Vantage Drilling 10-Q 2012 Q2 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 June 30, 2012

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  x    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 July 20, 2012 is 292,350,080.

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 six months ended June 30, 2012 and 2011		6
		Consolidated Statement of Cash Flows – for the six months ended June 30, 2012 and 2011		7
		Notes to Unaudited Consolidated Financial Statements		9
	Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations		19
	Item 3	Quantitative and Qualitative Disclosures about Market Risk		25
	Item 4	Controls and Procedures		25
PART II—OTHER INFORMATION
	Item 6	Exhibits		26
SIGNATURES				27

2

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. These forward-looking statements relate to 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;

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

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

• termination of our customer contracts;

• oil and natural gas prices;

• our failure to obtain delivery of drilling units;

• delays and cost overruns in construction projects;

• general economic conditions and conditions in the oil and gas industry;

• competition within our industry;

• limited mobility between geographic regions;

• operating hazards in the oilfield service industry;

• the impact of the Macondo well incident on offshore drilling;

• ability to obtain indemnity from customers;

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

• operations in international markets;

• governmental, tax and environmental regulation;

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

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

• our substantial level of indebtedness;

• our ability to incur additional indebtedness;

• our ability to access the capital markets and to issue additional equity;

• compliance with restrictions and covenants in our debt agreements;

• identifying and completing acquisition opportunities;

• levels of operating and maintenance costs;

• our dependence on key personnel;

• availability of workers and the related labor costs;

• the sufficiency of our internal controls;

• changes in tax laws, treaties or regulations;

• any non-compliance with the U.S. Foreign Corrupt Practices Act and similar worldwide anti-bribery laws;

• our obligation to repurchase certain indebtedness upon a change of control;

• potential conflicts of interest with F3 Capital; 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.

3

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 performance, and our actual results and future developments may differ materially from those projected in the forward-looking statements. Management cautions against putting undue reliance on forward-looking statements or projecting any future results based on such statements or present or prior earnings levels. In addition, each forward-looking statement speaks only as of the date of the particular statement, and we undertake no obligation to publicly update or revise any forward-looking statements. We may not update these forward-looking statements, even if our situation changes in the future. All forward-looking statements attributable to us are expressly qualified by these cautionary statements. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained from time to time in our filings with the Securities and Exchange Commission (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

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

Vantage Drilling Company

Consolidated Balance Sheet

(In thousands, except par value information)

	June 30, 2012			December 31, 2011
	(Unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	123,709		$	110,031
Restricted cash		5,878			7,028
Trade receivables		78,221			100,908
Inventory		33,631			24,376
Prepaid expenses and other current assets		13,044			16,909
Total current assets		254,483			259,252
Property and equipment
Property and equipment		2,789,126			1,913,596
Accumulated depreciation		(140,900	)		(108,521	)
Property and equipment, net		2,648,226			1,805,075
Other assets
Other assets		86,375			58,173
Total other assets		86,375			58,173
Total assets	$	2,989,084		$	2,122,500
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	56,843		$	46,362
Accrued liabilities		140,111			103,809
Total current liabilities		196,954			150,171
Long-term debt, net of premium (discount) of $22,666 and ($38,572)		2,082,666			1,246,428
Other long-term liabilities		20,054			29,755
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; 292,350 and 291,241 shares issued and outstanding		292			291
Additional paid-in capital		864,921			860,502
Accumulated deficit		(175,803	)		(164,647	)
Total shareholders’ equity		689,410			696,146
Total liabilities and shareholders’ equity	$	2,989,084		$	2,122,500

