Cap or (ii) the price of all applicable sales of our common stock to Tumim under the Commitment Purchase Agreement equals or exceeds the lower of (A) the official closing price on the NYSE immediately preceding the delivery by us of an applicable purchase notice under the Commitment Purchase Agreement and (B) the average of the closing prices of our common stock on the NYSE for the five business days immediately preceding the delivery by us of an applicable purchase notice under the Commitment Purchase Agreement, in each case plus $0.128, such that the transactions contemplated by the Commitment Purchase Agreement are exempt from the Exchange Cap limitation under applicable NYSE rules. In any event, the Commitment Purchase Agreement specifically provides that we may not issue or sell any shares of our common stock under the Commitment Purchase Agreement if such issuance or sale would breach any applicable rules or regulations of the NYSE. The Company has also limited the aggregate number of shares of common stock reserved for issuance under the Commitment Purchase Agreement to 1,500,000 shares without subsequent board approval.
In all instances, we may not sell shares of our common stock to Tumim under the Commitment Purchase Agreement if it would result in Tumim beneficially owning more than 4.99% of the common stock (the “Beneficial Ownership Cap”).
The proceeds under the Commitment Purchase Agreement will depend on the frequency and prices at which the Company sells shares of its stock to Tumim. We determined that the right to sell additional shares represents a freestanding put option under ASC 815 Derivatives and Hedging, but has a fair value of zero, and therefore no additional accounting was required. Transaction costs of $0.5 million, incurred in connection with entering into the Purchase Agreement were expensed as selling, general and administrative expense during the fourth quarter of 2020. During the first quarter of 2021, we sold 174,100 shares for a total of $0.9 million in proceeds pursuant to the terms of the Commitment Purchase Agreement
Asset Impairment and Assets Held for Sale
During the first quarter of 2021, our management committed to a plan to sell one of our field location facilities. As a result, we reclassified an aggregate $0.5 million of land and buildings to assets held for sale on our March 31, 2021 balance sheet and recognized a $43.0 thousand impairment charge representing the difference between the carrying value and the fair value, less the costs to sell the related property.
During the three months ended March 31, 2020, as a result of the rapidly deteriorating market conditions described in “COVID-19 Pandemic and Market Conditions Update”, we concluded that a triggering event occurred and, accordingly, an interim asset impairment test was performed as of March 31, 2020. As a result, we further impaired $3.3 million associated with the decline in the market value of our assets held for sale and $13.3 million related to the remaining assets on rigs removed from our marketed fleet, as well as certain other component equipment and inventory.
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Our Revenues
We earn contract drilling revenues pursuant to drilling contracts entered into with our customers. We perform drilling services on a “daywork” basis, under which we charge a specified rate per day, or “dayrate.” The dayrate associated with each of our contracts is a negotiated price determined by the capabilities of the rig, location, depth and complexity of the wells to be drilled, operating conditions, duration of the contract and market conditions. The term of land drilling contracts may be for a defined number of wells or for a fixed time period. We generally receive lump-sum payments for the mobilization of rigs and other drilling equipment at the commencement of a new drilling contract. Revenue and costs associated with the initial mobilization are deferred and recognized ratably over the term of the related drilling contract once the rig spuds. Costs incurred to relocate rigs and other equipment to an area in which a contract has not been secured are expensed as incurred. If a contract is terminated prior to the specified contract term, early termination payments received from the customer are only recognized as revenues when all contractual obligations, such as mitigation requirements, are satisfied. While under contract, our rigs generally earn a reduced rate while the rig is moving between wells or drilling locations, or on standby waiting for the customer. Reimbursements for the purchase of supplies, equipment, trucking and other services that are provided at the request of our customers are recorded as revenue when incurred.  The related costs are recorded as operating expenses when incurred. Revenue is presented net of any sales tax charged to the customer that we are required to remit to local or state governmental taxing authorities.
Our Operating Costs
Our operating costs include all expenses associated with operating and maintaining our drilling rigs. Operating costs include all “rig level” expenses such as labor and related payroll costs, repair and maintenance expenses, supplies, workers’ compensation and other insurance, ad valorem taxes and equipment rental costs. Also included in our operating costs are certain costs that are not incurred at the “rig level.” These costs include expenses directly associated with our operations management team as well as our safety and maintenance personnel who are not directly assigned to our rigs but are responsible for the oversight and support of our operations and safety and maintenance programs across our fleet.
During the three months ended March 31, 2021, our operating costs also included approximately $1.1 million of costs associated with the reactivation of idle rigs. These costs include costs associated with recommissioning the rig, the hiring and training of new crews and the purchase of supplies and other consumables required for the operation of the rigs.
How We Evaluate our Operations
We regularly use a number of financial and operational measures to analyze and evaluate the performance of our business and compensate our employees, including the following:
•Safety Performance. Maintaining a strong safety record is a critical component of our business strategy. We measure safety by tracking the total recordable incident rate for our operations. In addition, we closely monitor and measure compliance with our safety policies and procedures, including “near miss” reports and job safety analysis compliance. We believe our Risk-Based HSE management system provides the required control, yet needed flexibility, to conduct all activities safely, efficiently and appropriately.
•Utilization. Rig utilization measures the percentage of time that our rigs are earning revenue under a contract during a particular period. We measure utilization by dividing the total number of Operating Days (defined below) for a rig by the total number of days the rig is available for operation in the applicable calendar period. A rig is available for operation commencing on the earlier of the date it spuds its initial well following construction or when it has been completed and is actively marketed. “Operating Days” represent the total number of days a rig is earning revenue under a contract, beginning when the rig spuds its initial well under the contract and ending with the completion of the rig’s demobilization.
•Revenue Per Day. Revenue per day measures the amount of revenue that an operating rig earns on a daily basis during a particular period. We calculate revenue per day by dividing total contract drilling revenue earned during the applicable period by the number of Operating Days in the period. Revenues attributable to costs reimbursed by customers are excluded from this measure.
•Operating Cost Per Day. Operating cost per day measures the operating costs incurred on a daily basis during a particular period. We calculate operating cost per day by dividing total operating costs during the applicable period by the number of Operating Days in the period. Operating costs attributable to costs reimbursed by customers and rig construction costs are excluded from this measure.
•Operating Efficiency and Uptime. Maintaining our rigs’ operational efficiency is a critical component of our business strategy. We measure our operating efficiency by tracking each drilling rig’s unscheduled downtime on a daily, monthly, quarterly and annual basis.
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Results of Operations
The following summarizes our financial and operating data for the three months ended March 31, 2021 and 2020:
Three Months Ended March 31,
(In thousands, except per share data) 2021 2020
Revenues $ 15,542  $ 38,494 
Costs and expenses
Operating costs 14,541  30,229 
Selling, general and administrative 3,686  3,761 
Severance expense —  1,076 
Depreciation and amortization 9,989  11,516 
Asset impairment 43  16,619 
Gain on disposition of assets, net (435) (46)
Total cost and expenses 27,824  63,155 
Operating loss (12,282) (24,661)
Interest expense (3,709) (3,604)
Loss before income taxes (15,991) (28,265)
Income tax expense (benefit) 34  (42)
Net loss $ (16,025) $ (28,223)
Other financial and operating data
Number of marketed rigs (end of period) (1) 24  29 
Rig operating days (2) 929  1,738 
Average number of operating rigs (3) 10.3  19.1 
Rig utilization (4) 43.0  % 66.0  %
Average revenue per operating day (5) $ 15,465  $ 19,823 
Average cost per operating day (6) $ 12,663  $ 14,648 
Average rig margin per operating day $ 2,802  $ 5,175 
(1)    Marketed rigs exclude five idle rigs that will not be reactivated unless market conditions materially improve.
(2)    Rig operating days represent the number of days our rigs are earning revenue under a contract during the period, including days that standby revenues are earned.
(3)    Average number of operating rigs is calculated by dividing the total number of rig operating days in the period by the total number of calendar days in the period.
(4)    Rig utilization is calculated as rig operating days divided by the total number of days our drilling rigs are available during the applicable period.
(5)    Average revenue per operating day represents total contract drilling revenues earned during the period divided by rig operating days in the period. Excluded in calculating average revenue per operating day are revenues associated with the reimbursement of out-of-pocket costs paid by customers of $1.2 million and $4.0 million during the three months ended March 31, 2021 and 2020, respectively.
(6)    Average cost per operating day represents operating costs incurred during the period divided by rig operating days in the period. The following costs are excluded in calculating average cost per operating day: (i) out-of-pocket costs paid by customers of $1.2 million and $4.0 million during the three months ended March 31, 2021 and 2020, respectively; (ii) overhead costs expensed due to reduced rig upgrade activity of $0.5 million and $0.6 million during the three months ended March 31, 2021 and 2020, respectively; and (iii) rig reactivation costs, inclusive of new crew training costs, of $1.1 million and $0.2 million during the three months ended March 31, 2021 and 2020, respectively.
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Three Months Ended March 31, 2021 Compared to the Three Months Ended March 31, 2020
Revenues
Revenues for the three months ended March 31, 2021 were $15.5 million, representing a 59.6% decrease as compared to revenues of $38.5 million for the three months ended March 31, 2020. This decrease was attributable to a decrease in operating days and revenue per day. Operating days decreased to 929 days as compared to 1,738 days in the prior year comparable quarter. The decrease in operating days was primarily attributable to the ongoing downturn in market conditions as a result of the COVID-19 pandemic impacts on demand for crude oil, and resulting impacts on demand for our services. On a revenue per operating day basis, which excludes the impact of early termination revenues, our revenue per day decreased by 22.0% to $15,465 during the three months ended March 31, 2021, as compared to revenue per day of $19,823 for the three months ended March 31, 2020. This decrease in revenue per day was the result of declining dayrates as compared to the prior year quarter and expiration of various higher dayrate legacy contracts during the year.
Operating Costs
Operating costs for the three months ended March 31, 2021 were $14.5 million, representing a 51.9% decrease as compared to operating costs of $30.2 million for the three months ended March 31, 2020. This decrease was primarily attributable to a decrease in operating days to 929 days as compared to 1,738 days in the prior year comparable quarter. On a cost per operating day basis, our cost decreased to $12,663 per day during the three months ended March 31, 2021, representing an 13.6% decrease compared to cost per operating day of $14,648 for the three months ended March 31, 2020. This decrease was primarily attributable to cost reduction activities instituted at the beginning of the second quarter of 2020 as well as one of our operating rigs earning revenues on a standby basis for most of the first quarter of 2021.
Selling, General and Administrative
Selling, general and administrative expenses for the three months ended March 31, 2021 were $3.7 million, representing a 2.0% decrease as compared to selling, general and administrative expense of $3.8 million for the three months ended March 31, 2020. This decrease as compared to the prior year comparable quarter primarily relates to cost cutting initiatives that were implemented at the beginning of the second quarter of 2020, offset by higher accrued incentive pay.
Severance Expense
No severance expense was recorded during the first quarter of 2021. Severance expense of $1.1 million was recorded for the three months ended March 31, 2020, in association with the cost reduction activities instituted at the beginning of 2020.
Depreciation and Amortization
Depreciation and amortization expense for the three months ended March 31, 2021 was $10.0 million, representing a 13.3% decrease compared to depreciation and amortization expense of $11.5 million for the three months ended March 31, 2020. The decrease in depreciation and amortization expense is primarily the result of the asset impairments reported in 2020.
Asset Impairment
During the three months ended March 31, 2021, our management committed to a plan to sell one of our field location facilities. As a result, we reclassified an aggregate $0.5 million of land and buildings to assets held for sale on our March 31, 2021 balance sheet and recognized a $43.0 thousand impairment charge representing the difference between the carrying value and the fair value, less the costs to sell the related property.
During the three months ended March 31, 2020, as a result of the rapidly deteriorating market conditions described in “COVID-19 Pandemic and Market Conditions Update”, we concluded that a triggering event occurred and, accordingly, an interim asset impairment test was performed as of March 31, 2020. As a result, we further impaired $3.3 million associated with the decline in the market value of our assets held for sale and $13.3 million related to the remaining assets on rigs removed from our marketed fleet, as well as certain other component equipment and inventory.
Gain on Disposition of Assets, net
A gain on the disposition of assets totaling $0.4 million was recorded for the three months ended March 31, 2021 compared to a gain on the disposition of assets totaling $46.0 thousand in the prior year comparable quarter. In the current and prior year quarter, the gains, related to the sale of miscellaneous drilling equipment.
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Interest Expense
Interest expense was $3.7 million for the three months ended March 31, 2021 and $3.6 million for the three months ended March 31, 2020.
Income Tax Expense (Benefit)
Income tax expense recorded for the three months ended March 31, 2021 amounted to $34.0 thousand as compared to income tax benefit of $42.0 thousand for the three months ended March 31, 2020. Our effective tax rates for the three months ended March 31, 2021 and 2020 were (0.2)% and 0.1%, respectively. Taxes in both periods relate to Louisiana state income tax and Texas margin tax.
Liquidity and Capital Resources
Our liquidity at March 31, 2021 consisted of cash on hand of $5.4 million, $7.7 million of availability under our $40.0 million ABL Credit Facility, based on a borrowing base of $7.9 million, a $15 million committed accordion under our existing term loan facility, and a maximum of $4.1 million available under our Commitment Purchase Agreement.
We expect our future capital and liquidity needs to be related to operating expenses, maintenance capital expenditures, working capital and general corporate purposes.
Due to lack of visibility and confidence towards customer intentions, although our operating rig count has begun to improve, and reached 13 rigs as of April 30, 2021, we cannot assure you that future declines in operating rigs will not occur or that our operating rig count will continue to improve. During the first quarter of 2021, cash flow from operations, ignoring working capital fluctuations, was negative and we expect such metrics to be negative during the second quarter as well, and we can provide no assurance as to when it will return to positive. On April 1, 2021, we elected to pay in kind the $2.8 million interest payment due under our Term Loan, which will increase our Term Loan balance accordingly. Looking forward past March 31, 2021, and taking into account this payment of interest in kind, we currently estimate that required non-operating cash payments for interest under our credit facilities and finance lease payments will approximate $13.9 million for the 12 months ending March 31, 2022. Payments for capital expenditures and to fund operations will be in addition to these amounts.
Because our cash flows from operations have been and may continue to be materially impacted by depressed market conditions caused by the COVID-19 pandemic, we may be required to draw down funds pursuant to the $15 million accordion feature under our term loan facility to meet required non-operating expenditures and if necessary to fund operations. In the second quarter of 2020, we entered into the $10 million PPP Loan pursuant to the Paycheck Protection Program (the “PPP”). We used the proceeds of the loan for payroll costs, rent, utilities, mortgage interests, and other permitted purposes. Additionally, in order to decrease near term non-operating commitments, we modified the term loan credit agreement to permit us to elect to pay accrued and unpaid interest for one quarter in kind. Subsequent to the first quarter of 2021, we exercised the option to pay one quarter interest in kind on April 1, 2021. Additionally, we amended the Merger Consideration Agreement to extend the required payment date to the earlier of (i) June 30, 2022 and (ii) a change of control transaction and also initiated an additional ATM equity offering in which we raised an aggregate of $0.7 million in gross proceeds during the first quarter of 2021 (see “Significant Developments” for additional information). We currently believe that the actions we have taken to date and our existing sources of liquidity are sufficient to fund our operations for the next twelve months. However, due to the uncertainty regarding the duration of the COVID-19 pandemic and its effects on the oil and gas industry and our business and operations, there can be no assurance in this regard.
Net Cash (Used In) Provided By Operating Activities
Cash used in operating activities was $6.3 million for the three months ended March 31, 2021 compared to cash provided by operating activities of $3.1 million during the same period in 2020. Factors affecting changes in operating cash flows are similar to those that impact net earnings, with the exception of non-cash items such as depreciation and amortization, impairments, gains or losses on disposals of assets, non-cash compensation, deferred taxes and amortization of deferred financing costs. Additionally, changes in working capital items such as accounts receivable, inventory, prepaid expense and accounts payable can significantly affect operating cash flows. Cash flows from operating activities during the first three months of 2021 were lower as a result of a decrease in net loss of $12.2 million, adjusted for non-cash items, of $10.4 million for the three months ended March 31, 2021 compared to $28.8 million for non-cash items during the same period in 2020. Additionally, working capital changes decreased cash flows from operating activities by $0.7 million for the three months ended March 31, 2021 compared to an increase of cash flows of $2.5 million during the same period in 2020.
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Net Cash Used In Investing Activities
Cash used in investing activities was $1.1 million for the three months ended March 31, 2021 compared to cash used in investing activities of $8.4 million during the same period in 2020. During the first three months of 2021, cash payments of $1.7 million for capital expenditures were offset by proceeds from the sale of property, plant and equipment of $0.7 million. During the 2020 period, cash payments of $9.1 million for capital expenditures were offset by proceeds from the sale of property, plant and equipment of $0.6 million and the collection of principal on a note receivable of $0.1 million.
Net Cash Provided by Financing Activities
Cash provided by financing activities was $0.5 million for the three months ended March 31, 2021 compared to cash provided by financing activities of $9.8 million during the same period in 2020. During the first three months of 2021, we received proceeds from the issuance of common stock through our ATM transaction, net of issuance costs of $0.5 million and proceeds from the issuance of common stock under purchase agreement of $0.9 million. These proceeds were offset by repayments under our revolving credit facility of $8.0 thousand, restricted stock unit’s withheld for taxes paid of $11.0 thousand and payments for finance lease obligations of $0.8 million. During the first three months of 2020 we made borrowings under our revolving credit facility of $11.0 million. These proceeds were offset by repayments under our revolving credit facility of $38.0 thousand, the purchase of treasury stock of $66.0 thousand, restricted stock unit's withheld for taxes paid of $26.0 thousand and payments for finance lease obligations of $1.1 million.
Long-term Debt
On October 1, 2018, we entered into a Term Loan Credit Agreement (the “Term Loan Credit Agreement”) for an initial term loan in an aggregate principal amount of $130.0 million, (the “Term Loan Facility”) and (b) a delayed draw term loan facility in an aggregate principal amount of up to $15.0 million (the “DDTL Facility”, and together with the Term Loan Facility, the “Term Facilities”). The Term Facilities have a maturity date of October 1, 2023, at which time all outstanding principal under the Term Facilities and other obligations become due and payable in full.
At our election, interest under the Term Loan Facility is determined by reference at our option to either (i) a “base rate” equal to the higher of (a) the federal funds effective rate plus 0.05%, (b) the London Interbank Offered Rate (“LIBOR”) with an interest period of one month, plus 1.0%, and (c) the rate of interest as publicly quoted from time to time by the Wall Street Journal as the “prime rate” in the United States, plus an applicable margin of 6.5%, or (ii) a “LIBOR rate” equal to LIBOR with an interest period of one month, plus an applicable margin of 7.5%.
The Term Loan Credit Agreement contains financial covenants, including a liquidity covenant of $10.0 million and a springing fixed charge coverage ratio covenant of 1.00 to 1.00 that is tested when availability under the ABL Credit Facility (defined below) and the DDTL Facility is below $5.0 million at any time that a DDTL Facility loan is outstanding. The Term Loan Credit Agreement also contains other customary affirmative and negative covenants, including limitations on indebtedness, liens, fundamental changes, asset dispositions, restricted payments, investments and transactions with affiliates. The Term Loan Credit Agreement also provides for customary events of default, including breaches of material covenants, defaults under the ABL Credit Facility or other material agreements for indebtedness, and a change of control.
The obligations under the Term Loan Credit Agreement are secured by a first priority lien on collateral (the “Term Priority Collateral”) other than accounts receivable, deposit accounts and other related collateral pledged as first priority collateral (“Priority Collateral”) under the ABL Credit Facility (defined below) and a second priority lien on such Priority Collateral, and are unconditionally guaranteed by all of our current and future direct and indirect subsidiaries. MSD PCOF Partners IV, LLC (an affiliate of MSD Partners) is the lender of our $130.0 million Term Loan Facility.  MSD Partners, together with MSD Capital, own approximately 9.8% of the outstanding shares of our common stock.
In July 2019, we revised our Term Loan Credit Agreement to explicitly permit the repurchase of equity interests by the Company pursuant to the stock purchase program that was approved by our Board of Directors.
In June 2020, we revised our Term Loan Credit Agreement to elect to pay accrued and unpaid interest, solely during one three-consecutive-month period immediately following such notice, in kind (the “PIK Amount”). We agreed to pay an additional amount equal to 0.75% of the aggregate principal amount of the loans under the Term Loan Credit Agreement plus all PIK Amounts, if any, that are added to such principal amount being repaid or prepaid on either the maturity date or upon the occurrence of an acceleration of obligations under the Term Loan Credit Agreement. As such, the additional amount, approximately $1.0 million, was recorded as a direct deduction from the face amount of the Term Loan Facility and as a long-term payable on our consolidated balance sheets. The additional amount will be amortized as interest expense over the term of the Term Loan Facility.
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Additionally on October 1, 2018, we entered into a $40.0 million revolving Credit Agreement (the “ABL Credit Facility”), including availability for letters of credit in an aggregate amount at any time outstanding not to exceed $7.5 million. Availability under the ABL Credit Facility is subject to a borrowing base calculated based on 85% of the net amount of our eligible accounts receivable, minus reserves. The ABL Credit Facility has a maturity date of the earlier of October 1, 2023 or the maturity date of the Term Loan Credit Agreement.
At our election, interest under the ABL Credit Facility is determined by reference at our option to either (i) a “base rate” equal to the higher of (a) the federal funds effective rate plus 0.05%, (b) LIBOR with an interest period of one month, plus 1.0%, and (c) the prime rate of Wells Fargo, plus in each case, an applicable base rate margin ranging from 1.0% to 1.5% based on quarterly availability, or (ii) a revolving loan rate equal to LIBOR for the applicable interest period plus an applicable LIBOR margin ranging from 2.0% to 2.5% based on quarterly availability. We also pay, on a quarterly basis, a commitment fee of 0.375% (or 0.25% at any time when revolver usage is greater than 50% of the maximum credit) per annum on the unused portion of the ABL Credit Facility commitment.
The ABL Credit Facility contains a springing fixed charge coverage ratio covenant of 1.00 to 1.00 that is tested when availability is less than 10% of the maximum credit. The ABL Credit Facility also contains other customary affirmative and negative covenants, including limitations on indebtedness, liens, fundamental changes, asset dispositions, restricted payments, investments and transactions with affiliates. The ABL Credit Facility also provides for customary events of default, including breaches of material covenants, defaults under the Term Loan Agreement or other material agreements for indebtedness, and a change of control. We are in compliance with our financial covenants as of March 31, 2021.
The obligations under the ABL Credit Facility are secured by a first priority lien on Priority Collateral, which includes all accounts receivable and deposit accounts, and a second priority lien on the Term Priority Collateral, and are unconditionally guaranteed by all of our current and future direct and indirect subsidiaries.  As of March 31, 2021, the weighted-average interest rate on our borrowings was 9.00%.  At March 31, 2021, the borrowing base under our ABL Credit Facility was $7.9 million, and we had $7.7 million of availability remaining of our $40.0 million commitment on that date.
In addition, on April 27, 2020, we entered into an unsecured loan in the aggregate principal amount of $10.0 million (the “PPP Loan”) pursuant to the PPP, sponsored by the SBA as guarantor of loans under the PPP. The PPP is part of the CARES Act, and it provides for loans to qualifying businesses in a maximum amount equal to the lesser of $10.0 million and 2.5 times the average monthly payroll expenses of the qualifying business. The proceeds of the loan may only be used for payroll costs, rent, utilities, mortgage interests, and interest on other pre-existing indebtedness (the “permissible purposes”) during the covered period ending October 13, 2020. Interest on the PPP Loan is equal to 1.0% per annum. All or part of the loan is forgivable based upon the level of permissible expenses incurred during the covered period and changes to the Company's headcount during the period from January 1, 2020 to February 15, 2020.
The application for these funds required us to, in good faith, certify that current economic uncertainty made the loan request necessary to support our ongoing operations. The receipt of these funds, and the forgiveness of the loan attendant to these funds, is dependent on the Company having initially qualified for the loan and qualifying for the forgiveness of such loan based on our future adherence to the forgiveness criteria. The PPP Loan is subject to any new guidance and new requirements released by the Department of the Treasury who has indicated that all companies that have received funds in excess of $2.0 million will be subject to a government (SBA) audit to further ensure PPP loans are limited to eligible borrowers in need. On October 7, 2020, the SBA released guidance clarifying the deferral period for PPP loan payments. The Paycheck Protection Flexibility Act of 2020 extended the deferral period for loan payments to either (1) the date that the SBA remits the borrower's loan forgiveness amount to the lender or (2) if the borrower does not apply for loan forgiveness, ten months after the end of the borrower's loan forgiveness covered period. We submitted our application for forgiveness during the first quarter of 2021. Given the nature of the process, we do not know when a final determination on our application will be made, but we believe our first payment related to any unforgiven portion would be due during the fourth quarter of 2021, with a loan maturity date of April 27, 2022.
Additionally, included in our long-term debt are finance leases. These leases generally have initial terms of 36 months and are paid monthly.
 Other Matters
Off-Balance Sheet Arrangements
We are party to certain arrangements defined as “off-balance sheet arrangements” that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.  These arrangements relate to non-
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cancelable operating leases and unconditional purchase obligations not fully reflected on our balance sheets (see Note 12 “Commitments and Contingencies” for additional information).
Critical Accounting Policies and Accounting Estimates
We review our assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The recoverability of assets that are held and used is measured by comparison of the estimated future undiscounted cash flows associated with the asset to the carrying amount of the asset. If the carrying value of such assets is less than the estimated undiscounted cash flow, an impairment charge is recorded in the amount by which the carrying amount of the assets exceeds their estimated fair value.  
In the first quarter of 2021, in relation to the pending sale of one of our field location facilities, we impaired the property to its fair market value less the cost of sale and recognized $43.0 thousand of impairment expense.
In the first quarter of 2020, as a result of the rapidly deteriorating market conditions described in “COVID-19 Pandemic and Market Conditions Update”, we concluded that a triggering event occurred and, accordingly, an interim asset impairment test was performed. As a result, we recognized impairment of $3.3 million associated with the decline in the market value of our assets held for sale based upon the market approach method and $13.3 million related to the remaining assets on rigs removed from our marketed fleet, as well as certain other component equipment and inventory; all of which was deemed to be unsaleable and of zero value based upon the current macroeconomic conditions and uncertainties surrounding COVID-19. Due to the uncertainty around COVID-19 and current market conditions, we may have to make further impairment charges in future periods relating to, among other things, fixed assets and inventory.
For a complete discussion of our critical accounting policies and accounting estimates, please see our Annual Report on Form 10-K for the year ended December 31, 2020.
Recent Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments, as additional guidance on the measurement of credit losses on financial instruments. The new guidance requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions and reasonable supportable forecasts. In addition, the guidance amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The new guidance is effective for public companies for interim and annual periods beginning after December 15, 2019, with early adoption permitted for interim and annual periods beginning after December 15, 2018. In October 2019, the FASB approved a proposal which grants smaller reporting companies additional time to implement FASB standards on current expected credit losses (CECL) to January 2023. As a smaller reporting company, we will defer adoption of ASU 2016-13 until January 2023. We are currently evaluating the impact this guidance will have on our accounts receivable.
In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes, to simplify the accounting for income taxes. The amendments in the update are effective for public companies for interim and annual periods beginning after December 15, 2020, with early adoption permitted. We adopted this guidance on January 1, 2021 and there has been no material impact on our consolidated financial statements.
On April 1, 2020, we adopted the standard, ASU 2020-04, Reference Rate Reform: Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform (e.g., discontinuation of LIBOR) if certain criteria are met. In January 2021, the FASB issued ASU No. 2021-01, Reference Rate Reform to provide clarifying guidance regarding the scope of Topic 848, effective immediately. As of March 31, 2021, we have not yet elected any optional expedients provided in the standard. We will apply the accounting relief as relevant contract and hedge accounting relationship modifications are made during the reference rate reform transition period. We do not expect the standard to have a material impact on our consolidated financial statements.
In August 2020, the FASB issued ASU No. 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity, to simplify the accounting for convertible instruments by removing certain separation models in Subtopic 470-20, Debt-Debt with Conversion and Other Options, for convertible instruments. The pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2021, with early adoption permitted. We are currently evaluating the impact this guidance will have on our consolidated financial statements.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to a variety of market risks including risks related to potential adverse changes in interest rates and commodity prices. We actively monitor exposure to market risk and continue to develop and utilize appropriate risk management techniques. We do not use derivative financial instruments for trading or to speculate on changes in commodity prices.
Interest Rate Risk
Total long-term debt at March 31, 2021 included $130.0 million of floating-rate debt attributed to borrowings at an average interest rate of 9.00%. As a result, our annual interest cost in 2021 will fluctuate based on short-term interest rates. The impact on annual cash flow of a 10% change in the floating-rate (approximately 0.90%) would be approximately $1.2 million annually based on the floating-rate debt and other obligations outstanding at March 31, 2021; however, there are no assurances that possible rate changes would be limited to such amounts.
Commodity Price Risk
Oil and natural gas prices, and market expectations of potential changes in these prices, significantly impact the level of worldwide drilling and production services activities. Reduced demand for oil and natural gas generally results in lower prices for these commodities and may impact the economics of planned drilling projects and ongoing production projects, resulting in the curtailment, reduction, delay or postponement of such projects for an indeterminate period of time. When drilling and production activity and spending decline, both dayrates and utilization have also historically declined. Further declines in oil and natural gas prices and the general economy, could materially and adversely affect our business, results of operations, financial condition and growth strategy.
In addition, if oil and natural gas prices decline, companies that planned to finance exploration, development or production projects through the capital markets may be forced to curtail, reduce, postpone or delay drilling activities even further, and also may experience an inability to pay suppliers. Adverse conditions in the global economic environment could also impact our vendors’ and suppliers’ ability to meet obligations to provide materials and services in general. If any of the foregoing were to occur, or if current depressed market conditions continue for a prolonged period of time, it could have a material adverse effect on our business and financial results and our ability to timely and successfully implement our growth strategy.
The COVID-19 pandemic, responses taken and economic effects caused significant declines in the global demand for crude oil. This demand decline occurred concurrent with the initiation of a crude oil price war between members of the Organization of the Petroleum Exporting Countries (“OPEC”) and Russia (collectively, the “OPEC+” group). These combined events resulted in significant declines in demand for oil and major disruptions to global energy prices. Even with the production cuts announced by the OPEC+ group and others on April 9, 2020, and the cessation to the crude oil price war, crude oil inventories continued to rise and to test storage capacity and logistics networks. These factors led to a collapse in oil prices, with the WTI price for May 2020 delivery closing at negative $37.63 per barrel on April 20, 2020. In July 2020, OPEC+ agreed to taper oil production cuts, reducing production cuts from 9.7 million barrels per day (“Mmbpd”) to 7.7 Mmbpd between August 2020 and January 2021. In January 2021, OPEC+ agreed to adjust the production reduction from 7.7 Mmbpd to 7.2 Mmbpd. Pressure on oil prices is expected to continue for the foreseeable future, and the long-term effects of the pandemic on production and demand are unknown at this time. As of April 19, 2021, the WTI spot price was $63.33.
We cannot predict the length of time that the market disruptions resulting from the COVID-19 pandemic will continue or when, or if, oil and gas prices and demand for our contract drilling services will begin to improve or return to pre-COVID-19 levels. The extent to which our operating and financial results are affected by COVID-19 will depend on various factors and consequences beyond our control, such as the duration and scope of the pandemic; additional actions by businesses and governments in response to the pandemic; and the speed and effectiveness of responses to combat the virus. As a result, our business, operating results and financial conditions are subject to various risks outlined in this Current Report on Form 10-Q under Part II, Section 1a “Risk Factors”, as well as the risk factors outlined in our Annual Report on Form 10-K, many of which are aggravated as a result of the declining market conditions and significant uncertainty caused by the COVID-19 pandemic.
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Credit and Capital Market Risk
Our customers may finance their drilling activities through cash flow from operations, the incurrence of debt or the issuance of equity. Any deterioration in the credit and capital markets, as currently being experienced, can make it difficult for our customers to obtain funding for their capital needs. A reduction of cash flow resulting from declines in commodity prices, or a reduction of available financing may result in a reduction in customer spending and the demand for our drilling services. This reduction in spending could have a material adverse effect on our business, financial condition, cash flows and results of operations.
We expect all of our customers, lenders and suppliers have been adversely affected in some fashion by the COVID-19 pandemic. Although we are not currently experiencing any material disruption in payments by customers at this time, given the dramatic impact the COVID-19 pandemic has had on the oil and gas industry and our customers, there is no assurance that our customers’ financial position will not be adversely impacted which could result in payment delays and payment defaults. Availability under our revolving line of credit is based upon a borrowing base determined by the level of our accounts receivable, with uncollectable amounts or amounts greater than 90 days past due excluded from consideration. As a result, a continued reduction in the utilization of our rigs or delays in payment or payment defaults by any of our customers will continue to have a material adverse impact on our financial liquidity. Similarly, our suppliers may not extend credit to us or require less favorable payment terms or face similar challenges with their own suppliers. We also are reliant upon our third-party lenders’ ability to meet their commitments under our existing credit facilities. Given the dramatic impact of the COVID-19 pandemic across industries and geographic regions, we cannot predict the magnitude it may have on our lenders’ ability to meet their commitments to us, and any failure to do so would have a material adverse effect on our liquidity and financial position.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
As required by Rule 13a-15(b) under the Exchange Act, we have evaluated, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Form 10-Q. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed by us in reports that we file under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective as of March 31, 2021 at the reasonable assurance level.
Changes in Internal Control Over Financial Reporting
During the most recent fiscal quarter, there have been no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II — OTHER INFORMATION
ITEM  1. LEGAL PROCEEDINGS
We are the subject of certain legal proceedings and claims arising in the ordinary course of business from time to time. Management cannot predict the ultimate outcome of such legal proceedings and claims. While the legal proceedings and claims may be asserted for amounts that may be material should an unfavorable outcome be the result, management does not currently expect that the resolution of these matters will have a material adverse effect on our financial position or results of operations. In addition, management monitors our legal proceedings and claims on a quarterly basis and establishes and adjusts any reserves as appropriate to reflect our assessment of the then-current status of such matters.
ITEM 1A. RISK FACTORS
In addition to the other information set forth in this report, you should carefully consider the risks related to our business set forth under “Risk Factors” in our Form 10-K for the year ended December 31, 2020. These risks are not the only risks that we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may materially adversely affect our business, financial condition or results of operations.

