Vantage Drilling 10-Q 2010 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2010

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 001-34094

VANTAGE DRILLING COMPANY

(Exact name of Registrant as specified in its charter)

Cayman Islands	N/A
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

777 Post Oak Boulevard, Suite 800

Houston, TX 77056

(Address of principal executive offices and zip code)

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ¨    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act). (Check one):

Large accelerated filer	¨	Accelerated filer	x
Non-accelerated filer	¨  (Do not check if a smaller reporting company)	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ¨    No  x

The number of Vantage Drilling Company ordinary shares outstanding as of October 29, 2010 is 289,117,044

TABLE OF CONTENTS

		Page
SAFE HARBOR STATEMENT			3
PART I—FINANCIAL INFORMATION
Item 1	Financial Statements (Unaudited)
	Consolidated Balance Sheet		5
	Consolidated Statement of Operations—for the three and nine months ended September 30, 2010 and 2009		6
	Consolidated Statement of Cash Flows—for the nine months ended September 30, 2010 and 2009		7
	Notes to Unaudited Consolidated Financial Statements		9
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations		23
Item 3	Quantitative and Qualitative Disclosures about Market Risk		30
Item 4	Controls and Procedures		31
PART II—OTHER INFORMATION
Item 6	Exhibits		32
SIGNATURES			33

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SAFE HARBOR STATEMENT

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. This Quarterly Report includes forward-looking statements regarding our plans, goals, strategies, intent, beliefs and current expectations. These statements are expressed in good faith and based upon a reasonable basis when made, but there can be no assurance that these expectations will be achieved or accomplished. These forward-looking statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties. Items contemplating or making assumptions about our industry, business strategy, goals, expectations concerning our market position, future operations, margins, profitability, capital expenditures, liquidity and capital resources and other financial and operating information also constitute such forward looking statements. You should not place undue reliance on these forward-looking statements. These forward-looking statements can be identified by the use of terms and phrases such as “believe,” “plan,” “intend,” “anticipate,” “target,” “estimate,” “expect,” and the like, and/or future tense or conditional constructions (“will,” “may,” “could,” “should,” etc.). 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 associated with the following:

• our limited operating history;

• our small number of customers;

• termination of our customer contracts;

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

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

• general economic conditions, including the current recession and capital market crisis;

• competition within our industry;

• the impact of theMacondo well blowout incident in the U.S. Gulf of Mexico on offshore drilling;

• effects of new products and new technology on the market;

• restrictions on offshore drilling;

• compliance with restrictions and covenants in our debt agreements;

• our substantial level of indebtedness and ability to incur additional indebtedness;

• ability to meet our debt service obligations;

• potential acquisition opportunities;

• contract awarding and commencement;

• limited mobility between geographic regions;

• levels of operating and maintenance costs;

• our ability to receive cash flow from our subsidiaries;

• our dependence on key personnel;

• availability of workers and the related labor costs;

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• the sufficiency of our internal controls;

• ability to obtain indemnity from customers;

• operating hazards in the oilfield service industry;

• adequacy of insurance coverage in the event of a catastrophic event;

• governmental, tax and environmental regulation;

• operations in international markets;

• potential conflicts of interest with F3 Capital;

• one of our directors holding a significant percentage of our ordinary shares;

• our ability to pay dividends;

• the volatility of the price of our ordinary shares;

• changes in tax laws, treaties or regulations;

• any non-compliance with the U.S. Foreign Corrupt Practices Act;

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

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

Many of these factors are beyond our ability to control or predict. Any of these factors, 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 performances, 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 our filings with the SEC, which may be obtained by contacting us or the SEC. These filings are also available through our website at http://www.vantagedrilling.com or through the SEC’s Electronic Data Gathering and Analysis Retrieval System (EDGAR) at http://www.sec.gov. The contents of our website are not part of this Quarterly Report.

Unless the context indicates otherwise, all references to “we,” “our” or “us” refer to Vantage Drilling Company and its consolidated subsidiaries.

4

Vantage Drilling Company

Consolidated Balance Sheet

(In thousands, except par value information)

	September 30,			December 31,
	2010			2009
	(Unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	116,544		$	15,992
Restricted cash		537,835			28,863
Trade receivables		47,732			17,536
Inventory		18,902			10,789
Prepaid expenses and other current assets		2,317			8,040
Total current assets		723,330			81,220
Property and equipment
Property and equipment		1,207,114			899,541
Accumulated depreciation		(35,940	)		(11,329	)
Property and equipment, net		1,171,174			888,212
Other assets
Investment in joint venture		—			120,306
Other assets		55,881			29,441
Total other assets		55,881			149,747
Total assets	$	1,950,385		$	1,119,179
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	30,996		$	15,931
Accrued liabilities		37,037			14,285
Short-term debt		1,028			17,827
Current maturities of long-term debt		—			16,000
Total current liabilities		69,061			64,043
Long-term debt, net of discount of $66,565 and $4,021		1,099,039			378,078
Other long-term liabilities		716			—
Commitments and contingencies		—			—
Shareholders’ equity
Preferred shares, $0.001 par value, 10,000 shares authorized; none issued or outstanding		—			—
Ordinary shares, $0.001 par value, 400,000 shares authorized; 289,117 and 187,277 shares issued and outstanding		289			187
Additional paid-in capital		853,011			714,486
Accumulated deficit		(71,731	)		(37,117	)
Accumulated other comprehensive loss		—			(498	)
Total shareholders’ equity		781,569			677,058
Total liabilities and shareholders’ equity	$	1,950,385		$	1,119,179

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

5

Vantage Drilling Company

Consolidated Statement of Operations

(In thousands, except per share amounts)

(Unaudited)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2010			2009			2010			2009
Revenues
Contract drilling services	$	44,864		$	21,644		$	132,632		$	46,937
Management fees		4,516			5,688			13,391			15,129
Reimbursables		17,527			9,114			47,488			10,869
Total revenues		66,907			36,446			193,511			72,935
Operating costs and expenses
Operating costs		41,582			19,967			112,946			35,550
General and administrative		6,294			3,650			15,703			11,140
Depreciation		8,768			3,165			24,611			6,923
Total operating expenses		56,644			26,782			153,260			53,613
Income (loss) from operations		10,263			9,664			40,251			19,322
Other income (expense)
Interest income		381			4			396			13
Interest expense		(14,292	)		(1,945	)		(35,608	)		(4,004	)
Loss on debt extinguishment		(24,006	)		—			(24,006	)		—
Loss on acquisition of subsidiary		(3,780	)		—			(3,780	)		—
Other income		618			143			1,568			316
Total other income (expense)		(41,079	)		(1,798	)		(61,430	)		(3,675	)
Income (loss) before income taxes		(30,816	)		7,866			(21,179	)		15,647
Income tax provision		2,765			1,063			13,435			2,534
Net income (loss)	$	(33,581	)	$	6,803		$	(34,614	)	$	13,113
Earnings (loss) per share
Basic	$	(0.12	)	$	0.05		$	(0.14	)	$	0.13
Diluted	$	(0.12	)	$	0.05		$	(0.14	)	$	0.13

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

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Vantage Drilling Company

Consolidated Statement of Cash Flows

(In thousands)

(Unaudited)

	Nine Months Ended September 30,
	2010			2009
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	(34,614	)	$	13,113
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation expense		24,611			6,923
Amortization of debt financing costs		3,515			872
Non-cash loss on debt extinguishment		12,280			—
Non-cash loss recognized related to acquisition of subsidiary		3,780			—
Share-based compensation expense		4,594			3,636
Accretion of long-term debt		3,965			373
Amortization of note discounts		2,682			—
Deferred income tax expense		1,650			83
Changes in operating assets and liabilities:
Restricted cash		1,944			(23,216	)
Trade receivables		(38,333	)		(17,791	)
Inventory		(8,113	)		(12,190	)
Prepaid expenses and other current assets		5,723			(147	)
Other assets		(12,084	)		(412	)
Accounts payable		15,065			9,520
Accrued liabilities		24,039			12,384
Short-term debt		1,467			760
Net cash provided by (used in) operating activities		12,171			(6,092	)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of assets		(79,777	)		—
Additions to property and equipment		(57,253	)		(200,102	)
Escrowed funds for acquisition		(510,916	)		—
Investment in joint venture		—			(104,001	)
Net cash used in investing activities		(647,946	)		(304,103	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings under credit agreements		—			141,821
Proceeds from the issuance of senior secured notes, net of original issue discount of $36,390		963,610			—
Repayment of long-term debt		(293,129	)		(13,605	)
Proceeds from issuance of ordinary shares in public offerings, net		101,889			80,291
Proceeds from issuance of ordinary shares in private placement, net		—			24,953
Proceeds from warrant exercise in connection with joint venture		—			104,100
Proceeds from short-term notes payable-shareholders		—			4,000
Repayment of short-term debt		(4,267	)		(1,848	)
Debt issuance costs		(31,776	)		(5,404	)
Net cash provided by financing activities		736,327			334,308
Net increase in cash and cash equivalents		100,552			24,113
Cash and cash equivalents—beginning of period		15,992			16,557
Cash and cash equivalents—end of period	$	116,544		$	40,670

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

7

Vantage Drilling Company

Consolidated Statement of Cash Flows

Supplemental Information

(In thousands)

(Unaudited)

	Nine Months Ended September 30,
	2010			2009
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for:
Interest	$	39,473		$	11,776
Interest capitalized (non-cash)		(22,150	)		(15,146	)
Taxes		6,842			1,851
Non-cash investing and financing transactions:
Issuance of shares for short-term debt and interest	$	14,144		$	—
Issuance of ordinary shares for performance deposit		—			8,000
Issuance of ordinary shares for termination of purchase option		—			10,000
Adjustment to consideration for fair value of warrants		—			73,602
Transactions in Mandarin acquisition:
Reclassification of investment in joint venture		120,306			—
Reclassification of receivable		8,138			—
Fair value of long-term note payable		27,833			—
Beneficial conversion feature of long-term note payable		18,000			—

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

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VANTAGE DRILLING COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Recent Events

Vantage Drilling Company (“we,” “our,” “us,” “Vantage Drilling” or the “Company”), organized under the laws of the Cayman Islands on November 14, 2007, is a holding corporation with no significant operations or assets other than its interests in its direct and indirect subsidiaries.