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 June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
Revenues
Contract drilling services	$	99,683		$	97,977		$	204,681		$	184,731
Management fees		956			3,171			3,678			7,214
Reimbursables		4,486			19,946			28,615			53,780
Total revenues		105,125			121,094			236,974			245,725
Operating costs and expenses
Operating costs		50,030			65,433			119,354			142,826
General and administrative		6,704			7,402			11,964			14,249
Depreciation		16,372			16,025			32,944			32,137
Total operating costs and expenses		73,106			88,860			164,262			189,212
Income from operations		32,019			32,234			72,712			56,513
Other income (expense)
Interest income		21			22			33			60
Interest expense and other financing charges		(36,172	)		(39,350	)		(72,935	)		(80,892	)
Loss on debt extinguishment		—			(25,196	)		—			(25,196	)
Other income, net		216			(22	)		861			1,458
Total other income (expense)		(35,935	)		(64,546	)		(72,041	)		(104,570	)
Income (loss) before income taxes		(3,916	)		(32,312	)		671			(48,057	)
Income tax provision		6,061			7,758			11,827			10,667
Net loss	$	(9,977	)	$	(40,070	)	$	(11,156	)	$	(58,724	)
Loss per share
Basic	$	(0.03	)	$	(0.14	)	$	(0.04	)	$	(0.20	)
Diluted	$	(0.03	)	$	(0.14	)	$	(0.04	)	$	(0.20	)

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

6

Vantage Drilling Company

Consolidated Statement of Cash Flows

(In thousands)

(Unaudited)

	Six Months Ended June 30,
	2012			2011
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(11,156	)	$	(58,724	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation expense		32,944			32,137
Amortization of debt financing costs		7,438			3,888
Non-cash loss on debt extinguishment		—			3,532
Share-based compensation expense		4,420			2,415
Accretion of long-term debt		—			2,582
Amortization of debt discount (premium)		(762	)		5,415
Deferred income tax expense (benefit)		1,860			(128	)
Loss on disposal of assets		249			—
Changes in operating assets and liabilities:
Restricted cash		1,150			22,801
Trade receivables		(10,977	)		(36,303	)
Inventory		(9,256	)		(2,396	)
Prepaid expenses and other current assets		1,476			4,130
Other assets		1,357			897
Accounts payable		10,481			9,394
Accrued liabilities		644			2,948
Net cash provided by (used in) operating activities		29,868			(7,412	)
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment		(816,722	)		(116,876	)
Net cash used in investing activities		(816,722	)		(116,876	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of senior secured notes, including issue premiums of $62,000 and $15,750		837,000			240,750
Repayment of long-term debt		—			(109,716	)
Debt issuance costs		(36,468	)		(12,693	)
Net cash provided by financing activities		800,532			118,341
Net increase (decrease) in cash and cash equivalents		13,678			(5,947	)
Cash and cash equivalents—beginning of period		110,031			120,443
Cash and cash equivalents—end of period	$	123,709		$	114,496

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)

	Six Months Ended June 30,
	2012			2011
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for:
Interest	$	70,534		$	64,155
Taxes		6,531			12,455
Non-cash investing and financing transactions:
Interest capitalized		(25,957	)		(522	)
Trade-in value on equipment upgrades		(2,956	)		—
Reclassification of receivable inTitanium Explorer acquisition		33,664			—

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

8

VANTAGE DRILLING COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Recent Events

Vantage Drilling Company is a holding company organized under the laws of the Cayman Islands on November 14, 2007 with no significant operations or assets, other than its interests in its subsidiaries. Through its direct and indirect subsidiaries, Vantage Drilling Company is an international offshore drilling contractor for the oil and gas industry focused on operating a fleet of modern, high-specification drilling units.

At June 30, 2012, our operating fleet consisted of one ultra-deepwater drillship and four ultra-premium jackup rigs. Additionally, we have one ultra-deepwater drillship undergoing customer acceptance testing and one ultra-deepwater drillship under construction. Our global fleet is currently located in India, Asia, West Africa and the drillship undergoing customer acceptance is in the U.S. Gulf of Mexico.

In April 2012, we completed the acquisition of theultra-deepwater drillship,Titanium Explorer, formerly known as theDragonquest,from Valencia Drilling Corporation (“Valencia”), an affiliate of F3 Capital, our largest shareholder. TheTitanium Exploreris expected to commence drilling operations under an eight year drilling contract in the third quarter of 2012 in the U.S Gulf of Mexico. Our customer for theTitanium Exploreris currently in the process of obtaining the necessary well permits for the U.S. Gulf of Mexico. Although there is no certainty as to when the permits will be obtained, theTitanium Exploreris contracted on an international basis and the customer may direct us to mobilize the vessel to another market.