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ITEM  2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM  3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM  4. MINE SAFETY DISCLOSURES
Not Applicable.
ITEM  5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
Exhibit
Number
Description
101.CAL* XBRL Calculation Linkbase Document
101.DEF* XBRL Definition Linkbase Document
101.INS* XBRL Instance Document
101.LAB* XBRL Labels Linkbase Document
101.PRE* XBRL Presentation Linkbase Document
101.SCH* XBRL Schema Document
104 Cover Page Interactive Data File - the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
*    Filed with this report
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
INDEPENDENCE CONTRACT DRILLING, INC.
By: /s/ J. Anthony Gallegos, Jr.
Name: J. Anthony Gallegos, Jr.
Title: President and Chief Executive Officer (Principal Executive Officer)
By: /s/ Philip A. Choyce
Name: Philip A. Choyce
Title: Executive Vice President, Chief Financial Officer, Treasurer and Secretary (Principal Financial Officer)
By: /s/ Katherine Kokenes
Name: Katherine Kokenes
Title: Vice President and Chief Accounting Officer (Principal Accounting Officer)
Date: May 4, 2021
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Sidley comments 2/16/21 INDEPENDENCE CONTRACT DRILLING, INC. FORM OF STOCK APPRECIATION RIGHTS AGREEMENT CASH SETTLED 1. Grant of Stock Appreciation Rights. Pursuant to the Independence Contract Drilling, Inc. 2019 Omnibus Incentive Plan (the “Plan”), Independence Contract Drilling, Inc., a Delaware corporation (the “Company”), hereby grants to _______________________________ (the “Participant”) a stock appreciation right relating to the appreciation in [_________] shares of Stock of the Company (the “SAR”) at an exercise price (the “SAR Price”) of $[__________] per share (which is equal to or greater than the Fair Market Value of a share of Stock as of the Date of Grant, as defined below), all upon and subject to the terms and conditions set forth in this Agreement. Annex A to this Agreement includes certain defined terms used herein. To the extent not otherwise defined in this Agreement, capitalized terms shall have the meanings set forth in the Plan. 2. Date of Grant. The date of grant of the SAR is [_______________, 20___] (the “Date of Grant”). 3. Subject to Plan; Defined Terms. The SAR and this Agreement are subject to the terms and conditions of the Plan, and the terms of the Plan shall control to the extent not otherwise inconsistent with the provisions of this Agreement. Except as otherwise provided herein, the capitalized terms used herein that are defined in the Plan shall have the same meanings assigned to them in the Plan. The SAR is subject to any rules promulgated pursuant to the Plan by the Board or the Committee and communicated to the Participant in writing. 4. Vesting; Time of Exercise. (a) Time Vesting. The Participant shall become vested in installments of the SAR awarded to the Participant and such SAR shall become fully exercisable in accordance with the following schedule: (i) One-third (1/3) of shares of Stock subject to the SAR (rounding down, if applicable, to the nearest whole share of Stock) shall vest and become exercisable on the first anniversary of the Date of Grant, provided the Participant is employed by the Company or a Subsidiary on that date; (ii) An additional one-third (1/3) of shares of Stock subject to the SAR (rounding down, if applicable, to the nearest whole share of Stock) shall vest and become exercisable on the second anniversary of the Date of Grant, provided the Participant is employed by the Company or a Subsidiary on that date; and (iii) The remaining one-third (1/3) of the shares of Stock (rounding up for and including if applicable, any fractional shares previously excluded in clauses (i) and (ii) above, and any other fractions, to achieve a whole share of Stock) subject to the SAR shall vest and become exercisable on