On July 6, 2010, we entered into a definitive agreement with F3 Capital, our largest shareholder and an affiliate, pursuant to which we acquired the 55% of Mandarin Drilling Corporation (“Mandarin”) that we did not already own for cash and a convertible promissory note.

On July 30, 2010, Offshore Group Investment Limited (“OGIL”), one of our wholly-owned subsidiaries, issued $1.0 billion aggregate principal amount of its 11 ¹/2% Senior Secured Notes due 2015 (the “11 ¹/2% Senior Secured Notes”) under an indenture. The proceeds, net of original issue discount, were approximately $963.6 million. Concurrently with the issuance of the 11 ¹/2% Senior Secured Notes, we sold 52,272,727 ordinary shares, including the underwriter’s over-allotment of 6,818,182 ordinary shares, for approximately $54.3 million in net proceeds.

2. Basis of Presentation and Significant Accounting Policies

The accompanying interim consolidated financial information as of September 30, 2010 and for the three and nine months ended September 30, 2010 and 2009 has been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) and include our accounts and those of our majority owned subsidiaries. All significant intercompany transactions and accounts have been eliminated. They reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of the financial position and results of operations for the interim periods, on a basis consistent with the annual audited financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to such rules and regulations, although we believe that the disclosures made are adequate to provide for fair presentation. The balance sheet at December 31, 2009 is derived from our December 31, 2009 audited financial statements. These interim financial statements should be read in conjunction with the financial statements and the notes thereto, included in our Annual Report on Form 10-K for the year ended December 31, 2009. 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. Certain previously reported amounts have been reclassified to conform to the current year presentation.

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

Restricted Cash: Consists of cash and cash equivalents established as debt reserves and escrowed cash held for the final payment due upon completion of construction of thePlatinum Explorer.

Inventory: Consists of materials, spare parts, consumables and related supplies for our drilling rigs and is carried at average cost.

Property and Equipment: Consists of the values of our drilling rigs, furniture and fixtures, computer equipment and capitalized costs for computer software. Drilling rigs are depreciated on a component basis over estimated useful lives ranging from five to thirty-five years on a straight-line basis as of the date placed in service. Other assets are depreciated upon placement in service over estimated useful lives ranging from three to seven years on a straight-line basis. When assets are sold, retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts and the gain or loss is recognized.

Interest costs related to the financings of our jackups and the amortization of debt financing costs have been capitalized as part of the cost of the respective jackups while they were under construction. We completed our jackup construction program in the first quarter of 2010. Interest costs are capitalized as part of the cost of thePlatinum Explorerwhile the drillship is under construction. Total interest and amortization costs capitalized for the three and nine months ended September 30, 2010 were $17.1 million and $22.1 million, respectively. For the three and nine months ended September 30, 2009, we capitalized interest and amortization costs of $7.3 million and $15.1 million, respectively.

9

VANTAGE DRILLING COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

We evaluate the realization of property and equipment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss on our property and equipment exists when estimated undiscounted cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount. Any impairment loss recognized represents the excess of the asset’s carrying value over the estimated fair value.

Debt Financing Costs:Costs incurred with debt financings are deferred and amortized over the term of the related financing facility.

Revenue: Revenue is recognized as services are performed based on contracted dayrates and the number of operating days during the period.

In connection with a customer contract, we may receive lump-sum fees for the mobilization of equipment and personnel. Mobilization fees and costs incurred to mobilize a rig from one geographic market to another are deferred and recognized on a straight-line basis over the term of such contract, excluding any option periods. Costs incurred to mobilize a rig without a contract are expensed as incurred. Fees or lump-sum payments received for capital improvements to rigs are deferred and amortized to income over the term of the related drilling contract. The costs of such capital improvements are capitalized and depreciated over the useful lives of the assets.

We record reimbursements from customers for rebillable costs and expenses as revenue and the related direct costs as operating expenses.

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

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

Earnings per Share: Basic earnings (loss) per share have been based on the weighted average number of ordinary shares outstanding during the applicable period. Diluted income per share has been computed based on the weighted average number of ordinary shares and ordinary share equivalents outstanding in the applicable period, as if all potentially dilutive securities were converted into ordinary shares (using the treasury stock method).

The following is a reconciliation of the number of shares used for the basic and diluted earnings (loss) per share (“EPS”) computations:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2010		2009		2010		2009
	(In thousands)
Weighted average ordinary shares outstanding for basic EPS		272,609		132,268		244,614		102,766
Options		—		—		—		—
Warrants		—		—		—		—
Adjusted weighted average ordinary shares outstanding for diluted EPS		272,609		132,268		244,614		102,766

The calculation of diluted weighted average ordinary shares outstanding excludes 42.8 million ordinary shares for both the three and nine months ended September 30, 2010 and 48.5 million ordinary shares for both the three and nine months ended September 30, 2009, respectively, issuable pursuant to outstanding warrants or stock options because their effect is anti-dilutive as the exercise price of such securities exceeded the average market price of our shares for the applicable periods.

10

VANTAGE DRILLING COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Concentration of Credit Risk: Financial instruments that potentially subject us to a significant concentration of credit risk consist primarily of cash and cash equivalents and restricted cash. We maintain deposits in federally insured financial institutions in excess of federally insured limits. We monitor the credit ratings and our concentration of risk with these financial institutions on a continuing basis to safeguard our cash deposits. Some of our restricted cash is invested in certificates of deposits.

Share-Based Compensation:We account for employee share-based compensation using the fair value method as prescribed under U.S. GAAP. Restricted share grants are valued based on the market price of our ordinary shares on the date of grant and the fair value attributable to share options is calculated based on the Black-Scholes option pricing model. The fair values are amortized to expense over the service period which is equivalent to the time required to vest the share options and share grants. We recognized approximately $1.5 million of share-based compensation expense for the three months ended September 30, 2010 as compared to $1.2 million of share-based compensation expense, in the three months ended September 30, 2009. For the nine months ended September 30, 2010 and 2009, we recognized share-based compensation expense of $4.6 million and $3.4 million, respectively.

Use of Estimates: The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. While management believes current estimates are appropriate and reasonable, actual results could differ from those estimates.

Fair Value of Financial Instruments: The fair value of our short-term financial assets and liabilities approximates the carrying amounts represented in the balance sheets principally due to the short-term or floating rate nature of these instruments. The Aquamarine Term Loan bears cash interest at 15% per annum and will mature September 3, 2014. In addition to the cash interest, the debt incurs pay-in-kind interest which accretes the value of the debt to $140.0 million at maturity. We believe the carrying amount of the Aquamarine Term Loan approximates its current fair value. The 11 ¹/2% Senior Secured Notes issued in July 2010 were issued at a price equal to 96.361% of their face value and the original issue discount, reported as a direct deduction from the face amount of the notes, will be recognized over the life of the notes using the effective interest rate method. As of October 29, 2010, the 11 ¹/2% Senior Secured Notes were trading at approximately 106% of their par value, indicating a fair value of $1.06 billion. The F3 Capital Note has a contingent convertible feature which is subject to shareholder vote. Accordingly, we have valued the note without the conversion feature and determined, based on our cost of capital, a fair value of $27.8 million.

Derivative Financial Instruments:We use derivative financial instruments to reduce our exposure to various market risks, primarily interest rate risk. We have documented policies and procedures to monitor and control the use of derivatives. We do not engage in derivative transactions for speculative or trading purposes. On July 30, 2010, in connection with the retirement of our credit facility we retired all of our outstanding interest rate hedges.

All derivatives are recorded on our consolidated balance sheet at fair value. Accounting for the gains and losses resulting from changes in the fair value of derivatives depends on the use of the derivative and whether it qualifies for hedge accounting in accordance with U.S. GAAP. For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive income and reclassified into earnings in the same line item associated with the forecasted transaction and in the period or periods during which the hedged transaction affects earnings. Our assessment for hedge effectiveness is formally documented at hedge inception, and we review hedge effectiveness and measure any ineffectiveness throughout the designated hedge period on at least a quarterly basis.

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VANTAGE DRILLING COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

3. Acquisitions and Management and Construction Supervision Agreements

Platinum Explorer Transaction

Purchase of Our Initial Interest in the Platinum Explorer

In September 2007, Mandarin, which was wholly-owned by F3 Capital, entered into a shipbuilding contract with Daewoo Shipbuilding & Marine Engineering Co. Ltd. (“DSME”) for the construction of the Platinum Explorer. In March 2008, we entered into a purchase agreement to acquire the Platinum Explorer from Mandarin. In November 2008, we agreed with F3 Capital to restructure our ownership interest in the Platinum Explorer through the purchase of a 45.0% ownership interest in Mandarin for consideration of cash and issuance of warrants to purchase up to 1,983,471 of our ordinary shares. $40.0 million that had been previously paid to Mandarin and F3 Capital pursuant to an interim agreement was credited toward the cash purchase price at the time of the restructuring. Additionally, F3 Capital exercised warrants, which were issued in connection with our acquisition of OGIL, in June 2008, to acquire 25.0 million ordinary shares, and we applied the proceeds from the exercise to pay the balance of the cash purchase price. The transactions were treated as one integrated transaction with an aggregate fair value of approximately $44.0 million.

Purchase of F3 Capital’s Interest in Mandarin and Issuance of F3 Capital Note

Share Sale and Purchase Agreement

On July 6, 2010, we entered into a Share Sale and Purchase Agreement (“SSPA”) with F3 Capital to purchase the remaining 55% interest in Mandarin for total consideration of $139.7 million, consisting of $79.7 million in cash and a promissory note in the amount of $60.0 million. The cash consideration was reduced by approximately $64.2 million for the third and fourth installment payments that were paid by us directly to DSME for the construction of thePlatinum Explorer. The SSPA contained customary representations and warranties for both us and F3 Capital.

We applied purchase accounting to the acquisition of the 55% interest in Mandarin which required us to record all of the assets acquired and the liabilities assumed at their fair value. We performed our evaluation analysis, including making various estimates of and assumptions with respect to the market value of the assets acquired and comparing the net present value of cash flows associated with comparable assets and contracting opportunities. Additionally, to support our analysis, we reviewed the evaluation work of the investment bank retained by our Board of Directors to provide a fairness opinion on the transaction. Based on the initial assessment of the transaction, we determined that the transaction constituted a bargain purchase resulting in a $12.3 million gain on the transaction. This assessment also resulted in remeasurement of the carrying value of the assets on our books resulting in a $16.1 million impairment charge. The bargain purchase gain and the impairment loss are both recorded in other income and expense in the consolidated statement of operations.

