05/06/2021 | Press release | Distributed by Public on 05/07/2021 01:04

Quarterly Report (SEC Filing - 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 March 31, 2021

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

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 April 26, 2021 is 13,115,026shares.

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	6
		Consolidated Balance Sheet	6
		Consolidated Statement of Operations	7
		Consolidated Statement of Shareholders' Equity	8
		Consolidated Statement of Cash Flows	9
		Notes to Unaudited Consolidated Financial Statements	10
Item 2		Management's Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3		Quantitative and Qualitative Disclosures About Market Risk	29
Item 4		Controls and Procedures	29
PART II-OTHER INFORMATION
Item 1		Legal Proceedings	30
Item 6		Exhibits	30
SIGNATURES	32

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, 2020, which was filed with the SEC on March 18, 2021, 'Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations' of this Quarterly Report, and the following:

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

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

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

4

GLOSSARY OF TERMS

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

Abbreviation/Acronym		Definition
10% Second Lien Notes		The Company's 10% Senior Secured Second Lien Notes due 2020
2016 Amended MIP		The Company's Amended and Restated 2016 Management Incentive Plan
2016 Term Loan Facility		The Company's initial term loans in place in connection with the Reorganization Plan
9.25% First Lien Notes		The Company's 9.25% Senior Secured First Lien Notes due November 15, 2023
ADVantage		ADVantage Drilling Services SAE, a joint venture owned 51% by the Company and 49% by ADES
ASC		Accounting Standards Codification
ASU		Accounting Standards Update
Bassoe		Bassoe Offshore A.S.
Board of Directors		The Company's board of directors
Comparable Quarter		The three months ended March 31, 2020
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, 2021
DOJ		U.S. Department of Justice
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
OPEC		The Organization of the Petroleum Exporting Countries
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
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
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
VIE		Variable interest entity

5

PART I-FINANCIAL INFORMATION

Item 1. FinancialStatements

Vantage DrillingInternational

Consolidated Balance Sheet

(In thousands, except share and par value information)

(Unaudited)

		March 31, 2021			December 31, 2020
ASSETS
Current assets
Cash and cash equivalents		$	140,381			$	141,945
Restricted cash			7,798				7,996
Trade receivables, net of allowance for doubtful accounts of $5.0million, respectively			25,147				24,717
Materials and supplies			49,456				49,861
Prepaid expenses and other current assets			20,538				29,151
Total current assets			243,320				253,670
Property and equipment
Property and equipment			795,349				794,944
Accumulated depreciation			(292,684	)			(278,562	)
Property and equipment, net			502,665				516,382
Operating lease ROU assets			3,583				3,997
Other assets			14,230				12,126
Total assets		$	763,798			$	786,175
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable		$	24,588			$	25,466
Other current liabilities			39,994				24,734
Total current liabilities			64,582				50,200
Long-term debt, net of discount and financing costs of $4,371and $4,781, respectively			345,629				345,219
Other long-term liabilities			14,293				15,011
Commitments and contingencies (see Note 8)
Shareholders' equity
Ordinary shares, $0.001par value, 50million shares authorized; 13,115,026shares issued and outstanding, respectively			13				13
Additional paid-in capital			633,727				634,181
Accumulated deficit			(295,639	)			(259,655	)
Controlling interest shareholders' equity			338,101				374,539
Noncontrolling interests			1,193				1,206
Total equity			339,294				375,745
Total liabilities and shareholders' equity		$	763,798			$	786,175

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

6

Vantage Drilling International

Consolidated Statement of Operations

(In thousands, except per share amounts)

(Unaudited)

		Three Months Ended March 31,
		2021			2020
Revenue
Contract drilling services		$	17,725			$	44,319
Reimbursables and other			2,441				7,137
Total revenue			20,166				51,456
Operating costs and expenses
Operating costs			25,357				48,555
General and administrative			5,495				7,170
Depreciation			14,125				18,016
Total operating costs and expenses			44,977				73,741
Loss from operations			(24,811	)			(22,285	)
Other (expense) income
Interest income			100				701
Interest expense and other financing charges			(8,510	)			(8,420	)
Other, net			(614	)			2,355
Total other expense			(9,024	)			(5,364	)
Loss before income taxes			(33,835	)			(27,649	)
Income tax provision			2,162				2,921
Net loss			(35,997	)			(30,570	)
Net (loss) income attributable to noncontrolling interests			(13	)			2
Net loss attributable to shareholders		$	(35,984	)		$	(30,572	)
Loss per share
Basic and Diluted		$	(2.74	)		$	(2.33	)

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

7

Vantage Drilling International

Consolidated Statement of Shareholders' Equity

(In thousands)

(Unaudited)

		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 (loss) income			-				-				-				(30,572	)			2				(30,570	)
Balance March 31, 2020			13,115			$	13			$	633,264			$	(13,508	)		$	1,246			$	621,015
		Three-Month Period Ended March 31, 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