We funded the acquisition of theTitanium Explorerthrough the issuance of an additional $775.0 million aggregate principal amount of our existing 11 ¹/₂% Senior Secured Notes (the “Notes”). These additional Notes were issued at a price equal to 108% of their face value and are fully and unconditionally guaranteed, on a senior secured basis, by us and certain of our subsidiaries.

2. Basis of Presentation and Significant Accounting Policies

The accompanying interim consolidated financial information as of June 30, 2012 and for the three and six months ended June 30, 2012 and 2011 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, 2011 is derived from our December 31, 2011 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, as amended, for the year ended December 31, 2011. 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 posted as collateral for bid tenders and performance bonds.

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

Property and Equipment: Consists of the costs 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 drillships and the amortization of debt financing costs were capitalized as part of the cost while they were under construction. In June 2011, we made our initial construction payments on theTungsten Explorerand began capitalizing interest for this project. In April 2012, we began capitalizing interest on theTitanium Explorer upon acquisition of the drillship. Total interest and amortization costs capitalized for the three and six months ended June 30, 2012 were $22.3 million and $26.0 million, respectively. For the three and six months ended June 30, 2011, we capitalized interest and amortization costs of $0.5 million.

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.

9

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 earnings (loss) 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 June 30,				Six Months Ended June 30,
	2012		2011		2012		2011
	(In thousands)
Weighted average ordinary shares outstanding for basic EPS		291,962		290,173		291,690		289,950
Options		—		—		—		—
Warrants		—		—		—		—
Adjusted weighted average ordinary shares outstanding for diluted EPS		291,962		290,173		291,690		289,950

The calculation of diluted weighted average ordinary shares outstanding excludes 2.5 million ordinary shares for both the three months and the six months ended June 30, 2012 and 2011, 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.

Concentration of Credit Risk: Financial instruments that potentially subject us to a significant concentration of credit risk consist primarily of cash and cash equivalents, restricted cash and accounts receivable. We maintain deposits in federally insured financial institutions in excess of federally insured limits. We monitor the credit ratings and our concentration of risk with these financial institutions on a continuing basis to safeguard our cash deposits. Some of our restricted cash is invested in certificates of deposit. Our customers primarily consist of major integrated and independent exploration and production companies and government-owned oil and gas companies. We bill our customers on a monthly basis and monitor outstanding receivables on an ongoing basis.

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 requisite service period which is equivalent to the time required to vest the share options and share grants. We recognized

10

approximately $2.2 million and $1.5 million of share-based compensation expense for the three months ended June 30, 2012 and 2011, respectively. For the six months ended June 30, 2012 and 2011, we recognized $4.4 million and $2.4 million, respectively, of share-based compensation expense.

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 fair value of the Notes outstanding at June 30, 2012 was approximately $2.2 billion based on quoted market prices.

We originally valued the $60.0 million promissory note issued to F3 Capital, our largest shareholder (the “F3 Capital Note”), based on our then weighted average cost of capital, resulting in a discounted present value of $27.8 million. The discount is reported as a direct deduction from the face amount of the note and is being recognized over the life of the note using the effective interest rate method. As of June 30, 2012, if we were to value the F3 Capital Note at our current weighted average cost of capital, the current discounted present value would be approximately $26.3 million.

Derivative Financial Instruments:We may 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. We do not currently have any outstanding derivative instruments.

3. Transactions with F3 Capital and Affiliates

Titanium Explorer Acquisition

In April 2012, we completed the acquisition of theTitanium Explorerpursuant to a purchase agreement we entered into with Valencia on March 20, 2012, to purchase the construction contract with Daewoo Shipbuilding and Marine Engineering Co., Ltd. (“DSME”) for the construction and delivery of theTitanium Explorer, formerly known as theDragonquest(the “Titanium Explorer Acquisition”). The total consideration for the Titanium Explorer Acquisition was approximately $164.0 million comprised of the following; (i) $3.0 million paid to Valencia upon signing of the purchase agreement; (ii) $149.0 million paid upon the closing of the Titanium Explorer Acquisition, which we refer to as the closing payment, and (iii) $12.0 million to be paid within 120 days of the closing. In addition, we paid $5.0 million of Valencia’s costs and expenses related to the Titanium Explorer Acquisition. Approximately $68.6 million of the closing payment was paid to Valencia’s bridge lender in full satisfaction of a bridge loan, the proceeds of which were used to fund certain construction costs related to theTitanium Explorer. Upon full satisfaction of the bridge loan, the bridge lender released its security interest in theTitanium Explorer construction contract and the pledge of shares of our subsidiary that has entered into a drilling contract with a customer for the operation of theTitanium Explorer. The closing payment was further reduced by direct payments of approximately $2.4 million to third parties for specific construction costs related to the drillship. We paid DSME $608.2 million for the remaining balance due under theTitanium Explorerconstruction contract and DSME delivered theTitanium Explorer to us on April 20, 2012 in accordance with the terms of the construction contract.