F3 Capital Note

The F3 Capital Note bears interest at the rate of 5% per annum, accruing and compounding daily, and will mature 90 months from the issue date. The F3 Capital Note will become convertible into our ordinary shares upon approval by our shareholders. If shareholders approve the proposal, the principal amount of the F3 Capital Note will be convertible into our ordinary shares at a conversion price of $1.10 per share, subject to customary anti-dilution covenants. There is also a preemptive right covenant that provides F3 Capital with the right to purchase a pro-rata portion of any equity or convertible debt that we offer so long as the F3 Capital Note is outstanding.

If the F3 Capital Note becomes convertible, any principal amount that F3 Capital elects to convert will be reduced by any amounts owed by F3 Capital to Vantage International Management Company or Vantage Deepwater Company (“Vantage Deepwater”). If we do not repay the F3 Capital Note on its scheduled maturity date or upon the occurrence of certain customary default provisions, the interest rate on any amounts outstanding under the F3 Capital Note will rise to 10% per annum.

Registration Rights Agreement

We also entered into a registration rights agreement with F3 Capital in connection with the SSPA. Under the terms of the registration rights agreement, we agreed to register the ordinary shares issuable upon the conversion of the F3 Capital Note if it becomes convertible, as well as certain other shares previously issued to F3 Capital and approved by shareholders in December 2009. Under the terms of the registration rights agreement, F3 Capital has piggyback registration rights should we propose to file a registration statement under the Securities Act of 1933, as amended (other than on Forms S-4 or S-8). In addition, F3 Capital has the right to demand that we register all of the ordinary shares covered by the registration rights agreement.

12

VANTAGE DRILLING COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Call Option Agreement

In connection with the transactions contemplated by the SSPA, we entered into a call option agreement with Valencia Drilling Corporation (“Valencia”), an affiliate of F3 Capital. Pursuant to the terms of the call option agreement, we granted Valencia the option to purchase Vantage Deepwater, one of our wholly owned subsidiaries, from us for total consideration of $1.00. Vantage Deepwater is the party to our drilling contract with Petrobras. The option granted to Valencia under the call option agreement may only be exercised upon the earlier of: (a) completion of construction, outfitting and delivery of theDragonquestor (b) completion of financing for $125.0 million or more of the unfunded construction cost for theDragonquest. In order to exercise the option, Valencia must have paid all amounts owed to us under the construction supervision and management agreements related to theDragonquestand enter into arrangements to ensure that we receive an amount equal to all management fees that we would have otherwise been entitled to under the management services agreement for theDragonquest, with such amounts being paid to us as if Valencia had never exercised its rights under the call option agreement. The option granted to Valencia will also terminate, if not earlier exercised by Valencia (a) approximately three months prior to delivery of theDragonquest or (b) upon the occurrence of specified defaults. Upon the occurrence of any default by Valencia within five years after the date of the call option agreement, Valencia shall be required to convey back to us the Vantage Deepwater shares and put us back in the same economic position with respect to Vantage Deepwater as we were in prior to our conveyance of the Vantage Deepwater shares to Valencia pursuant to the option.

Dragonquest Financing Agreement

In connection with the transactions contemplated by the SSPA, we, F3 Capital, Vantage Deepwater and Titanium Explorer Company (“Titanium”), another of our wholly-owned subsidiaries, entered into a financing agreement with Valencia regarding theDragonquest. Under the terms of the financing agreement, we will take specified measures to facilitate the financing of theDragonquest, although such measures do not include the incurrence of additional debt, the issuance of any guarantees or the pledge of our assets. We have also agreed, if requested by Valencia or a third party financier, to assist Valencia in providing collateral in order to procure financing for theDragonquest, including novating the drilling contract with Petrobras and deferring up to 75% of the fees payable under the management agreement. If any management fees are deferred, such deferred fees will be payable annually with interest of 8%, and any deferred fees may be paid in cash or ordinary shares of Valencia, at Valencia’s election. Further, pursuant to the financing agreement, we will defer Valencia’s payment of construction management fees due to Titanium under the construction management agreement between Titanium and Valencia from July 6, 2010, until the delivery date of theDragonquest. Upon the occurrence of any default by Valencia within eight years after the date of the financing agreement, we shall have the option (subject to certain exceptions) to purchase all of the issued and outstanding shares of Valencia from F3 Capital.

Payment for the Platinum Explorer

The total shipyard construction price for the Platinum Explorer is approximately $630.0 million, payable in four installments of approximately $31.2 million each and the balance of approximately $504.0 million upon delivery. DSME had deferred the third and fourth installment payments, which were F3 Capital obligations, until July 30, 2010. The deferral agreement provided for the payment of interest at the rate of 6% per annum on the deferred obligations and protection against fluctuations in exchange rates. We paid these installment payments totaling $64.2 million directly to DSME on July 30, 2010 in connection with the acquisition of 55% of Mandarin. Additionally, we have escrowed approximately $510.8 million for the final payment due upon delivery of thePlatinum Explorer, including the expected exchange rate fluctuations on the third and fourth installment payments that are due at delivery of thePlatinum Explorer. At the closing of the SSPA, F3 Capital agreed to retain the liability for the $5.8 million in expected exchange rate charges and to discharge this obligation to DSME. We have issued a formal request to F3 Capital that it pay this amount to DSME or otherwise discharge this obligation prior to our making the final shipyard payment to DSME for thePlatinum Explorer. Subsequent to September 30, 2010, we received notification from DSME that F3 Capital had discharged the obligation for expected exchange rate charges. Additionally, in connection with the closing, we reclassified $8.1 million recorded as a receivable from F3 Capital as of July 30, 2010 to property and equipment. We had previously incurred or paid this amount for equipment, project engineering, management fees and startup costs under the construction supervision agreement for thePlatinum Explorer.As of September 30, 2010, we estimate there is $102.0 million (including approximately $80.4 million incurred or committed as of September 30, 2010) of additional development expenditures for operator furnished equipment, capital spares and equipment, commissioning expenses and crew and other costs necessary to equip and commission thePlatinum Explorerfor service.

13

VANTAGE DRILLING COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Drillship Construction Supervision Agreements

We have construction supervision agreements that entitle us to payments for supervising the construction of the DragonquestandCobalt Explorer. The counterparties in each of these agreements are affiliates of F3 Capital. During the construction of each of these drillships, these agreements entitle us to receive a fee of $5.0 million per drillship annually, prorated to the extent construction is completed mid-year. In addition to our annual fee, we will be reimbursed for all direct costs incurred in the performance of construction oversight services. These agreements may be terminated by either party upon the provision of notice. As of September 30, 2010, we are owed $7.6 million on theDragonquestfor construction services rendered by us, including approximately $1.3 million of construction management fees deferred until the delivery date of theDragonquest. As we have not been paid the remaining outstanding amounts of $6.3 million, we have limited purchases of equipment and other items for theDragonquestand have curtailed crewing the drillship until the outstanding balance is paid. In August 2010, we issued a demand letter to Valencia regarding payment of the overdue amounts and advancing the necessary funds so that we may place orders for required equipment. Subsequent to September 30, 2010, we received payments of $5.8 million on the $6.3 million outstanding amount. We will continue to pursue all remedies, including legal remedies, to collect the remaining outstanding amounts.

In September 2009, North Pole Drilling Corporation (“North Pole”), an affiliate of F3 Capital, and DSME agreed to suspend construction activities on theCobalt Explorer for one year. Consequently we agreed with North Pole to suspend for a corresponding period of time obligations under our agreement with North Pole to provide construction supervision services. As of September 30, 2010, this suspension period has expired and the parties have not recommenced construction supervision services in connection with theCobalt Explorer. The management fee revenue of approximately $3.0 million for construction services rendered by us in 2009 prior to the suspension has not been paid as of September 30, 2010 and remains currently due and payable. We will continue to pursue all remedies, including legal remedies, to collect this outstanding amount.

On July 21, 2010, we signed a definitive agreement to supervise and manage the construction and marketing of the
ultra-deepwater drillship theDalian Developer. The owner of this drillship awarded us a management agreement to supervise and manage the construction, commissioning and marketing of theDalian Developer,pursuant to which, we are receiving management fees and reimbursable costs during the construction phase of the drillship.

Drillship Management Agreements

We have an agreement to manage the operations of theDragonquest. Once theDragonquestis operational, the agreement entitles us to receive a fixed fee per day plus a performance fee based on the operational performance of the drillship and marketing fees for every charter agreement we secure on behalf of theDragonquest.Our counterparty to the agreement may terminate their obligations under the agreement if any of the following occur: (i) we fail to meet our obligations under the agreement after being given notice and time to cure; (ii) we go into liquidation or cease to carry on our business; (iii) theDragonquest is damaged to the point of being inoperable; or (iv) theDragonquestis sold and no outstanding payments are owed to us. Our counterparty may terminate the agreement at will only if there are no outstanding bids, proposals or contractual commitments to customers.

14

VANTAGE DRILLING COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Semisubmersible Management Agreements

We have agreements to manage the construction and operations of two semisubmersibles, theSeaDragon I and theSeaDragon II. These agreements are for an indefinite term, and continue until terminated by either party in accordance with the terms of the arrangement. Pursuant to these agreements, we are entitled to receive a fee of $5.0 million per year per unit, payable in monthly installments, while the semisubmersibles are under construction. During the construction of the semisubmersibles, the owner may terminate the agreements upon the occurrence of any certain specified events. However, either party may terminate the agreements at any time on seven days notice. Once theSeaDragon I is operational, we are entitled to a fixed fee per day and a performance fee based on the operational performance of the unit. During the operation of the semisubmersibles, the owner may terminate the agreements at any time on thirty days notice. TheSeaDragon I will be delivered later than the scheduled drilling contract commencement date which may have given the customer the right to terminate its arrangement with the owner of theSeaDragon I. The owner and customer are currently discussing resolutions to the contractual issues.

4. Debt

Short-term Debt

In January 2010, we issued 14,577,435 ordinary shares to F3 Capital in settlement of a total of $14,000,000 of short-term debt and related accrued interest. Shareholders had previously approved the settlement in December 2009. Additionally, we paid $1.6 million in charges related to the conversion of the short-term notes.

