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Vantage Drilling International
10-Q 2019-09-30 Quarter: 2019-09-30
10-Q 2019-06-30 Quarter: 2019-06-30
S-1 2019-05-24 Public Filing
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
8-K 2019-12-04 Leave Agreement, Other Events
8-K 2019-11-15 Other Events, Exhibits
8-K 2019-11-07 Earnings, Exhibits
8-K 2019-08-14 Earnings, Exhibits
8-K 2019-08-02 Other Events
8-K 2019-07-18 Other Events
8-K 2019-06-20 Enter Agreement, Exhibits
8-K 2019-06-05 Other Events
8-K 2019-05-20 Other Events, Exhibits
8-K 2019-05-09 Earnings, Exhibits
8-K 2019-03-14 Earnings, Exhibits
8-K 2019-03-06 Officers
8-K 2019-03-04 Enter Agreement, Shareholder Rights, Amend Bylaw, Shareholder Vote, Exhibits
8-K 2018-11-30 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-11-30 Other Events
8-K 2018-11-19 Other Events, Exhibits
8-K 2018-11-15 Other Events, Exhibits
8-K 2018-11-12 Shareholder Vote, Regulation FD, Other Events, Exhibits
8-K 2018-11-02 Earnings, Exhibits
8-K 2018-08-08 Earnings, Exhibits
8-K 2018-08-07 Shareholder Vote, Other Events
8-K 2018-07-09 Officers
8-K 2018-07-02 Other Events, Exhibits
8-K 2018-03-29 Earnings, Exhibits
RMP Rampart Studios 563
INTX Intersections 42
MPAC Micropac Industries 26
OPCO Ourpets 16
ATIN ATI Nationwide Holding 0
GPIL Graphic Packaging International 0
ASFT Appsoft Technologies 0
MDXG Mimedx Group 0
DPL DPL 0
TGPL Transcontinental Gas Pipe Line Company 0
VDI 2019-09-30
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 6. Exhibits
EX-31.1 vdi-ex311_10.htm
EX-31.2 vdi-ex312_7.htm
EX-32.1 vdi-ex321_6.htm
EX-32.2 vdi-ex322_8.htm

Vantage Drilling International Earnings 2019-09-30

VDI 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 vdi-10q_20190930.htm 10-Q vdi-10q_20190930.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, 2019

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  

1


 

The number of Vantage Drilling International ordinary shares outstanding as of October 17, 2019 is 5,000,053 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

 

 

 

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, filed with the SEC on March 14, 2019, “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Quarterly Report and the following:

 

our small number of customers;

 

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

 

reduced expenditures by oil and natural gas exploration and production companies;

 

our substantial level of indebtedness;

 

our ability to incur additional indebtedness;

 

compliance with restrictions and covenants in our debt agreements;

 

termination or renegotiation of our customer contracts;

 

general economic conditions and conditions in the oil and gas industry;

 

competition within our industry;

 

excess supply of drilling units worldwide;

 

limited mobility of our drilling units between geographic regions;

 

any non-compliance with the FCPA and any other anti-corruption laws;

 

operations in international markets, including geopolitical risk, applicability of foreign laws, including foreign labor and employment laws, foreign tax and customs regimes, and foreign currency exchange rate risk;

 

operating hazards in the offshore drilling industry;

 

ability to obtain indemnity from customers;

 

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

 

governmental, tax and environmental regulations and related legal matters, including the results and effects of legal proceedings and governmental audits, assessments and investigations;

 

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

 

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;

 

effects of new products and new technology on the market;  

 

identifying and completing acquisition opportunities;

 

levels of operating and maintenance costs;

 

our dependence on key personnel;

 

availability of workers and the related labor costs;

3


 

 

increased cost of obtaining supplies;

 

the sufficiency of our internal controls;

 

changes in tax laws, treaties or regulations;

 

the occurrence of cybersecurity incidents, attacks or other breaches to our information technology systems; 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,” “VDI,” “we,” “our” or “us” refer to Vantage Drilling International and its consolidated subsidiaries.