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

8

Vantage Drilling International

Consolidated Statement of Cash Flows

(In thousands)

(Unaudited)

		Three Months Ended March 31,
		2021			2020
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss		$	(35,997	)		$	(30,570	)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation expense			14,125				18,016
Amortization of debt financing costs			410				410
Share-based compensation expense			306				698
Deferred income tax (benefit) expense			(150	)			102
Gain on disposal of assets			(2,733	)			-
Gain on settlement of restructuring agreement			-				(2,278	)
Changes in operating assets and liabilities:
Trade receivables, net			(430	)			(20,373	)
Materials and Supplies			9				514
Prepaid expenses and other current assets			(1,766	)			586
Other assets			(2,069	)			1,877
Accounts payable			(878	)			(6,288	)
Other current liabilities and other long-term liabilities			13,822				6,032
Net cash used in operating activities			(15,351	)			(31,274	)
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment			(456	)			(1,196	)
Net proceeds from sale of Titanium Explorer			13,557				-
Net cash provided by (used in) investing activities			13,101				(1,196	)
CASH FLOWS FROM FINANCING ACTIVITIES
Contributions from holders of noncontrolling interests			-				-
Debt issuance costs			-				-
Net cash provided by financing activities			-				-
Net decrease in unrestricted and restricted cash and cash equivalents			(2,250	)			(32,470	)
Unrestricted and restricted cash and cash equivalents-beginning of period			154,487				242,945
Unrestricted and restricted cash and cash equivalents-end of period		$	152,237			$	210,475
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for:
Interest		$	9			$	3
Income taxes (net of refunds)			785				1,465
Non-cash investing and financing transactions:
Reallocation of Soehanahjack up rig acquisition value from equipment to materials and supplies			-				1,019

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

9

VANTAGE DRILLING INTERNATIONAL

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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.

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion is intended to assist you in understanding our financial position as of March 31, 2021 and our results of operations for the three months ended March 31, 2021 and 2020. The discussion should be read in conjunction with the financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2020, which was filed with the SEC on March 18, 2021. 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.

Overview

We are 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 provide 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 operations and marketing services for operating rigs, construction supervision services for rigs that are under construction and preservation management services for rigs that are stacked.

The following table sets forth certain current information concerning our offshore drilling fleet as of April 26, 2021.

Name		Year Built		Water Depth Rating (feet)			Drilling Depth Capacity (feet)			Location		Status
Jackups
Emerald Driller		2008			375				30,000			Qatar	Operating
Sapphire Driller		2009			375				30,000			Cameroon	Contract preparation
Aquamarine Driller		2009			375				30,000			Malaysia	Contract preparation
Topaz Driller		2009			375				30,000			Montenegro	Operating
Soehanah		2007			375				30,000			Indonesia	Warm stacked
Drillships (1)
Platinum Explorer		2010			12,000				40,000			India	Operating
Tungsten Explorer		2013			12,000				40,000			Mediterranean	Warm stacked

Recent Developments

Ongoing Impact of COVID-19 and Declines in the Demand for Oil and Gas

The COVID-19 pandemic continues to spread worldwide and has exacerbated since the World Health Organization first classified the COVID-19 outbreak as a pandemic in March 2020. 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, with certain countries being forced to implement multiple shelter-in-place and stay-at-home orders. While conditions have improved in certain portions of the world, other jurisdictions, including India, are experiencing record incident rates of COVID-19 as of the date of this Quarterly Report. In India, specifically, a second wave of COVID-19 began in early March 2021 and has quickly spread across the country. India has imposed a general and widespread lock-down in response to the substantial increase in cases related to COVID-19. Several states have imposed nightly curfews for all persons (with limited exceptions for essential services). Such governmental responses to the pandemic have contributed to reduced economic activity worldwide, impacting all industries, but with a significant adverse effect on the oil and gas industry. The short-term impact of these challenges has resulted in (i) reduced oil and gas activity leading to lower revenue than immediately prior to the widespread outbreak of COVID-19 and (ii) increased expenses due to higher labor and related costs. We cannot at this time determine with certainty how long these challenges will persist as well as the long-term impact that such challenges may have on our operations and growth on a go-forward basis, including in jurisdictions, such as India, where we have significant contractual backlog and derive material revenue; however, the Company is actively managing the business in an attempt to mitigate the impact of the foregoing matters. In order to decrease the Company's overall operating expenses, in 2020 the Company undertook significant headcount and salary reductions, both onshore and offshore, as well as other cost reduction measures to reflect the lower operating activity. Headcount and salary levels have not recovered to pre-pandemic levels. For additional information regarding the spread of COVID-19 in India and the impact it may have on our business, see the Business Outlooksection in this this Part I, Item 2

The reduced global economic activity resulting from the COVID-19 outbreak in 2020 caused demand for global oil and gas to significantly decline. The efforts to contain the COVID-19 outbreak will likely 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.