As of September 30, 2010, we had short-term debt of approximately $1.0 million related to our financing of rig insurance premiums. These notes had annual interest rates of 3.97%.

Long-term Debt

As of September 30, 2010, our long-term debt was composed of the following:

	September 30,		December 31,
	2010		2009
	(Unaudited)
	(In thousands)
11 1/2% Senior Secured Notes, net of discount of $35,136	$	964,864	$	—
Aquamarine Term Loan		105,604		101,638
Credit Agreement:
Emerald Driller term loan		—		73,461
Emerald Driller revolving loan		—		10,000
Sapphire Driller term loan		—		78,000
13 1/2% Senior Secured Notes, net of discount of $4,021		—		130,979
F3 Capital note, net of discount of $31,429		28,571		—
		1,099,039		394,078
Less current maturities of long-term debt		—		(16,000	)
Long-term debt	$	1,099,039	$	378,078

Aquamarine Term Loan

In September 2009, one of our wholly-owned subsidiaries entered into a loan with a lender for $100.0 million (the “Aquamarine Term Loan”). The Aquamarine Term Loan bears cash interest at 15% per annum and will mature September 3, 2014. In addition to the cash interest, the Aquamarine Term Loan incurs pay-in-kind interest which accretes the value of the Aquamarine Term Loan to $140.0 million at maturity. We have two options to purchase the Aquamarine Term Loan from the lender, so long as no event of default has occurred and is continuing: (i) between September 1, 2011 and August 31, 2012, we may purchase the Aquamarine Term Loan for $127.5 million plus all accrued and unpaid cash interest due; and (ii) between September 1, 2012 and August 31, 2014, we may purchase the Aquamarine Term Loan for $140.0 million plus all accrued and unpaid cash interest due. The lender holds a first priority security interest in theAquamarine Driller and is entitled to an assignment of certain of our rights under any contracts relating to theAquamarine Driller. The Aquamarine Term Loan has a variety of covenants, including a financial covenant debt service coverage test at the wholly-owned subsidiary level, and administrative reporting requirements. We believe we were in compliance with all financial covenants of the Aquamarine Term Loan at September 30, 2010. As of September 30, 2010, we had $26.9 million in escrow to fund future interest payments, as well as operational and maintenance costs related to theAquamarine Driller. The subsidiary that owns theAquamarine Drillerwas restricted from making any cash distributions until September 20, 2010.

15

VANTAGE DRILLING COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

11 ¹/2% Senior Secured Notes

On July 30, 2010, OGIL issued $1.0 billion aggregate principal amount of its 11 ¹/2% Senior Secured Notes under an indenture. The notes were issued at a price equal to 96.361% of their face value, and are fully and unconditionally guaranteed, on a senior secured basis, by us. The original issuance discount, reported as a direct deduction from the face amount of the notes, will be recognized over the life of the notes using the effective interest rate method. The yield to maturity interest rate is 12.5%. The notes will mature on August 1, 2015. The notes bear interest from the date of their issuance at the rate of 11.5% per year. Interest on outstanding notes will be payable semi-annually in arrears, commencing on February 1, 2011.

The proceeds after deducting the original issue discount, underwriters’ discount, fees and expenses was approximately $931.9 million, of which $79.7 million was used to complete the Mandarin acquisition (including $64.2 million paid directly to the shipyard for payments on thePlatinum Explorer) , $510.8 million was placed in escrow to fund the remaining construction payments for thePlatinum Explorer, $145.2 million was used to retire our credit facility (including $672,000 of prepayment fees) and $144.2 million was used to retire the 13 ¹/2% Senior Secured Notes (including prepayment fees and accrued interest). The remaining proceeds are available for general corporate purposes.

In connection with the 11 ¹/2% Senior Secured Notes offering, we retired the 13 ¹/2% Senior Secured Notes and reorganized certain of our subsidiaries such that theEmerald Driller, Sapphire Driller, Topaz Drillerand Platinum Explorerwould each be owned by subsidiaries of OGIL. The 11 ¹/2% Senior Secured Notes will be secured on a first lien basis on each of these assets and any other current or future assets of OGIL.

The notes may be redeemed, in whole or in part at specified redemption prices plus accrued and unpaid interest on the notes redeemed. If a change of control, as defined in the indenture, occurs, each holder of notes will have the right to require the repurchase of all or any part of its notes at a price equal to 101% of their principal amount, plus accrued and unpaid interest to the date of repurchase. Upon the occurrence of certain events, we will be required to redeem notes equal in principal amount to the approximately $575.0 million of net proceeds reserved for the remaining construction payments at a redemption price equal to 100% of the principal amount thereof, plus accrued and unpaid interest to the date of redemption.

The indenture governing the notes, among other things, limits the issuer of the notes and any future restricted subsidiaries’ ability, and in certain cases, our ability to: (i) incur or guarantee additional indebtedness or issue disqualified capital stock; (ii) create or incur liens; (iii) pay dividends, redeem subordinated indebtedness or make other restricted payments; (iv) transfer or sell assets; (v) incur dividend or other payment restrictions affecting restricted subsidiaries; (vi) consummate a merger, consolidation or sale of all or substantially all of our assets or those of OGIL; (vii) enter into transactions with affiliates; (viii) designate subsidiaries as unrestricted subsidiaries; (ix) engage in businesses other than a business that is the same or similar to the current business and reasonably related businesses; and (x) take or omit to take any actions that would adversely affect or impair in any material respect the collateral securing the notes. As of the issue date, there were no restricted subsidiaries. Our future subsidiaries may become restricted subsidiaries and guarantors under limited circumstances.

5. Shareholders’ Equity

Preferred Shares

In December 2009, our shareholders approved a proposal to amend our Memorandum and Articles of Association to increase our authorized preferred shares from 1,000,000 preferred shares, par value $0.001 per share, to 10,000,000 preferred shares, par value $0.001 per share. As of September 30, 2010, no preferred shares were issued and outstanding.

16

VANTAGE DRILLING COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Ordinary Shares

In January 2010, we sold 30,000,000 ordinary shares in a public offering at $1.49 per share. The net proceeds, after underwriters’ discount and commissions and offering expenses, of approximately $41.8 million, were used for general corporate purposes, including capital expenditures related to our drilling fleet and working capital, including pre-funding advances for operating expenses and interest on the Aquamarine Term Loan.

In February 2010, in connection with the public offering, the underwriter exercised its over-allotment option and purchased 4,150,000 additional ordinary shares. The net proceeds, after underwriter’s discount and commissions, of $5.8 million were also used for working capital and general corporate purposes.

In July 2010, in connection with the 11 ¹/2% Senior Secured Notes offering, we sold 52,272,727 ordinary shares, including the underwriter’s over-allotment of 6,818,182 ordinary shares, for approximately $54.3 million in net proceeds. The net proceeds from the equity offering are available for general corporate purposes.

During the nine months ended September 30, 2010, we granted 429,960 restricted shares to employees under our 2007 Long-Term Incentive Plan (the “LTIP”). These restricted share awards vest ratably over four years and are amortized to expense over the vesting period based on the fair value of the awards at the grant dates, which was approximately $657,000, based on an average share price of $1.53 per share. In the nine months ended September 30, 2010, we issued 838,966 ordinary shares pursuant to vesting of previously granted LTIP stock awards.

6. Income Taxes

Income taxes have been provided based on the laws and rates in effect in the countries in which operations are conducted, or in which we or our subsidiaries are considered resident for income tax purposes. We are subject to the jurisdiction of numerous domestic and foreign tax authorities, as well as to tax agreements and treaties among various governments. Our operations in these different jurisdictions are taxed on various bases including, (i) actual income before taxes, (ii) deemed profits (which are generally determined using a percentage of revenue) and (iii) withholding taxes based on revenue. Determination of taxable income in any jurisdiction requires the interpretation of the related tax laws and regulations and the use of estimates and assumptions regarding significant future events, such as the amount, timing and character of deductions, permissible revenue recognition methods under the tax law and the sources and character of income and tax credits. Changes in tax laws, regulations, agreements and treaties, foreign currency exchange restrictions or our level of operations or profitability in each tax jurisdiction could have an impact upon the amount of income taxes that we provide during any given year. Our tax filings for various periods may be subjected to examination by tax authorities in the jurisdictions in which we operate. These examinations may result in assessments of additional taxes that are resolved with the authorities or through the courts. Resolution of these matters involves uncertainties and there are no assurances as to the outcome.

We account for income taxes pursuant to ASC 740,Accounting for Income Taxes, which requires recognition of deferred income tax assets and liabilities for the expected future tax consequences of events that have been recognized in our financial statements or tax returns. We provide for deferred taxes on temporary differences between the financial statements and tax bases of assets using the enacted tax rates which are expected to apply to taxable income when the temporary differences are expected to reverse.

Deferred income taxes reflect the impact of temporary differences between the amount of assets and liabilities recorded under U.S. GAAP and the applicable income tax statutes and regulations in the jurisdictions in which we operate. Deferred tax liabilities consist primarily of the difference between book and tax basis of depreciable assets. Book basis in excess of tax basis for property and equipment primarily results from differing methodologies for recording property costs and depreciation and amortization under U.S. GAAP and the tax provisions in the jurisdictions in which we operate. Deferred tax assets are also provided for certain tax credit carryforwards. A valuation allowance to reduce deferred tax assets is established when it is more likely than not that some portion or all of the deferred tax assets will not be realized.

Our tax provision for the nine month period ended September 30, 2010 contains adjustments related to certain tax positions. The positions consisted primarily of company formation, intercompany transfer pricing issues, and distributions associated with one of our subsidiaries for 2007 and 2008. Additionally, we recognized $2.3 million related to the reversal of a deferred tax asset recorded in 2009. We have evaluated the reversal and have determined both quantitatively and qualitatively, the reversal does not have a material impact on current and previously reported results.

17

VANTAGE DRILLING COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

7. 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.

In September 2009, F3 Capital asserted that we had breached agreements and understandings with F3 Capital regarding the maximum number of ordinary shares we would sell in our public offering in August 2009. F3 Capital indicated that it believed that it was damaged by the issuance of shares in excess of this amount. We disagree with F3 Capital’s assertions. We have worked to resolve these matters with F3 Capital and believe that we have done so to each party’s satisfaction, although no assurances can be given as to the ultimate resolution of this dispute.