 
2 the third anniversary of the Date of Grant, provided the Participant is employed by the Company or a Subsidiary on that date. Each of the periods described in Section 4(a), (b), and (c) above is a “Vesting Year.” (b) [Termination of Employment without Cause or for Good Reason. If Separation of Service occurs by the Company without Cause or by the Participant for Good Reason, the SAR shall immediately vest in full upon such Separation of Service.]1 5. Term; Forfeiture. Except as otherwise provided in this Agreement, any unexercised portion of the SAR that is unvested on the date of the Participant’s Separation of Service shall terminate on that date. Any unexercised portion of the SAR that is vested shall terminate on the first to occur of the following: (a) 5 p.m. on __________, 20[__] (the period of time extending from the date of this Agreement to such date being referred to herein as the “SAR Period”); (b) 5 p.m. on the date of Separation of Service, unless [such Separation of Service is by the Company without Cause or by the Participant for Good Reason, or]2 such Separation of Service occurs on or following the occurrence of a Change of Control; and (c) 5 p.m. on the date that is three years following Separation of Service, if [such Separation of Service is by the Company without Cause or by the Participant for Good Reason, or ]3 such Separation of Service occurs on or following the occurrence of a Change of Control. 6. Exercise and Payment. The Participant may exercise the vested portion of the SAR at any time prior to the termination of the SAR in accordance with Section 5 above by the delivery of written notice to the Company setting forth the number of shares of Stock under the SAR which are to be exercised, the date of exercise thereof (the “Exercise Date”) and the address to which payment shall be delivered. Within 5 business days, the Company shall make a cash payment to the Participant in an amount equal to the excess (if any) of (i) the Average Fair Market Value as of the Exercise Date of a share of Common Stock over (ii) the SAR Price of a share specified in this Agreement, multiplied by the total number of shares of Stock under the SAR being exercised[; provided, however, that for purposes of the foregoing, the Average Fair Market Value shall in no event exceed $[____] per share (subject to adjustment for stock dividends, stock splits and other recapitalization events in accordance with Section 4.5 of the Plan)]. Notwithstanding the foregoing, if payment of such amount (when aggregated with any other payments related to stock appreciation rights exercised under the Plan), would jeopardize the ability of the Company to continue as a going concern, the Company may delay a portion of such payment until such time at which making such payment and any other payments owed in respect of other stock appreciation rights exercised by other Plan participants would no longer have such effect. 7. No Fractional Shares. The SAR may be exercised only with respect to full shares. 1 [Applicable only to employees with employment agreements]. 2 [Applicable only to employees with employment agreements] (Same as provided for in Section 4(b)). 3 [Applicable only to employees with employment agreements] (Same as provided for in Section 4(b)).

