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 2020-03-31 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 2020-06-30 Officers, Other Events
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_8.htm
EX-31.2 vdi-ex312_7.htm
EX-32.1 vdi-ex321_6.htm
EX-32.2 vdi-ex322_9.htm

Vantage Drilling Earnings 2020-03-31

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_20200331.htm 10-Q vdi-10q_20200331.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 March 31, 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 April 28, 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 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 or global economic risk, 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 recent 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;

 

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;

 

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;

 

limited mobility of our drilling units between geographic regions;

3


 

 

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 Island exempted 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 March 31, 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 March 31, 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

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

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

5


 

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, the Company's parent company

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)

 

 

 

March 31, 2020

 

 

December 31, 2019

 

 

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

196,348

 

 

$

231,947

 

Restricted cash

 

 

4,696

 

 

 

2,511

 

Trade receivables

 

 

66,877

 

 

 

46,504

 

Inventory

 

 

48,873

 

 

 

48,368

 

Prepaid expenses and other current assets

 

 

15,921

 

 

 

16,507

 

Total current assets

 

 

332,715

 

 

 

345,837

 

Property and equipment

 

 

 

 

 

 

 

 

Property and equipment

 

 

1,003,119

 

 

 

1,002,968

 

Accumulated depreciation

 

 

(299,833

)

 

 

(281,842

)

Property and equipment, net

 

 

703,286

 

 

 

721,126

 

Operating lease ROU assets

 

 

5,620

 

 

 

6,706

 

Other assets

 

 

17,165

 

 

 

17,068

 

Total assets

 

$

1,058,786

 

 

$

1,090,737

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$

41,033

 

 

$

49,599

 

Other current liabilities

 

 

33,827

 

 

 

26,936

 

Total current liabilities

 

 

74,860

 

 

 

76,535

 

Long–term debt, net of discount and financing costs of $6,011 and $6,421, respectively

 

 

343,989

 

 

 

343,579

 

Other long-term liabilities

 

 

18,922

 

 

 

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

 

 

633,264

 

 

 

634,770

 

Accumulated earnings (deficit)

 

 

(13,508

)

 

 

17,064

 

Controlling interest shareholders' equity

 

 

619,769

 

 

 

651,847

 

Noncontrolling interests

 

 

1,246

 

 

 

1,244

 

Total equity

 

 

621,015

 

 

 

653,091

 

Total liabilities and shareholders' equity

 

$

1,058,786

 

 

$

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 March 31,

 

 

 

2020

 

 

2019

 

Revenue

 

 

 

 

 

 

 

 

Contract drilling services

 

$

44,319

 

 

$

29,980

 

Reimbursables and other

 

 

7,137

 

 

 

4,575

 

Total revenue

 

 

51,456

 

 

 

34,555

 

Operating costs and expenses

 

 

 

 

 

 

 

 

Operating costs

 

 

48,555

 

 

 

38,542

 

General and administrative

 

 

7,170

 

 

 

8,668

 

Depreciation

 

 

18,016

 

 

 

18,533

 

Total operating costs and expenses

 

 

73,741

 

 

 

65,743

 

Loss from operations

 

 

(22,285

)

 

 

(31,188

)

Other income (expense)

 

 

 

 

 

 

 

 

Interest income

 

 

701

 

 

 

1,064

 

Interest expense and other financing charges

 

 

(8,420

)

 

 

(15,815

)

Other, net

 

 

2,355

 

 

 

182

 

Total other expense

 

 

(5,364

)

 

 

(14,569

)

Loss before income taxes

 

 

(27,649

)

 

 

(45,757

)

Income tax provision

 

 

2,921

 

 

 

2,147

 

Net loss

 

 

(30,570

)

 

 

(47,904

)

Net income (loss) attributable to noncontrolling interests

 

 

2

 

 

 

(14

)

Net loss attributable to shareholders

 

$

(30,572

)

 

$

(47,890

)

Loss per share

 

 

 

 

 

 

 

 

Basic and Diluted

 

$

(2.33

)

 

$

(9.58

)

 

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

 


8


 

Vantage Drilling International

Consolidated Statement of Shareholders’ Equity (Deficit)

(In thousands)

(Unaudited)

 

 

 

Three-Month Period Ended March 31, 2019

 

 

 

Ordinary Shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Additional Paid-in Capital

 

 

Accumulated Deficit

 

 

Non-Controlling Interests

 

 