On December 8, 2009, we received a letter from Pritchard Capital Partners, LLC (“Pritchard Capital”) claiming, pursuant to an engagement letter among us, OGIL and Pritchard Capital that it had the right to participate in the offering of the 13 ¹/2% Senior Secured Notes and to receive at least thirty percent of the fees the initial purchasers would receive. We did not pay any fees to Pritchard Capital, and we do not believe that Pritchard Capital was entitled to any fees, in connection with that offering. If Pritchard Capital makes a claim, we intend to vigorously defend ourselves.

8. Supplemental Financial Information

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following:

	September 30,		December 31,
	2010		2009
	(Unaudited)
	(In thousands)
Prepaid insurance	$	1,715	$	4,217
Income tax receivable		—		2,096
Sales tax receivable		—		1,177
Other receivables		86		230
Other prepaid expenses		516		320
	$	2,317	$	8,040

Property and Equipment

Property and equipment consisted of the following:

	September 30,			December 31,
	2010			2009
	(Unaudited)
	(In thousands)
Drilling equipment	$	911,847		$	439,712
Assets under construction		291,001			456,529
Leasehold improvements		972			492
Office and technology equipment		3,294			2,808
		1,207,114			899,541
Accumulated depreciation		(35,940	)		(11,329	)
Property and equipment, net	$	1,171,174		$	888,212

Interest costs related to the financings of our jackups and the amortization of debt financing costs were capitalized as part of the cost of the respective jackups while they were under construction. We completed our jackup construction program in the first quarter of 2010. Interest costs are capitalized as part of the cost of thePlatinum Explorerwhile the drillship is under construction. Total interest and amortization costs capitalized for the three and nine months ended September 30, 2010 were $17.1 million and $22.1 million, respectively. For the three and nine months ended September 30, 2009, we capitalized interest and amortization costs of $7.3 million and $15.1 million, respectively.

18

VANTAGE DRILLING COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Other Assets

Other assets consisted of the following:

	September 30, 2010		December 31, 2009
	(Unaudited)
	(In thousands)
Deferred financing costs, net	$	34,915	$	18,935
Performance bond collateral		18,243		8,000
Income tax receivable		1,362		—
Deferred income taxes		—		1,624
Deposits		1,361		882
	$	55,881	$	29,441

Accrued Liabilities

Accrued liabilities consisted of the following:

	September 30, 2010		December 31, 2009
	(Unaudited)
	(In thousands)
Interest	$	20,326	$	621
Compensation		10,821		10,687
Property, service and franchise taxes		1,610		1,621
Income taxes payable		4,038		868
Other		242		488
	$	37,037	$	14,285

9. Business Segment Information

Our business activities relate to the operations of our four jackup rigs and providing construction supervision services in Singapore and South Korea for drilling units owned by others.

For the three and nine months ended September 30, 2010 and 2009, all of our revenue was from countries outside of the United States. Consequently, we are exposed to the risk of changes in economic, political and social conditions inherent in foreign operations. Five customers accounted for approximately 26%, 24%, 18%, 13% and 13%, respectively, of consolidated revenue for the three months ended September 30, 2010. For the nine months ended September 30, 2010, five customers accounted for 22%, 21%, 14%, 11% and 11%, respectively, of consolidated revenue. Three customers accounted for approximately 44%, 27% and 17%, respectively of consolidated revenue for the three months ended September 30, 2009. For the nine months ended September 30, 2009, three customers accounted for 48%, 19% and 12%, respectively, of consolidated revenue.

10. Supplemental Condensed Consolidating Financial Information

In July 2010, OGIL (the “Issuer”), a wholly-owned subsidiary, issued $1.0 billion aggregate principal amount of 11 ¹/2% Senior Secured Notes under an indenture. The notes are fully and unconditionally guaranteed, jointly and severally, on a senior secured basis by (i) us and (ii) any future restricted subsidiaries. None of our other subsidiaries will guarantee or pledge assets to secure the notes (collectively, the “Non-Guarantor Subsidiaries”).

The following tables present the condensed, consolidating financial information as of September 30, 2010 and 2009 and for the three and nine months ended September 30, 2010 and 2009, of (i) us, (ii) the Issuer, (iii) the Subsidiary Guarantors, (iv) the Non-Guarantor Subsidiaries and (v) consolidating and elimination entries representing adjustments to eliminate (a) investments in our subsidiaries and (b) intercompany transactions.

19

VANTAGE DRILLING COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The financial information as of and for the nine months ended September 30, 2010 and 2009 reflect all adjustments which are, in management’s opinion, necessary for a fair presentation of the financial position and results of operations for the three and nine months then ended.

Condensed Consolidating Balance Sheet (in thousands)

	As of September 30, 2010
	Parent			Issuer			Subsidiary Guarantors		Non- Guarantors		Eliminations			Consolidated
Cash and cash equivalents	$	95,009		$	5,537		$	10,344	$	5,654	$	—		$	116,544
Other current assets		479			—			548,850		57,457		—			606,786
Total current assets		95,488			5,537			559,194		63,111		—			723,330
Property and equipment, net		387			—			939,183		231,604		—			1,171,174
Investment in and advances to subsidiaries		488,170			424,451			2,545		63,954		(979,120	)		—
Investment in joint venture		—			—			—		—		—			—
Other assets		6			30,659			18,562		6,654		—			55,881
Total assets	$	584,051		$	460,647		$	1,519,484	$	365,323	$	(979,120	)	$	1,950,385
Accounts payable and accrued liabilities	$	3,296		$	19,806		$	15,807	$	29,124	$	—		$	68,033
Short-term debt		1,028			—			—		—		—			1,028
Current maturities of long-term debt		—			—			—		—		—			0
Intercompany (receivable) payable		(263,577	)		(1,004,407	)		1,038,505		229,479		—			—
Total current liabilities		(259,253	)		(984,601	)		1,054,312		258,603		—			69,061
Long-term debt		28,571			964,864			—		105,604		—			1,099,039
Other long term liabilities		—			—			—		716		—			716
Shareholders’ equity (deficit)		814,733			480,384			465,172		400		(979,120	)		781,569
Total liabilities and shareholders’ equity	$	584,051		$	460,647		$	1,519,484	$	365,323	$	(979,120	)	$	1,950,385

Condensed Consolidating Statement of Operations (in thousands)

	Three Months Ended September 30, 2010
	Parent			Issuer			Subsidiary Guarantors			Non- Guarantors			Consolidated
Revenues	$	—		$	—		$	36,812		$	30,095		$	66,907
Operating costs and expenses		5,717			—			26,584			24,343			56,644
Income (loss) from operations		(5,717	)		—			10,228			5,752			10,263
Other income (expense)		(5,023	)		(4,977	)		(25,806	)		(5,273	)		(41,079	)
Income (loss) before income taxes		(10,740	)		(4,977	)		(15,578	)		479			(30,816	)
Income tax provision (benefit)		—			—			1,783			982			2,765
Net income (loss)	$	(10,740	)	$	(4,977	)	$	(17,361	)	$	(503	)	$	(33,581	)

20

VANTAGE DRILLING COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Condensed Consolidating Statement of Operations (in thousands)

	Nine Months Ended September 30, 2010
	Parent			Issuer			Subsidiary Guarantors			Non- Guarantors			Consolidated
Revenues	$	—		$	—		$	104,643		$	88,868		$	193,511
Operating costs and expenses		14,176			22			73,439			65,623			153,260
Income (loss) from operations		(14,176	)		(22	)		31,204			23,245			40,251
Other income (expense)		(5,085	)		(4,977	)		(36,913	)		(14,455	)		(61,430	)
Income (loss) before income taxes		(19,261	)		(4,999	)		(5,709	)		8,790			(21,179	)
Income tax provision (benefit)		1,438			—			5,101			6,896			13,435
Net income (loss)	$	(20,699	)	$	(4,999	)	$	(10,810	)	$	1,894		$	(34,614	)

Condensed Consolidating Statement of Cash Flow (in thousands)

	Nine Months Ended September 30, 2010
	Parent			Issuer			Subsidiary Guarantors			Non- Guarantors			Consolidated
Net cash used in operating activities	$	(6,672	)	$	17,118		$	7,431		$	(5,706	)	$	12,171
Net cash used in investing activities		(319	)		—			(644,617	)		(3,010	)		(647,946	)
Net cash provided by financing activities		101,999			(11,582	)		637,157			8,753			736,327
Net increase in cash and cash equivalents		95,008			5,536			(29	)		37			100,552
Cash and cash equivalents—beginning of period		1			1			10,373			5,617			15,992
Cash and cash equivalents—end of period	$	95,009		$	5,537		$	10,344		$	5,654		$	116,544

Condensed Consolidating Balance Sheet (in thousands)

	As of September 30, 2009
	Parent			Issuer			Subsidiary Guarantors		Non- Guarantors			Eliminations			Consolidated
Cash and cash equivalents	$	15,109		$	101		$	16,602	$	8,858		$	—		$	40,670
Other current assets		578			—			49,258		10,470			—			60,306
Total current assets		15,687			101			65,860		19,328			—			100,976
Property and equipment, net		—			—			749,965		2,618			—			752,583
Investment in and advances to subsidiaries		485,470			424,451			—		63,954			(973,875	)		—
Investment in joint venture		—			—			—		101,891			—			101,891
Other assets		8,094			—			12,579		3,057			—			23,730
Total assets	$	509,251		$	424,552		$	828,404	$	190,848		$	(973,875	)	$	979,180
Accounts payable and accrued liabilities	$	762		$	—		$	14,501	$	15,868		$	—		$	31,131
Short-term debt		14,152			—			—		—			—			14,152
Current maturities of long-term debt		—			—			17,216		—			—			17,216
Intercompany (receivable) payable		(197,582	)		(60,830	)		66,010		192,402			—			—
Total current liabilities		(182,668	)		(60,830	)		97,727		208,270			—			62,499
Long-term debt		—			—			250,373		—			—			250,373
Shareholders’ equity (deficit)		691,919			485,382			480,304		(17,422	)		(973,875	)		666,308
Total liabilities and shareholders’ equity	$	509,251		$	424,552		$	828,404	$	190,848		$	(973,875	)	$	979,180

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VANTAGE DRILLING COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Condensed Consolidating Statement of Operations (in thousands)