 
3 8. Who May Exercise. Subject to the terms and conditions set forth in Sections 4 and 5 above, during the lifetime of the Participant, the SAR may only be exercised by the Participant or his guardian or legal representative. If the Participant dies prior to the dates specified in Section 5 above without having exercised all of the portion of his or her then-vested SAR as of his or her date of death, then the following persons may exercise the exercisable portion of the SAR on behalf of the Participant at any time prior to the earliest of the dates specified in Section 5 hereof: the personal representative of his or her estate or any person who acquired the right to exercise the SAR by bequest or inheritance or by reason of the death of the Participant; provided that the SAR shall remain subject to the other terms of this Agreement, the Plan and all applicable laws, rules, and regulations. 9. Non-Assignability. The SAR granted under this Agreement, and any interest in or right associated with such SAR, are not assignable or transferable by the Participant except by will or by the laws of descent and distribution. 10. Representations, Etc. Each spouse individually is bound by, and such spouse’s interest, if any, in any SAR is subject to, the terms of this Agreement. Nothing in this Agreement shall create a community property interest where none otherwise exists. 11. Simultaneous Death. If the Participant and his or her spouse both suffer a common accident or casualty which results in their respective deaths within 60 days of each other, it shall be conclusively presumed, for the purpose of this Agreement, that the Participant died first and the spouse died thereafter. 12. Specific Performance. The parties acknowledge that remedies at law will be inadequate remedies for breach of this Agreement and consequently agree that this Agreement shall be enforceable by specific performance. The remedy of specific performance shall be cumulative of all of the rights and remedies at law or in equity of the parties under this Agreement. 13. No Rights as Shareholder. The Participant will have no rights as a shareholder of the Company with respect to the SAR. 14. Adjustment of Number of Shares and Related Matters. The number of shares of Common Stock covered by the SAR, and the SAR Price thereof, shall be subject to adjustment in accordance with the Plan and Section 22 below. 15. Participant’s Acknowledgments. The Participant acknowledges receipt of a copy of the Plan, which is annexed hereto, and represents that he or she is familiar with the terms and provisions thereof, and hereby accepts the SAR subject to all the terms and provisions thereof. The Participant hereby agrees to accept as binding, conclusive, and final all decisions or interpretations of the Committee or the Board, as appropriate, upon any questions arising under the Plan or this Agreement. 16. Law Governing. This Agreement shall be governed by, construed, and enforced in accordance with the laws of the State of Texas (excluding any conflict of laws rule or principle of Texas law that might refer the governance, construction, or interpretation of this agreement to the laws of another state). 17. No Right to Continue Service or Employment. Nothing herein shall be construed to confer upon the Participant the right to continue in the employ or to provide services to the Company or any Subsidiary, whether as an Employee or as a consultant or as an outside director, or interfere with or restrict in any way the right of the Company or any Subsidiary to discharge the Participant as an Employee, consultant or outside director at any time.

 
4 18. Legal Construction. In the event that any one or more of the terms, provisions, or agreements that are contained in this Agreement shall be held by a court of competent jurisdiction to be invalid, illegal, or unenforceable in any respect for any reason, the invalid, illegal, or unenforceable term, provision, or agreement shall not affect any other term, provision, or agreement that is contained in this Agreement and this Agreement shall be construed in all respects as if the invalid, illegal, or unenforceable term, provision, or agreement had never been contained herein. 19. Covenants and Agreements as Independent Agreements. Each of the covenants and agreements that is set forth in this Agreement shall be construed as a covenant and agreement independent of any other provision of this Agreement. The existence of any claim or cause of action of the Participant against the Company, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Company of the covenants and agreements that are set forth in this Agreement. 20. Entire Agreement. This Agreement together with the Plan supersede any and all other prior understandings and agreements, either oral or in writing, between the parties with respect to the subject matter hereof and constitute the sole and only agreements between the parties with respect to the said subject matter. All prior negotiations and agreements between the parties with respect to the subject matter hereof are merged into this Agreement. Each party to this Agreement acknowledges that no representations, inducements, promises, or agreements, orally or otherwise, have been made by any party or by anyone acting on behalf of any party, which are not embodied in this Agreement or the Plan and that any agreement, statement or promise that is not contained in this Agreement or the Plan shall not be valid or binding or of any force or effect. 21. Parties Bound. The terms, provisions, and agreements that are contained in this Agreement shall apply to, be binding upon, and inure to the benefit of the parties and their respective heirs, executors, administrators, legal representatives, and permitted successors and assigns, subject to the limitation on assignment expressly set forth herein. 22. Modification. No change or modification of this Agreement shall be valid or binding upon the parties unless the change or modification is in writing and signed by the parties; provided, however, that the Company may change or modify the terms of this Agreement, including, without limitation, the SAR Price, without the Participant’s consent or signature if the Company determines, in its sole discretion, that such change or modification is necessary for purposes of compliance with or exemption from the requirements of Section 409A of the Code or any regulations or other guidance issued thereunder. Notwithstanding the preceding sentence, the Company may amend the Plan or revoke the SAR to the extent permitted by the Plan. 23. Headings. The headings that are used in this Agreement are used for reference and convenience purposes only and do not constitute substantive matters to be considered in construing the terms and provisions of this Agreement. 24. Gender and Number. Words of any gender used in this Agreement shall be held and construed to include any other gender, and words in the singular number shall be held to include the plural, and vice versa, unless the context requires otherwise. 25. Notice. Any notice required or permitted to be delivered hereunder shall be deemed to be delivered only when actually received by the Company or by the Participant, as the case may be, at the addresses set forth below, or at such other addresses as they have theretofore specified by written notice delivered in accordance herewith: (a) Notice to the Company shall be addressed and delivered as follows:

 
5 Independence Contract Drilling, Inc. 20549 Hwy 249, Suite 300 Houston, Texas 77070 Attn: President & Chief Executive Officer With a copy to: Executive Vice President & Chief Financial Officer Notice to the Participant shall be addressed and delivered as set forth on the signature page or if no address is provided, the address on file with the Company’s Human Resource Department. 26. Tax Requirements. The Participant is hereby advised to consult immediately with his or her own tax advisor regarding the tax consequences of this Agreement. The Company or, if applicable, any Subsidiary (for purposes of this Section 26, the term “Company” shall be deemed to include any applicable Subsidiary), shall have the right to withhold from any payment to the Participant the amount of any taxes that the Company is required to withhold in connection with the Participant’s income arising with respect to this Award. 27. Forfeiture and Clawback. The SARs granted and any related payments made by the Company hereunder upon the exercise of any SAR are subject to all forfeiture and clawback provisions contained in the Plan, as well as any clawback policies in place and approved by the Company’s Board of Directors or Compensation Committee on the Date of Grant. 28. Restrictive Covenants. As a condition to the award of the SARs hereunder, Participant agrees to the restrictive covenants contained in Annex B hereto. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized officer, and the Participant, to evidence his or her consent and approval of all the terms hereof, has duly executed this Agreement, as of the ____ day of _________________, 20___. INDEPENDENCE CONTRACT DRILLING, INC. By: PARTICIPANT By: Participant’s Address for Notices:

 
6 ANNEX A DEFINED TERMS “Average Fair Market Value” shall mean the average closing price on the NYSE for the last 20 NYSE trading days prior to and including the Exercise Date, in each case as applied to the applicable equity security. To the extent a security of the Company is not listed or traded on the NYSE, “NYSE” as used herein shall mean the principal national securities exchange or quotation service on which the security is listed or quoted. “Cause” shall mean Participant’s: (i) willful and continued failure to comply with the reasonable written directives of the Company for a period of thirty (30) days after written notice from the Company; (ii) willful and persistent inattention to duties for a period of thirty (30) days after written notice from the Company, or the commission of acts within employment with the Company amounting to gross negligence or willful misconduct; (iii) misappropriation of funds or property of the Company or committing any fraud against the Company or against any other person or entity in the course of employment with the Company; (iv) misappropriation of any corporate opportunity, or otherwise obtaining personal profit from any transaction which is adverse to the interests of the Company or to the benefits of which the Company is entitled; (v) conviction of a felony involving moral turpitude; (vi) willful failure to comply in any material respect with the terms of this Agreement and such non-compliance continues uncured after thirty (30) days after written notice from the Company; or (vii) chronic substance abuse, including abuse of alcohol, drugs or other substances or use of illegal narcotics or substances, for which Participant fails to undertake treatment immediately after requested by the Company or to complete such treatment and which abuse continues or resumes after such treatment period, or possession of illegal narcotics or substances on Company premises or while performing Participant’s duties and responsibilities. For purposes of this definition, no act, or failure to act, by Participant will be considered “willful” if done, or omitted to be done, by Participant in good faith and in the reasonable belief that the act or omission was in the best interest of the Company or required by applicable law. Any termination by the Company for Cause shall be communicated by Notice of Termination to the other party. For purposes of this Agreement, a “Notice of Termination” means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Participant's employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice,

 
7 specifies the termination date (which date shall be not more than 30 days after the giving of such notice). The failure by the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Cause shall not waive any right of the Company from asserting such fact or circumstance in enforcing the Participant's or the Company's rights hereunder. “Date of Termination” shall mean the date that employment with the Company and its affiliates is terminated in all respects for any reason. “Change of Control” shall mean: (i) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (a “Person”) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 50 percent or more of either (A) the then-outstanding shares of common stock or membership interests of the Company (the “Outstanding Company Common Stock”) or (B) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors or managers (the “Outstanding Company Voting Securities”); provided, however, that for purposes of this subsection A, the following acquisitions shall not constitute a Change of Control: (1) any acquisition directly from the Company or any acquisition by the Company; or (2) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company; or (3) any acquisition by any corporation pursuant to a transaction that complies with clauses (1), (2) and (3) of subsection C of this definition; or (ii) Individuals, who, as of the date hereof or at the time of consummation of the transactions contemplated by the Contribution Agreement, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, (1) that any individual becoming a director subsequent to the date hereof whose election by the Company's stockholders or members was approved by a vote of the stockholders or members described in Section 3 of the Registration Rights Agreement attached as Exhibit F to the Contribution Agreement shall be considered as though such individual was a member of the Incumbent Board, and (2) that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's stockholders or members, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual was a member of the Incumbent Board, but excluding, for purpose of this paragraph (ii), any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (iii) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a “Corporate Transaction”) in each case, unless, following such Corporate Transaction, (1) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Corporate Transaction beneficially own, directly or indirectly, more than 60 percent of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Corporate Transaction (including, without limitation, a corporation that as a result of such transaction owns the

 
8 Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Corporate Transaction, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities, as the case may be, (2) no Person (excluding any corporation resulting from such Corporate Transaction or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Corporate Transaction) beneficially owns, directly or indirectly, 20 percent or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Corporate Transaction or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Corporate Transaction and (3) at least a majority of the members of the board of directors of the corporation resulting from such Corporate Transaction were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Corporate Transaction; or (iv) Approval by the stockholders of the Company of a complete liquidation or dissolution of the Company. “Good Reason” shall mean without the express written consent of Participant, the occurrence of any of the following: (v) any action or inaction that constitutes a material breach by the Company of this Agreement and such action or inaction continues uncured after thirty (30) days following written notice from the Participant; (vi) the assignment to the Participant of any duties inconsistent in any respect with the Participant's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 3(a) of this Agreement, or any other action by the Company which results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company within 30 days of receipt of written notice thereof given by the Participant; (vii) any failure by the Company to comply with the provisions of Section 4 of this Agreement, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company as soon as reasonable possible, but no later than 30 days after receipt of written notice thereof given by the Participant; (viii) a change in the geographic location at which Participant must perform services to a location more than fifty (50) miles from Houston, Texas or the location at which Participant normally performs such services as of the Effective Date; or (ix) in the event a Change of Control has occurred, the assignment to the Participant to any position (including status, offices, titles and reporting requirements), authority, duties or responsibilities that are not (A) as a senior Participant officer with the ultimate parent company of the entity surviving or resulting from such Change of Control and (B) substantially identical to the Participant's position (including status, offices, titles and reporting requirements), authority, duties and responsibilities as contemplated by this Agreement.