Total 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

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three-Month Period Ended March 31, 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 income (loss)

 

 

 

 

 

 

 

 

 

 

 

(30,572

)

 

 

2

 

 

 

(30,570

)

Balance March 31, 2020

 

 

13,115

 

 

$

13

 

 

$

633,264

 

 

$

(13,508

)

 

$

1,246

 

 

$

621,015

 

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

 

9


 

Vantage Drilling International

Consolidated Statement of Cash Flows

(In thousands)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

Net loss

 

$

(30,570

)

 

$

(47,904

)

Adjustments to reconcile net loss to net cash used in operating activities

 

 

 

 

 

 

 

 

Depreciation expense

 

 

18,016

 

 

 

18,533

 

Amortization of debt financing costs

 

 

410

 

 

 

400

 

Amortization of debt discount

 

 

 

 

 

5,354

 

Amortization of contract value

 

 

 

 

 

1,556

 

PIK interest on the Convertible Notes

 

 

 

 

 

1,934

 

Share-based compensation expense

 

 

698

 

 

 

1,029

 

Deferred income tax expense (benefit)

 

 

102

 

 

 

(415

)

Loss on disposal of assets

 

 

 

 

 

62

 

Gain on settlement of restructuring agreement

 

 

(2,278

)

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Trade receivables

 

 

(20,373

)

 

 

1,198

 

Inventory

 

 

514

 

 

 

285

 

Prepaid expenses and other current assets

 

 

586

 

 

 

1,086

 

Other assets

 

 

1,877

 

 

 

1,252

 

Accounts payable

 

 

(6,288

)

 

 

2,995

 

Other current liabilities and other long-term liabilities

 

 

6,032

 

 

 

1,951

 

Net cash used in operating activities

 

 

(31,274

)

 

 

(10,684

)

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

Additions to property and equipment

 

 

(1,196

)

 

 

(2,184

)

Net cash used in investing activities

 

 

(1,196

)

 

 

(2,184

)

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Contributions from holders of noncontrolling interests

 

 

 

 

 

122

 

Debt issuance costs

 

 

 

 

 

(437

)

Net cash used in financing activities

 

 

 

 

 

(315

)

Net decrease in unrestricted and restricted cash and cash equivalents

 

 

(32,470

)

 

 

(13,183

)

Unrestricted and restricted cash and cash equivalents—beginning of period

 

 

242,945

 

 

 

239,387

 

Unrestricted and restricted cash and cash equivalents—end of period

 

$

210,475

 

 

$

226,204

 

SUPPLEMENTAL CASH FLOW INFORMATION

 

 

 

 

 

 

 

 

Cash paid for:

 

 

 

 

 

 

 

 

Interest

 

$

3

 

 

$

18

 

Income taxes (net of refunds)

 

 

1,465

 

 

 

2,714

 

Non-cash investing and financing transactions:

 

 

 

 

 

 

 

 

Accrued but unpaid capital expenditures at period end

 

 

 

 

 

3,719

 

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

 

 

1,019

 

 

 

 

 

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 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 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 to and from our rigs. As a result of these challenges: (a) one of our customers has invoked the “force majeure” clause under its drilling contract with us and there is the potential for others to exercise “force majeure” clauses under their respective drilling contracts; (b) two other customers have terminated their drilling contracts prior to the end of their respective terms (both contracts were to expire in the normal course in the second quarter of 2020); (c) we have reached an agreement to place one rig on a stand-by rate for a temporary period; (d) we are in discussions with other customers regarding our operations and their existing drilling contracts and programs and (e) we are experiencing, and could experience further, delays in the collection of certain accounts receivables due to logistical obstacles like office closures.  “Force majeure” rates or stand-by rates received by the Company are generally less than the original day rates otherwise payable to the Company. The Company considered the effect of COVID-19 on the assumptions and estimates used in the preparation of these interim unaudited consolidated financial statements and determined that there were no material adverse effects on the Company’s results of operations and financial position at March 31, 2020 due to the aforementioned events.  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 “War”

The recent collapse in global economic activity has caused demand for global oil and gas to significantly decline.  As a result, members of OPEC and Russia considered in March 2020 extending their agreed oil production cuts and making additional oil production cuts. Negotiations were unsuccessful and 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 flooded the global markets.  

The confluence of the spread of COVID-19 and the oil price war has significantly 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 recently reached an agreement to drastically cut 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.  