 


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

ADES

 

ADES International Holding Ltd., a London-listed offshore and onshore provider of oil and gas drilling and production services in the Middle East and Africa

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

Brazilian Federal Prosecutor

 

Brazilian federal public prosecutor's office located in the State of Parana, Brazil

Comparable Period

 

The nine months ended September 30, 2018

Comparable Quarter

 

The three months ended September 30, 2018

Conversion

 

The conversion of all of the Convertible Notes into ordinary shares of the Company

Convertible Notes

 

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

Current Period

 

The nine months ended September 30, 2019

Current Quarter

 

The three months ended September 30, 2019

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

FCPA

 

U.S. Foreign Corrupt Practices Act, as amended

Indenture

 

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

MPD

 

Managed pressure drilling system

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

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

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

TBGs

 

Time-based restricted stock units

5


 

TEV

 

Total enterprise value

U.S.

 

United States of America

U.S. District Court – Delaware

 

U.S. District Court for the District of Delaware

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

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.

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, 2019

 

 

December 31,

2018

 

 

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

814,724

 

 

$

224,967

 

Restricted cash

 

 

5,637

 

 

 

10,362

 

Trade receivables

 

 

36,467

 

 

 

28,431

 

Inventory

 

 

46,883

 

 

 

45,195

 

Prepaid expenses and other current assets

 

 

19,324

 

 

 

17,278

 

Total current assets

 

 

923,035

 

 

 

326,233

 

Property and equipment

 

 

 

 

 

 

 

 

Property and equipment

 

 

1,002,709

 

 

 

996,139

 

Accumulated depreciation

 

 

(263,778

)

 

 

(208,836

)

Property and equipment, net

 

 

738,931

 

 

 

787,303

 

Operating lease ROU assets

 

 

7,515

 

 

 

-

 

Other assets

 

 

13,470

 

 

 

16,026

 

Total assets

 

$

1,682,951

 

 

$

1,129,562

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$

46,692

 

 

$

44,372

 

Other current liabilities

 

 

39,267

 

 

 

17,983

 

Total current liabilities

 

 

85,959

 

 

 

62,355

 

Long–term debt, net of discount and financing costs of $6,830 and $12,914

 

 

1,118,962

 

 

 

1,109,011

 

Other long-term liabilities

 

 

25,426

 

 

 

22,889

 

Commitments and contingencies (Note 9)

 

 

 

 

 

 

 

 

Shareholders' equity

 

 

 

 

 

 

 

 

Ordinary shares, $0.001 par value, 50 million shares authorized; 5,000,053 shares issued and outstanding

 

 

5

 

 

 

5

 

Additional paid-in capital

 

 

373,972

 

 

 

373,972

 

Accumulated earnings (deficit)

 

 

78,449

 

 

 

(438,670

)

Controlling interest shareholders' equity

 

 

452,426

 

 

 

(64,693

)

Noncontrolling interests

 

 

178

 

 

 

-

 

Total equity

 

 

452,604

 

 

 

(64,693

)

Total liabilities and shareholders’ equity

 

$

1,682,951

 

 

$

1,129,562

 

 

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,

 

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contract drilling services

 

$

35,830

 

 

$

59,034

 

 

$

101,575

 

 

$

165,813

 

 

Contract termination revenue

 

 

 

 

 

 

 

 

594,029

 

 

 

 

 

Reimbursables and other

 

 

4,814

 

 

 

5,522

 

 

 

15,978

 

 

 

16,868

 

 

Total revenue

 

 

40,644

 

 

 

64,556

 

 

 

711,582

 

 

 

182,681

 

 

Operating costs and expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating costs

 

 

37,915

 

 

 

43,307

 

 

 

114,538

 

 

 

128,943

 

 

General and administrative

 

 

6,644

 

 

 

9,303

 

 