Pursuant to the terms of the Titanium Explorer Acquisition, the construction management agreement and the management agreement pertaining to theTitanium Explorer, each between Valencia and certain of our subsidiaries, were terminated.

Drillship Construction Supervision Agreement

We had a construction supervision agreement that entitled us to payments for supervising the construction of Hull 3608, an ultra-deepwater drillship. The counterparty to this agreement is an affiliate of F3 Capital. During the construction of Hull 3608,we were entitled to receive a fee of $5.0 million annually, prorated to the extent construction is completed mid-year. In addition to our annual fee, we were to be reimbursed for all direct costs incurred in the performance of construction oversight services. In September 2009, North Pole Drilling Corporation (“North Pole”), an affiliate of F3 Capital, and the shipyard constructing Hull 3608 agreed to suspend construction activities on Hull 3608.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. In November 2009, pursuant to the terms of the construction supervision agreement, North Pole cancelled the agreement. The management fee revenue of approximately

11

$3.0 million for construction services rendered by us in 2009 prior to the suspension and cancellation has not been paid as of June 30, 2012, and remains currently due and payable. In May 2011, we issued a demand letter to North Pole regarding payment of the overdue amount. We will continue to pursue all remedies, including legal remedies, to collect this outstanding amount.

F3 Capital Note

As part of the purchase price for the acquisition of the remaining interest in the entity that owned the construction contract for thePlatinum Explorer (the “Mandarin Acquisition”), we issued a promissory note to F3 Capital. The F3 Capital Note accrues interest at 5% per annum and will mature 90 months from the issue date. The F3 Capital Note contains 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 at a price per share less than the conversion price of the F3 Capital Note so long as the F3 Capital Note is outstanding. 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.

In connection with the Titanium Explorer Acquisition, F3 Capital entered into a voting agreement and irrevocable proxy pertaining to its ownership of our shares. Pursuant to the terms of the voting agreement, F3 Capital voted its shares in favor of an increase in our authorized capital by 100,000,000 ordinary shares and the slate of directors proposed by our board of directors at our Extraordinary General Meeting in lieu of Annual General Meeting of Shareholders held on July 10, 2012. Additionally, F3 Capital has a continuing obligation to vote in favor of the slate of directors approved by our board of directors for a period of twelve months after the date of the Titanium Explorer Acquisition.

4. Construction Supervision Agreements

In addition to the Drillship Construction Supervision Agreement mentioned above, we have entered into other construction management agreements with unaffiliated third parties.

On July 21, 2010, we signed an agreement to supervise and manage the construction and marketing of the ultra-deepwater drillship theDalian Developer. We are receiving management fees and reimbursable costs during the construction phase of the drillship.

5. Debt

Our long-term debt was composed of the following:

	June 30, 2012		December 31, 2011
	(Unaudited)
	(In thousands)
11 1/2% Senior Secured Notes, net of premium (discount) of $46,601 and ($12,503)	$	2,046,601	$	1,212,497
F3 Capital Note, net of discount of $23,935 and $26,069		36,065		33,931
RBC Credit Agreement		—		—
		2,082,666		1,246,428
Less current maturities of long-term debt		—		—
Long-term debt	$	2,082,666	$	1,246,428

11 ¹/₂% Senior Secured Notes

On July 30, 2010, Offshore Group Investment Limited, one of our wholly-owned subsidiaries (the “Issuer”), issued $1.0 billion aggregate principal amount of Notes under an indenture. These 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 and certain of our subsidiaries. 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. The Notes mature on August 1, 2015, and bear interest from the date of their issuance at the rate of 11.5% per year. Interest on outstanding Notes is payable semi-annually in arrears, commencing on February 1, 2011. The net proceeds, after fees and expenses, of approximately $931.9 million were used to acquire thePlatinum Explorer, to retire certain outstanding debt and for general corporate purposes.