 
9 The Participant’s termination of employment shall not constitute Good Reason unless Participant notifies the Company of the condition or event constituting Good Reason within ninety days (90) days of the condition’s occurrence (unless unknown to Participant) and the Company fails to cure the conditions, to the extent curable, specified in the notice within thirty (30) days following such notification. Any termination during the Employment Term by the Participant for Good Reason shall be communicated by Notice of Termination to the other party hereto.

 
10 ANNEX B Restrictive Covenants 1. Restrictive Covenants. In consideration for the SARs granted under this Agreement, which are expected to vest during Participant’s employment with the Company Group, as well as the protection of the Company Group’s goodwill and Confidential Information, Participant agrees to the following: (a) Nondisclosure of Confidential Information. Participant shall hold in a fiduciary capacity for the benefit of the Company Group all Confidential Information which shall have been obtained by Participant during Participant’s employment and shall not use such Confidential Information other than within the scope of Participant’s employment with and for the exclusive benefit of the Company Group. Following any termination of employment with the Company Group, Participant agrees (i) not to communicate, divulge or make available to any person or entity (other than the Company Group) any such Confidential Information, except (A) upon the prior written authorization of the Company Group, (B) as may be required by law or legal process, (C) as reasonably necessary in connection with the enforcement of any right or remedy related to this Agreement, or (D) unless no longer Confidential Information, and (ii) to deliver promptly to the Company Group any Confidential Information in Participant’s possession, including any duplicates thereof and any notes or other records Participant has prepared with respect thereto. In the event that the provisions of any applicable law or the order of any court would require Participant to disclose or otherwise make available any Confidential Information then Participant shall, to the extent practicable, give the Company prior written notice of such required disclosure and an opportunity to contest the requirement of such disclosure or apply for a protective order with respect to such Confidential Information by appropriate proceedings. (b) Limited Covenant Not to Compete. In the event Participant’s employment is terminated for any reason, Participant agrees that during the period beginning on the date of such termination and ending on the twelve (12) month anniversary of the date of such termination: (i) Participant shall not, directly or indirectly, for himself or others, own, manage, operate, control or participate in the ownership, management, operation or control of any business, whether in corporate, proprietorship or partnership form or otherwise, that is engaged, directly or indirectly, in the United States in the Restricted Business; provided, however, that the restrictions contained herein shall not restrict (A) the acquisition by Participant of less than 2% of the outstanding capital stock of any publicly traded company engaged in a Restricted Business or (B) Participant from being employed by an entity in which the majority of such entity’s revenues on a consolidated basis determined in accordance with generally accepted accounting principles are from activities and businesses that do not constitute a Restricted Business and provided that Participant is only employed by and engaged with divisions and units of such entity that are not engaged in the Restricted Business; and (ii) Participant shall not, directly or indirectly (A) solicit any individual, who, at the time of time of such solicitation is an employee of the Company Group, to leave such employment or hire, employ or otherwise engage any such individual (other than employees of the Company Group who respond to general advertisements for employment in

 
11 newspapers or other periodicals of general circulation (including trade journals)), or (B) cause, induce or encourage any material actual or prospective client, customer, supplier, landlord, lessor or licensor of the Company Group to terminate or modify any such actual or prospective contractual relationship that exists on the date of termination of employment. (c) Injunctive Relief; Remedies. The covenants and undertakings contained in this Annex B relate to matters which are of a special, unique and extraordinary character and a violation of any of the terms of this Annex B will cause irreparable injury to the Company Group, the amount of which will be impossible to estimate or determine and which cannot be adequately compensated. Accordingly, the remedy at law for any breach of this Annex B may be inadequate. Therefore, notwithstanding anything to the contrary, the Company will be entitled to an injunction, restraining order or other equitable relief from any court of competent jurisdiction in the event of any breach of any provision of this Annex B without the necessity of proving actual damages or posting any bond whatsoever. The rights and remedies provided by this Annex B are cumulative and in addition to any other rights and remedies which the Company Group may have hereunder or at law or in equity. The parties hereto further agree that, if any court of competent jurisdiction in a final nonappealable judgment determines that a time period, a specified business limitation or any other relevant feature of this Annex B is unreasonable, arbitrary or against public policy, then a lesser time period, geographical area, business limitation or other relevant feature which is determined by such court to be reasonable, not arbitrary and not against public policy may be enforced against the applicable party. (d) Governing Law of this Annex B; Consent to Jurisdiction. Any dispute regarding the reasonableness of the covenants and agreements set forth in this Annex B, or the territorial scope or duration thereof, or the remedies available to the Company upon any breach of such covenants and agreements, shall be governed by and interpreted in accordance with the laws of the state of Texas, without regard to conflict of law provisions thereof, and, with respect to each such dispute, the Company and Participant each hereby irrevocably consent to the exclusive jurisdiction of the State of Texas for resolution of such dispute, and further agree that service of process may be made upon Participant in any legal proceeding relating to this Annex B by any means allowed under the laws of such state. (e) Participant’s Understanding of this Section. Participant hereby represents to the Company that Participant has read and understands, and agrees to be bound by, the terms of this Annex B. Participant acknowledges that the geographic scope and duration of the covenants contained in this Annex B are the result of arm’s-length bargaining and are fair and reasonable in light of (i) the importance of the functions performed by Participant and the length of time it would take the Company Group to find and train a suitable replacement, (ii) the nature and wide geographic scope of the operations of the Company Group, (iii) Participant’s level of control over and contact with the Company Group’s business and operations in all jurisdictions where they are located, and (iv) the fact that the Restricted Business is potentially conducted throughout the geographic area where competition is restricted by this Agreement. It is the desire and intent of the parties that the provisions of this Agreement be enforced to the fullest extent permitted under applicable law, whether now or hereafter in effect and therefore, to the extent permitted by applicable law, the parties hereto waive any provision of applicable law that would render any provision of this Annex B invalid or unenforceable.

 
1 HOU:3760738.2 INDEPENDENCE CONTRACT DRILLING, INC. PERFORMANCE UNIT AWARD AGREEMENT TOTAL SHAREHOLDER RETURN FIXED VALUE CASH SETTLEMENT Grantee: _________ 1. Grant of Performance Unit Award. (a) As of [DATE] (the “Effective Date”), the date of this agreement (this “Agreement”), Independence Contract Drilling, Inc., a Delaware corporation (the “Company”), hereby grants to the Grantee (identified above) the right to receive a cash TSR Peformance Award pursuant to the Amended and Restated Independence Contract Drilling, Inc. 2019 Omnibus Incentive Plan, as may be amended from time to time (the “Plan”) of up to $_____ (the “Award”). The actual a cash payment under the Award will be equal to $______ (the “Target Award”) multiplied by the “Payout Multiplier” as defined in Exhibit, subject to Exhibit C and the terms of this Agreement and the Plan. (b) To determine the number, if any, of the Award that shall be deemed earned (“Earned Award”), the methodology on Exhibit A shall be followed, subject to Exhibit C. For purposes of this Agreement, there shall be three performance periods: (a) “Performance Period I” shall be deemed to begin on the Effective Date and end on the one year anniversary of the Effective Date (the “Performance Period 1 Determination Date”); (b) “Performance Period II” shall be deemed to begin on the Effective Date and end on the second anniversary of the Effective Date (the “Performance Period II Determination Date”, and (c) “Performance Period III” shall be deemed to begin on the Effective Date and end on the third anniversary of the Effective Date (the “Performance Period III Determination Date”). For purposes of this Agreement, each of Performance Period I, Performance Period II and Performance Period III shall be considered a “Performance Period”, and each of Performance Period I Determination Date, Performance Period II Determination Date and Performance Period III Determination Date shall be considered a “Determination Date”. It is understood that any Earned Award is also subject to a three-year time- based vesting requirement that begins on the Effective Date, as described in paragraph 3 below. 2. Definitions. Exhibits A, B, C and D are incorporated into this Agreement by reference. Unless otherwise provided, all capitalized terms used herein shall have the meanings set forth in the Plan, or as set forth in Exhibits A, B, C and D. In the event of a conflict between the terms of the Plan and terms of this Agreement, the terms of the Plan shall control.

 
2 HOU:3760738.2 3. Vesting and Forfeiture. Subject to Grantee’s continued employment with the Company or its affiliates (the “Company Group”), and subject further to Exhibits A, B and C, and any employment agreement between Grantee and a member of the Company Group, only the portion of the Award that becomes an Earned Award shall have the opportunity to vest, and an Earned Award shall vest, if at all, on the third anniversary of the Effective Date (the “Vesting Date”). Any Award with respect to a Performance Period that fails to become an Earned Award as of the respective Determination Date (as determined by the Committee) shall immediately and automatically be forfeited for no consideration. Additionally, except to the extent of the occurrence of a Change of Control or the terms of an employment agreement between Grantee and a member of the Company Group provides otherwise, a failure of Grantee to continue his or her employment through the Vesting Date shall result in an immediate and automatic forfeiture of outstanding Awards and Earned Awards under this Agreement. 4. Purchase Price. No consideration shall be payable by the Grantee to the Company for the Awards. 5. Restrictions on Awards and Settlement of Vested Awards. (a) Subject to Section 11(e) and the other terms of the Plan, the Company shall settle vested Earned Awards on the 15th day following the date such Earned Award become vested in accordance with Section 3, above. Notwithstanding the timing of payment set forth herein, if payment of the Earned Award (when aggregated with any other payment under the Plan), would, in the judgment of the Company, jeopardize the ability of the Company to continue as a going concern, the Company may delay a portion of such payment until such time at which making such payment and any other retention bonuses and similar payments would no longer have such effect. (b) Nothing in this Agreement or the Plan shall be construed to: (i) give the Grantee any right to be awarded any further Awards or any other Award in the future, even if Awards or other Awards are granted on a regular or repeated basis, as grants of Awards and other Awards are completely voluntary and made solely in the discretion of the Committee; (ii) give the Grantee or any other person any interest in any fund or in any specified asset or assets of the Company or any Affiliate; or (iii) confer upon the Grantee the right to continue in the employment or service of the Company or any Affiliate, or affect the right of the Company or any Affiliate to terminate the employment or service of the Grantee at any time or for any reason. (c) The Grantee shall not have any voting rights with respect to the Awards. 6. Independent Legal and Tax Advice. Grantee acknowledges that the Company has advised Grantee to obtain independent legal and tax advice regarding the grant, holding, vesting and settlement of the Awards in accordance with this Agreement.

 
3 HOU:3760738.2 7. Reorganization of Company. The existence of this Agreement shall not affect in any way the right or power of the Company or its stockholders to make or authorize any or all adjustments, recapitalizations, reorganizations or other changes in the Company’s capital structure or its business, or any merger or consolidation of the Company, or any issue or bonds, debentures, preferred stock or the rights thereof, or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise. Except as otherwise provided herein, in the event of a Corporate Change as defined in the Plan, Section 4.5 of the Plan shall be applicable. 8. Investment Representation. Grantee will enter into such written representations, warranties and agreements as the Company may reasonably request in order to comply with any federal or state securities law. 9. No Guarantee of Employment. This Agreement shall not confer upon Grantee any right to continued employment with the Company or any Affiliate thereof. 10. Withholding of Taxes. The Company or an Affiliate shall be entitled to satisfy, subject to Section 16.3 of the Plan, any and all tax withholding requirements with respect to Awards. 11. General. (a) Notices. All notices under this Agreement shall be mailed or delivered by hand to the parties at their respective addresses set forth beneath their signatures below or at such other address as may be designated in writing by either of the parties to one another, or to their permitted transferees if applicable. Notices shall be effective upon receipt. (b) Transferability of Award. The rights of the Grantee pursuant to this Agreement are not transferable by Grantee. No right or benefit hereunder shall in any manner be liable for or subject to any debts, contracts, liabilities, obligations or torts of Grantee or any permitted transferee thereof. Any purported assignment, alienation, pledge, attachment, sale, transfer or other encumbrance of the Award, prior to the lapse of restrictions, that does not satisfy the requirements hereunder shall be void and unenforceable against the Company. (c) Amendment and Termination. No amendment, modification or termination of this Agreement shall be made at any time without the written consent of Grantee and the Company. (d) No Guarantee of Tax Consequences. The Company and the Committee make no commitment or guarantee that any federal, state, local or other tax treatment will (or will not) apply or be available to any person eligible for compensation or benefits under this Agreement. The Grantee has been advised and been provided the opportunity to obtain independent legal and tax advice regarding the granting, vesting and settlement of Awards pursuant to the Plan and this Agreement. (e) Section 409A. The Award hereunder is intended to either comply with or be exempt from Section 409A, and the provisions of this Agreement shall be administered, interpreted and construed accordingly. If the Award is not exempt from Section 409A and the