 

86,014

 

 

 

22,935

 

 

Depreciation

 

 

18,459

 

 

 

17,638

 

 

 

55,491

 

 

 

53,217

 

 

Total operating costs and expenses

 

 

63,018

 

 

 

70,248

 

 

 

256,043

 

 

 

205,095

 

 

Income (loss) from operations

 

 

(22,374

)

 

 

(5,692

)

 

 

455,539

 

 

 

(22,414

)

 

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

4,245

 

 

 

533

 

 

 

113,614

 

 

 

974

 

 

Interest expense and other financing charges

 

 

(10,465

)

 

 

(19,439

)

 

 

(36,715

)

 

 

(58,122

)

 

Other, net

 

 

97

 

 

 

53

 

 

 

221

 

 

 

(1,031

)

 

Total other income (expense)

 

 

(6,123

)

 

 

(18,853

)

 

 

77,120

 

 

 

(58,179

)

 

Income (loss) before income taxes

 

 

(28,497

)

 

 

(24,545

)

 

 

532,659

 

 

 

(80,593

)

 

Income tax (benefit) provision

 

 

(2,749

)

 

 

1,515

 

 

 

15,852

 

 

 

8,698

 

 

Net income (loss)

 

 

(25,748

)

 

 

(26,060

)

 

 

516,807

 

 

 

(89,291

)

 

Net loss attributable to noncontrolling interests

 

 

(28

)

 

 

 

 

 

(312

)

 

 

 

 

Net income (loss) attributable to shareholders

 

$

(25,720

)

 

$

(26,060

)

 

$

517,119

 

 

$

(89,291

)

 

Earnings (loss) per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(5.14

)

 

$

(5.21

)

 

$

102.47

 

 

$

(17.86

)

 

Diluted

 

$

(5.14

)

 

$

(5.21

)

 

$

102.14

 

 

$

(17.86

)

 

 

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, 2018

 

 

 

Ordinary Shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Additional Paid-in Capital

 

 

Accumulated Deficit

 

 

Non-Controlling Interests

 

 

Total Equity

 

Balance January 1, 2018

 

 

5,000

 

 

$

5

 

 

$

373,972

 

 

$

(297,202

)

 

$

 

 

$

76,775

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(32,137

)

 

 

 

 

 

(32,137

)

Balance March 31, 2018

 

 

5,000

 

 

$

5

 

 

$

373,972

 

 

$

(329,339

)

 

$

 

 

$

44,638

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(31,094

)

 

 

 

 

 

(31,094

)

Balance June 30, 2018

 

 

5,000

 

 

$

5

 

 

$

373,972

 

 

$

(360,433

)

 

$

 

 

$

13,544

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(26,060

)

 

 

 

 

 

(26,060

)

Balance September 30, 2018

 

 

5,000

 

 

$

5

 

 

$

373,972

 

 

$

(386,493

)

 

$

 

 

$

(12,516

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine-Month Period Ended September 30, 2019

 

 

 

Ordinary Shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Additional Paid-in Capital

 

 

Accumulated Earnings (Deficit)

 

 

Non-Controlling Interests

 

 

Total Equity

 

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 10)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(691

)

 

 

(691

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(25,720

)

 

 

(28

)

 

 

(25,748

)

Balance September 30, 2019

 

 

5,000

 

 

$

5

 

 

$

373,972

 

 

$

78,449

 

 

$

178

 

 

$

452,604

 

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,

 

 

 

2019

 

 

2018

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

Net income (loss)

 

$

516,807

 

 

$

(89,291

)

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

 

 

 

 

 

 

 

 

Depreciation expense

 

 

55,491

 

 

 

53,217

 

Amortization of debt financing costs

 

 

1,217

 

 

 

351

 

Amortization of debt discount

 

 

5,354

 

 

 

37,021

 

Amortization of contract value

 

 

1,643

 

 

 

4,721

 

PIK interest on the Convertible Notes

 