	Three Months Ended September 30, 2009
	Parent			Issuer			Subsidiary Guarantors			Non- Guarantors		Consolidated
Revenues	$	—		$	—		$	23,720		$	12,726	$	36,446
Operating costs and expenses		2,084			9			12,063			12,626		26,782
Income (loss) from operations		(2,084	)		(9	)		11,657			100		9,664
Other income (expense)		(16	)		—			(1,965	)		183		(1,798	)
Income (loss) before income taxes		(2,100	)		(9	)		9,692			283		7,866
Income tax provision (benefit)		—			—			852			211		1,063
Net income (loss)	$	(2,100	)	$	(9	)	$	8,840		$	72	$	6,803

Condensed Consolidating Statement of Operations (in thousands)

	Nine Months Ended September 30, 2009
	Parent			Issuer			Subsidiary Guarantors			Non- Guarantors			Consolidated
Revenues	$	—		$	—		$	50,974		$	21,961		$	72,935
Operating costs and expenses		5,463			14			24,275			23,861			53,613
Income (loss) from operations		(5,463	)		(14	)		26,699			(1,900	)		19,322
Other income (expense)		(163	)		—			(3,842	)		330			(3,675	)
Income (loss) before income taxes		(5,626	)		(14	)		22,857			(1,570	)		15,647
Income tax provision (benefit)		—			—			2,132			402			2,534
Net income (loss)	$	(5,626	)	$	(14	)	$	20,725		$	(1,972	)	$	13,113

Condensed Consolidating Statement of Cash Flow (in thousands)

	Nine Months Ended September 30, 2009
	Parent			Issuer			Subsidiary Guarantors			Non- Guarantors			Consolidated
Net cash used in operating activities	$	(3,885	)	$	(14	)	$	17,363		$	(19,556	)	$	(6,092	)
Net cash used in investing activities		—			—			(103,024	)		(201,079	)		(304,103	)
Net cash provided by financing activities		18,968			(4,886	)		102,258			217,968			334,308
Net increase in cash and cash equivalents		15,083			(4,900	)		16,597			(2,667	)		24,113
Cash and cash equivalents—beginning of period		26			5,001			5			11,525			16,557
Cash and cash equivalents—end of period	$	15,109		$	101		$	16,602		$	8,858		$	40,670

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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 at September 30, 2010 and our results of operations for the three months and nine months ended September 30, 2010 and 2009. The discussion should be read in conjunction with the financial statements and the notes thereto, included in our Annual Report on Form 10-K for the year ended December 31, 2009. 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. Certain previously reported amounts have been reclassified to conform to the current year presentation.

Overview

We are an international drilling company focused on operating a fleet of high specification drilling units. Our primary business is to contract drilling units, related equipment and work crews primarily on a dayrate basis to drill oil and natural gas wells for our customers. We also provide construction supervision services for, and will operate and manage, drilling units owned by others. Through our fleet of nine owned and managed drilling units, we are a provider of offshore contract drilling services globally to major, national and independent oil and natural gas companies.

Our fleet includes four ultra-premium jackup rigs, three ultra-deepwater drillships and two deepwater semisubmersibles. The following table sets forth certain information concerning our owned and managed offshore drilling fleet as of October 29, 2010.

Name	Ownership			Year Built / Expected Delivery		Water Depth Rating (feet)		Drilling Depth Capacity (feet)		Status
Jackups
Emerald Driller		100	%		2008		375		30,000	Operating
Sapphire Driller		100	%		2009		375		30,000	Operating
Aquamarine Driller		100	%		2009		375		30,000	Operating
Topaz Driller		100	%		2009		375		30,000	Operating
Drillships
Platinum Explorer (1)		100	%		2010		12,000		40,000	Under construction
Dragonquest (2)		—			2011		12,000		40,000	Under construction
Dalian Developer (3)		—			2012		10,000		35,000	Under construction
Semisubmersibles (4)
SeaDragon I		—			2010		10,000		40,000	Under construction
SeaDragon II		—			2011		10,000		40,000	Under construction

(1) As of July 30, 2010, we own 100% of Mandarin Drilling Corporation, which owns thePlatinum Explorer.The Platinum Exploreris currently completing sea-trials, and after we take delivery in mid-November, it will be mobilized to India to commence operations.

(2) We are currently overseeing the construction of this drillship pursuant to a construction supervision agreement and upon completion of construction, we will operate this drillship for the owner pursuant to a management services agreement.

(3) We are currently supervising and managing the construction, commissioning and marketing of this multiservice drillship.

(4) We are currently overseeing the construction of these semisubmersibles. Upon completion of construction, we expect to operate these semisubmersibles for the owner pursuant to management services agreements.

Business Outlook

Expectations about future oil and natural gas prices have historically been a key driver for demand for our services. However, the availability of quality drilling prospects, exploration success, availability of qualified drilling rigs and operating personnel, relative production costs, availability and lead time requirements for drilling and production equipment, the stage of reservoir development and political and regulatory environments also affect our customers’ drilling programs. Beginning in 2008, the global financial crisis resulted in a reduction in global economic activity and a corresponding reduction in demand for oil and natural gas. The financial crisis also greatly reduced our customers’ access to capital to invest in both long- and short-term drilling programs. Oil prices, which were less than $40 per barrel in the first quarter of 2009, have risen to over $80 per barrel in 2010 and global economic activity has continued to recover.

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We believe the market for premium jackups has been improving since the third quarter 2009 and we believe it will continue to improve through the remainder of 2010 as operators continue to develop oil and gas reserves in response to improved oil and gas prices. The continued improvement in the premium jackup market will be subject to several factors including the additional deliveries of newbuild premium jackup rigs and the re-activation of older, less efficient rigs by our competitors which they may offer at lower rates to compete with the efficiencies of the premium rigs.

Deepwater and ultra-deepwater projects are typically more expensive and longer in duration than shallow-water drilling programs, which reduces the volatility of dayrates and utilization to short-term fluctuations in oil and natural gas prices and general economic conditions. Deepwater operators tend to take a longer-term view of the global economy and oil and natural gas prices. We believe the long-term fundamentals for demand for oil and natural gas support a significant increase in deepwater and ultra-deepwater development. This development is further supported by significant oilfield discoveries offshore Brazil and continued deepwater field development in the Gulf of Mexico, West Africa and India. In response to the global financial crisis limiting operators’ access to financing, we believe that many operators deferred or did not initiate development of many deepwater projects, which will delay the commencement of drilling operations.

We estimate there are approximately 15 deepwater rigs scheduled for delivery, but not yet contracted to customers, through 2012, which are negatively impacting dayrates in the market. Dayrates for deepwater and ultra-deepwater rigs have declined from their record highs in 2008.

In April 2010, a competitor operating in the U.S. Gulf of Mexico had a significant well control incident which resulted in the sinking of theDeepwater Horizon, an ultra-deepwater semisubmersible, and a significant oil spill. The cause of this well control incident is still under investigation. In response to this incident, the Bureau of Ocean Energy Management, Regulation and Enforcement of the U.S. Department of the Interior implemented a moratorium on certain drilling activities in the U.S. Gulf of Mexico, which was recently lifted. At this time, we cannot predict what other actions may be taken by the U.S. federal or state governments, or by any international governments, in response to this incident or what impact any such action may have on our operations or the operations of our customers.

As a result of these conditions, we believe that dayrates for deepwater and ultra-deepwater rigs will remain at their current depressed rate until activity in the U.S. Gulf of Mexico begins to improve. Deepwater and ultra-deepwater rigs will continue to have attractive short-term opportunities in response to operators’ project specific needs for on-going deepwater development projects and will have opportunities to displace older less capable rigs in the midwater market.

We have construction supervision agreements that entitle us to payments for supervising the construction of the DragonquestandCobalt Explorer. The counterparties in each of these agreements are affiliates of F3 Capital. During the construction of each of these drillships, these agreements entitle us to receive a fee of $5.0 million per drillship annually, prorated to the extent construction is completed mid-year. In addition to our annual fee, we will be reimbursed for all direct costs incurred in the performance of construction oversight services. These agreements may be terminated by either party upon the provision of notice. As of September 30, 2010, we are owed $7.6 million on theDragonquestfor construction services rendered by us including approximately $1.3 million of construction management fees deferred until the delivery date of theDragonquest.As we have not been paid the remaining outstanding amounts of $6.3 million, we have limited purchases of equipment and other items for theDragonquestand have curtailed crewing the drillship until the outstanding balance is paid. In August 2010, we issued a demand letter to Valencia regarding payment of the overdue amounts and advancing the necessary funds so that we may place orders for required equipment. Subsequent to September 30, 2010, we received payments of $5.8 million on the $6.3 million outstanding amount. We will continue to pursue all remedies, including legal remedies, to collect the remaining outstanding amounts.

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In September 2009, North Pole Drilling Corporation (“North Pole”), an affiliate of F3 Capital, and DSME agreed to suspend construction activities on theCobalt Explorer for one year. Consequently we agreed with North Pole to suspend for a corresponding period of time obligations under our agreement with North Pole to provide construction supervision services. As of September 30, 2010, this suspension period has expired and the parties have not recommenced construction supervision services in connection with theCobalt Explorer. The management fee revenue of approximately $3.0 million for construction services rendered by us in 2009 prior to the suspension has not been paid as of September 30, 2010 and remains currently due and payable. We will continue to pursue all remedies, including legal remedies, to collect this outstanding amount.

We have agreements to manage the construction and operations of two semisubmersibles, theSeaDragon I and theSeaDragon II. These agreements are for an indefinite term, and continue until terminated by either party in accordance with the terms of the agreements. The semisubmersibles are capable of drilling in water depths up to 10,000 ft. with a maximum drilling depth of 40,000 ft. Pursuant to the agreements, during the construction phase we will receive an annual management and overhead fee and reimbursement of defined direct costs. During the operating phase, we will be paid management fees consisting of a fixed operating fee and participation in revenues and cash flows. TheSeaDragon I will be delivered later than the scheduled drilling contract commencement date which may have given the customer the right to terminate its arrangement with the owner of theSeaDragon I. The owner and customer are currently discussing resolutions to the contractual issues.

On July 6, 2010, we entered into a Share Sale and Purchase Agreement (“SSPA”) with F3 Capital to purchase the remaining 55% interest in Mandarin for total consideration of $139.7 million, consisting of $79.7 million in cash and a promissory note in the amount of $60.0 million. The cash consideration was reduced by approximately $64.2 million for the third and fourth installment payments that were paid by us directly to DSME for the construction of thePlatinum Explorer. The SSPA contained customary representations and warranties for both us and F3 Capital.

