Company Quick10K Filing
Vantage Drilling
Price-0.00 EPS92
Shares5 P/E-0
MCap-0 P/FCF-0
Net Debt294 EBIT528
TEV294 TEV/EBIT1
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-09-30 Filed 2020-11-16
10-Q 2020-06-30 Filed 2020-08-06
10-Q 2020-03-31 Filed 2020-05-12
10-K 2019-12-31 Filed 2020-03-10
10-Q 2019-09-30 Filed 2019-11-07
10-Q 2019-06-30 Filed 2019-08-14
S-1 2019-05-24 Public Filing
10-Q 2019-03-31 Filed 2019-05-09
10-K 2018-12-31 Filed 2019-03-14
10-Q 2018-09-30 Filed 2018-11-02
10-Q 2018-06-30 Filed 2018-08-08
S-1 2018-05-09 Public Filing
10-Q 2018-03-31 Filed 2018-05-04
10-K 2017-12-31 Filed 2018-03-29
10-Q 2017-09-30 Filed 2017-11-07
10-Q 2017-06-30 Filed 2017-08-02
10-Q 2017-03-31 Filed 2017-05-05
10-K 2016-12-31 Filed 2017-03-10
10-Q 2016-09-30 Filed 2016-11-10
10-Q 2016-06-30 Filed 2016-08-11
10-Q 2016-03-31 Filed 2016-05-13
10-K 2015-12-31 Filed 2016-03-30
8-K 2020-11-16
8-K 2020-08-11
8-K 2020-08-06
8-K 2020-06-30
8-K 2020-06-09
8-K 2020-05-30
8-K 2020-05-15
8-K 2020-05-12
8-K 2020-05-12
8-K 2020-04-24
8-K 2020-03-31
8-K 2020-03-05
8-K 2020-02-06
8-K 2020-01-21
8-K 2019-12-04
8-K 2019-11-15
8-K 2019-11-07
8-K 2019-08-14
8-K 2019-08-02
8-K 2019-07-18
8-K 2019-06-20
8-K 2019-06-05
8-K 2019-05-20
8-K 2019-05-09
8-K 2019-03-14
8-K 2019-03-06
8-K 2019-03-04
8-K 2018-11-30
8-K 2018-11-30
8-K 2018-11-19
8-K 2018-11-15
8-K 2018-11-12
8-K 2018-11-02
8-K 2018-08-08
8-K 2018-08-07
8-K 2018-07-09
8-K 2018-07-02
8-K 2018-05-04
8-K 2018-03-29

VDI 10Q Quarterly Report

Part I - Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 6. Exhibits
EX-31.1 vdi-ex311_7.htm
EX-31.2 vdi-ex312_8.htm
EX-32.1 vdi-ex321_9.htm
EX-32.2 vdi-ex322_6.htm

Vantage Drilling Earnings 2020-09-30

Balance SheetIncome StatementCash Flow
3.42.72.01.20.5-0.22015201620182020
Assets, Equity
0.70.50.40.20.1-0.12015201620182020
Rev, G Profit, Net Income
0.70.50.40.20.1-0.12015201620182020
Ops, Inv, Fin

10-Q 1 vdi-10q_20200930.htm 10-Q vdi-10q_20200930.htm

 

 

 

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 September 30, 2020

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: 333-212081

 

VANTAGE DRILLING INTERNATIONAL

(Exact name of Registrant as specified in its charter)

 

 

Cayman Islands

 

98-1372204

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

c/o Vantage Energy Services, Inc.

777 Post Oak Boulevard, Suite 800

Houston, TX 77056

(Address of principal executive offices and zip code)

Registrant’s telephone number, including area code: (281) 404-4700

 

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      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).    Yes      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 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 Act).    Yes      No  

The number of Vantage Drilling International Ordinary Shares outstanding as of November 2, 2020 is 13,115,026 shares.

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.    Yes      No  

Securities registered pursuant to Section 12(b) of the Act:

 

 

 

 

 

Title of each class

Trading Symbol

Name of each exchange on which registered

N/A

N/A

N/A

1


 

 

 

 

TABLE OF CONTENTS

 

 

 

 

2


 

SAFE HARBOR STATEMENT

This Quarterly Report on Form 10-Q (this “Quarterly Report”) contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. These forward-looking statements are included throughout this Quarterly Report, including under “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.” When used, statements which are not historical in nature, including those containing words such as “anticipate,” “assume,” “believe,” “budget,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “would,” “will,” “future” and similar expressions are intended to identify forward-looking statements in this Quarterly Report.