 

5,779

 

 

 

5,735

 

Share-based compensation expense

 

 

1,053

 

 

 

7,777

 

Deferred income tax expense

 

 

59

 

 

 

1,874

 

Loss (gain) on disposal of assets

 

 

109

 

 

 

(1,313

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Trade receivables

 

 

(8,036

)

 

 

6,290

 

Inventory

 

 

(1,688

)

 

 

544

 

Prepaid expenses and other current assets

 

 

(2,046

)

 

 

(5,591

)

Other assets

 

 

3,214

 

 

 

1,230

 

Accounts payable

 

 

2,320

 

 

 

(3,245

)

Other current liabilities and other long-term liabilities

 

 

11,011

 

 

 

(6,839

)

Net cash provided by operating activities

 

 

592,287

 

 

 

12,481

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

Additions to property and equipment

 

 

(7,229

)

 

 

(8,275

)

Down payment on Soehanah acquisition

 

 

 

 

 

(15,000

)

Proceeds from sale of Vantage 260

 

 

 

 

 

4,703

 

Net cash used in investing activities

 

 

(7,229

)

 

 

(18,572

)

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Repayment of long-term debt

 

 

 

 

 

(5,815

)

Contributions from holders of noncontrolling interests

 

 

1,181

 

 

 

 

Debt issuance costs

 

 

(487

)

 

 

 

Net cash provided by (used in) financing activities

 

 

694

 

 

 

(5,815

)

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

 

 

585,752

 

 

 

(11,906

)

Unrestricted and restricted cash and cash equivalents—beginning of period

 

 

239,387

 

 

 

195,455

 

Unrestricted and restricted cash and cash equivalents—end of period

 

$

825,139

 

 

$

183,549

 

SUPPLEMENTAL CASH FLOW INFORMATION

 

 

 

 

 

 

 

 

Cash paid for:

 

 

 

 

 

 

 

 

Interest

 

$

14,916

 

 

$

16,874

 

Income taxes (net of refunds)

 

 

11,675

 

 

 

10,955

 

Non-cash investing and financing transactions:

 

 

 

 

 

 

 

 

PIK interest on the Convertible Notes

 

 

3,867

 

 

 

3,824

 

Accrued but unpaid capital expenditures at period end

 

 

 

 

 

4,353

 

Trade-in value on equipment upgrades

 

 

 

 

 

570

 

 

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, 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 natural 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 natural 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.

Joint Venture

On November 15, 2017, Vantage and ADES, through their subsidiaries, entered into a Shareholders’ Agreement to form an entity named ADVantage to provide deepwater drilling services offshore of Egypt.  ADVantage, which is a joint venture, owned 51% by Vantage and 49% by ADES, commenced a drilling services contract with Dana Gas Egypt Limited (“Dana Gas”) in May 2019 (the “Egyptian Drilling Contract”) to perform deepwater drilling services offshore of Egypt. The term of the Egyptian Drilling Contract was for one well with the option to extend the term by up to three additional wells.  On September 24, 2019, Dana Gas assigned the Egyptian Drilling Contract to Belayim Petroleum Company (“Petrobel”), a joint venture of Eni and Egyptian General Petroleum Corporation, pursuant to which Petrobel has exercised an option under the Egyptian Drilling Contract to extend the term for one well.  On October 15, 2019, ADVantage became entitled to perform drilling services for Petrobel.

Repurchase Offer       

On July 8, 2019, we commenced an offer (the “Repurchase Offer”) to repurchase up to $75.0 million of the 9.25% First Lien Notes.  See “Note 6. Debt” for additional information regarding the Repurchase Offer.       

Drilling Contract Arbitration        

On June 20, 2019, VDEEP and VDDI entered into the Petrobras Agreement with the Petrobras Parties relating to the Petrobras Award.  See “Note 9. Commitments and Contingencies” for additional details pertaining to the Petrobras Agreement and the Petrobras Award.    