In June 2011, the Issuer issued $225.0 million aggregate principal amount of additional Notes. The additional Notes were issued at a price equal to 107% of their face value, and are fully and unconditionally guaranteed, on a senior secured basis, by us and certain of our subsidiaries. The issuance premium, reported as an addition to the face amount of the Notes, will be recognized over the remaining life of the Notes using the effective interest rate method. The net proceeds, after fees and expenses, of approximately $227.8 million were used by the Issuer to purchase from the Company all of the equity interests of P2020 Rig Co., the entity that owns theAquamarine Driller, and the related purchase of our subsidiary that is the party to the drilling contract for theAquamarine Driller.

12

We used the proceeds to repay and terminate a term loan associated with theAquamarine Driller, make the initial payment to DSME under the construction contract for theTungsten Explorer and for general corporate purposes.

In April 2012, in connection with the Titanium Explorer Acquisition, the Issuer issued $775.0 million aggregate principal amount of additional Notes. These additional Notes were issued at a price equal to 108% of their face value, and are fully and unconditionally guaranteed, on a senior secured basis, by us and certain of our subsidiaries. The issuance premium, reported as an addition to the face amount of the Notes, is being recognized over the remaining life of the Notes using the effective interest rate method. The net proceeds, after fees and expenses of approximately $820.6 million, were used by the Issuer to fund the Titanium Explorer Acquisition, pay DSME the remaining amounts due under theTitanium Explorerconstruction contract and for general corporate purposes. The average yield on the entire $2.0 billion aggregate principal amount of the Notes is approximately 10.6%.

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 governing the notes, 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. The indenture governing the Notes, among other things, limits the Issuer 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 the Issuer; (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 our 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. Our future subsidiaries may become restricted subsidiaries and guarantors under limited circumstances.

RBC Credit Agreement

In June 2012, we entered into a secured revolving credit agreement with Royal Bank of Canada (the “RBC Credit Agreement”) to provide us with advances and letters of credit up to an aggregate principal amount of $25.0 million, maturing June 21, 2015. Advances under the RBC Credit Agreement bear interest at the ABR (as defined in the RBC Credit Agreement) plus a margin of 3.50% or LIBOR plus a margin of 4.50%, at our option. We may prepay outstanding advances subject to certain prepayment minimums at any time.

The RBC Credit Agreement includes customary covenants and events of default, including covenants that, among other things, restrict the granting of liens on certain assets, restrict the incurrence of indebtedness and the conveyance of and modification to vessels and require us to maintain certain financial ratios and provide periodic financial reports. The RBC Credit Agreement also contains certain other covenants similar to those in the indenture governing the Notes. Advances under the RBC Credit Agreement are secured by a lien on certain of our assets, which are substantially similar to those assets pledged in connection with the Notes. We believe we were in compliance with all financial covenants of the RBC Credit Agreement at June 30, 2012.

6. 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 June 30, 2012, no preferred shares were issued and outstanding.

Ordinary Shares

In July 2012, our shareholders approved a proposal to amend our memorandum and articles of association to increase our authorized ordinary shares from 400,000,000 to 500,000,000.

During the six months ended June 30, 2012, we granted 3,467,636 time-vested restricted shares to employees and directors under our 2007 Long-Term Incentive Plan (the “LTIP”), and 1,510,239 performance unit awards. Time-vested restricted share awards issued to employees vest ratably over four years, while awards to directors vest one year from date of grant. Performance unit awards may vest over a three-year period based on the level of attainment of pre-determined criteria; upon vesting, each performance unit award may be converted to ordinary shares at a ratio of 0 to 1.5. The time-vested restricted share awards and performance units are amortized to expense over the respective vesting period based on the fair value of the awards at the grant dates, which was approximately $5.1 million, based on an average share price of $1.03 per share. For purposes of calculating the grant date fair value of the performance units, the target conversion ratio of one ordinary share for one performance unit was used. In the six months ended June 30, 2012, 1,109,086 of the previously granted LTIP share awards vested.