The total shipyard construction price for the Platinum Explorer is approximately $630.0 million, payable in four installments of approximately $31.2 million each, which have been made, and the balance of approximately $504.0 million upon delivery. We have escrowed $510.8 million for the final payment due upon delivery of thePlatinum Explorer.As of September 30, 2010, we estimate there is $102.0 million (including approximately $80.4 million incurred or committed as of September 30, 2010) of additional development expenditures for operator furnished equipment, capital spares and equipment, commissioning expenses and crew and other costs necessary to equip and commission thePlatinum Explorerfor service.

In July 2010, we signed a definitive agreement to supervise and manage the construction and marketing of the ultra-deepwater drillship, theDalian Developer. The owner of this drillship awarded us a management agreement to supervise and manage the construction, commissioning and marketing of theDalian Developer,pursuant to which, we are receiving management fees and reimbursable costs during the construction phase of the drillship.

Results of Operations

The following table summarizes our average daily rates and other selected information for the three and nine months ended September 30, 2010 and 2009:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009
Operating rigs, end of period		4			2			4			2
Available days (1)		368			132			1,007			250
Utilization (2)		97.0	%		98.6	%		98.4	%		98.9	%
Average daily revenues (3)	$	125,660		$	166,917		$	133,794		$	190,051

(1) Available days are the total number of rig calendar days in the period. Newbuild rigs are included upon acceptance by the client.

(2) Utilization is calculated as a percentage of the actual number of revenue earning days divided by the available days in the period.

(3) Average daily revenues are based on contract drilling revenues divided by revenue earning days of all rigs. Average daily revenue will differ from average contract dayrate due to billing adjustments for any non-productive time, mobilization fees, demobilization fees and charges to the customer for ancillary services.

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The first of our jackup rigs was delivered in December 2008 and began operations under its initial contract in February 2009. Our second jackup rig completed construction in June 2009 and began operating under its first contract in August 2009. Our third jackup rig was delivered in September 2009, and commenced operations in January 2010. Our fourth jackup rig was delivered in December 2009 and began operating in March 2010.

Revenue: Revenue for the three months ended September 30, 2010 increased $30.5 million over the comparable period of 2009. Contract drilling revenue totaled $44.9 million for the three months ended September 30, 2010 as compared to $21.6 million in the comparable quarter of 2009. The increase in contract drilling revenue was primarily due to the operation of four jackups in 2010 as compared to two jackups in 2009. We record reimbursements from customers for rebillable costs and expenses as revenue and the related direct costs as operating expenses. For the three months ended September 30, 2010, reimbursable revenue was $17.5 million as compared to $9.1 million for the comparable quarter of 2009. The increase in reimbursable revenue was primarily due to an $8.0 million increase from increased oversight activities on the construction projects, and $446,000 related to the commencement of operations on the additional two jackups.

Revenue for the nine months ended September 30, 2010 increased $120.6 million over the comparable period of 2009. Contract drilling revenue totaled $132.6 million for the nine months ended September 30, 2010, as compared to $46.9 million in the comparable period of 2009. This increase was primarily due to revenues earned by theAquamarine Driller, and theTopaz Driller which commenced drilling operations during the first quarter of 2010. For the nine months ended September 30, 2010, reimbursable revenue was $47.5 million as compared to $10.9 million for the comparable period of 2009. The $36.6 million increase in reimbursable revenue was primarily due to increased deepwater construction oversight activities, which contributed approximately $31.0 million to the increase, and to the increased number of rigs operating in 2010 as compared to 2009, which contributed the remaining $5.6 million increase. The increase in reimbursable revenue earned by the deepwater construction oversight projects is attributable to increased project support requirements, which are in turn rebilled back to our customers.

Operating expenses: Operating expenses for the three months ended September 30, 2010 increased $21.6 million over the comparable period of 2009. Operating expenses totaled $41.6 million for the three months ended September 30, 2010 as compared to $20.0 in the comparable quarter of 2009. This increase is primarily due to approximately $8.7 million of operating expenses for theAquamarine Drillerand theTopaz Drillerwhich operated in the third quarter of 2010, but not in the comparable period of 2009, theSapphire Drillerwhich had increased expenses of $2.9 million due to operating the full third quarter of 2010 as compared to 40 days in the third quarter of 2009 and to increased deepwater construction oversight project expenses which contributed $8.9 million of the increase.

Operating expenses for the nine months ended September 30, 2010 increased $77.4 million over the comparable period of 2009. This increase was primarily due to increased contract drilling expenses of approximately $41.4 million resulting from the increased number of jackup rigs operating in 2010 as compared to 2009, increased deepwater construction oversight activity which contributed an additional $31.9 million of the increase and a $4.1 million increase in regional support services.

General and administrative expenses: General and administrative expenses were $6.3 million and $15.7 million for the three and nine month periods ended September 30, 2010 as compared to $3.7 million and $11.1 million, respectively, for the comparable periods in 2009. The increases primarily reflect the increase in staffing levels necessary to support our operations and market our rigs on a worldwide basis associated with the increase from one rig operating for most of the first nine months of 2009 to four rigs operating in 2010.

Depreciation expense:Depreciation expense was $8.8 million and $24.6 million for the three and nine month periods ended September 30, 2010 as compared to $3.2 million and $6.9 million, respectively, for the comparable periods in 2009. The increase is due to the addition of theAquamarine Driller and theTopaz Driller to our operating fleet in 2010.

Interest expense:Interest expense for the three and nine month periods ended September 30, 2010 increased $12.3 million and $31.6 million, respectively, over the same periods of 2009. The primary reason for the increases is the higher average levels of debt outstanding in 2010 as compared to 2009, and higher average interest rates on the debt in 2010.

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Loss on extinguishment of debt:A portion of the proceeds from the issuance of the 11 ¹/2% Senior Secured Notes were used to retire the outstanding debt under the Credit Agreement and the 13 ¹/2% Senior Secured Notes. In connection with the early extinguishment of these debt amounts, we paid approximately $10.8 million in prepayment fees and $0.9 million to terminate the interest rate swap. Additionally, we wrote off approximately $12.3 million of deferred financing costs associated with our credit facility and the 13 ¹/2% Senior Secured Notes.

Loss on acquisition of subsidiary: In the three months ended September 30, 2010, in connection with the acquisition of the 55% interest of Mandarin, we recorded a bargain purchase gain of $12.3 million and a $16.1 million loss on the remeasurement of our previously held 45% in Mandarin under purchase accounting.

Income tax expense:Income tax expense for the three and nine month periods ended September 30, 2010 increased $1.7 million and $10.9 million, respectively, over the comparable periods of 2009. The increases are due to the increased number of jackups operating in multiple foreign jurisdictions in 2010 as compared to 2009. In some jurisdictions, we are subject to deemed profit tax schemes which are based on specified percentages of revenue rather than profits (losses) before tax. Our tax provision for the nine months ended September 30, 2010 includes several adjustments, totaling approximately $5.0 million, related to certain tax positions.

Liquidity and Capital Resources

As of September 30, 2010, we had working capital of approximately $654.3 million.

In January 2010, we sold 30,000,000 ordinary shares in a public offering at $1.49 per share. The net proceeds, after underwriter’s discount and commissions and offering expenses, of approximately $41.8 million, were used for general corporate purposes, including capital expenditures related to our drilling fleet and working capital, including pre-funding advances for operating expenses and interest on the Aquamarine Term Loan. In connection with the public offering, the underwriter exercised its over-allotment option and purchased 4,150,000 additional ordinary shares in February 2010. The net proceeds, after underwriter’s discount and commissions, of $5.8 million were used for working capital and general corporate purposes.

In July 2010, in connection with the 11 ¹/2% Senior Secured Notes offering, we sold 52,272,727 ordinary shares, including the underwriter’s over-allotment of 6,818,182 ordinary shares, for approximately $54.3 million in net proceeds. The net proceeds from the equity offering are available for general corporate purposes.

Short-term Debt:In January 2010, we issued 14,577,435 ordinary shares to F3 Capital in settlement of a total of $14,000,000 of short-term debt and related accrued interest. Shareholders had previously approved the settlement in December 2009. Additionally, we paid $1.6 million in charges related to the conversion of the short-term notes.

As of September 30, 2010, we had short-term debt of approximately $1.0 million related to our financing of rig insurance premiums. These notes had annual interest rates of 3.97%.

Long-term Debt:As of September 30, 2010, our long-term debt was composed of the following:

	September  30, 2010		December  31, 2009
	(Unaudited)
	(In thousands)
11 1/2% Senior Secured Notes, net of discount of $35,136	$	964,864	$	—
Aquamarine Term Loan		105,604		101,638
Credit Agreement:
Emerald Driller term loan		—		73,461
Emerald Driller revolving loan		—		10,000
Sapphire Driller term loan		—		78,000
13 1/2% Senior Secured Notes, net of discount of $4,021		—		130,979
F3 Capital note, net of discount of $31,429		28,571		—
		1,099,039		394,078
Less current maturities of long-term debt		—		(16,000	)
Long-term debt	$	1,099,039	$	378,078

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Aquamarine Term Loan

In September 2009, one of our wholly-owned subsidiaries entered into a loan with a lender for $100.0 million (the “Aquamarine Term Loan”). The Aquamarine Term Loan bears cash interest at 15% per annum and will mature September 3, 2014. In addition to the cash interest, the Aquamarine Term Loan incurs pay-in-kind interest which accretes the value of the Aquamarine Term Loan to $140.0 million at maturity. We have two options to purchase the Aquamarine Term Loan from the lender, so long as no event of default has occurred and is continuing: (i) between September 1, 2011 and August 31, 2012, we may purchase the Aquamarine Term Loan for $127.5 million plus all accrued and unpaid cash interest due; and (ii) between September 1, 2012 and August 31, 2014, we may purchase the Aquamarine Term Loan for $140.0 million plus all accrued and unpaid cash interest due. The lender holds a first priority security interest in theAquamarine Driller and is entitled to an assignment of certain of our rights under any contracts relating to theAquamarine Driller. The Aquamarine Term Loan has a variety of covenants, including a financial covenant debt service coverage test at the wholly-owned subsidiary level, and administrative reporting requirements. We believe we were in compliance with all financial covenants of the Aquamarine Term Loan at September 30, 2010. As of September 30, 2010, we had $26.9 million in escrow to fund future interest payments, as well as operational and maintenance costs related to theAquamarine Driller. The subsidiary that owns theAquamarine Drillerwas restricted from making any cash distributions until September 20, 2010.