The collapse in 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 delays, payment defaults, modifications or cancellations on the underlying contracts (including delays, payment defaults, modifications or cancellations attributable to COVID-19) could 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 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 outbreaks, changes in oil and gas inventories and industry demand, and the Company cannot predict when prices will improve and stabilize. The Company has considered the effect of the oil and gas price decline on the assumptions and estimates used in the preparation of these interim unaudited consolidated financial

11


 

statements and determined there were no material adverse effects on the Company’s results of operations and financial position at March 31, 2020.  While the Company’s management is actively monitoring the foregoing 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 the Company’s financial condition and future results of operations.

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 March 31, 2020 and for the three months ended March 31, 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 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:

 

 

March 31, 2020

 

 

December 31, 2019

 

(unaudited, in thousands)

 

 

 

 

 

 

 

 

Current assets

 

$

17,550

 

 

$

14,589

 

Non-current assets

 

 

4,999

 

 

 

3,643

 

Current liabilities

 

 

13,490

 

 

 

11,560

 

Non-current liabilities

 

 

6,542

 

 

 

4,159

 

Net carrying amount

 

$

2,517

 

 

$

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’ recourse against ADVantage for liabilities of ADVantage is limited to the assets of ADVantage.

See “Note 9. Supplemental Financial Information” of these “Notes to Unaudited Consolidated Financial Statements” for additional details regarding related party transactions associated with this joint venture.

Use of Estimates: The preparation of financial statements in accordance with U.S. GAAP requires our 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

12


 

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.

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 useful lives ranging from five to 35 years on a straight-line basis as of the date placed in service. Other assets are depreciated upon placement in service over estimated useful lives ranging from three to seven years on a straight-line basis. When assets are sold, retired or otherwise disposed of, the cost and related 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.  For the three months ended March 31, 2020, the gain/loss related to the sale or retirement of assets was immaterial. For the three months ended March 31, 2019, we recognized a net loss of approximately $0.1 million 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 gas exploration, development and production expenditures. Oil and 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 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 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 the then estimated fair value. As a result of the spread of COVID-19 and the oil price war, we conducted an impairment test of our drilling rigs during the first quarter of 2020. The test resulted in no impairment as the estimated undiscounted cash flows generated from our drilling rigs exceeded their carrying values.

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 three months ended March 31, 2019.  

Debt Financing Costs: Costs incurred with financing debt 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.

Revenue Recognition: See “Note 3. Revenue from Contracts with Customers” of these “Notes to Unaudited Consolidated Financial Statements” for further information.

Income Taxes: Income taxes are provided for based upon the tax laws and rates in effect in the countries in which our 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. We do not establish deferred tax liabilities for certain of our foreign earnings that we intend to indefinitely reinvest to finance foreign activities.  Valuation

13


 

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.  

Credit Losses – Accounts Receivable: The allowance for doubtful accounts is based on the Company’s assessment of the collectability of customer accounts. Current estimates of expected credit losses consider factors such as the historical experience and credit quality of our customers. The Company considers historical loss information as the most reasonable basis on which to determine expected credit losses because the customer base and composition of our trade receivables is consistent with customers analyzed in evaluation of historical credit losses. The Company has not historically incurred any credit losses, the risk characteristics of our customers remain similar and our operational practices have not changed over time. Due to the unprecedented impact of COVID-19 and the oil price war (see “The Global Spread of COVID-19” and “Declines in the Demand for Oil and Gas, and the Resulting Oil Price ‘War’” each of which are set forth above in “Note 1. Organization and Recent Events” of these “Notes to Unaudited Consolidated Financial Statements”), we are unable to determine at this time reasonable and supportable forecasts and therefore, have reverted to historical loss information for the three months ended March 31, 2020. We do not have an allowance for doubtful accounts on our trade receivables as of March 31, 2020 and December 31, 2019.  

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 March 31,

 

 

 

2020

 

 

2019

 

 

 

(In thousands)

 

Weighted average Ordinary Shares outstanding for basic EPS

 

 

13,115

 

 

 

5,000

 

Restricted share equity awards

 

 

 

 

 

 

Adjusted weighted average Ordinary Shares outstanding for diluted EPS

 

 

13,115

 

 

 

5,000

 

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

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

 

 

(In thousands)

 

Convertible Notes

 

 

 

 

 

7,995

 

Restricted share equity awards

 

 

194

 

 

 

64

 

Future potentially dilutive Ordinary Shares excluded from diluted EPS

 

 

194

 

 

 

8,059

 

 

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 months ended March 31, 2020 and 2019, we recognized a net gain of approximately $0.1 million and $0.2 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 March 31, 2020, the fair value of the 9.25% First Lien Notes was approximately $210.0 million based on quoted market prices in a less active market, a Level 2 measurement.