 
4 HOU:3760738.2 Grantee is a “specified employee” within the meaning of Section 409A(a)(2)(B)(i) of the Code on the date on which the Grantee has a “separation from service” (other than due to death) within the meaning of Section 1.409A-1(h) of the Treasury Regulations, then notwithstanding the provisions of this Agreement, any compensation payable on account of Grantee’s separation from service that constitute deferred compensation under Section 409A shall take place on the earlier of (i) the first business day following the expiration of six months from the Grantee’s separation from service, or (ii) such earlier date as complies with the requirements of Section 409A. To the extent required under Section 409A, the Grantee shall be considered to have terminated employment with the Company or its affiliates (the “Company Group”) when the Grantee incurs a “separation from service” with respect to the Company Group within the meaning of Section 409A(a)(2)(A)(i) of the Code. (f) Severability. In the event that any provision of this Agreement shall be held illegal, invalid or unenforceable for any reason, such provision shall be fully severable, but shall not affect the remaining provisions of the Agreement, and the Agreement shall be construed and enforced as if the illegal, invalid or unenforceable provision had not been included therein. (g) Supersedes Prior Agreements. This Agreement shall supersede and replace all prior agreements and understandings, oral or written, between the Company and the Grantee regarding the grant of the Award covered hereby. (h) Governing Law. This Agreement shall be construed in accordance with the laws of the State of Delaware without regard to its conflict of law provisions, to the extent federal law does not supersede and preempt Delaware law. (i) No Trust or Fund Created. This Agreement shall not create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Company or any Affiliate and a Grantee or any other Person. To the extent that any Person acquires a right to receive payments from the Company or any Affiliates pursuant to this Agreement, such right shall be no greater than the right of any general unsecured creditor of the Company or any Affiliate. (j) Clawback Provisions. Notwithstanding any other provisions in this Agreement, any incentive-based compensation, or any other compensation, payable pursuant to this Agreement or any other agreement or arrangement with the Company or an affiliate which is subject to recovery under any law, government regulation or stock exchange listing requirement, will be subject to such deductions and clawback as may be required to be made pursuant to such law, government regulation or stock exchange listing requirement (or any policy adopted by the Company or an affiliate pursuant to such law, government regulation or stock exchange listing requirement). (k) Restrictive Covenants. Grantee agrees to the restrictive covenants contained in Exhibit D to this Agreement. (l) Binding Effect. This Agreement shall be binding upon and inure to the benefit of any successors to the Company and all persons lawfully claiming under the Grantee. [SIGNATURES ON NEXT PAGE]

 
5 HOU:3760738.2 IN WITNESS WHEREOF, the Company has caused this Agreement to be executed on its behalf by its duly authorized officer and Grantee has hereunto executed this Agreement as of the date set forth above. INDEPENDENCE CONTRACT DRILLING, INC. By: Name: Title: Address for Notices: Independence Contract Drilling, Inc. 20475 Hwy 249, Suite 300 Houston, Texas 77070 Attn: Chief Executive Officer GRANTEE Name: Address for Notices: Executive’s then current address shown in the Company’s records.

 
6 HOU:3760738.2 Exhibit A Methodology for Calculating Earned AWARDs 1. Definitions. For purposes of determining the amount the Award that is deemed to be an Earned Award, the following definitions shall apply: (a) Peer Group means the following eight companies to the extent such entities or their successors are in existence and publicly traded as of the Performance End Date: __. (b) Broad-Based Index means _______. (c) Rate of Return shall be defined and calculated as follows, where the “Beginning Price” with respect to the Broad-Based Index is the average closing price reported for such Index for the last 20 NYSE trading days prior and including the Effective Date and the “Ending Price” for the Broad-Based Index is the average closing price reported for such Index for the last 20 NYSE trading days prior to and including the applicable Determination Date. Rate of Return = (Ending Price – Beginning Price) / Beginning Price (d) Total Shareholder Return or TSR means shall be defined and calculated as follows, where “Beginning Price” is (1) with respect to the Company or with respect to members of the Peer Group, the average closing price on the New York Stock Exchange (“NYSE”) for the last 20 NYSE trading days prior to and including the Effective Date, and “Ending Price” is the average closing price on the NYSE for the last 20 NYSE trading prior to and including the applicable Determination Date, in each case as applied to the applicable equity security: TSR = (Ending Price – Beginning Price + cash dividends (if any) per share paid*) Beginning Price * Stock dividends paid in securities rather than cash in which there is a distribution of less than 25 percent of the outstanding shares (as calculated prior to the distribution) shall be treated as cash for purposes of this calculation. To the extent a security of the Company or any member of the Peer Group is not listed or traded on the NYSE, “NYSE” as used above shall mean the principal national securities exchange or quotation service on which the security is listed or quoted. TSR of the Company or of any member of the Peer Group shall be equitably adjusted, as determined by the Committee, to reflect any spin-off, stock split, reverse stock split, stock dividend, recapitalization, reclassification or other similar change in the number of outstanding shares of common stock. If the Broad-Based Index ceases to be published, the Broad-Based Index shall be equitably adjusted, as determined by the Committee, to a substitute published index. 2. Committee Methodology. The Award and Target Award shall be trifurcated into three equal parts, with one-third being allocated to each Performance Period (to avoid partial shares, the portion of the Award and Target Award allocated to a specific Performance Period shall

 
7 HOU:3760738.2 be reduced to the nearest whole number, with the excess rolling forward into the next sequentially ordered Performance Period). The Committee shall calculate the number of Earned Award applicable to each Performance Period as soon as reasonably practicable following expiration of the applicable Performance Period, and in all events as soon as practicable in order to determine the Earned Award existing on the Vesting Date. Subject to Exhibit C, for purposes of determining the amount of Earned Award for a particular Performance Period, the Committee shall: (a) Calculate the Total Shareholder Return for the Company and each member of the Peer Group for the Performance Period. (b) Rank the Company and each member of the Peer Group based on Total Shareholder Return with the entity having the highest Total Shareholder Return ranking in the first position and the entity with the lowest Total Shareholder Return ranking in the ninth position. (c) Determine the Rate of Return for the Broad-Based Index for the Performance Period. (e) Determine the Company’s Performance compared to the Broad-Based Index by dividing the Company’s Total Shareholder Return for the Performance Period by the Rate Return for the Broad-Based Index during the Performance Period (with a minimum of negative 20% and maximum of positive 20%). (e) Determine the Payout Multiplier to be utilized in determining the amount of the Award that is an Earned for the performance period, based on the Payout Matrix below: (f) For the applicable Performance Period, calculate the amount of Earned Award for such Performance Period as follows: i. Performance Period I: Multiply the Target Award allocable to Performance Period I by the Payout Multiplier in the chart above, with such answer being the Earned

 
8 HOU:3760738.2 Award for the Performance Period I. To the extent the Award allocated to Performance Period I exceeds the Earned Award for Performance Period I, such excess Award shall be immediately and automatically forfeited. ii. Performance Period II: Multiply the Target Award allocable to Performance Period II by the Payout Multiplier in the chart above, with such answer being the Earned Award for the Performance Period II. To the extent the Award allocated to Performance Period II exceeds the Earned Award for Performance Period II, such excess Award shall be immediately and automatically forfeited. iii. Performance Period III: Multiply the Target Award allocable to Performance Period III by the Payout Multiplier in the chart above, with such answer being the Earned Award for the Performance Period III. To the extent the Award allocated to Performance Period III exceeds the Earned Award for Performance Period III, such Award shall be immediately and automatically forfeited. 3. Peer Group Changes. If a member of the Peer Group declares bankruptcy or ceases to be publicly traded as a result of bankruptcy, it shall be deemed to remain in the Peer Group until the expiration of the Performance Period and shall occupy the lowest ranking in the Payout Schedule. If, as a result of a merger, acquisition or a similar corporate transaction, in which any member of the Peer Group ceases to be publicly traded, the Committee may in its sole discretion, revise the makeup of the Peer Group and calculate the resulting Total Shareholder Return for such affected member of the Peer Group, adjusting accordingly, the associated Payout Multipliers in a manner consistent with the methodologies contained herein.

 
9 HOU:3760738.2 Exhibit B Certain Definitions. 1. Change of Control shall mean A. The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (a “Person”) of beneficial ownership (within the meaning of Rule 13d- 3 promulgated under the Exchange Act) of 50 percent or more of either (A) the then outstanding shares of common stock or membership interests of the Company (the “Outstanding Company Common Stock”) or (B) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors or managers (the “Outstanding Company Voting Securities”); provided, however, that for purposes of this subsection A, the following acquisitions shall not constitute a Change of Control: (1) any acquisition directly from the Company or any acquisition by the Company; or (2) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company; or (3) any acquisition by any corporation pursuant to a transaction that complies with clauses (1), (2) and (3) of subsection C of this definition; or B. Individuals, who, as of the date hereof constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's stockholders or members, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual was a member of the Incumbent Board, but excluding, for purpose of this subsection B, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or C. Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a "Corporate Transaction") in each case, unless, following such Corporate Transaction, (1) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Corporate Transaction beneficially own, directly or indirectly, more than 60 percent of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Corporate Transaction (including, without limitation, a corporation that as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Corporate Transaction, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities, as the case may be, (2) no Person (excluding any corporation resulting from

 
10 HOU:3760738.2 such Corporate Transaction or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Corporate Transaction) beneficially owns, directly or indirectly, 20 percent or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Corporate Transaction or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Corporate Transaction and (3) at least a majority of the members of the board of directors of the corporation resulting from such Corporate Transaction were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Corporate Transaction; or D. Approval by the stockholders of the Company of a complete liquidation or dissolution of the Company. Notwithstanding the foregoing, however, in any circumstance or transaction in which compensation would be subject to the income tax under Section 409A if the foregoing definition of “Change of Control” were to apply, but would not be so subject if the term “Change of Control” were defined herein to mean a “change in control event” within the meaning of Treasury Regulation Section 1.409A-3(i)(5), then “Change of Control” means, but only to the extent necessary to prevent such compensation from becoming subject to the income tax under Section 409A, a transaction or circumstance that satisfies the requirements of both (1) a Change of Control under the applicable clauses (A) through (D) above, as applicable, and (2) a “change in control event” within the meaning of Treasury Regulation Section 1.409A-3(i)(5).

 
11 HOU:3760738.2 Exhibit C Change of Control. 1. Awards Becoming Earned AWARDs. If prior to any Determination Date, a Change of Control occurs, and the Grantee has remained continuously employed by the Company Group from the Effective Date to the date of such Change of Control, then, notwithstanding any other provision of this Agreement to the contrary, a portion of the outstanding Target AWARD that have not previously forfeited or previously converted to an Earned Award shall automatically and immediately become and Earned Award on the date of such Change of Control in accordance with the following fraction (not greater than 1.0): the numerator being the number of months (not including any partial months) that have elapsed since the Effective Date to the date of the Change of Control, and the denominator being the total number of months in the period beginning on the Effective Date and ending on the third anniversary of the Effective Date. For example: a. If the Change of Control occurs prior to the Performance Period I Determination Date, all Target Awards (to the extent not previously forfeited) for all Performance Periods shall be included in the above fraction to determine what portion of the Awards that are Earned Awards. b. If the Change of Control occurs prior to the Performance Period II Determination Date, all Target Awards subject to Performance Period II (to the extent not previously forfeited) and all Target Awards subject to Performance Period III (to the extent not previously forfeited) shall be included in the above fraction to determine what portion of the Awards are Earned Awards. c. If the Change of Control occurs after the Performance Period II Determination Date but prior to the Performance Period III Determination Date, all Target Awards subject to Performance Period III (to the extent not previously forfeited) shall be included in the above fraction to determine what portion of Awards are Earned Awards. 2. Earned Awards Becoming Vested. If a Change of Control occurs and the Grantee has remained continuously employed by the Company Group from the Effective Date to the date of such Change of Control, then, notwithstanding any other provision of this Agreement to the contrary, all Earned Award’s (determined after calculating 1, above) shall vest on the date of such Change of Control. It is understood that to the extent a Change of Control occurs after an applicable Determination Date or Performance Period, any Earned Awards relating to such previously occurring Determination Date and Performance Period (as determined by the Committee pursuant to Exhibit A) shall be considered, in addition to the Earned Awards calculated pursuant to paragraph 1 above, Earned Awards for purposes of this paragraph 2.

 
12 HOU:3760738.2 Exhibit D Restrictive Covenants In consideration for the grant of Award’s hereunder, which are expected to vest during Grantee’s employment with the Company Group over the vesting period, as well as the protection of the Company Group’s goodwill and Confidential Information, Grantee agrees to the following: (a) Certain Definitions. For purposes of this Exhibit D, the following terms shall have the following meanings: (i) Cause” shall mean Grantee’s: A. willful and continued failure to comply with the reasonable written directives of the Company for a period of thirty (30) days after written notice from the Company; B. willful and persistent inattention to duties for a period of thirty (30) days after written notice from the Company, or the commission of acts within employment with the Company Group amounting to gross negligence or willful misconduct; C. misappropriation of funds or property of the Company Group or committing any fraud against the Company Group or against any other person or entity in the course of employment with the Company Group; D. misappropriation of any corporate opportunity, or otherwise obtaining personal profit from any transaction which is adverse to the interests of the Company Group or to the benefits of which the Company Group is entitled; E. conviction of a felony involving moral turpitude; F. willful failure to comply in any material respect with the terms of this Agreement and such non-compliance continues uncured after thirty (30) days after written notice from the Company; G. chronic substance abuse, including abuse of alcohol, drugs or other substances or use of illegal narcotics or substances, for which Grantee fails to undertake treatment immediately after requested by the Company or to complete such treatment and which abuse continues or resumes after such treatment period, or possession of illegal narcotics or substances on Company premises or while performing Grantee’s duties and responsibilities. For purposes of this definition, no act, or failure to act, by Grantee will be considered “willful” if done, or omitted to be done, by Grantee in good faith and in the reasonable belief that the act or omission was in the best interest of the Company or required by applicable law.