Brazil Improbity Action

On April 27, 2018, the Company was added as an additional defendant in a legal proceeding initiated by the Brazilian Federal Prosecutor against certain individuals, including an executive of Petrobras and two political lobbyists, in connection with the contracting of the Titanium Explorer drillship to Petrobras under the Drilling Contract, with the Brazilian Government and Petrobras as plaintiffs. See “Note 9. Commitments and Contingencies” for additional details regarding the legal proceeding initiated by the Brazilian Federal Prosecutor.       

 

2. Basis of Presentation and Significant Accounting Policies

Basis of Consolidation: The accompanying interim consolidated financial information as of September 30, 2019 and for the three and nine months ended September 30, 2019 and 2018 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. 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, 2018 is derived from our December 31, 2018 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, 2018. 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 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.

11


 

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 have the (a) power to direct the operating activities, 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, 2019

 

 

December 31,

2018

 

(unaudited, in thousands)

 

 

 

 

 

 

 

 

Assets

 

$

5,807

 

 

$

 

Liabilities

 

 

5,444

 

 

 

 

Net carrying amount

 

$

363

 

 

$

 

 

 

Cash and Cash Equivalents: Includes deposits with financial institutions as well as short-term money market instruments with maturities of three months or less when purchased.

Inventory: Consists of materials, spare parts, consumables and related supplies for our drilling rigs.

Property and Equipment: Consists of our drilling rigs, furniture and fixtures, computer equipment and capitalized costs for computer software. Drilling rigs are depreciated on a component basis over estimated initial useful lives ranging from five to thirty-five years on a straight-line basis as of the date placed in service. Other assets are depreciated upon placement in service over estimated initial useful lives ranging from three to seven years on a straight-line basis. When assets are sold, retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the balance sheet and the resulting gain or loss is included in “Operating costs” or “General and administrative” expenses on the Consolidated Statement of Operations, depending on the nature of the asset. In the nine months ended September 30, 2019, we recognized a net loss of approximately $0.1 million related to the sale or retirement of assets.  No gain or loss was recognized in the three months ended September 30, 2019 related to the sale or retirement of assets. For the three and nine months ended September 30, 2018, we recognized a net loss of approximately $1.2 million and a net gain of approximately $1.3 million, respectively, related to the sale or retirement of assets.

We evaluate the realization of property and equipment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss on our property and equipment exists when estimated undiscounted cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount. Any impairment loss recognized would be computed as the excess of the asset’s carrying value over the estimated fair value. Estimates of future cash flows require us to make long-term forecasts of our future revenues and operating costs with regard to the assets subject to review. Our business, including the utilization rates and dayrates we receive for our drilling rigs, depends on the level of our customers’ expenditures for oil and natural gas exploration, development and production expenditures. Oil and natural gas prices and customers’ expectations of potential changes in these prices, the general outlook for worldwide economic growth, political and social stability in the major oil and natural gas producing basins of the world, availability of credit and changes in governmental laws and regulations, among many other factors, significantly affect our customers’ levels of expenditures. Sustained declines in or persistent depressed levels of oil and natural gas prices, worldwide rig counts and utilization, reduced access to credit markets, reduced or depressed sale prices of comparably equipped jackups and drillships and any other significant adverse economic news could require us to evaluate the realization of our drilling rigs. In connection with our adoption of fresh-start accounting upon our emergence from bankruptcy on the Effective Date, an adjustment of $2.0 billion was recorded to decrease the net book value of our drilling rigs to estimated fair value. The projections and assumptions used in that valuation have not changed significantly as of September 30, 2019; accordingly, no triggering event has occurred to indicate that the current carrying value of our drilling rigs may not be recoverable.

Interest costs and the amortization of debt financing costs related to the financings of our drilling rigs are capitalized as part of the cost while they are under construction and prior to the commencement of each vessel’s first contract. We did not capitalize any interest for the reported periods.