The potential for oil prices to decline in the future continues to put pressure on oil and gas activity levels, particularly in the deepwater segment. Notwithstanding the recovery in global oil prices in early 2021, oil and gas prices are expected to continue to be

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volatile as a result of the ongoing COVID-19 outbreak, changes in oil and gas inventories and industry demand, and therefore, we cannot predict how long oil and gas prices remain stable or further improve, if at all, or whether they could reverse course and decline. While our management is actively monitoring the foregoing events and its associated financial impact on our business, it is uncertain at this time as to the full magnitude that volatile and uncertain oil and gas prices will have on our financial condition and future results of operations.

Agreements with Seadrill Partners

On February 9, 2021, Vantage Holdings International ('VHI'), a subsidiary of VDI, entered into a Framework Agreement and related Management and Marketing Agreements, as amended on March 16, 2021 (collectively, the 'Operations, Management and Marketing Agreements') with Seadrill Partners LLC ('Seadrill Partners') pursuant to which certain subsidiaries of VHI (the 'VHI Entities') will provide operating, management and marketing services to Seadrill Partners and its subsidiaries (the 'Seadrill Partner Entities') in respect of four deepwater floaters owned by the Seadrill Partners Entities, which include two drillships, the West Polarisand the West Capella, and two semisubmersibles, the West Leoand the West Sirius. The Operations, Management and Marketing Agreements were subject to the approval of, and were approved by, the U.S. Bankruptcy Court for the Southern District of Texas on March 18, 2021.

In connection with the entry into the Operations, Management and Marketing Agreements, VHI organized a new legal entity, Vantage Financial Management Co. ('VFMC'), based in the Cayman Islands, to provide certain cash management services to the Seadrill Partners Entities in respect of the management of the vessels subject to the Operations, Management and Marketing Agreements. VFMC was organized as an unrestricted, indirectly owned subsidiary of the Company and is therefore not subject to the restrictions under the First Lien Indenture.

Purchase and Sale Agreement to Sell the Titanium Explorer

On December 31, 2020, we entered into a purchase and sale agreement with Best Oasis Limited (the 'Buyer') to sell the Titanium Explorer (the 'Purchase and Sale Agreement'), for an aggregate purchase price of $13.8 million and we classified the rig as held for sale on our Consolidated Balance Sheet. The transactions contemplated by the Purchase and Sale Agreement closed on March 10, 2021. Pursuant to the Purchase and Sale Agreement, the Buyer is required to, among other things, recycle the rig in an environmentally sound manner.

Letter of Award for the Platinum Explorer

On February 3, 2021, our ultra-deepwater drillship, the Platinum Explorer, received a letter of award for a two-year contract from Oil and Natural Gas Company ('ONGC'). The Platinum Explorer is currently performing under an existing three-year contract with ONGC, which is expected to close in the second quarter of 2021, and it will experience some brief out-of-service time for planned maintenance after the existing contract concludes. The new contract with ONGC is expected to commence shortly thereafter.

Business Outlook

Expectations about future oil and gas prices have historically been a key driver of demand for our services. Against the backdrop of already challenging industry conditions since 2015, the initial onset, and continued global spread of COVID-19 and the resulting collapse in global economic activity, coupled with the short-lived price war between Saudi Arabia and Russia, led to significant reductions and delays in oil and gas exploration and development plans on the part of operators during 2020, largely impeding and unwinding the recovery experienced by the industry in 2019. These reductions and delays led to a substantial drop in oil prices and demand for offshore drilling services globally, including for our services, during, and subsequent to, the second quarter of 2020. Although OPEC, Russia and other major oil and gas producing nations reached an agreement to drastically cut oil production in 2020, the efforts to contain COVID-19 continue to create significant challenges to, and the hampering of, global economic activity and recovery, and consequently, the supply and demand imbalance of oil will likely continue into 2021 and beyond. As a result of this decline in demand, operators drastically cut their capital spending in the offshore space in 2020. While global oil prices have experienced some recovery in the beginning of 2021 due to the (i) development, purported efficacy and availability of vaccines for COVID-19, (ii) perception of the reopening of global economies and (iii) injection of substantial government monetary and fiscal stimulus, the volatility and uncertainty surrounding global oil prices largely remain. As a result of such volatility and uncertainty, it is difficult for operators to develop and set their capital budget programs for the near and long-term.

In addition to the macroeconomic challenges, including those set forth above, which have led to reduced demand for drilling rigs, the additional supply of new-build rigs continues to be an overhang on the market. According to industry reports, there are currently 52 jackups and 23 deepwater/harsh environment floaters on order at shipyards. It is unclear when these drilling rigs will actually be delivered, if at all, as many rig deliveries have (i) already been deferred to later dates or (ii) been canceled entirely.

