VANTAGE DRILLING INTERNATIONAL [VTDRF] Filings

10-Q 1 ck0001465872-20220930.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 September 30, 2022

 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 November 1, 2022 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 

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	39
Item 4	Controls and Procedures	39
PART II—OTHER INFORMATION
Item 1	Legal Proceedings	39
Item 6	Exhibits	40
SIGNATURES		42

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, 2021, which was filed with the SEC on March 30, 2022, “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 their associated products or services;

•

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

•

epidemics, pandemics, global health crises, or other public health events and concerns, such as the spread and resulting impact of the COVID-19 pandemic 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 the spread of COVID-19 and its highly contagious variants and sub-lineages, as well as the results and effects of legal proceedings and governmental audits, assessments 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, including, but not limited to, as a result of the COVID-19 pandemic;

•

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;

•

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 resulting Russo-Ukrainian War;

•

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

•

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;

•

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;

•

levels of operating and maintenance costs;

•

our dependence on key personnel;

•

availability of workers and the related labor costs;

•

an increase in 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 ability to refinance our existing and any future indebtedness;

•

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 rising 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;

•

our incorporation under the laws of the Cayman Islands and the limited rights to relief that may be available compared to U.S. laws; 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
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, 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 nine months ended September 30, 2021
Comparable Quarter		The three months ended September 30, 2021
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 strain of coronavirus caused by SARS-CoV-2
Current Period		The nine months ended September 30, 2022
Current Quarter		The three months ended September 30, 2022
DOJ		U.S. Department of Justice
EDC		Emerald Driller Company
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
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
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
Reorganization Plan		The Company's pre-packaged plan of reorganization under Chapter 11 of Title 11 of the U.S. Bankruptcy Code
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
VDC Note		A $61.5 million promissory note issued by the Company in favor of VDC
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)


	September 30, 2022			December 31, 2021

ASSETS
Current assets
Cash and cash equivalents	$	243,581		$	73,343
Restricted cash		15,123			1,621
Trade receivables, net of allowance for credit losses of $5.0 million, each period		70,823			37,527
Materials and supplies		39,313			37,580
Assets held for sale		—			117,117
Prepaid expenses and other current assets		13,880			18,309
Total current assets		382,720			285,497
Property and equipment
Property and equipment		645,619			645,622
Accumulated depreciation		(298,263	)		(266,018	)
Property and equipment, net		347,356			379,604
Operating lease ROU assets		1,754			2,450
Other assets		18,661			31,843
Total assets	$	750,491		$	699,394

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable	$	45,178		$	31,420
Other current liabilities		68,435			31,533
Liabilities held for sale		—			6,720
Total current liabilities		113,613			69,673
Long–term debt, net of discount and financing costs of $1,913 and $3,142, respectively		348,087			346,858
Other long-term liabilities		9,333			17,012
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, each period		13			13
Additional paid-in capital		633,845			633,847
Accumulated deficit		(356,789	)		(369,792	)
Controlling interest shareholders' equity		277,069			264,068
Noncontrolling interests		2,389			1,783
Total equity		279,458			265,851
Total liabilities and shareholders' equity	$	750,491		$	699,394

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 September 30,						Nine Months Ended September 30,
	2022			2021			2022			2021
Revenue
Contract drilling services	$	34,092		$	42,982		$	121,749		$	92,362
Management fees		4,442			690			8,385			1,285
Reimbursables and other		32,424			9,179			72,393			14,971
Total revenue		70,958			52,851			202,527			108,618
Operating costs and expenses
Operating costs		66,429			45,369			169,767			106,782
General and administrative		4,253			4,593			17,745			15,055
Depreciation		11,022			14,137			33,404			42,423
Gain on EDC Sale		(632	)		—			(61,413	)		—
Total operating costs and expenses		81,072			64,099			159,503			164,260
(Loss) income from operations		(10,114	)		(11,248	)		43,024			(55,642	)
Other (expense) income
Interest income		17			8			28			118
Interest expense and other financing charges		(8,504	)		(8,508	)		(25,511	)		(25,529	)
Other, net		(363	)		(1,108	)		(2,149	)		(1,901	)
Total other expense		(8,850	)		(9,608	)		(27,632	)		(27,312	)
(Loss) income before income taxes		(18,964	)		(20,856	)		15,392			(82,954	)
Income tax provision		1,566			881			1,783			3,763
Net (loss) income		(20,530	)		(21,737	)		13,609			(86,717	)
Net (loss) income attributable to noncontrolling interests		(332	)		(10	)		606			(41	)
Net (loss) income attributable to shareholders	$	(20,198	)	$	(21,727	)	$	13,003		$	(86,676	)
(Loss) earnings per share
Basic	$	(1.54	)	$	(1.66	)	$	0.99		$	(6.61	)
Diluted	$	(1.54	)	$	(1.66	)	$	0.98		$	(6.61	)

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

Vantage Drilling International

Consolidated Statement of Shareholders’ Equity

(In thousands)

(Unaudited)


	Nine-Month Period Ended September 30, 2021
	Ordinary Shares
	Shares		Amount		Additional Paid-in Capital			Accumulated Deficit			Non-Controlling Interests			Total Equity
Balance January 1, 2021		13,115	$	13	$	634,181		$	(259,655	)	$	1,206		$	375,745
Share-based compensation		—		—		306			—			—			306
Share-based compensation - dividend equivalents		—		—		(760	)		—			—			(760	)
Net loss		—		—		—			(35,984	)		(13	)		(35,997	)
Balance March 31, 2021		13,115	$	13	$	633,727		$	(295,639	)	$	1,193		$	339,294
Share-based compensation		—		—		31			—			—			31
Net loss		—		—		—			(28,965	)		(18	)		(28,983	)
Balance June 30, 2021		13,115	$	13	$	633,758		$	(324,604	)	$	1,175		$	310,342
Share-based compensation		—		—		29			—			—			29
Share-based compensation - dividend equivalents		—		—		30			—			—			30
Contributions from holders of noncontrolling interests		—		—		—			—			691			691
Net loss		—		—		—			(21,727	)		(10	)		(21,737	)
Balance September 30, 2021		13,115	$	13	$	633,817		$	(346,331	)	$	1,856		$	289,355


	Nine-Month Period Ended September 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		$

VANTAGE DRILLING INTERNATIONAL [VTDRF] Filings
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]