 
13 HOU:3760738.2 Any termination during the Employment Term by the Company for Cause shall be communicated by Notice of Termination to the Grantee. For purposes of this Agreement, a “Notice of Termination” means a written notice which sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Grantee’s employment for “Cause” The failure by the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Cause shall not waive any right of the Company from asserting such fact or circumstance in enforcing the Company’s rights hereunder. (ii) “Confidential Information” means any information, knowledge or data of any nature and in any form (including information that is electronically transmitted or stored on any form of magnetic or electronic storage media) relating to the past, current or prospective business or operations of the Company Group, that is not generally known to persons engaged in a business similar to that conducted by the Company Group, whether produced by the Company Group or any of its consultants, agents or independent contractors or by Grantee, and whether or not marked confidential. Confidential information does not include information that (1) at the time of disclosure is, or thereafter becomes, generally available to the public, (2) prior to or at the time of disclosure was already in the possession of Grantee, (3) is obtained by Grantee from a third party not in violation of any contractual, legal or fiduciary obligation to the Company Group with respect to that information or (3) is independently developed by Grantee, but not including the confidential information provided by the Company Group. (iii) “Restricted Business” means any the oil and natural gas land contract drilling business conducted in the United States of America. (b) Nondisclosure of Confidential Information. Grantee shall hold in a fiduciary capacity for the benefit of the Company Group all Confidential Information which shall have been obtained by Grantee during Grantee’s employment and shall not use such Confidential Information other than within the scope of Grantee’s employment with and for the exclusive benefit of the Company Group. Following any termination of employment with the Company Group, Grantee agrees (i) not to communicate, divulge or make available to any person or entity (other than the Company Group) any such Confidential Information, except (A) upon the prior written authorization of the Company Group, (B) as may be required by law or legal process, (C) as reasonably necessary in connection with the enforcement of any right or remedy related to this Agreement, or (D) unless no longer Confidential Information, and (ii) to deliver promptly to the Company Group any Confidential Information in Grantee’s possession, including any duplicates thereof and any notes or other records Grantee has prepared with respect thereto. In the event that the provisions of any applicable law or the order of any court would require Grantee to disclose or otherwise make available any Confidential Information then Grantee shall, to the extent practicable, give the Company prior written notice of such required disclosure and an opportunity to contest the requirement of such disclosure or apply for a protective order with respect to such Confidential Information by appropriate proceedings. (c) Limited Covenant Not to Compete. In the event Grantee’s employment is terminated for any reason, Grantee agrees that during the period beginning on the date of such termination and ending on the twelve (12) month anniversary of the date of such termination:

 
14 HOU:3760738.2 (i) Grantee shall not, directly or indirectly, for himself or others, own, manage, operate, control or participate in the ownership, management, operation or control of any business, whether in corporate, proprietorship or partnership form or otherwise, that is engaged, directly or indirectly, in the United States in the Restricted Business; provided, however, that the restrictions contained herein shall not restrict (A) the acquisition by Grantee of less than 2% of the outstanding capital stock of any publicly traded company engaged in a Restricted Business or (B) Grantee from being employed by an entity in which the majority of such entity’s revenues on a consolidated basis determined in accordance with generally accepted accounting principles are from activities and businesses that do not constitute a Restricted Business and provided that Grantee is only employed by and engaged with divisions and units of such entity that are not engaged in the Restricted Business; and (ii) Grantee shall not, directly or indirectly (A) solicit any individual, who, at the time of time of such solicitation is an employee of the Company Group, to leave such employment or hire, employ or otherwise engage any such individual (other than employees of the Company Group who respond to general advertisements for employment in newspapers or other periodicals of general circulation (including trade journals)), or (B) cause, induce or encourage any material actual or prospective client, customer, supplier, landlord, lessor or licensor of the Company Group to terminate or modify any such actual or prospective contractual relationship that exists on the date of termination of employment. In addition, it is understood that the provisions of this paragraph C shall terminate in all respects on the fourth anniversary of the date of the Agreement to which this Exhibit D is a part. (d) Injunctive Relief; Remedies. The covenants and undertakings contained in this Exhibit D relate to matters which are of a special, unique and extraordinary character and a violation of any of the terms of this Exhibit D will cause irreparable injury to the Company Group, the amount of which will be impossible to estimate or determine and which cannot be adequately compensated. Accordingly, the remedy at law for any breach of this Exhibit D may be inadequate. Therefore, notwithstanding anything to the contrary, the Company will be entitled to an injunction, restraining order or other equitable relief from any court of competent jurisdiction in the event of any breach of any provision of this Exhibit C without the necessity of proving actual damages or posting any bond whatsoever. The rights and remedies provided by this Exhibit C are cumulative and in addition to any other rights and remedies which the Company Group may have hereunder or at law or in equity. The parties hereto further agree that, if any court of competent jurisdiction in a final nonappealable judgment determines that a time period, a specified business limitation or any other relevant feature of this Exhibit D is unreasonable, arbitrary or against public policy, then a lesser time period, geographical area, business limitation or other relevant feature which is determined by such court to be reasonable, not arbitrary and not against public policy may be enforced against the applicable party. (e) Governing Law of this Exhibit D; Consent to Jurisdiction. Any dispute regarding the reasonableness of the covenants and agreements set forth in this Exhibit C, or the territorial scope or duration thereof, or the remedies available to the Company upon any breach of such

 
15 HOU:3760738.2 covenants and agreements, shall be governed by and interpreted in accordance with the laws of the state of Texas, without regard to conflict of law provisions thereof, and, with respect to each such dispute, the Company and Grantee each hereby irrevocably consent to the exclusive jurisdiction of the State of Texas for resolution of such dispute, and further agree that service of process may be made upon Grantee in any legal proceeding relating to this Exhibit D by any means allowed under the laws of such state. (f) Grantee’s Understanding of this Section. Grantee hereby represents to the Company that Grantee has read and understands, and agrees to be bound by, the terms of this Exhibit D. Grantee acknowledges that the geographic scope and duration of the covenants contained in Exhibit D are the result of arm’s-length bargaining and are fair and reasonable in light of (i) the importance of the functions performed by Grantee and the length of time it would take the Company Group to find and train a suitable replacement, (ii) the nature and wide geographic scope of the operations of the Company Group, (iii) Grantee’s level of control over and contact with the Company Group’s business and operations in all jurisdictions where they are located, and (iv) the fact that the Restricted Business is potentially conducted throughout the geographic area where competition is restricted by this Agreement. It is the desire and intent of the parties that the provisions of this Agreement be enforced to the fullest extent permitted under applicable law, whether now or hereafter in effect and therefore, to the extent permitted by applicable law, the parties hereto waive any provision of applicable law that would render any provision of this Exhibit D invalid or unenforceable. * * * * *

 
RETENTION AGREEMENT This RETENTION AGREEMENT (the “Agreement”) dated effective as of ___, ____ (the “Effective Date”), between Independence Contract Drilling, Inc., a Delaware corporation (the “Company”), and ________________ (“Executive”). W I T N E S S E T H: WHEREAS, Executive is employed by the Company Group (as defined below); and WHEREAS, the Company and Executive desire to enter into this Agreement to set forth the term of a retention bonus to be provided to Executive to be payable upon Executive’s continued employment with the Company Group or in the event that Executive’s employment terminates under the circumstances described herein. NOW, THEREFORE, in consideration of the foregoing, the parties agree as follows: 1. Definitions. For purposes of this Agreement, the following terms shall have the meanings set forth below: (a) Affiliate. “Affiliate” means, with respect to any Person, any Person that, directly or indirectly, through one or more intermediaries, controls, is controlled by or is under common control with such Person. (b) Cause. “Cause” means, as determined by the board of directors of the Company (the “Board”), Executive’s: (i) willful and continued failure to comply with the reasonable written directives of the Company Group for a period of thirty (30) days after written notice from the Company; (ii) willful and persistent inattention to duties for a period of thirty (30) days after written notice from the Company, or the commission of acts within employment with the Company Group amounting to gross negligence or willful misconduct; (iii) misappropriation of funds or property of the Company Group or committing any fraud against the Company Group or against any other person or entity in the course of employment with the Company Group; (iv) misappropriation of any corporate opportunity, or otherwise obtaining personal profit from any transaction which is adverse to the interests of the Company Group or to the benefits of which the Company Group is entitled; (v) conviction of a felony involving moral turpitude; (vi) willful failure to comply in any material respect with the terms of this Agreement and such non-compliance continues uncured after thirty (30) days after written notice from the Company; or (vii) chronic substance abuse, including abuse of alcohol, drugs or other substances or use of illegal narcotics or substances, for which Executive fails to

 
2 undertake treatment immediately after requested by the Company or to complete such treatment and which abuse continues or resumes after such treatment period, or possession of illegal narcotics or substances on Company premises or while performing Executive’s duties and responsibilities. For purposes of this definition, no act, or failure to act, by Executive will be considered “willful” if done, or omitted to be done, by Executive in good faith and in the reasonable belief that the act or omission was in the best interest of the Company Group or required by applicable law. Any termination by the Company Group for Cause shall be communicated by Notice of Termination to the other party. For purposes of this Agreement, a “Notice of Termination” means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive's employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than 30 days after the giving of such notice). The failure by the Company Group to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Cause shall not waive any right of the Company from asserting such fact or circumstance in enforcing Executive’s or the Company’s rights hereunder. “Date of Termination” shall mean the date that employment with the Company Group is terminated in all respects for any reason. (c) Code. “Code” means the Internal Revenue Code of 1986, as amended. (d) Company Group. “Company Group” means the Company and its Affiliates. (e) Confidential Information. “Confidential Information” means any information, knowledge or data of any nature and in any form (including information that is electronically transmitted or stored on any form of magnetic or electronic storage media) relating to the past, current or prospective business or operations of the Company Group, that is not generally known to persons engaged in a business similar to that conducted by the Company Group, whether produced by the Company Group or any of its consultants, agents or independent contractors or by Executive, and whether or not marked confidential. Confidential information does not include information that (i) at the time of disclosure is, or thereafter becomes, generally available to the public, (ii) prior to or at the time of disclosure was already in the possession of Executive, (iii) is obtained by Executive from a third party not in violation of any contractual, legal or fiduciary obligation to the Company Group with respect to that information or (iv) is independently developed by Executive, but not including the confidential information provided by the Company Group. (f) Good Reason. “Good Reason” shall mean without the express written consent of Executive, the occurrence of any of the following: (i) any action or inaction that constitutes a material breach by the Company of this Agreement and such action or inaction continues uncured after thirty (30) days following written notice from Executive; (ii) the assignment to Executive of any duties inconsistent in any respect with Executive’s position (including status, offices, titles and reporting requirements), authority, duties or responsibilities, or any other action by the Company Group which results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and

 
3 which is remedied by the Company within thirty (30) days of receipt of written notice thereof given by Executive; (iii) a change in the geographic location at which Executive must perform services to a location more than fifty (50) miles from Houston, Texas or the location at which Executive normally performs such services as of the Effective Date; or (iv) in the event a Change of Control has occurred, the assignment to the Participant to any position (including status, offices, titles and reporting requirements), authority, duties or responsibilities that are not (A) as a senior Participant officer with the ultimate parent company of the entity surviving or resulting from such Change of Control and (B) substantially identical to the Participant's position (including status, offices, titles and reporting requirements), authority, duties and responsibilities as contemplated by this Agreement. Executive’s termination of employment shall not constitute Good Reason unless Executive notifies the Company of the condition or event constituting Good Reason within ninety days (90) days of the condition’s occurrence (unless unknown to Executive) and the Company fails to cure the conditions, to the extent curable, specified in the notice within thirty (30) days following such notification and if conditions remain uncured following the end of such period, Executive terminates employment no later than thirty (30) days thereafter. (g) Person. “Person” shall be construed broadly and shall include, without limitation, an individual, a partnership, a corporation, an association, a joint stock company, a limited liability company, a trust, a joint venture, an unincorporated organization and a governmental entity or any department, agency or political subdivision thereof. (h) Restricted Business. “Restricted Business” means any the oil and natural gas land contract drilling business conducted in the United States of America. 2. Retention Bonus. (a) Executive shall be entitled to receive a cash bonus in the amount of $893648 (the “Retention Bonus”) on the third anniversary of the Effective Date (the “Vesting Date”), subject to Executive remaining continuously employed with the Company Group through the Vesting Date and complying with the terms and conditions contained in this Agreement (including the restrictive covenants contained in Section 5 of this Agreement). Except as set forth in Section 2(b) below, if Executive’s employment terminates prior to the Vesting Date, Executive shall forfeit any right to the Retention Bonus in its entirety. If the Retention Bonus becomes payable pursuant to this Section 2(a), the Retention Bonus shall be paid no later than thirty (30) days following the Retention Date. (b) If Executive’s employment terminates prior to the Vesting Date as a result of a resignation by Executive for Good Reason or by the Company Group other than (i) for Cause or (ii) as a result of disability or death, Executive shall be entitled to receive the Retention Bonus, subject to Executive’s execution and non-revocation of a release in a form acceptable to the Company and compliance with the terms and conditions contained in this Agreement (including the restrictive covenants contained in Section 5 of this Agreement). If the Retention Bonus becomes payable pursuant to this Section 2(b), the Retention Bonus shall be paid no later than sixty (60) days following the Date of Termination.