These forward-looking statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties. You should not place undue reliance on these forward-looking statements. Our actual results could differ materially from those anticipated in these forward-looking statements.

Among the factors that could cause actual results to differ materially are the risks and uncertainties described under “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2019, which was filed with the SEC on March 10, 2020, “Item 1A. Risk Factors” of our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2020 and June 30, 2020, which were filed with the SEC on May 12, 2020 and August 8, 2020, respectively, and “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Quarterly Report, “Item 1A. Risk Factors” of this Quarterly Report, and the following:

 

reduced expenditures by oil and gas exploration and production companies;

 

general economic conditions and conditions in the oil and gas industry, including the worldwide supply and demand for oil and gas, and expectations regarding future prices of oil and gas;

 

operations in international markets, including geopolitical, global, regional or local economic and financial market risks and challenges, applicability of foreign laws, including foreign labor and employment laws, foreign tax and customs regimes and foreign currency exchange rate risk;

 

epidemics, pandemics, global health crises, or other public health events and concerns, such as the spread and resulting impact of COVID-19;

 

governmental, tax and environmental regulations and related actions and legal matters, including the actions taken by governments in response to the spread of COVID-19, as well as the results and effects of legal proceedings and governmental audits, assessments and investigations;

 

excess supply of drilling units worldwide;

 

competition within our industry;

 

our level of indebtedness;

 

losses on impairment of long-lived assets;

 

any non-compliance with the U.S. Foreign Corrupt Practices Act, as amended and any other anti-corruption laws;

 

the sufficiency of our internal controls;

 

growing focus on climate change and its impact on the reputation of fossil fuel products or services;

 

operating hazards in the offshore drilling industry;

 

ability to obtain indemnity from customers;

 

adequacy of insurance coverage upon the occurrence of a catastrophic event;

 

identifying and completing acquisition opportunities;

 

effects of new products and new technology on the market;  

 

the occurrence of cybersecurity incidents, attacks or other breaches to our information technology systems;

 

our small number of customers;

 

termination or renegotiation of our customer contracts,; including, but not limited to, as a result of the COVID-19 outbreak;

 

changes in the status of pending, or the initiation of new, litigation, claims or proceedings;

3


 

 

changes in legislation removing or increasing current applicable limitations of liability;

 

our ability to prevail in the defense of any appeal by the Petrobras Parties due to legal, procedural and other risks associated with confirming and enforcing arbitration awards in such circumstances;

 

limited mobility of our drilling units between geographic regions;

 

levels of operating and maintenance costs;

 

our dependence on key personnel;

 

availability of workers and the related labor costs;

 

increased cost of obtaining supplies;

 

changes in tax laws, treaties or regulations;

 

credit risks of our key customers and certain other third parties;

 

our ability to incur additional indebtedness;

 

compliance with restrictions and covenants in our debt agreements; and

 

our incorporation under the laws of the Cayman Islands and the limited rights to relief that may be available compared to U.S. laws.

Many of these factors are beyond our ability to control or predict. Any, or a combination of these factors, could materially affect our future financial condition or results of operations and the ultimate accuracy of the forward-looking statements. These forward-looking statements are not guarantees of our future performance, and our actual results and future developments may differ materially from those projected in the forward-looking statements. Management cautions against putting undue reliance on forward-looking statements or projecting any future results based on such statements or present or prior earnings levels.

In addition, each forward-looking statement speaks only as of the date of the particular statement, and we undertake no obligation to publicly update or revise any forward-looking statements. We may not update these forward-looking statements, even if our situation changes in the future. All forward-looking statements attributable to us are expressly qualified by these cautionary statements. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained from time to time in filings we may make with the SEC, which may be obtained by contacting us or the SEC. These filings are also available through our website at www.vantagedrilling.com or through the SEC’s Electronic Data Gathering and Analysis Retrieval system (EDGAR) at www.sec.gov. The contents of our website are not part of this Quarterly Report.

Unless the context indicates otherwise, all references to the “Company,” “Vantage Drilling International,” “we,” “our” or “us” refer to Vantage Drilling International and its consolidated subsidiaries.  References to “VDI” refer to Vantage Drilling International, a Cayman Islands exempted company and the group parent company.