Share-based Compensation: TBGs granted under the 2016 Amended MIP vest annually, ratably over four years; however, accelerated vesting is provided for in the event of a QLE.  Otherwise, the settlement of any vested TBGs occurs upon the seventh anniversary of the Effective Date.  PBGs granted under the 2016 Amended MIP contain vesting eligibility provisions tied to the earlier of a QLE or seven years from the Effective Date.  Upon the occurrence of a vesting eligibility event, the number of PBGs that actually vest will be dependent on the achievement of pre-determined TEV targets specified in the grants.

14


 

Both the TBGs and PBGs were classified as liabilities consistent with the classification of the underlying securities prior to the Conversion.  Following the Conversion, outstanding TBGs and PBGs were subject to modification accounting and were re-classified as equity awards.  Under the provisions of ASC 718 Compensation – Stock Compensation share-based compensation expense is recognized over the requisite service period from the grant date to the fourth year vest date for TBGs.  For PBGs, expense will be recognized when it is probable that the TEV targets will be met.  Once it is probable the performance condition will be met, compensation expense based on the fair value of the PBGs at the conversion date of the Convertible Notes will be recognized for the service period completed to the seventh anniversary of the Effective Date for PBGs.

Noncontrolling Interest: Noncontrolling interests represent the equity investments of the minority owner in ADVantage, a joint venture with ADES that we consolidate in our financial statements.

Recently Adopted Accounting Standards:

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 not accounted for at fair value through net income, including loans, debt securities, trade receivables, net investments in leases and available-for-sale debt securities.  The new ASU broadens the information that an entity must consider in developing estimates of expected credit losses and requires an entity to estimate credit losses over the life of an exposure based on historical information, current information and reasonable, supportable forecasts.  We adopted the standard on January 1, 2020, using the modified retrospective approach.  The adoption of this ASU did not have a material impact on our consolidated financial statements as our customers are primarily international oil companies, national oil companies and large independent oil companies that have historically had a very low incidence of bad debt expense.

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. We adopted the standard on January 1, 2020 with no impact to our consolidated financial statements.

Recently Issued Accounting Standards:

In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.”  This ASU simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and also simplifies and improves consistent application of GAAP for other areas of Topic 740 by clarifying and amending existing guidance.  The amendments in this ASU are effective for fiscal years beginning after December 15, 2020, and for interim periods therein with early adoption permitted.  We are currently evaluating the provisions of ASU 2019-12 and assessing the impact it may have on our financial position and results of operations, if any.

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.

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.

15


 

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.

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 March 31, 2020

 

 

Three Months Ended March 31, 2019

 

 

 

Jackups

 

 

Deepwater

 

 

Management

 

 

Consolidated

 

 

Jackups

 

 

Deepwater

 

 

Management

 

 

Consolidated

 

(unaudited, in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dayrate revenue

 

$

23,986

 

 

$

19,731

 

 

$

546

 

 

$

44,263

 

 

$

20,368

 

 

$

8,778

 

 

$

301

 

 

$

29,447

 

Charter lease revenue

 

 

476

 

 

 

 

 

 

 

 

 

476

 

 

 

913

 

 

 

 

 

 

 

 

 

913

 

Amortized revenue

 

 

96

 

 

 

506

 

 

 

 

 

 

602

 

 

 

259

 

 

 

575

 

 

 

 

 

 

834

 

Reimbursable revenue

 

 

3,225

 

 

 

2,555

 

 

 

335

 

 

 

6,115

 

 

 

2,218

 

 

 

(38

)

 

 

1,181

 

 

 

3,361

 

Total revenue

 

$

27,783

 

 

$

22,792

 

 

$

881

 

 

$

51,456

 

 

$

23,758

 

 

$

9,315

 

 

$

1,482

 

 

$

34,555

 

Dayrate revenue and amortized revenue for Jackups and Deepwater are included within “Contract drilling services” in our Consolidated Statement of Operations. All other revenue, excluding “Contract termination revenue”, are included within “Reimbursables and other” in our Consolidated Statement of Operations.