 
4 (c) Notwithstanding the timing of payment set forth in Section 2(a) or (b), if payment of the Retention Bonus (when aggregated with any other retention bonuses or similar payments), would, in the judgment of the Company, jeopardize the ability of the Company to continue as a going concern, the Company may delay a portion of such payment until such time at which making such payment and any other retention bonuses and similar payments would no longer have such effect. (d) Tax and Other Withholdings. The Company may withhold from any amounts and benefits payable under this Agreement any applicable federal, state, city or other taxes as required by law or any under amounts required to be withheld pursuant to any employee benefit plan of the Company Group. (e) No Other Bonuses. This Agreement sets forth the entire agreement of the parties hereto in respect of the subject matter contained herein and supersedes all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of the Company Group or any of their predecessors, including but not limited to any retention bonus; provided that nothing in this Agreement shall limit or release Executive from any other obligation regarding confidentiality, intellectual or other property, post-employment competitive activities or other restrictive covenant that Executive has or may have to the Company Group. 3. No Right to Continued Employment. Nothing in this Agreement is intended to create or imply a promise or contract of employment or continued employment for a specified term and either Executive or the Company Group may terminate the employment relationship at any time for any or no reason, with or without Cause, and with or without notice; provided, however, that Executive shall not be entitled to any Retention Bonus under this Agreement in the event his or her employment is terminated by the Company Group for Cause as a result of death or disability or by Executive without Good Reason, in each case, prior to the Vesting Date. 4. Section 409A. This Agreement is intended to comply with the requirements of Section 409A of the Code and shall be interpreted and construed consistently with such intent. The payment to Executive pursuant to this Agreement is also intended to be exempt from Section 409A of the Code to the maximum extent possible under either the separation pay exemption pursuant to Treasury regulation §1.409A-1(b)(9)(iii) or as short-term deferrals pursuant to Treasury regulation §1.409A-1(b)(4). Notwithstanding anything in this Agreement to the contrary, in the event that any amounts payable under this Agreement is subject to the provisions of Section 409A of the Code, to the extent determined necessary, the parties agree to amend this Agreement in the least restrictive manner necessary to avoid imposition of any additional tax or income recognition on Executive under Section 409A of the Code, the final Treasury Regulations and other Internal Revenue Service guidance thereunder (“409A Penalties”); provided, that in no event shall the Company be responsible for any 409A Penalties that arise in connection with any amounts payable under this Agreement. 5. Restrictive Covenants. In consideration for the Retention Bonus granted hereunder, which are expected to vest during Executive’s employment with the Company Group, as well as the protection of the Company Group’s goodwill and Confidential Information, Executive agrees to the following: (a) Nondisclosure of Confidential Information. Executive shall hold in a fiduciary capacity for the benefit of the Company Group all Confidential Information which shall have been obtained by Executive during Executive’s employment and shall not use such Confidential Information other than within the scope of Executive’s employment with and for the exclusive

 
5 benefit of the Company Group. Following any termination of employment with the Company Group, Executive agrees (i) not to communicate, divulge or make available to any person or entity (other than the Company Group) any such Confidential Information, except (A) upon the prior written authorization of the Company Group, (B) as may be required by law or legal process, (C) as reasonably necessary in connection with the enforcement of any right or remedy related to this Agreement, or (D) unless no longer Confidential Information, and (ii) to deliver promptly to the Company Group any Confidential Information in Executive’s possession, including any duplicates thereof and any notes or other records Executive has prepared with respect thereto. In the event that the provisions of any applicable law or the order of any court would require Executive to disclose or otherwise make available any Confidential Information then Executive shall, to the extent practicable, give the Company prior written notice of such required disclosure and an opportunity to contest the requirement of such disclosure or apply for a protective order with respect to such Confidential Information by appropriate proceedings. (b) Limited Covenant Not to Compete. In the event Executive’s employment is terminated for any reason, Executive agrees that during the period beginning on the date of such termination and ending on the twelve (12) month anniversary of the date of such termination: (i) Executive shall not, directly or indirectly, for himself or others, own, manage, operate, control or participate in the ownership, management, operation or control of any business, whether in corporate, proprietorship or partnership form or otherwise, that is engaged, directly or indirectly, in the United States in the Restricted Business; provided, however, that the restrictions contained herein shall not restrict (A) the acquisition by Executive of less than 2% of the outstanding capital stock of any publicly traded company engaged in a Restricted Business or (B) Executive from being employed by an entity in which the majority of such entity’s revenues on a consolidated basis determined in accordance with generally accepted accounting principles are from activities and businesses that do not constitute a Restricted Business and provided that Executive is only employed by and engaged with divisions and units of such entity that are not engaged in the Restricted Business; and (ii) Executive shall not, directly or indirectly (A) solicit any individual, who, at the time of time of such solicitation is an employee of the Company Group, to leave such employment or hire, employ or otherwise engage any such individual (other than employees of the Company Group who respond to general advertisements for employment in newspapers or other periodicals of general circulation (including trade journals)), or (B) cause, induce or encourage any material actual or prospective client, customer, supplier, landlord, lessor or licensor of the Company Group to terminate or modify any such actual or prospective contractual relationship that exists on the date of termination of employment. (c) Injunctive Relief; Remedies. The covenants and undertakings contained in this Section 5 relate to matters which are of a special, unique and extraordinary character and a violation of any of the terms of this Section 5 will cause irreparable injury to the Company Group, the amount of which will be impossible to estimate or determine and which cannot be adequately compensated. Accordingly, the remedy at law for any breach of this Section 5 may be inadequate. Therefore, notwithstanding anything to the contrary, the Company will be entitled to an injunction, restraining order or other equitable relief from any court of competent jurisdiction in the event of any breach of any provision of this Section 5 without the necessity of proving actual damages or posting any bond whatsoever. The rights and remedies provided by this Section 5 are cumulative and in addition to any other rights and remedies which the Company

 
6 Group may have hereunder or at law or in equity. The parties hereto further agree that, if any court of competent jurisdiction in a final nonappealable judgment determines that a time period, a specified business limitation or any other relevant feature of this Section 5 is unreasonable, arbitrary or against public policy, then a lesser time period, geographical area, business limitation or other relevant feature which is determined by such court to be reasonable, not arbitrary and not against public policy may be enforced against the applicable party. (d) Governing Law of this Section 5; Consent to Jurisdiction. Any dispute regarding the reasonableness of the covenants and agreements set forth in this Section 5, or the territorial scope or duration thereof, or the remedies available to the Company upon any breach of such covenants and agreements, shall be governed by and interpreted in accordance with the laws of the state of Texas, without regard to conflict of law provisions thereof, and, with respect to each such dispute, the Company and Executive each hereby irrevocably consent to the exclusive jurisdiction of the State of Texas for resolution of such dispute, and further agree that service of process may be made upon Executive in any legal proceeding relating to this Section 5 by any means allowed under the laws of such state. (e) Executive’s Understanding of this Section. Executive hereby represents to the Company that Executive has read and understands, and agrees to be bound by, the terms of this Section 5. Executive acknowledges that the geographic scope and duration of the covenants contained in this Section 5 are the result of arm’s-length bargaining and are fair and reasonable in light of (i) the importance of the functions performed by Executive and the length of time it would take the Company Group to find and train a suitable replacement, (ii) the nature and wide geographic scope of the operations of the Company Group, (iii) Executive’s level of control over and contact with the Company Group’s business and operations in all jurisdictions where they are located, and (iv) the fact that the Restricted Business is potentially conducted throughout the geographic area where competition is restricted by this Agreement. It is the desire and intent of the parties that the provisions of this Agreement be enforced to the fullest extent permitted under applicable law, whether now or hereafter in effect and therefore, to the extent permitted by applicable law, the parties hereto waive any provision of applicable law that would render any provision of this Section 5 invalid or unenforceable. 6. Successors; Binding Agreement. (a) Upon a change in control of the Company, the Company shall require any successor to its business or assets (whether direct or indirect, by purchase, merger, consolidation or otherwise), that employs Executive and any parent company thereof, to expressly assume and agree to perform the Company’s obligations under this Agreement. (b) This Agreement shall not be assignable by Executive except by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by Executive and his or her personal or legal representatives and successors in interest. 7. Notice. Any notice, demand or other communication required or permitted under this Agreement shall be effective only if it is in writing and delivered personally or sent by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Company: Independence Contract Drilling, Inc. 20549 Hwy 249, Suite 300

 
7 Houston, Texas 77070 Attn: President & Chief Executive Officer With a copy to: Executive Vice President & Chief Financial Officer If to Executive: At the address most recently on file with the Company or to such other address as either party may designate by written notice to the other and shall be deemed to have been given as of the date so personally delivered or mailed. 8. Acknowledgement of Mutuality. Each of Executive and the Company acknowledges, understands, and agrees that: (a) such party has read and understands the terms and effect of this Agreement; (b) such party is hereby advised to and has had a sufficient period of time in which to consult with an attorney if such party so chooses (at that party’s cost) before executing this Agreement; (c) such party has been offered and has had the opportunity to negotiate the provisions of this Agreement, and agrees that this Agreement is a reasonable and fair bargain for valuable benefits and other consideration as provided herein. 9. Miscellaneous. (a) This Agreement cannot be modified or any term or condition waived in whole or in part except by a writing signed by the party against whom enforcement of the modification or waiver is sought or except as set forth in Section 5(c) above. (b) This Agreement shall be governed by and construed in accordance with the laws of the State of Texas. Executive has been represented by counsel of his or her choice individually and has negotiated this provision regarding choice of law and venue and voluntarily agrees to these terms. (c) Except for any disputes, controversies, or claims under Section 5 or disputes, controversies or claims that are not arbitrable pursuant to applicable law, each party hereto agrees that any disputes, controversies or claims relating to this Agreement shall be submitted for final and binding arbitration in the State of Texas and resolved by a single neutral with the American Arbitration Association (the “AAA”) then existing Employment Arbitration Rules and Mediation Procedures (the rules in effect as of the date of this Agreement can be found at this link: https://www.adr.org/Rules), which both parties acknowledge and agree they have had a reasonable opportunity to review before executing this Agreement. (d) EACH OF THE COMPANY AND EXECUTIVE HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT. (e) No waiver by either party at any time of any breach of this Agreement by the other party shall be deemed a waiver of such provisions or conditions at any prior or subsequent time.

 
8 (f) The headings in this Agreement are included for convenience and shall not affect the meaning or interpretation of this Agreement. (g) Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law (after appropriate modification or limitation pursuant to Section 5(c), such provision will be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. (h) This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, and such counterparts will together constitute one Agreement. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by a duly authorized officer and attested to and Executive acknowledges Executive’s acceptance of the foregoing terms as of the date shown above. INDEPENDENCE CONTRACT DRILLING, INC. By: Name: Date: ___, 20__ Title: EXECUTIVE Name: Date: ___ __, __

 

Exhibit 31.1
CERTIFICATION BY CHIEF EXECUTIVE OFFICER PURSUANT TO
RULE 13a-14(a) AND 15d-14(a) UNDER THE EXCHANGE ACT
I, J. Anthony Gallegos, Jr., certify that:
1. I have reviewed this quarterly report on Form 10-Q for the quarterly period ended March 31, 2021 of Independence Contract Drilling, Inc. (the "registrant");
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: May 4, 2021
/s/ J. Anthony Gallegos, Jr.
J. Anthony Gallegos, Jr.
Chief Executive Officer


Exhibit 31.2
CERTIFICATION BY CHIEF FINANCIAL OFFICER PURSUANT TO
RULE 13a-14(a) AND 15d-14(a) UNDER THE EXCHANGE ACT
I, Philip A. Choyce, certify that:
1. I have reviewed this quarterly report on Form 10-Q for the quarterly period ended March 31, 2021 of Independence Contract Drilling, Inc. (the "registrant");
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: May 4, 2021
/s/ Philip A. Choyce
Philip A. Choyce
Chief Financial Officer



Exhibit 32.1
CERTIFICATION BY CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Independence Contract Drilling, Inc. (the “Company”) on Form 10-Q for the quarter ending March 31, 2021 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, J. Anthony Gallegos, Jr., Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, to my knowledge, that:
(1)The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: May 4, 2021
/s/ J. Anthony Gallegos, Jr.
J. Anthony Gallegos, Jr.
Chief Executive Officer




Exhibit 32.2
CERTIFICATION BY CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Independence Contract Drilling, Inc. (the “Company”) on Form 10-Q for the quarter ending March 31, 2021 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Philip A. Choyce, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, to my knowledge, that:
(1)The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: May 4, 2021
/s/ Philip A. Choyce
Philip A. Choyce
Chief Financial Officer