 


4


 

GLOSSARY OF TERMS

 

The following terms used in this Quarterly Report have the following meanings, unless specified elsewhere in this Quarterly Report:

 

Abbreviation/Acronym

 

Definition

10% Second Lien Notes

 

The Company's 10% Senior Secured Second Lien Notes due 2020

2016 Amended MIP

 

The Company's Amended and Restated 2016 Management Incentive Plan

2016 Term Loan Facility

 

The Company's initial term loans in place in connection with the Reorganization Plan

9.25% First Lien Notes

 

The Company's 9.25% Senior Secured First Lien Notes due November 15, 2023

ADVantage

 

ADVantage Drilling Services SAE, a joint venture owned 51% by the Company and 49% by ADES

ASC

 

Accounting Standards Codification

ASU

 

Accounting Standards Update

Bassoe

 

Bassoe Offshore A.S.

Board of Directors

 

The Company's board of directors

Comparable Quarter

 

The three months ended September 30, 2019

Comparable Period

 

The nine months ended September 30, 2019

Conversion

 

The conversion of all of the Convertible Notes into Ordinary Shares

Convertible Notes

 

The Company's 1%/12% Step-Up Senior Secured Third Lien Convertible Notes due 2030

COVID-19

 

Coronavirus disease 2019, a new strain of coronavirus caused by SARS-CoV-2

Current Quarter

 

The three months ended September 30, 2020

Current Period

 

The nine months ended September 30, 2020

DOJ

 

U.S. Department of Justice

Drilling Contract

 

The Agreement for the Provision of Drilling Services for the Titanium Explorer, dated February 4, 2009, between PVIS and VDEEP (and subsequently novated to PAI and VDDI)

Effective Date

 

February 10, 2016, the date the Company emerged from bankruptcy

EPS

 

Earnings per share

Exchange Act

 

Securities Exchange Act of 1934, as amended

FASB

 

Financial Accounting Standards Board

First Lien Indenture

 

First Lien Indenture, dated as of November 30, 2018, by and between Vantage Drilling International and U.S. Bank National Association

IRS

 

U.S. Internal Revenue Service

New Shares

 

Shares issued by the reorganized Company

Offer

 

An offer by the Company to repurchase up to $75.0 million of the 9.25% First Lien Notes

Offer Expiration Date

 

11:59 pm (New York City time) on August 2, 2019

OPEC

 

The Organization of the Petroleum Exporting Countries

Ordinary Shares

 

The Company's ordinary shares, par value $0.001 per share

PAI

 

Petrobras America, Inc.

PBGs

 

Performance-based restricted stock units

Petrobras

 

Petroleo Brasileiro S.A.

Petrobras Agreement

 

The agreement among VDEEP and VDDI, on the one hand, and the Petrobras Parties, on the other, relating to the Petrobras Award issued in favor of VDEEP and VDDI

Petrobras Award

 

The award issued by an international arbitration tribunal to VDEEP and VDDI with respect to the Petrobras Parties' breach of the Drilling Contract

Petrobras Parties

 

Collectively, Petrobras, PAI and PVIS

PIK

 

Payment-in-kind

Previous Quarter

 

the three months ended June 30, 2020

PVIS

 

Petrobras Venezuela Investments & Services, BV

QLE

 

A qualified liquidity event as defined in the 2016 Amended MIP

Reorganization Plan

 

The Company's pre-packaged plan of reorganization under Chapter 11 of Title 11 of the U.S. Bankruptcy Code

Restructuring Agreement

 

The restructuring support agreement among VDC and a majority of the Company's secured creditors

ROU

 

Right-of-use

SEC

 

Securities and Exchange Commission

Securities Act

 

Securities Act of 1933, as amended

5


 

Tax Election

 

Tax election filed with the IRS on January 22, 2020, to allow VDI to be treated as a partnership, rather than a corporation, for U.S. federal income tax purposes, with an effective date retroactive to December 9, 2019

TBGs

 

Time-based restricted stock units

TEV

 

Total enterprise value

U.S.

 

United States of America

U.S. District Court – Texas

 

U.S. District Court for the Southern District of Texas

U.S. GAAP

 

Accounting principles generally accepted in the United States of America

U.S. Holder

 

A beneficial owner of the Ordinary Shares that is, for U.S. federal income tax purposes, (i) a citizen or individual resident of the United States, (ii) a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) that was organized under the laws of the United States, any state thereof, or the District of Columbia, (iii) an estate, the income of which is subject to U.S. federal income tax regardless of its source or (iv) a trust, if a U.S. court can exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust, or such trust has a valid election in effect under applicable treasury regulations to be treated as a U.S. person for U.S. federal income tax purposes

USD or $

 

U.S. Dollar

VDC

 

Vantage Drilling Company, the Company's former parent company

VDC Note

 

A $61.5 million promissory note issued by the Company in favor of VDC

VDDI

 

Vantage Deepwater Drilling, Inc.