Accounts Receivable, Contract Liabilities and Contract Costs

Accounts receivable are recognized when the right to consideration becomes unconditional based upon contractual billing schedules. Payment terms on customer invoices typically range from 30 to 45 days.

We recognize contract liabilities, recorded in other “Other current liabilities” and “Other long-term liabilities”, for prepayments received from customers and for deferred revenue received for mobilization, contract preparation and capital upgrades.  

Certain direct and incremental costs incurred for contract preparation, initial mobilization and modifications of contracted rigs represent contract fulfillment costs as they relate directly to a contract, enhance resources that will be used to satisfy our performance obligations in the future and are expected to be recovered. These costs are deferred as a current or noncurrent asset depending on the length of the initial contract term and are amortized on a straight-line basis to operating costs as services are rendered over the initial term of the related drilling contract. Costs incurred for capital upgrades are capitalized and depreciated over the useful life of the asset.

Costs incurred for the demobilization of rigs at contract completion are recognized as incurred during the demobilization process. Costs incurred to mobilize a rig without a contract are expensed as incurred.

The following table provides information about contract cost assets and contract revenue liabilities from contracts with customers:

 

 

March 31, 2020

 

 

December 31, 2019

 

 

(unaudited, in thousands)

 

 

 

 

 

 

 

 

 

Current contract cost assets

 

$

392

 

 

$

132

 

 

Noncurrent contract cost assets

 

 

1,153

 

 

 

1,598

 

 

Current contract revenue liabilities

 

 

3,058

 

 

 

2,912

 

 

Noncurrent contract revenue liabilities

 

 

1,509

 

 

 

2,090

 

 

Significant changes in contract cost assets and contract revenue liabilities during the three months ended March 31, 2020 are as follows:

 

 

Contract Costs

 

 

Contract Revenues

 

 

(unaudited, in thousands)

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2019

 

$

1,730

 

 

$

5,002

 

 

Increase (decrease) due to contractual changes

 

 

935

 

 

 

1,800

 

 

Decrease due to recognition of revenue

 

 

(1,120

)

 

 

(2,235

)

 

Balance as of March 31, 2020 (1)

 

$

1,545

 

 

$

4,567

 

 

16


 

 

(1)

We expect to recognize contract revenues of approximately $4.6 million during the remaining nine months of 2020 related to unsatisfied performance obligations existing as of March 31, 2020.

We have elected to utilize an optional exemption that permits us to exclude disclosure of the estimated transaction price related to the variable portion of unsatisfied performance obligations at the end of the reporting period, as our transaction price is based on a single performance obligation consisting of a series of distinct hourly increments, the variability of which will be resolved at the time of the future services.

4. Leases

We have operating leases expiring at various dates, principally for office space, onshore storage yards and certain operating equipment. Additionally, we sublease certain office space to third parties. We determine if an arrangement is a lease at inception. Operating leases with an initial term greater than 12 months are included in “Operating lease ROU assets”, “Other current liabilities”, and “Other long-term liabilities” on our Consolidated Balance Sheet. Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future lease payments over the lease term at commencement date. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. The operating lease ROU asset also includes any lease payments made prior to or at the commencement date and is reduced by lease incentives received and initial direct costs incurred. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense is recognized on a straight-line basis over the lease term. We have lease agreements with lease and non-lease components, which are generally not accounted for separately. Certain of our leases include provisions for variable payments. These variable payments are not included in the calculation of lease liability and ROU assets.

The components of lease expense were as follows:

 

 

Three Months Ended March 31,

 

(unaudited, in thousands)

Classification in the Consolidated Statement of Operations

2020

 

 

2019

 

Operating lease cost(1)

Operating costs

$

966

 

 

$

1,268

 

Operating lease cost(1)

General and administrative

 

152

 

 

 

293

 

Sublease income

Operating costs

 

(121

)

 

 

(120

)

Sublease income

General and administrative

 

(62

)

 

 

(68

)

Total operating lease cost

 

$

935

 

 

$

1,373

 

 

(1)

Short-term lease costs were $0.1 million during the three months ended March 31, 2020 and 2019, respectively.  Operating cash flows used for operating leases approximates lease expense.

 

(unaudited, in thousands)

Classification in the Consolidated Balance Sheet

March 31, 2020

 

 

December 31, 2019

 

Assets:

 

 

 

 

 

 

 

 

Operating lease assets

Operating lease ROU assets

$

5,620

 

 

$

6,706

 

Total leased assets

 

$

5,620

 

 

$

6,706