Intangible Assets: In April 2017, pursuant to a purchase and sale agreement with a third party, we completed the purchase of the Vantage 260, a class 154-44C jackup rig, and a related multi-year drilling contract for $13.0 million. In connection with our acquisition, the Company recorded an identifiable intangible asset of $12.6 million for the fair value of the acquired favorable drilling contract. The resulting intangible asset was amortized on a straight-line basis over the two-year term of the drilling contract, which ended in April 2019. We recognized approximately $1.6 million of amortization expense for intangible assets for the nine months ended September 30, 2019, and approximately $1.6 million and $4.7 million for the three and nine months ended September 30, 2018, respectively.  

12


 

Debt Financing Costs: Costs incurred with debt financings are deferred and amortized over the term of the related financing facility on a straight-line basis which approximates the interest method. Debt issuance costs related to a recognized debt liability are presented in the Consolidated Balance Sheet as a direct deduction from the carrying amount of that debt liability.  

 Rig and Equipment Certifications: We are required to obtain regulatory certifications to operate our drilling rigs and certain specified equipment and must maintain such certifications through periodic inspections and surveys. The costs associated with these certifications, including drydock costs, are deferred and amortized over the corresponding certification periods.

Income Taxes: Income taxes are provided for based upon the tax laws and rates in effect in the countries in which operations are conducted and income is earned. Deferred income tax assets and liabilities are computed for differences between the financial statement basis and tax basis of assets and liabilities that will result in future taxable or tax deductible amounts and are based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred income tax assets to the amount expected to be realized. We recognize interest and penalties related to income taxes as a component of income tax expense.

Concentrations of Credit Risk: Financial instruments that potentially subject us to a significant concentration of credit risk consist primarily of cash and cash equivalents, restricted cash and accounts receivable. We maintain deposits in federally insured financial institutions in excess of federally insured limits. We monitor the credit ratings and our concentration of risk with these financial institutions on a continuing basis to safeguard our cash deposits. We have a limited number of key customers, who are primarily large international oil and gas operators, national oil companies and other international oil and gas companies. Our contracts provide for monthly billings as services are performed and we monitor compliance with contract payment terms on an ongoing basis. Payment terms on customer invoices typically range from 30 to 45 days. Outstanding receivables beyond payment terms are promptly investigated and discussed with the specific customer. We do not have an allowance for doubtful accounts on our trade receivables as of September 30, 2019 and December 31, 2018.

Use of Estimates: The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, we evaluate our estimates, including those related to property and equipment, income taxes, insurance, employee benefits and contingent liabilities. Actual results could differ from these estimates.

Earnings (loss) per Share: We compute basic and diluted EPS in accordance with the two-class method. We include restricted stock units granted to employees that contain non-forfeitable rights to dividends as such grants are considered participating securities. Basic earnings (loss) per share are based on the weighted average number of ordinary shares outstanding during the applicable period. Diluted EPS are computed based on the weighted average number of ordinary shares and ordinary share equivalents outstanding in the applicable period, as if all potentially dilutive securities were converted into ordinary shares (using the treasury stock method).

The following is a reconciliation of the number of shares used for the basic and diluted EPS computations:

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

 

(In thousands)

 

Weighted average ordinary shares outstanding for basic EPS

 

 

5,000

 

 

 

5,000

 

 

 

5,047

 

 

 

5,000

 

Restricted share equity awards

 

 

 

 

 

 

 

 

16

 

 

 

 

Adjusted weighted average ordinary shares outstanding for diluted EPS

 

 

5,000

 

 

 

5,000

 

 

 

5,063

 

 

 

5,000

 

The following sets forth the number of shares excluded from diluted EPS computations:

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

 

(In thousands)

 

Convertible Notes

 

 

8,115

 

 

 

7,995

 

 

 

8,075

 

 

 

7,995

 

Restricted share equity awards

 

 

62

 

 

 

35

 

 

 

 

 

 

29

 

Future potentially dilutive ordinary shares excluded from diluted EPS

 

 

8,177

 

 

 

8,030

 

 

 

8,075

 

 

 

8,024

 

The ordinary shares issuable upon the conversion of the Convertible Notes, if converted, are excluded as the conditions necessary for conversion had not been satisfied as of the end of the reporting period.