VDI

 

Vantage Drilling International

VDEEP

 

Vantage Deepwater Company

VIE

 

Variable interest entity

 

 

6


 

PART I—FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

Vantage Drilling International

Consolidated Balance Sheet

(In thousands, except share and par value information)

(Unaudited)

 

 

 

September 30, 2020

 

 

December 31, 2019

 

 

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

165,736

 

 

$

231,947

 

Restricted cash

 

 

8,952

 

 

 

2,511

 

Trade receivables, net

 

 

39,110

 

 

 

46,504

 

Inventory

 

 

51,311

 

 

 

48,368

 

Prepaid expenses and other current assets

 

 

15,491

 

 

 

16,507

 

Total current assets

 

 

280,600

 

 

 

345,837

 

Property and equipment

 

 

 

 

 

 

 

 

Property and equipment

 

 

803,405

 

 

 

1,002,968

 

Accumulated depreciation

 

 

(264,240

)

 

 

(281,842

)

Property and equipment, net

 

 

539,165

 

 

 

721,126

 

Operating lease ROU assets

 

 

4,463

 

 

 

6,706

 

Other assets

 

 

11,161

 

 

 

17,068

 

Total assets

 

$

835,389

 

 

$

1,090,737

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$

26,587

 

 

$

49,599

 

Other current liabilities

 

 

28,324

 

 

 

26,936

 

Total current liabilities

 

 

54,911

 

 

 

76,535

 

Long–term debt, net of discount and financing costs of $5,191 and $6,421, respectively

 

 

344,809

 

 

 

343,579

 

Other long-term liabilities

 

 

15,219

 

 

 

17,532

 

Commitments and contingencies (see Note 8)

 

 

 

 

 

 

 

 

Shareholders' equity

 

 

 

 

 

 

 

 

Ordinary shares, $0.001 par value, 50 million shares authorized; 13,115,026 shares issued and outstanding, respectively

 

 

13

 

 

 

13

 

Additional paid-in capital

 

 

633,924

 

 

 

634,770

 

Accumulated earnings (deficit)

 

 

(214,747

)

 

 

17,064

 

Controlling interest shareholders' equity

 

 

419,190

 

 

 

651,847

 

Noncontrolling interests

 

 

1,260

 

 

 

1,244

 

Total equity

 

 

420,450

 

 

 

653,091

 

Total liabilities and shareholders' equity

 

$

835,389

 

 

$

1,090,737

 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

 

7


 

Vantage Drilling International

Consolidated Statement of Operations

(In thousands, except per share amounts)

(Unaudited)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contract drilling services

 

$

18,069

 

 

$

35,830

 

 

$

95,539

 

 

$

101,575

 

Contract termination revenue

 

 

 

 

 

 

 

 

 

 

 

594,029

 

Reimbursables and other

 

 

2,142

 

 

 

4,814

 

 

 

12,903

 

 

 

15,978

 

Total revenue

 

 

20,211

 

 

 

40,644

 

 

 

108,442

 

 

 

711,582

 

Operating costs and expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating costs

 

 

27,231

 

 

 

37,915

 

 

 

113,890

 

 

 

114,538

 

General and administrative

 

 

3,829

 

 

 

6,644

 

 

 

15,715

 

 

 

86,014

 

Depreciation

 

 

18,230

 

 

 

18,459

 

 

 

54,647

 

 

 

55,491

 

Loss on impairment

 

 

128,876

 

 

 

 

 

 

128,876

 

 

 

 

Total operating costs and expenses

 

 

178,166

 

 

 

63,018

 

 

 

313,128

 

 

 

256,043

 

(Loss) income from operations

 

 

(157,955

)

 

 

(22,374

)

 

 

(204,686

)

 

 

455,539

 

Other (expense) income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

41

 

 

 

4,245

 

 

 

853

 

 

 

113,614

 

Interest expense and other financing charges

 

 

(8,510

)

 

 

(10,465

)

 

 

(25,531

)

 

 

(36,715

)

Other, net

 

 

(46

)

 

 

97

 

 

 

2,321

 

 

 

221

 

Total other (expense) income

 

 

(8,515

)

 

 