In response to an oversupply of drilling rigs, a number of our competitors began removing older, less competitive, rigs from their fleets by either cold stacking the drilling rigs or taking them permanently out of service. According to industry reports, this trend has accelerated since the second quarter of 2020, as 61 rigs (in the aggregate) were removed from the drilling fleet in 2020 and 2021, and a total of 320 rigs have been removed from the drilling fleet since the oil price decline in 2014. We expect further rig recycling to occur

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with warm stacked rigs (and potentially recently operated rigs) joining cold-stacked rigs as candidates for recycling. While this emphasis on recycling of rigs is expected to narrow the gap somewhat between rig supply and demand, we do not, however, anticipate that the reduction in the supply of offshore drilling rigs alone will be sufficient to materially improve, and ultimately offset the impact of, existing market conditions, especially with regard to the deepwater segment where significant marketed fleet reduction is needed before any material improvements can be observed.

In addition to the expected increase in recycling, many offshore drillers with significant levels of debt on their balance sheets have recently completed, are currently contemplating and pursuing, or may elect to pursue in the near-term, debt restructurings. These debt restructurings may result in lower cost structures, and additional pressure and incentive to recycle rigs. As drillers emerge from these debt restructurings, it is likely that consolidation will occur, reducing the number of industry participants and potentially increasing the market share of certain of our competitors. The combination of recycling, restructuring and consolidation will be necessary for the industry to regain firmer footing. Any industry recovery will also depend significantly on improvements to global macroeconomic conditions.

Since 2015, in response to both market conditions and excessive levels of idle capacity in recent years, there has been intense downward pressure on operating dayrates, as most drilling contractors preferred to maintain rigs in an active state due to the fact that customers had generally favored operating rigs over reactivated cold-stacked rigs. Prior to the COVID-19 outbreak, this downward pressure on pricing was starting to reverse itself, as evidenced by increased demand for our services in 2019 and early 2020, and dayrates were showing signs of general improvement. However, beginning in the second quarter of 2020, with the initial onset, continued spread and resulting impact, of the COVID-19 outbreak, dayrates, rig activity and contract opportunities each came under significant pressure again.

With the initial distribution of vaccines in certain jurisdictions in an attempt to inoculate populations against COVID-19 along with significant governmental assistance directed at combatting the challenging economic environment caused by the COVID-19 outbreak, economic activity in certain portions of the world appears to have shown some signs of improvement in early 2021. This improvement has contributed to, among other things, an increase in the demand for oil and gas. Since dropping to multi-year lows in the second quarter of 2020, Brent crude oil prices have begun to trend upward, reaching healthier levels in early 2021. As a result, the jackup segment has experienced greater recovery as compared to the deepwater segment, where such recovery has been less apparent. This bifurcation may be partly due to the fact that a significant amount of time transpires between the date a final investment decision is taken with regard to a deepwater project and the date on which the program actually commences. However, if the improvement in global economic activity continues to improve or is, at a minimum, sustained at its current levels, operators could begin to sanction new activity, which could lead to rigs going back into service and potentially higher day rates.

Notwithstanding the foregoing, any recovery experienced could be short lived especially given the quickly changing and ever-evolving dynamics of the COVID-19 pandemic. For example, certain jurisdictions, including India, are experiencing record incident rates of COVID-19 as of the date of this Quarterly Report. In India, specifically, a second wave of COVID-19 began in early March 2021 and has quickly spread across the country. As of April 27, 2021, India had reportedly recorded more than 300,000 daily new cases of COVID-19 for the sixth day in a row, resulting in the Indian government imposing a general and widespread lock-down to contain the further spread of the COVID-19 outbreak. In addition to a general and widespread lock-down, several states have imposed nightly curfews for all persons (with limited exceptions for essential services). Notwithstanding the aforementioned measures, the speed with which cases have increased has begun to overwhelm the health care system in many places in India. The World Health Organization recently announced that it planned to deliver 4,000 oxygen concentrators and other essential supplies in support of the hospitals that are struggling to treat the huge surge in COVID-19 cases. With a further deterioration of the situation or in the absence of an improvement in India, the Company's ability to transport personnel and equipment to and from our rig may be impacted, which could have a corresponding effect on our ability to operate there. Given our existing contract backlog and amount of revenue derived from India, to the extent the conditions in India continue or exacerbate, it could have a material and adverse effect on our financial condition and future results of operations.

The following table reflects a summary of our contract drilling backlog coverage of days contracted and related revenue as of March 31, 2021 and thereafter (based on information available at that time).