11 ¹/2%Senior Secured Notes

On July 30, 2010, OGIL issued $1.0 billion aggregate principal amount of its 11 ¹/2% Senior Secured Notes due 2015 under an indenture. The notes were issued at a price equal to 96.361% of their face value, and are fully and unconditionally guaranteed, on a senior secured basis, by us. The original issuance discount, reported as a direct deduction from the face amount of the notes, will be recognized over the life of the notes using the effective interest rate method. The yield to maturity interest rate is 12.5%. The notes will mature on August 1, 2015. The notes bear interest from the date of their issuance at the rate of 11.5% per year. Interest on outstanding notes will be payable semi-annually in arrears, commencing on February 1, 2011.

The proceeds after deducting the original issue discount, underwriters’ discount, fees and expenses were approximately $931.9 million of which $79.7 million was used to complete the Mandarin acquisition (of which $64.2 million was paid directly to the shipyard for payments on thePlatinum Explorer), $510.8 million was placed in escrow to fund the remaining construction payments for thePlatinum Explorer, $145.2 million was used to retire our credit facility (including $672,000 of prepayment penalties) and $144.2 million was used to retire the 13 ¹/2% Senior Secured Notes (including prepayment penalties and accrued interest) with the balance available for general corporate purposes.

In connection with the 11 ¹/2% Senior Secured Notes offering, we retired the 13 ¹/2% Senior Secured Notes and reorganized certain of our subsidiaries such that theEmerald Driller, Sapphire Driller, Topaz Drillerand Platinum Explorerwould each be owned by subsidiaries of OGIL. The 11 ¹/2% Senior Secured Notes will be secured on a first lien basis on each of these assets and any other current or future assets of OGIL.

The notes may be redeemed, in whole or in part at specified redemption prices plus accrued and unpaid interest on the notes redeemed. If a change of control, as defined in the indenture, occurs, each holder of notes will have the right to require the repurchase of all or any part of its notes at a price equal to 101% of their principal amount, plus accrued and unpaid interest to the date of repurchase. Upon the occurrence of certain events, we will be required to redeem notes equal in principal amount to the approximately $575.0 million of net proceeds reserved for the remaining construction payments at a redemption price equal to 100% of the principal amount thereof, plus accrued and unpaid interest to the date of redemption.

The indenture governing the notes, among other things, limits the issuer of the notes and any future restricted subsidiaries’ ability, and in certain cases, our ability to: (i) incur or guarantee additional indebtedness or issue disqualified capital stock; (ii) create or incur liens; (iii) pay dividends, redeem subordinated indebtedness or make other restricted payments; (iv) transfer or sell assets; (v) incur dividend or other payment restrictions affecting restricted subsidiaries; (vi) consummate a merger, consolidation or sale of all or substantially all of our assets or those of OGIL; (vii) enter into transactions with affiliates; (viii) designate subsidiaries as unrestricted subsidiaries; (ix) engage in businesses other than a business that is the same or similar to the current business and reasonably related businesses; and (x) take or omit to take any actions that would adversely affect or impair in any material respect the collateral securing the notes. As of the issue date, there were no restricted subsidiaries. Our future subsidiaries may become restricted subsidiaries and guarantors under limited circumstances.

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Contingent Obligations

We are subject to litigation, claims and disputes in the ordinary course of business, some of which may not be covered by insurance.

In September 2009, F3 Capital asserted that we had breached agreements and understandings with F3 Capital regarding the maximum number of ordinary shares we would sell in our public offering in August 2009. F3 Capital indicated that it believed that it was damaged by the issuance of shares in excess of this amount. We disagree with F3 Capital’s assertions. We have worked to resolve these matters with F3 Capital and believe that we have done so to each party’s satisfaction, although no assurances can be given as to the ultimate resolution of this dispute.

On December 8, 2009, we received a letter from Pritchard Capital Partners, LLC (“Pritchard Capital”) claiming, pursuant to an engagement letter among us, OGIL and Pritchard Capital that it had the right to participate in the offering of the 13 ¹/2% Senior Secured Notes and to receive at least thirty percent of the fees the initial purchasers would receive. We did not pay any fees to Pritchard Capital, and we do not believe that Pritchard Capital was entitled to any fees, in connection with that offering. If Pritchard Capital makes a claim, we intend to vigorously defend ourselves.

Critical Accounting Policies and Accounting Estimates

The preparation of financial statements and related disclosures in accordance with generally accepted accounting principles in the United States of America 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. While management believes current estimates are appropriate and reasonable, actual results could materially differ from those estimates. We have identified the policies below as critical to our business operations and the understanding of our financial operations. The impact of these policies and associated risks are discussed in Management’s Discussion and Analysis of Financial Condition and Results of Operations where such policies affect our reported and expected financial results.

Property and Equipment: Consists of the values of our drilling rigs, furniture and fixtures, computer equipment and capitalized costs for computer software. Drilling rigs are depreciated on a component basis over estimated useful lives ranging from five to thirty-five years on a straight-line basis as of the date placed in service. Other assets are depreciated upon placement in service over estimated useful lives ranging from three to seven years on a straight-line basis. When assets are sold, retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts and the gain or loss is recognized.

Interest costs related to the financings of our jackups and the amortization of debt financing costs have been capitalized as part of the cost of the respective jackups while they were under construction. We completed our jackup construction program in the first quarter of 2010. Interest costs will be capitalized as part of the cost of thePlatinum Explorerwhile the drillship is under construction. Total interest and amortization costs capitalized for the three and nine months ended September 30, 2010 were $17.1 million and $22.1 million, respectively. For the three and nine months ended September 30, 2009, we capitalized interest and amortization costs of $7.3 million and $15.1 million, respectively.

We evaluate the realization of property and equipment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss on our property and equipment exists when estimated undiscounted cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount. Any impairment loss recognized represents the excess of the asset’s carrying value over the estimated fair value.

Debt Financing Costs:Costs incurred with debt financings are deferred and amortized over the term of the related financing facility.

Revenue: Revenue is recognized as services are performed based on contracted dayrates and the number of operating days during the period.

In connection with a customer contract, we may receive lump-sum fees for the mobilization of equipment and personnel. Mobilization fees and costs incurred to mobilize a rig from one geographic market to another are deferred and recognized on a straight-line basis over the term of such contract, excluding any option periods. Costs incurred to mobilize a rig without a contract are expensed as incurred. Fees or lump-sum payments received for capital improvements to rigs are deferred and amortized to income over the term of the related drilling contract. The costs of such capital improvements are capitalized and depreciated over the useful lives of the assets.

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We record reimbursements from customers for rebillable costs and expenses as revenue and the related direct costs as operating expenses.

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

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

Share-Based Compensation:We account for employee share-based compensation using the fair value method as prescribed under U.S. GAAP. Restricted share grants are valued based on the market price of our ordinary shares on the date of grant and the fair value attributable to share options is calculated based on the Black-Scholes option pricing model. The fair values are amortized to expense over the service period which is equivalent to the time required to vest the share options and share grants. We recognized approximately $1.5 million of share-based compensation expense for the three months ended September 30, 2010 as compared to $1.2 million of share-based compensation expense, in the three months ended September 30, 2009. For the nine months ended September 30, 2010 and 2009, we recognized share-based compensation expense of $4.6 million and $3.4 million, respectively.

Use of Estimates: The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. While management believes current estimates are appropriate and reasonable, actual results could differ from those estimates.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Market risk is the sensitivity of income to changes in interest rates, foreign exchanges, commodity prices, equity prices and other market driven rates or prices. The first of our jackup rigs was delivered in December 2008 and began operations under its initial contract in February 2009. Our second jackup rig completed construction in June 2009 and began operating under its first contract in August 2009. Our third jackup rig was delivered in September 2009, and commenced operations in January 2010. Our fourth jackup rig was delivered in December 2009 and commenced operating in March 2010. Although the risks associated with foreign exchange rates, commodity prices, and equity prices have not been significant in 2010, they could become more significant as our rigs are more fully utilized and our construction projects are completed and additional rigs begin operating. We do not enter into derivatives or other financial instruments for trading or speculative purposes.

Interest Rate Risk: At September 30, 2010, we did not have any variable rate debt outstanding.

Foreign Currency Exchange Rate Risk. As our international operations expand, we will be exposed to foreign exchange risk. Our primary foreign exchange risk management strategy involves structuring customer contracts to provide for payment in both U.S. dollars, which is our functional currency, and local currency. The payment portion denominated in local currency is based on anticipated local currency requirements over the contract term. Due to various factors, including customer acceptance, local banking laws, other statutory requirements, local currency convertibility and the impact of inflation on local costs, actual foreign exchange needs may vary from those anticipated in the customer contracts, resulting in partial exposure to foreign exchange risk. Fluctuations in foreign currencies have not had a material impact on our overall results. If we find ourselves in situations where payments of local currency do not equal local currency requirements, foreign exchange derivative instruments, specifically foreign exchange forward contracts, or spot purchases, may be used to mitigate foreign currency risk. 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 U.S. dollar payment equal to the value of such exchange. We do not enter into derivative transactions for speculative purposes. At September 30, 2010, we did not have any open foreign exchange derivative contracts.

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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 file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized, and reported, within the time periods specified by the SEC rules and forms.

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 report. Based on that evaluation, such officers have concluded that the design and operation of these disclosure controls and procedures were effective as of September 30, 2010 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.

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PART II—OTHER INFORMATION

Item 6. Exhibits

Exhibit No.	Description
31.1	Certification of Principal Executive Officer Pursuant to Section 302*
31.2	Certification of Principal Financial and Accounting Officer Pursuant to Section 302*
32.1	Certification of Principal Executive Officer Pursuant to Section 906*
32.2	Certification of Principal Financial and Accounting Officer Pursuant to Section 906*

* Filed herewith.

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SIGNATURES

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

	VANTAGE DRILLING COMPANY
	By:	/S/    DOUGLAS G. SMITH
		Douglas G. Smith
		Chief Financial Officer and Treasurer
		(Principal Financial and Accounting Officer)
Date: November 5, 2010

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