VANTAGE DRILLING INTERNATIONAL [VTDRF] Filings

10-Q 1 ck0001465872-20230630.htm 10-Q 10-Q

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 June 30, 2023

 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: 333-159299

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 440

Houston, TX 77056

(Address of principal executive offices and zip code)

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

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

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 August 1, 2023 is 13,229,280 shares.

TABLE OF CONTENTS


		Page
SAFE HARBOR STATEMENT		3
PART I—FINANCIAL INFORMATION
Item 1	Financial Statements (unaudited)	7
	Consolidated Balance Sheets	7
	Consolidated Statement of Operations	8
	Consolidated Statement of Shareholders’ Equity	9
	Consolidated Statement of Cash Flows	10
	Notes to Unaudited Consolidated Financial Statements	11
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
Item 3	Quantitative and Qualitative Disclosures About Market Risk	37
Item 4	Controls and Procedures	37
PART II—OTHER INFORMATION
Item 1	Legal Proceedings	38
Item 6	Exhibits	38
SIGNATURES		41

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, 2022, which was filed with the SEC on March 31, 2023, “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” 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;

•

excess supply of drilling units worldwide;

•

competition within our industry;

•

growing focus on climate change, including regulatory, social and market efforts to address climate change, and its overall impact on the level of investments being directed to fossil fuel exploration and production companies and the associated products or services;

•

our current level of indebtedness and the ability to incur additional indebtedness in the near- and long-term;

•

epidemics, pandemics, global health crises, or other public health events and concerns, including any future resurgence of COVID-19, and the effectiveness of associated vaccinations and treatments;

•

governmental, tax and environmental regulations and related actions and legal matters, including the actions taken by governments in response to any global health events and crises, as well as the results and effects of legal proceedings and governmental audits, assessments, orders and investigations;

•

volatility in the price of commodities due to actions taken by members of OPEC, OPEC+ and other, oil-exploring countries, with respect to oil production levels and announcements of potential changes in such levels, including the ability of members of OPEC+ to agree on and comply with announced supply limitations;

•

the potential for increased production from U.S. shale producers and non-OPEC countries driven by current oil prices, including the effect of such production rates on the overall global oil and gas supply, demand balance and commodity prices;

•

termination or renegotiation of our customer contracts, and the invoking of force majeure clauses;

•

termination or renegotiation of our management and marketing agreements, including any terminations arising directly or indirectly from the consummation of the Aquadrill Merger (as defined below);

•

losses on impairment of long-lived assets;

•

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

•

the sufficiency of our internal controls, including exposure arising from the failure to (i) establish and maintain effective internal control over financial reporting in accordance with applicable regulatory requirements, and (ii) fully remediate any material weaknesses identified with respect to such internal controls;

•

operating hazards in the offshore drilling industry;

•

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

•

political disturbances, geopolitical instability and tensions, or terrorist attacks, and associated changes in global trade policies and economic sanctions, including, but not limited to, Russia’s invasion of Ukraine in February 2022 and the Russo-Ukrainian War;

•

adequacy of, or gaps in, insurance coverage upon the occurrence of a catastrophic or other material adverse event;

•

effects of new products and new technology on the market;

•

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

•

our small number of customers, related concentration and/or the loss of any customers;

•

consolidation of our competitors and suppliers;

•

termination or renegotiation of vendor contracts;

•

changes in the status of pending, or the initiation of new litigation, claims or proceedings, including our ability to prevail in the defense of any appeal or counterclaim;

•

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

•

limited mobility of our drilling units between geographic regions;

•

the small size of our fleet and associated vulnerabilities in the case of prolonged downtime of any of our drilling rigs;

•

levels of operating and maintenance costs;

•

our dependence on key personnel;

•

availability of workers and the related labor costs;

•

increased costs resulting from supply chain constraints, delays and impediments, including, but not limited to, increases in (i) the costs of obtaining supplies, (ii) labor costs, and (iii) freight, transportation and input costs, among others;

•

changes in tax laws, treaties or regulations;

•

credit risks of our key customers and other third parties we engage commercially;

•

compliance with restrictions and covenants in our debt agreements;

•

our recent lack of overall profitability and whether we will generate material revenues or profits in the near- and long-term;

•

adverse macroeconomic conditions, including (i) inflationary pressures and potential recessionary conditions, as well as actions taken by central banks and regulators across the world in an attempt to reduce, curtail and address such pressures and conditions, and (ii) the effects of adverse developments at financial institutions, including bank failures, that impact general sentiment regarding the stability and liquidity of banks, and the resulting impact on the stability of the global financial markets at large;

•

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

•

compliance with the Economic Substance Act 2021 (as amended) and the Economic Substance Act 2018 (as amended), among other legislation enacted in the Cayman Islands and Bermuda; and

•

our ability to identify and complete strategic and/or transformational transactions, including acquisitions, dispositions, joint ventures and mergers, as well as the impact that such transactions may have on our operations and financial condition.