(6,123

)

 

 

(22,357

)

 

 

77,120

 

(Loss) income before income taxes

 

 

(166,470

)

 

 

(28,497

)

 

 

(227,043

)

 

 

532,659

 

Income tax provision (benefit)

 

 

2,855

 

 

 

(2,749

)

 

 

4,752

 

 

 

15,852

 

Net (loss) income

 

 

(169,325

)

 

 

(25,748

)

 

 

(231,795

)

 

 

516,807

 

Net income (loss) attributable to noncontrolling interests

 

 

2

 

 

 

(28

)

 

 

16

 

 

 

(312

)

Net (loss) income attributable to shareholders

 

$

(169,327

)

 

$

(25,720

)

 

$

(231,811

)

 

$

517,119

 

(Loss) earnings per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(12.91

)

 

$

(5.14

)

 

$

(17.68

)

 

$

102.47

 

Diluted

 

$

(12.91

)

 

$

(5.14

)

 

$

(17.68

)

 

$

102.14

 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 


8


 

Vantage Drilling International

Consolidated Statement of Shareholders’ Equity

(In thousands)

(Unaudited)

 

 

 

Nine-Month Period Ended September 30, 2019

 

 

 

Ordinary Shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Additional Paid-in Capital

 

 

Accumulated Earnings (Deficit)

 

 

Non-Controlling Interests

 

 

Total Equity (Deficit)

 

Balance January 1, 2019

 

 

5,000

 

 

$

5

 

 

$

373,972

 

 

$

(438,670

)

 

$

 

 

$

(64,693

)

Contributions from holders of noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

122

 

 

 

122

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(47,890

)

 

 

(14

)

 

 

(47,904

)

Balance March 31, 2019

 

 

5,000

 

 

$

5

 

 

$

373,972

 

 

$

(486,560

)

 

$

108

 

 

$

(112,475

)

Contributions from holders of noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,059

 

 

 

1,059

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

590,729

 

 

 

(270

)

 

 

590,459

 

Balance June 30, 2019

 

 

5,000

 

 

$

5

 

 

$

373,972

 

 

$

104,169

 

 

$

897

 

 

$

479,043

 

Reclassification of contributions from holders of noncontrolling interests (see Note 9)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(691

)

 

 

(691

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(25,720

)

 

 

(28

)

 

 

(25,748

)

Balance September 30, 2019

 

 

5,000

 

 

$

5

 

 

$

373,972

 

 

$

78,449

 

 

$

178

 

 

$

452,604

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine-Month Period Ended September 30, 2020

 

 

 

Ordinary Shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Additional Paid-in Capital

 

 

Accumulated Earnings (Deficit)

 

 

Non-Controlling Interests

 

 

Total Equity

 

Balance January 1, 2020

 

 

13,115

 

 

$

13

 

 

$

634,770

 

 

$

17,064

 

 

$

1,244

 

 

$

653,091

 

Share-based compensation

 

 

 

 

 

 

 

 

698

 

 

 

 

 

 

 

 

 

 

 

698

 

Share-based compensation - dividend equivalents

 

 

 

 

 

 

 

 

(2,204

)

 

 

 

 

 

 

 

 

(2,204

)

Net (loss) income

 

 

 

 

 

 

 

 

 

 

 

(30,572

)

 

 

2

 

 

 

(30,570

)

Balance March 31, 2020

 

 

13,115

 

 

$

13

 

 

$

633,264

 

 

$

(13,508

)

 

$

1,246

 

 

$

621,015

 

Share-based compensation

 

 

 

 

 

 

 

 

330

 

 

 

 

 

 

 

 

 

330

 

Net (loss) income

 

 

 

 

 

 

 

 

 

 

 

(31,912

)

 

 

12

 

 

 

(31,900

)

Balance June 30, 2020

 

 

13,115

 

 

$

13

 

 

$

633,594

 

 

$

(45,420

)

 

$

1,258

 

 

$

589,445

 

Share-based compensation

 

 

 

 

 

 

 

 

330

 

 

 

 

 

 

 

 

 

330

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

(169,327

)

 

 

2

 

 

 

(169,325

)

Balance September 30, 2020

 

 

13,115

 

 

$

13

 

 

$

633,924

 

 

$

(214,747

)

 

$

1,260

 

 

$

420,450

 

The accompanying notes are an integral part of these consolidated financial statements.