Functional Currency: We consider USD to be the functional currency for all of our operations since the majority of our revenues and expenditures are denominated in USD, which limits our exposure to currency exchange rate fluctuations. We recognize currency exchange rate gains and losses in “Other, net” in our Consolidated Statement of Operations. For the three and nine months ended September 30, 2019, we recognized a net gain of approximately $0.1 million and $0.2 million, respectively, related to currency

13


 

exchange rates. For the three and nine months ended September 30, 2018, we recognized net gain of approximately $0.1 million and a net loss of approximately $1.0 million, respectively, related to currency exchange rates.

Fair Value of Financial Instruments: The fair value of our short-term financial assets and liabilities approximates the carrying amounts represented in the balance sheet principally due to the short-term nature or floating rate nature of these instruments. At September 30, 2019, the fair value of the 9.25% First Lien Notes and the Convertible Notes was approximately $339.5 million and $594.3 million, respectively, based on quoted market prices in a less active market, a Level 2 measurement.

Recently Adopted Accounting Standards:

We adopted ASU No. 2016-02, Leases (ASC 842) on January 1, 2019 electing to initially apply the standard on a modified retrospective basis as of January 1, 2019 and to not restate comparative periods as outlined in ASU No. 2018-11, "Leases - Targeted Improvements." Accordingly, we continue to report periods prior to January 1, 2019 in our financial statements under prior guidance as outlined in ASC Topic 840, "Leases." The new lease standard requires that substantially all leases be recorded on the balance sheet as right of use assets and lease obligations. The adoption of the standard did not have an impact on our consolidated results of operations or cash flows. We determined that there was no cumulative-effect adjustment to beginning retained earnings on the Consolidated Balance Sheet. In addition, we elected certain practical expedients, which permit us to not reassess whether existing contracts are or contain leases, to not reassess the lease classification of any existing leases, to not reassess initial direct costs for any existing leases, and to not separate lease and non-lease components for all classes of underlying assets. As a lessee, we also made an accounting policy election to keep leases with an initial term of 12 months or less off of the balance sheet for all classes of underlying assets. Adoption of the new standard resulted in an increase in the Company’s assets and liabilities of approximately $9.2 million as of January 1, 2019.      

Our drilling contracts contain a lease component related to the underlying drilling equipment, in addition to the service component provided by our crews and our expertise to operate such drilling equipment. As outlined in ASU 2018-11, we have determined that the non-lease service component of our drilling contracts is the predominant element of the combined component and continue to account for the combined components as a single performance obligation under Topic 606, Revenue from Contracts with Customers. The bareboat charter contract on the recently acquired Soehanah jackup rig is considered a new lease as of the acquisition date and is accounted for as an operating lease under the new standard.

Recently Issued Accounting Standards:

In August 2018, the FASB issued ASU No. 2018-15, "Intangibles - Goodwill and Other - Internal-Use Software." This ASU requires capitalization of certain implementation costs incurred in a cloud computing arrangement that is a service contract. The amendments in this ASU are effective for fiscal years beginning after December 15, 2019 and for interim periods therein with early adoption permitted. We do not expect the adoption of this ASU to materially affect our consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses.” This ASU, and the related ASUs issued subsequently by the FASB, introduce a new model for recognizing credit losses on financial assets held at the reporting date based on an estimate of current expected credit losses. The new model will apply to: (i) loans, accounts receivable, trade receivables and other financial assets measured at amortized cost; (ii) loan commitments and certain other off-balance sheet credit exposures; (iii) debt securities and other financial assets measured at fair value through other comprehensive income (loss); and (iv) beneficial interests in securitized financial assets. The amendments in this ASU are effective for fiscal years beginning after December 15, 2019 and for interim periods therein. We are currently evaluating the effect this ASU will have on our consolidated financial statements.