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

In addition, each forward-looking statement speaks only as of the date of the particular statement, and we undertake no obligation to publicly update or revise any forward-looking statements. We may not update these forward-looking statements, even if our situation changes in the future. All forward-looking statements attributable to us are expressly qualified by these cautionary statements. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained from time to time in filings we may make with the SEC, which may be obtained by contacting us or the SEC. These filings

are also available through our website at www.vantagedrilling.com or through the SEC’s Electronic Data Gathering and Analysis Retrieval system (“EDGAR”) at www.sec.gov. The contents of our website are not part of this Quarterly Report.

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

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
2016 Amended MIP		The Company's Amended and Restated 2016 Management Incentive Plan
9.25% First Lien Indenture		First Lien Indenture, dated as of November 30, 2018, by and between Vantage Drilling International and U.S. Bank National Association
9.25% First Lien Notes		The Company's 9.25% Senior Secured First Lien Notes due November 15, 2023
9.50% First Lien Indenture		Indenture, dated as of March 1, 2023, by and between VDI, the guarantors party thereto, and U.S. Bank Trust Company, National Association, as trustee and first lien collateral agent
9.50% First Lien Notes		The Company's 9.50% Senior Secured First Lien Notes due February 15, 2028
ADES		ADES International Holding Ltd, an offshore and onshore provider of oil and gas drilling and production services in the Middle East, India and Africa
ADVantage		ADVantage Drilling Services SAE, a joint venture owned 51% by the Company and 49% by ADES
ASC		Accounting Standards Codification
Board of Directors		The Company's board of directors
Comparable Period		The six months ended June 30, 2022
Comparable Quarter		The three months ended June 30, 2022
Convertible Notes		The Company's 1%/12% Step-Up Senior Secured Third Lien Convertible Notes due 2030
COVID-19		Coronavirus disease 2019, a strain of coronavirus caused by SARS-CoV-2
Current Period		The six months ended June 30, 2023
Current Quarter		The three months ended June 30, 2023
DOJ		U.S. Department of Justice
EDC		Emerald Driller Company, which owns the Emerald Driller, Sapphire Driller and Aquamarine Driller
EDC Sale		The sale by VHI of all of the issued and outstanding equity of EDC to ADES Arabia Holding, pursuant to the terms of that certain Share Purchase Agreement, dated as of December 6, 2021, by and between VHI and to sell to ADES Arabia Holding, as amended, which closed on May 27, 2022
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
IRS		U.S. Internal Revenue Service
OPEC		The Organization of the Petroleum Exporting Countries
OPEC+		The Organization of the Petroleum Exporting Countries plus 10 non-OPEC nations
Ordinary Shares		The Company's ordinary shares, par value $0.001 per share
PBGs		Performance-based restricted stock units
QLE		A qualified liquidity event as defined in the 2016 Amended MIP
ROU		Right-of-use
Russo-Ukrainian War		The ongoing war resulting from Russia's invasion of Ukraine in February 2022
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
U.S.		United States of America
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
VDI		Vantage Drilling International
VHI		Vantage Holdings International, a subsidiary of VDI
VIE		Variable interest entity

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

Vantage Drilling International

Consolidated Balance Sheets

(In thousands, except share and par value information)

(Unaudited)


	June 30, 2023			December 31, 2022

ASSETS
Current assets
Cash and cash equivalents	$	79,650		$	74,026
Restricted cash		455			16,450
Trade receivables, net of allowance for credit losses of $3,850 and $4,962, respectively		83,109			62,776
Materials and supplies		44,759			41,250
Prepaid expenses and other current assets		40,166			25,621
Total current assets		248,139			220,123
Property and equipment
Property and equipment		649,910			647,909
Accumulated depreciation		(330,911	)		(309,453	)
Property and equipment, net		318,999			338,456
Operating lease ROU assets		812			1,648
Other assets		12,659			18,334
Total assets	$	580,609		$	578,561

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable	$	55,570		$	57,775
Other current liabilities		65,770			66,179
Total current liabilities		121,340			123,954
Long–term debt, net of discount and financing costs of $11,080 and $773, respectively		188,920			179,227
Other long-term liabilities		9,678			12,881
Commitments and contingencies (see Note 8)
Shareholders' equity
Ordinary shares, $0.001 par value, 50 million shares authorized; 13,229,280 and 13,115,026 shares issued and outstanding, each period		13			13
Additional paid-in capital		633,605			633,863
Accumulated deficit		(373,971	)		(373,147	)
Controlling interest shareholders' equity		259,647			260,729
Noncontrolling interests		1,024			1,770
Total equity		260,671			262,499
Total liabilities and shareholders' equity	$	580,609		$	578,561

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

Vantage Drilling International

Consolidated Statement of Operations

(In thousands, except per share amounts)

(Unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
Revenue
Contract drilling services	$	67,673		$	42,744		$	115,590		$	87,657
Management fees		5,569			2,840			7,689			3,943
Reimbursables and other		34,598			27,654			61,633			39,969
Total revenue		107,840			73,238			184,912			131,569
Operating costs and expenses
Operating costs		74,383			59,405			140,938			103,338
General and administrative		5,161			6,910			9,992			13,492
Depreciation		11,045			11,087			22,094			22,382
(Gain) loss on EDC Sale		—			(60,781	)		3			(60,781	)
Total operating costs and expenses		90,589			16,621			173,027			78,431
Income from operations		17,251			56,617			11,885			53,138
Other (expense) income
Interest income		141			7			190			11
Interest expense and other financing charges		(5,346	)		(8,503	)		(10,904	)		(17,007	)
Other, net		(457	)		(1,011	)		(135	)		(1,786	)
Total other expense		(5,662	)		(9,507	)		(10,849	)		(18,782	)
Income before income taxes		11,589			47,110			1,036			34,356
Income tax provision (benefit)		10,584			(1,221	)		2,606			217
Net income (loss)		1,005			48,331			(1,570	)		34,139
Net (loss) income attributable to noncontrolling interests		(457	)		232			(746	)		938
Net income (loss) attributable to shareholders	$	1,462		$	48,099		$	(824	)	$	33,201
Earnings (loss) per share
Basic	$	0.11		$	3.67		$	(0.06	)	$	2.53
Diluted	$	0.11		$	3.61		$	(0.06	)	$	2.49

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

Vantage Drilling International

Consolidated Statement of Shareholders’ Equity

(In thousands)

(Unaudited)


	Six-Month Period Ended June 30, 2022
	Ordinary Shares
	Shares		Amount		Additional Paid-in Capital			Accumulated Deficit			Non-Controlling Interests			Total Equity
Balance January 1, 2022		13,115	$	13	$	633,847		$	(369,792	)	$	1,783		$	265,851
Share-based compensation		—		—		26			—			—			26
Share-based compensation - dividend equivalents		—		—		(63	)		—			—			(63	)
Net (loss) income		—		—		—			(14,898	)		706			(14,192	)
Balance March 31, 2022		13,115	$	13	$	633,810		$	(384,690	)	$	2,489		$	251,622
Share-based compensation		—		—		18			—			—			18
Net income		—		—		—			48,099			232			48,331
Balance June 30, 2022		13,115	$	13	$	633,828		$	(336,591	)	$	2,721		$	299,971


	Six-Month Period Ended June 30, 2023
	Ordinary Shares
	Shares		Amount		Additional Paid-in Capital			Accumulated Deficit			Non-Controlling Interests			Total Equity
Balance January 1, 2023		13,115	$	13	$	633,863		$	(373,147	)	$	1,770		$	262,499
Share-based compensation issuance of shares		114		—		—			—			—			—
Shares repurchased to settle withholding taxes		—		—		(246	)		—			—			(246	)
Share-based compensation		—		—		11			—			—			11
Share-based compensation - dividend equivalents		—		—		(37	)		—			—			(37	)
Net loss		—		—		—			(2,286	)		(289	)		(2,575	)
Balance March 31, 2023		13,229	$	13	$	633,591		$	(375,433	)	$	1,481		$	259,652
Share-based compensation		—		—		14			—			—			14
Net income (loss)		—		—		—			1,462			(457	)		1,005
Balance June 30, 2023		13,229	$	13	$	633,605		$	(373,971	)	$	1,024		$	260,671

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

Vantage Drilling International

Consolidated Statement of Cash Flows

(In thousands)

(Unaudited)


	Six Months Ended June 30,
	2023				2022
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income	$	(1,570	)		$	34,139
Adjustments to reconcile net income (loss) to net cash used in operating activities
Depreciation expense		22,094				22,382
Amortization of debt financing costs		862				820
Share-based compensation expense		25		<

VANTAGE DRILLING INTERNATIONAL [VTDRF] Filings
10-Q	[2023-08-10]
10-Q	[2023-05-12]
10-K	[2023-03-31]
10-Q	[2022-11-10]
10-Q	[2022-08-12]
10-Q	[2022-05-16]
10-K	[2022-03-30]
10-Q	[2021-11-09]
10-Q	[2021-08-12]
10-Q	[2021-05-06]
10-K	[2021-03-18]
10-Q	[2020-11-16]
10-Q	[2020-08-06]
10-Q	[2020-05-12]
10-K	[2020-03-10]
10-Q	[2019-11-07]
10-Q	[2019-08-14]
S-1	[2019-05-24]
10-Q	[2019-05-09]
10-K	[2019-03-14]
10-Q	[2018-11-02]
10-Q	[2018-08-08]
S-1	[2018-05-09]
10-Q	[2018-05-04]
10-K	[2018-03-29]
10-Q	[2017-11-07]
10-Q	[2017-08-02]
S-1	[2017-05-05]
10-Q	[2017-05-05]
10-K	[2017-03-10]
10-Q	[2016-11-10]
10-Q	[2016-08-11]
S-1	[2016-06-16]
10-Q	[2016-05-13]
10-K	[2016-03-30]