 

9


 

Vantage Drilling International

Consolidated Statement of Cash Flows

(In thousands)

(Unaudited)

 

 

 

Nine Months Ended September 30,

 

 

 

2020

 

 

2019

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

Net (loss) income

 

$

(231,795

)

 

$

516,807

 

Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities

 

 

 

 

 

 

 

 

Depreciation expense

 

 

54,647

 

 

 

55,491

 

Amortization of debt financing costs

 

 

1,229

 

 

 

1,217

 

Amortization of debt discount

 

 

 

 

 

5,354

 

Amortization of contract value

 

 

 

 

 

1,643

 

PIK interest on the Convertible Notes

 

 

 

 

 

5,779

 

Share-based compensation expense

 

 

1,358

 

 

 

1,053

 

Deferred income tax (benefit) expense

 

 

(36

)

 

 

59

 

Loss on disposal of assets

 

 

52

 

 

 

109

 

Gain on settlement of restructuring agreement

 

 

(2,278

)

 

 

 

Loss on impairment

 

 

128,876

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Trade receivables, net

 

 

7,394

 

 

 

(8,036

)

Inventory

 

 

(1,924

)

 

 

(1,688

)

Prepaid expenses and other current assets

 

 

483

 

 

 

(2,046

)

Other assets

 

 

4,250

 

 

 

3,214

 

Accounts payable

 

 

(20,734

)

 

 

2,320

 

Other current liabilities and other long-term liabilities

 

 

(2,598

)

 

 

11,011

 

Net cash (used in) provided by operating activities

 

 

(61,076

)

 

 

592,287

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

Additions to property and equipment

 

 

(2,634

)

 

 

(7,229

)

Net cash used in investing activities

 

 

(2,634

)

 

 

(7,229

)

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Contributions from holders of noncontrolling interests

 

 

 

 

 

1,181

 

Debt issuance costs

 

 

 

 

 

(487

)

Net cash provided by financing activities

 

 

 

 

 

694

 

Net (decrease) increase in unrestricted and restricted cash and cash equivalents

 

 

(63,710

)

 

 

585,752

 

Unrestricted and restricted cash and cash equivalents—beginning of period

 

 

242,944

 

 

 

239,387

 

Unrestricted and restricted cash and cash equivalents—end of period

 

$

179,234

 

 

$

825,139

 

SUPPLEMENTAL CASH FLOW INFORMATION

 

 

 

 

 

 

 

 

Cash paid for:

 

 

 

 

 

 

 

 

Interest

 

$

16,201

 

 

$

14,916

 

Income taxes (net of refunds)

 

 

6,918

 

 

 

11,675

 

Non-cash investing and financing transactions:

 

 

 

 

 

 

 

 

Reallocation of Soehanah jack up rig acquisition value from equipment to inventory supplies

 

 

1,019

 

 

 

 

PIK interest on the Convertible Notes

 

 

 

 

 

3,867

 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

10


 

VANTAGE DRILLING INTERNATIONAL

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

1. Organization and Recent Events

Vantage Drilling International, a Cayman Islands exempted company, together with its consolidated subsidiaries (collectively the “Company”), is an international offshore drilling company focused on operating a fleet of modern, high specification drilling units. Our principal business is to contract drilling units, related equipment and work crews, primarily on a dayrate basis to drill oil and gas wells for our customers. Through our fleet of drilling units, we are a provider of offshore contract drilling services to major, national and independent oil and gas companies, focused on international markets. Additionally, for drilling units owned by others, we provide construction supervision services for rigs that are under construction, preservation management services for rigs that are stacked and operations and marketing services for operating rigs.