	Percentage of Days Contracted		Revenues Contracted (1) (in thousands)
	2021		2022		2021			2022			Beyond
Jackups	59%		7%		$	68,196			$	8,827			$	-
Drillships	30%		42%		$	34,838			$	67,342			$	32,208

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backlog dayrate. As certain of our drilling contracts are denominated in currencies other than the USD, backlog could also vary due to movements in the applicable exchange rates.

Results of Operations

Operating results for our contract drilling services are dependent on three primary metrics: available days, rig utilization and dayrates. The following table sets forth this selected operational information for the periods indicated:

		Three Months Ended March 31,
		2021			2020
Jackups
Rigs available (at end of period)			5				5
Available days (1)			450				420
Utilization (2)			30.7	%			88.9	%
Average daily revenues (3)		$	64,448			$	64,475
Deepwater
Rigs available			2				3
Available days (1)			180				273
Utilization (2)			49.1	%			61.8	%
Average daily revenues (3)		$	99,911			$	119,930

For the Three Months Ended March 31, 2021 and 2020

Net loss attributable to shareholders for the Current Quarter was $36.0 million, or $2.74 per basic share, on operating revenues of $20.2 million, compared to net loss attributable to shareholders for the Comparable Quarter of $30.6 million, or $2.33 per basic share, on operating revenues of $51.5 million.

The following table is an analysis of our operating results for the three months ended March 31, 2021 and 2020:

		Three Months Ended March 31,			Change
		2021			2020			$			%
(unaudited, in thousands)
Revenues
Contract drilling services		$	17,725			$	44,319			$	(26,594	)			-60	%
Reimbursables and other			2,441				7,137				(4,696	)			-66	%
Total revenues			20,166				51,456				(31,290	)			-61	%
Operating costs and expenses
Operating costs			25,357				48,555				(23,198	)			-48	%
General and administrative			5,495				7,170				(1,675	)			-23	%
Depreciation			14,125				18,016				(3,891	)			-22	%
Total operating costs and expenses			44,977				73,741				(28,764	)			-39	%
Loss from operations			(24,811	)			(22,285	)			(2,526	)			11	%
Other (expense) income
Interest income			100				701				(601	)			-86	%
Interest expense and financing charges			(8,510	)			(8,420	)			(90	)			1	%
Other, net			(614	)			2,355				(2,969	)			-126	%
Total other expense			(9,024	)			(5,364	)			(3,660	)			68	%
Loss before income taxes			(33,835	)			(27,649	)			(6,186	)			22	%
Income tax provision			2,162				2,921				(759	)			-26	%
Net loss			(35,997	)			(30,570	)			(5,427	)			18	%
Net income (loss) attributable to noncontrolling interests			(13	)			2				(15	)			-750	%
Net loss attributable to shareholders		$	(35,984	)		$	(30,572	)		$	(5,412	)			18	%

Revenue:Total revenue decreased $31.3 million due primarily to the decrease in operating activities in the Current Quarter.

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Contract drilling revenue decreased 60% for the Current Quarter as compared to the Comparable Quarter. During the Current Quarter, only three of our rigs were operational due to the fact that: (i) three of our drilling contracts were terminated in the second quarter of 2020 as a result of the volatility in oil prices and the challenges presented by the spread of COVID-19; (ii) another drilling contract expired in the second quarter of 2020 in accordance with its terms; and (iii) another drilling contract was amended to reduce the applicable dayrate. The decrease in our contract drilling revenue for the Current Quarter as compared to the Comparable Quarter was primarily a result of these contract changes.

Reimbursables and other revenue for the Current Quarter decreased $4.7 million as compared to the Comparable Quarter as a result of the changes in drilling contracts discussed immediately above as well as the termination of the bareboat charter lease on the Soehanahjackup rig, which was redelivered to the Company in February 2020.

Operating costs: Operating costs for the Current Quarter decreased $23.2 million as compared to the Comparable Quarter. The decrease in operating costs was primarily the result of changes to our drilling contracts which resulted in only three of our rigs operating in the Current Quarter, with lower costs incurred on warm stacked rigs, and a $1.2 million decrease in operational support costs in the Current Quarter as compared to the Comparable Quarter as a result of reductions in personnel headcount and salaries paid to personnel. Decreases in Operating cost in the Current Quarter were further impacted by the sale of the Titanium Exploreron March 10, 2021 and the recognition of a net $2.8 million related to the sale of the asset.

General and administrative expenses:Decreases in general and administrative expenses for the Current Quarter as compared to the Comparable Quarter were primarily due to cost cutting initiatives to reflect the lower levels of operating activity in the Current Quarter. General and administrative expenses for the Current Quarter and for the Comparable Quarter included approximately $0.2 million and approximately $0.5 million, respectively, for non-cash share-based compensation expense.

Depreciation expense: Depreciation expense for the Current Quarter decreased 22% as compared to the Comparable Quarter, due primarily to a $3.8 million decrease in depreciation expense on the Titanium Explorer, which was classified as held for sale on December 31, 2020.