3. Revenue from Contracts with Customers

The activities that primarily drive the revenue earned in our drilling contracts with customers include (i) providing our drilling rig, work crews, related equipment and services necessary to operate the rig, (ii) delivering the drilling rig by mobilizing to and demobilizing from the drill site, and (iii) performing pre-operating activities, including rig preparation activities and/or equipment modifications required for the contract.

The integrated drilling services that we perform under each drilling contract represent a single performance obligation satisfied over time and comprised of a series of distinct time increments, or service periods.

Dayrate Drilling Revenue. Our drilling contracts generally provide for payment on a dayrate basis, with higher rates for periods when the drilling unit is operating and lower rates or zero rates for periods when drilling operations are interrupted or restricted. The dayrate billed to the customer is determined based on varying rates applicable to the specific activities performed on an hourly basis. Such dayrate consideration is allocated to the distinct hourly increment it relates to within the contract term and therefore, recognized as we perform the daily drilling services.

Mobilization/Demobilization Revenue. In connection with certain contracts, we receive lump-sum fees or similar compensation for the mobilization of equipment and personnel prior to the commencement of drilling services or the demobilization of equipment and personnel upon contract completion. These activities are not considered to be distinct within the context of the contract and therefore, the associated revenue is allocated to the overall single performance obligation.

14


 

Mobilization fees received prior to commencement of drilling operations are recorded as a contract liability and amortized on a straightline basis over the initial contract period. Demobilization fees expected to be received upon contract completion are estimated at contract inception and recognized on a straight-line basis over the initial contract term with an offset to an accretive contract asset. In many contracts, demobilization fees are contingent upon the occurrence or non-occurrence of a future event and the estimate for such revenue may therefore be constrained. Fees received for the mobilization or demobilization of equipment and personnel are included in contract drilling revenues.

Capital Upgrade/Contract Preparation Revenue. In connection with certain contracts, we receive lump-sum fees or similar compensation for requested capital upgrades to our drilling rigs or for other contract preparation work. These activities are not considered to be distinct within the context of the contract and therefore, fees received are recorded as a contract liability and amortized to contract drilling revenues on a straight-line basis over the initial contract term.

Contract Termination Revenue. On June 20, 2019, VDEEP and VDDI entered into the Petrobras Agreement with the Petrobras Parties relating to the Petrobras Award (see “Note 9. Commitments and Contingencies” for additional information regarding the Petrobras Agreement and the Petrobras Award). For the nine months ended September 30, 2019, we recognized approximately $594.0 million in “Contract termination revenue” and $106.9 million in “Interest income” associated with the Payments (as defined in “Note 9. Commitments and Contingencies”).       

Revenues Related to Reimbursable Expenses. We generally receive reimbursements from our customers for the purchase of supplies, equipment, personnel services and other services provided at their request in accordance with a drilling contract or other agreement. We are generally considered a principal in such transactions and therefore, recognize reimbursable revenues and the corresponding costs as we provide the customerrequested goods and services.

We have elected to exclude from the transaction price measurement all taxes assessed by a governmental authority.

Disaggregation of Revenue

The following tables present our revenue disaggregated by revenue source for the periods indicated:

 

 

Three Months Ended September 30, 2019

 

 

Three Months Ended September 30, 2018

 

 

 

Jackups

 

 

Deepwater

 

 

Management

 

 

Consolidated

 

 

Jackups

 

 

Deepwater

 

 

Management

 

 

Consolidated

 

(unaudited, in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dayrate revenue

 

$

23,265

 

 

$

11,571

 

 

$

324

 

 

$

35,160

 

 

$

22,427

 

 

$

35,535

 

 

$

307

 

 

$

58,269

 

Charter lease revenue

 

 

1,288