The Continued Global Spread of COVID-19

On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency as COVID-19 continued to spread globally beyond its point of origin. In March 2020, WHO classified the COVID-19 outbreak as a pandemic based on the rapid increase in exposure globally and the risks posed to the international community. The continued global spread of COVID-19 has caused widespread illness and significant loss of life, leading governments across the world to impose severely stringent limitations on movement and human interaction. Such governmental responses to the pandemic have depressed economic activity worldwide, impacting all industries, but with a significant adverse effect on the oil and gas industry.  The response of governments throughout the world to address the spread of COVID-19, including, among other actions, the imposition of travel bans, quarantines and entry restrictions, has notably impacted our operations, particularly challenging the ability to transport personnel and equipment to and from our rigs, and for our customers and their suppliers to be able to seamlessly manage and conduct their respective operations. As a result of these challenges: (a) one of our customers invoked the “force majeure” clause under its drilling contract with us and subsequently terminated the drilling contract in accordance with its terms, and there is the potential for others to similarly exercise “force majeure” clauses under their respective drilling contracts; (b) two other customers terminated their drilling contracts prior to the end of their respective terms (both contracts were to expire in the normal course in the Previous Quarter); (c) we reached an agreement in April 2020 to place one rig on a stand-by rate for the majority of the Previous Quarter (such “force majeure” or stand-by rates received by the Company are generally less than the original day rates otherwise payable to the Company); however, this rig returned to operations in July 2020; (d) we reached agreements with three other customers to delay the start dates of their new drilling programs and we remain in ongoing discussions with another customer regarding our operations and their existing drilling contract and program; (e) we have experienced, and could experience further, delays in the collection of certain accounts receivables due to logistical obstacles, such as office closures resulting from the COVID-19 outbreak, as well as other impacts to our long-term liquidity; and (f) we have incurred additional labor costs and could continue to incur additional labor costs in the future as a result of our efforts to keep our personnel safe, quarantine requirements, closures and movement restrictions in certain jurisdictions in which we operate, as well as the home countries in which certain of our offshore personnel are located, which in many cases have impeded, and could continue to impede for the foreseeable future, the regular transportation of crews to their home countries and result in the payment of compensation to stranded crews working longer than their routine rotation schedule (in addition to the use of charter flights in the absence of commercial flights).

The short-term impact of these challenges has resulted in (i) lower revenue due to terminations of (or amendments to) our existing drilling contracts and (ii) increased expenses due to higher labor and related costs.  We cannot at this time determine with certainty how long these challenges will persist as well as the long-term impact that such challenges may have on our operations and growth on a go-forward basis; however, the Company is actively managing the business in an attempt to mitigate the impact of the foregoing matters.  In order to decrease the Company’s overall operating expenses, the Company has undertaken significant headcount and salary reductions, both onshore and offshore, as well as other cost reduction measures to reflect the lower operating activity.  

The COVID-19 pandemic continues to spread worldwide.  We can neither predict the duration nor estimate the economic impact of the COVID-19 pandemic at this time. Therefore, the Company can give no assurances that the spread of COVID-19 will not have a material adverse effect on its financial position or results of operations in 2020 and beyond.

Declines in the Demand for Oil and Gas, and the Resulting Oil Price and Market Share Volatility

The recent collapse in global economic activity resulting from the COVID-19 outbreak has caused demand for global oil and gas to significantly decline.  Moreover, members of OPEC and Russia failed to reach an agreement in March 2020 to extend previously agreed upon oil production cuts and make much needed additional oil production cuts. Thereafter, Saudi Arabia announced an immediate significant reduction in its oil export prices and Russia announced that all agreed oil production cuts between Russia and OPEC members would expire on April 1, 2020. The termination of the previous cooperation between Saudi Arabia and Russia had an immediate impact given that it had supported global oil prices in the past.  Saudi Arabia’s subsequent decision to dramatically increase its oil production and engage in a price war with Russia led to a massive oversupply of oil, which resulted in the overwhelming of global oil storage capacities.  

11


 

This price and market share war was later reversed with OPEC, Russia and many of the world’s major oil producers reaching a record production cut agreement on April 12, 2020 and extending such agreement on June 6, 2020. However, the confluence of the spread of COVID-19 and the resulting global oil surplus has significantly and adversely impacted the oil and gas industry, causing (i) an unprecedented drop in oil prices, with Brent crude reaching $19.33 per barrel, its lowest price since 1999, and (ii) ensuing reductions of exploration and production company capital and operating budgets. Though OPEC, Russia and other major oil and gas producing nations agreed to continue making drastic cuts to oil production, the efforts to contain COVID-19 will continue to depress global economic activity in the near-term, and the supply and demand imbalance of oil and gas will likely continue for the foreseeable future, leading to sustained lower prices for the remainder of 2020 and possibly beyond.  Moreover, it is unclear if, or how long, any agreement among OPEC, Russia and the other major oil producing countries will remain in effect.

The volatility in global oil and gas prices is also causing oil and gas producers to cancel or delay drilling tenders, which could potentially impact our future backlog.  Material payment delays, modifications or cancellations on the underlying contracts (including, but not limited to, any delays, modifications or cancellations attributable directly and indirectly to the COVID-19 outbreak) have reduced the amount of backlog previously reported (and could further reduce the amount of backlog currently reported) and consequently, could inhibit the conversion of that backlog into revenues.