Interest income: Interest income for the Current Quarter decreased $0.6 million as compared to the Comparable Quarter, due primarily to lower interest rates earned on lower cash investments during the Current Quarter.

Interest expense and financing charges: Interest expense for the Current Quarter increased 1% as compared to the Comparable Quarter. Interest expense includes non-cash deferred financing costs totaling approximately $0.4 million for the Current Quarter and for the Comparable Quarter, respectively.

Other, net: We recorded a gain of $2.3 million during the Comparable Quarter related to the settlement agreement 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 the 'Notes to Unaudited Consolidated Financial Statements' in Part I, Item 1 of this Quarterly Report for additional detail on the settlement agreement.

Our functional currency is USD; however, a portion of the revenues earned and expenses incurred by certain of our subsidiaries are denominated in currencies other than USD. These transactions are re-measured in USD based on a combination of both current and historical exchange rates. Net foreign currency exchange loss of approximately $0.6 million and gain of approximately $0.1 million was included in 'other, net,' for the Current Quarter and Comparable Quarter, respectively.

Income tax provision: Our annualized effective tax rate for the Current Quarter is negative 6.0% based on estimated annualized loss before income taxes excluding income tax discrete items. For the Comparable Quarter, we were not able to reliably forecast annual 'ordinary' income and calculated the effective tax rate based on year-to-date results, pursuant to ASC 70-270-30-18, as opposed to estimating an annual effective tax rate. The Company's effective tax rate for the Comparable Quarter was negative 10.56%, including the impact of discrete items. Due to the different methodologies utilized to calculate the interim tax provisions, it is not beneficial to numerically reconcile the change in estimated tax rate.

Our income taxes are generally dependent upon the results of our operations and the local income taxes in the jurisdictions in which we operate. In some jurisdictions, we do not pay taxes or receive benefits for certain income and expense items, including interest expense and disposal gains or losses. In other jurisdictions, we recognize income taxes on a net income basis or a deemed profit basis.

Liquidity and Capital Resources

The prolonged low price environment caused by the spread of COVID-19, the resulting decline in global economic activity and the oil price and market share volatility began to reduce our liquidity and capital resources in the second quarter of 2020, a trend which could extend into subsequent quarters in 2021 and beyond, depending on, among other factors, how long COVID-19 remains a significant public health crisis and global economic activity remains depressed. Such events have had significant adverse consequences for general financial, business and economic conditions, as well as for the financial, business and economic position of our business and the business of our customers and suppliers, and may adversely impact our ability to derive cash flows from our operations and access capital funding from third parties in the future.

27

We have experienced, and could experience further, delays in the collection of certain accounts receivables due to logistical obstacles, such as office closures resulting from the COVID-19 outbreak, as well as other impacts to our long-term liquidity. For example, in addition to a general and widespread lock-down in response to an increase in cases related to the COVID-19 outbreak in India, several states have imposed nightly curfews for all persons (with limited exceptions for essential services) (see the 'Ongoing Impact of COVID-19 and Declines in the Demand for Oil and Gas' of this Part I, Item 2 for further information pertaining to the ongoing impact of COVID-19 on our operations and financial condition). These types of governmental measures could impact our ability to operate in locations where such restrictions are in place. With this uncertainty, we have sought, and continue to seek, measures to reduce our operating costs and preserve cash during these challenging times. The effects of the decline in global economic activity and other oil price and market share volatility may cause us to implement cost reduction measures in addition to those put in place in 2020 and alter our general financial strategy.

As of March 31, 2021, we have adequate cash reserves and are continuously managing our actual cash flow and cash forecasts. As a result of these factors, management believes that we have adequate liquidity to fund our operations for the twelve months following the date our consolidated financial statements are issued and therefore, have been prepared under the going concern assumption.

As of March 31, 2021, we had working capital of approximately $178.7 million, including approximately $140.4 million of cash available for general corporate purposes. Scheduled debt service consists of interest payments through December 31, 2021 of approximately $32.4 million. We anticipate capital expenditures through December 31, 2021 to be between approximately $5.5 million and $6.7 million, for sustaining capital and capital spares. As our rigs obtain new contracts, we could incur reactivation and mobilization costs for these rigs, as well as customer requested equipment upgrades. These costs could be significant and may not be fully recoverable from the customer. Based on our expected levels of activity, incremental expenditures through December 31, 2021 for special periodic surveys, major repair and maintenance expenditures and equipment recertifications to be between approximately $17.2 million and $21.0 million. As of March 31, 2021, we had $39.0 million available for the issuance of letters of credit under our cash collateralized letter of credit facility.