The full impact of the decrease in global oil and gas prices continues to evolve as of the date of this Quarterly Report. Oil and gas prices are expected to continue to be volatile as a result of the ongoing COVID-19 outbreak and resulting changes in oil and gas inventories and industry demand, and therefore, the Company cannot predict with certainty if and when oil and gas prices will begin to improve and stabilize. While our management is actively monitoring the foregoing events and its associated financial impact, it is uncertain at this time as to the full magnitude that depressed oil and gas prices will have on our financial condition and future results of operations.  

Impairment of the Titanium Explorer’s Carrying Value

During the three months ended September 30, 2020, we evaluated our deepwater drilling rigs that had indicators of impairment and determined that the carrying value of our longer-term warm stacked drillship, the Titanium Explorer, was impaired. As a result, we recognized a non-cash loss on impairment of $128.9 million during the period covered by this Quarterly Report. See “Note 2. Basis of Presentation and Significant Accounting Policies of these “Notes to Unaudited Consolidated Financial Statements” for additional information regarding the impairment of the Titanium Explorer.   

Restructuring Agreement and the Associated Settlement Agreement

The Company entered into a settlement agreement with VDC on March 4, 2020 to release each other from claims pertaining to certain intercompany receivables and payables as between the Company and its subsidiaries, on the one hand, and VDC and its subsidiaries, on the other.  See “Note 8. Commitments and Contingencies” of these “Notes to Unaudited Consolidated Financial Statements” for additional details on the Restructuring Agreement and the associated settlement agreement.   

 

2. Basis of Presentation and Significant Accounting Policies

Basis of Consolidation: The accompanying interim consolidated financial information as of September 30, 2020 and for the three and nine months ended September 30, 2020 and 2019 has been prepared without audit, pursuant to the rules and regulations of the SEC, and includes our accounts and those of our majority owned subsidiaries and VIEs (as discussed below). All significant intercompany transactions and accounts have been eliminated. They reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of the financial position and results of operations for the interim periods, on a basis consistent with the annual audited financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC, although we believe that the disclosures made are adequate to provide for fair presentation. The balance sheet at December 31, 2019 is derived from our December 31, 2019 audited financial statements. These interim financial statements should be read in conjunction with the financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2019, which was filed with the SEC on March 10, 2020. The results of operations for the interim periods are not necessarily indicative of the operating results for the full fiscal year or any future periods.

In addition to the consolidation of our majority owned subsidiaries, we also consolidate VIEs when we are determined to be the primary beneficiary of a VIE. Determination of the primary beneficiary of a VIE is based on whether an entity has (1) the power to direct activities that most significantly impact the economic performance of the VIE and (2) the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. Our determination of the primary beneficiary of a VIE considers all relationships between us and the VIE.

ADVantage is a joint venture company formed to operate deepwater drilling rigs in Egypt. We determined that ADVantage met the criteria of a VIE for accounting purposes because its equity at risk was insufficient to permit it to carry on its activities without additional subordinated financial support from us. We also determined that we are the primary beneficiary for accounting purposes since we are entitled to use ADVantage for deepwater drilling contract opportunities rejected by ADES International Holding Ltd., a

12


 

London-listed offshore and onshore provider of oil and gas drilling and production services in the Middle East and Africa (“ADES”), and have the (a) power to direct the operating activities associated with the deepwater drilling rigs, which are the activities that most significantly impact the entity’s economic performance, and (b) obligation to absorb losses or the right to receive a majority of the benefits that could be potentially significant to the VIE. As a result, we consolidate ADVantage in our consolidated financial statements, we eliminate intercompany transactions and we present the interests that are not owned by us as “Noncontrolling interests” in our Consolidated Balance Sheet. The carrying amount associated with ADVantage was as follows:

 

 

September 30, 2020

 

 

December 31, 2019

 

(unaudited, in thousands)

 

 

 

 

 

 

 

 

Current assets

 

$

14,266

 

 

$

14,589

 

Non-current assets

 

 

5,008

 

 

 

3,643

 

Current liabilities

 

 

10,291

 

 

 

11,560

 

Non-current liabilities

 

 

6,438

 

 

 

4,159

 

Net carrying amount

 

$

2,545

 

 

$

2,513

 

As ADVantage is a majority owned subsidiary of the Company, it serves as a guarantor under the First Lien Indenture.  The 9.25% First Lien Notes are secured by a first priority lien on all of the assets of ADVantage, subject to certain exceptions. Creditors’