The following table includes a summary of our cash flow information for the periods indicated:

			Three Months Ended March 31,
(unaudited, in thousands)		2021			2020
Cash flows (used in) provided by:
	Operating activities		$	(15,351	)		$	(31,274	)
	Investing activities			13,101				(1,196	)
	Financing activities			-				-

Changes in cash flows from operating activities are driven by changes in net income during the periods (see the discussion of changes in net income above in 'Results of Operations' of this Part I, Item 2).

Cash flows from investing activities in the Current Quarter include net proceeds of $13.6 million from the sale of the Titanium Explorer.

The significant elements of the 9.25% First Lien Notes are described in 'Note 5. Debt'of the 'Notes to Unaudited Consolidated Financial Statements' in Part I, Item 1 of this Quarterly Report. The information discussed therein is incorporated by reference in its entirety into this Part I, Item 2.

We enter into operating leases in the normal course of business for office space, housing, vehicles and specified operating equipment. Some of these leases contain options that would cause our future cash payments to change if we exercised those options.

Commitments and Contingencies

We are subject to litigation, claims and disputes in the ordinary course of business, some of which may not be covered by insurance. Information regarding our legal proceedings is set forth in 'Note 8. Commitments and Contingencies'of the 'Notes to Unaudited Consolidated Financial Statements' in Part I, Item 1 of this Quarterly Report. The information discussed therein is incorporated by reference in its entirety into this Part I, Item 2.

There is an inherent risk in any litigation or dispute and no assurance can be given as to the outcome of any claims. We do not believe the ultimate resolution of any existing litigation, claims or disputes will have a material adverse effect on our financial position, results of operations or cash flows.

Critical Accounting Policies and Accounting Estimates

The preparation of unaudited financial statements and related disclosures in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Our significant accounting policies are included in 'Note 2. Basis of Presentation and Significant Accounting Policies' of the 'Notes to the

28

Unaudited Consolidated Financial Statements' in Part I, Item 1 of this Quarterly Report. These policies, along with our underlying judgments and assumptions made in their application, have a significant impact on our consolidated financial statements. While management believes current estimates are appropriate and reasonable, actual results could materially differ from those estimates. We have discussed the development, selection and disclosure of such policies and estimates with the audit committee of the Board of Directors.

Our critical accounting policies are those related to property and equipment, impairment of long-lived assets and income taxes. For a discussion of the critical accounting policies and estimates that we use in the preparation of our consolidated financial statements, see 'Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Estimates' in Part II of our Annual Report on Form 10-K for the year ended December 31, 2020, which was filed with the SEC on March 18, 2021. During the Current Quarter, there were no material changes to the judgments, assumptions or policies upon which our critical accounting estimates are based.

Recent Accounting Pronouncements: See 'Note 2. Basis of Presentation and Significant Accounting Policies'of the 'Notes to Unaudited Consolidated Financial Statements' in Part I, Item 1 of this Quarterly Report for further information. The information discussed therein is incorporated by reference in its entirety into this Part I, Item 2.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Our rigs operate in various international locations and thus are sometimes subject to foreign exchange risk. We may from time to time also be exposed to certain commodity price risk, equity price risk and risks related to other market driven rates or prices. We do not enter into derivatives or other financial instruments for trading or speculative purposes. The significant decline in worldwide exploration and production spending as a result of reduced oil prices since 2014, the continual spread of COVID-19 and its designation as a pandemic, and the ongoing oil price and market share volatility have each negatively impacted the offshore contract drilling business at large, as discussed in 'Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations' of this Quarterly Report.

Interest Rate Risk:As of March 31, 2021, we had no variable rate debt outstanding.

Foreign Currency Exchange Rate Risk:Our functional currency is the USD, which is consistent with the oil and gas industry. However, outside the U.S., a portion of our expenses are incurred in local currencies. Therefore, when the USD weakens (strengthens) in relation to the currencies of the countries in which we operate, our expenses reported in USD will increase (decrease). A substantial majority of our revenues are received in USD, our functional currency; however, in certain countries in which we operate, local laws or contracts may require us to receive some payment in the local currency. We are exposed to foreign currency exchange risk to the extent the amount of our monetary assets denominated in the foreign currency differs from our obligations in that foreign currency. In order to mitigate the effect of exchange rate risk, we attempt to limit foreign currency holdings to the extent they are needed to pay liabilities in the local currency. To further manage our exposure to fluctuations in currency exchange rates, foreign exchange derivative instruments, specifically foreign exchange forward contracts, or spot purchases, may be used. A foreign exchange forward contract obligates us to exchange predetermined amounts of specified foreign currencies at specified exchange rates on specified dates or to make an equivalent USD payment equal to the value of such exchange. We do not enter into derivative transactions for speculative purposes. As of March 31, 2021, we did not have any open foreign exchange derivative contracts or material foreign currency exposure risk.

Item 4. Controls and Procedures

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports we voluntarily file or submit to the SEC is recorded, processed, summarized, and reported within the time periods required by our debt agreements.

We carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report. Based on that evaluation, such officers have concluded that the design and operation of these disclosure controls and procedures were effective as of March 31, 2021 to provide reasonable assurance that information required to be disclosed on our reports filed or submitted under the Exchange Act was (1) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure and (2) recorded, summarized and reported within the time periods specified in the SEC's rules and forms.

There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act) during the most recent fiscal quarter that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

While the majority of our office and management personnel are working remotely due to the spread of COVID-19 and the resulting pandemic, we have not as of the date of this Quarterly Report experienced any material impact on our internal controls over financial reporting. Our management continues to monitor and assess the current situation as it relates to our internal controls over financial reporting in order to minimize the impact, if any, to their design and operating effectiveness.

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings

Information regarding the Company's legal proceedings is set forth in 'Note 8. Commitments and Contingencies' of the 'Notes to Unaudited Consolidated Financial Statements' in Part I, Item 1 of this Quarterly Report. The information discussed therein is incorporated by reference into this Part II, Item 1.

Item 6. Exhibits

						Incorporated by Reference
Exhibit Number		Exhibit Description		Filed Herewith		Form		File Number		Exhibit		Filing Date
2.1		Joint Prepackaged Chapter 11 Plan of Offshore Group Investment Limited and its Affiliated Debtors, dated December 1, 2015, which is Exhibit A to the Disclosure Statement				T-3		022-29012		99.T3E.1		12/02/15
3.1A		Certificate of Incorporation of the Company				S-4		333-170841		3.3		11/24/10
3.1B		Fourth Amended and Restated Memorandum and Articles of Incorporation of the Company				8-K		333-159299-15		3.1		03/08/19
4.1		First Lien Indenture, dated as of November 30, 2018, by and between Vantage Drilling International, the subsidiary guarantors party thereto and U.S. Bank National Association, as trustee and first lien collateral agent				8-K		333-159299-15		4.1		12/04/18
4.2		First Supplemental Indenture by and between Vantage Drilling International, the subsidiary guarantors party thereto and U.S. Bank National Association, as trustee and first lien collateral agent, dated January 24, 2019				10-K		333-159299-15		4.4		03/10/2020
4.3		Second Supplemental Indenture by and between Vantage Drilling International, the subsidiary guarantors party thereto and U.S. Bank National Association, as trustee and first lien collateral agent, dated February 13, 2019				10-K		333-159299-15		4.5		03/10/2020
4.4		Shareholders Agreement dated as of February 10, 2016, by and among Offshore Group Investment Limited and the Shareholders (as defined therein)				8-K		333-159299-15		10.1		02/17/16
4.5		Amendment No. 1 to the Shareholders Agreement, dated as of February 10, 2016, by and among Offshore Group Investment Limited and the Shareholders (as defined therein)				8-K		333-159299-15		10.1		03/08/19
4.6		Registration Rights Agreement, dated as of February 10, 2016, by and among Offshore Group Investment Limited and each of the Holders (as defined therein) party thereto				8-K		333-159299-15		10.2		02/17/16
4.7		Amendment No. 1 to the Registration Rights Agreement, dated as of May 9, 2016, by and among Vantage Drilling International (f/k/a Offshore Group Investment Limited) and each of the Holders party thereto				10-Q		333-159299-15		10.3		5/13/16
4.8		Registration Rights Agreement among Vantage Drilling International, Vantage Drilling Company and the joint official liquidators of Vantage Drilling Company, dated as of April 26, 2017				10-K/A		333-212081		10.1		05/01/17

30

10.1

Agreement, dated June 20, 2019, among Vantage Deepwater Company, Vantage Deepwater Drilling, Inc., Petroleo Brasileiro S.A., Petrobras America, Inc. and Petrobras Venezuela Investments & Services, BV.

8-K

333-159299-15

10.1

06/24/19

31.1

Certification of Principal Executive Officer Pursuant to Section 302

X

31.2

Certification of Principal Financial and Accounting Officer Pursuant to Section 302

X

32.1**

Certification of Principal Executive Officer Pursuant to Section 906

32.2**

Certification of Principal Financial and Accounting Officer Pursuant to Section 906

101.INS

- XBRL Instance Document

X

101.SCH

- XBRL Schema Document

X

101.CAL

- XBRL Calculation Document

X

101.DEF

- XBRL Definition Linkbase Document

X

101.LAB

- XBRL Label Linkbase Document

X

101.PRE

- XBRL Presentation Linkbase Document

X

** These exhibits are furnished herewith and shall not be deemed 'filed' for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act.

31

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		VANTAGE DRILLING INTERNATIONAL
Date: May 6, 2021		By:	/s/ DOUGLAS E. STEWART
			Douglas E. Stewart
			Chief Financial Officer, General Counsel and Corporate Secretary
			(Principal Financial and Accounting Officer)

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