7. Income Taxes

We are a Cayman Islands entity. The Cayman Islands does not impose corporate income taxes. Consequently, 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 operate in multiple countries under different legal forms. As a result, we are subject to the jurisdiction of numerous domestic and foreign tax authorities, as well as to tax agreements and treaties among these 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 by applying a tax rate to revenues rather than profits) 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 on the amount of income taxes that we provide during any given year.

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 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 asset will not be realized.

In certain jurisdictions we are taxed under preferential tax regimes, which may require our compliance with specified requirements to sustain the tax benefits. We believe we are in compliance with the specified requirements and will continue to make all reasonable efforts to comply, however, our ability to meet the requirements of the preferential tax regimes may be affected by changes in laws, our business operations and other factors affecting our company and industry, many of which are beyond our control.

13

Our periodic tax returns are subject to examination by taxing authorities in the jurisdictions in which we operate in accordance with the normal statutes of limitations in the applicable jurisdiction. 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. Our tax years 2008 through 2011 remain open to examination in many of our jurisdictions. In October 2010 and October 2011, authorities in Thailand commenced an examination for the 2009 and 2010 tax years, respectively. In October 2011, authorities in the Philippines notified us they would begin an examination for the 2010 tax year.

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

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

9. Supplemental Financial Information

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following:

	June 30, 2012		December 31, 2011
	(Unaudited)
	(In thousands)
Prepaid insurance	$	5,099	$	8,676
Sales tax receivable		3,355		1,004
Income tax receivable		280		280
Deferred tax asset		1,498		3,887
Other receivables		55		137
Deferred mobilization costs		500		1,152
Other prepaid expenses		2,257		1,773
	$	13,044	$	16,909

Property and Equipment

Property and equipment consisted of the following:

	June 30, 2012			December 31, 2011
	(Unaudited)
	(In thousands)
Drilling equipment	$	1,788,601		$	1,770,172
Assets under construction		989,026			133,369
Leasehold improvements		1,558			1,305
Office and technology equipment		9,941			8,750
		2,789,126			1,913,596
Accumulated depreciation		(140,900	)		(108,521	)
Property and equipment, net	$	2,648,226		$	1,805,075

14

Interest costs related to the financings of our drillings rigs and the amortization of debt financing costs are capitalized as part of the cost of the rig while it is under construction. We capitalized approximately $26.0 million of interest and amortization costs for the six months ended June 30, 2012 with regards to the construction of theTitanium Explorer and theTungsten Explorer.

Other Assets

Other assets consisted of the following:

	June 30, 2012		December 31, 2011
	(Unaudited)
	(In thousands)
Deferred financing costs, net	$	63,062	$	34,032
Performance bond collateral		19,483		19,472
Deposits		1,353		1,330
Deferred tax asset		774		245
Deferred mobilization costs		978		2,109
Deferred survey fees		725		985
	$	86,375	$	58,173

Accrued Liabilities

Accrued liabilities consisted of the following:

	June 30, 2012		December 31, 2011
	(Unaudited)
	(In thousands)
Interest	$	101,889	$	63,127
Compensation		14,087		21,161
Deferred payment forTitanium Explorer acquisition		12,000		—
Insurance premiums		3,024		8,070
Unearned income		—		379
Deferred revenue		1,419		6,321
Property, service and franchise taxes		1,610		1,610
Income taxes payable		5,019		2,570
Other		1,063		571
	$	140,111	$	103,809

10. Business Segment Information

Our business activities relate to the international operations of our offshore drilling units, both jackup rigs and drillships, and providing construction supervision services in China for drilling units owned by others.

For the three and six months ended June 30, 2012 and 2011, 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. Four customers accounted for approximately 45%, 30%, 12% and 11% of consolidated revenues for the three months ended June 30, 2012. For the six months ended June 30, 2012, four customers accounted for approximately 42%, 26%, 10% and 10%, respectively of consolidated revenue. Four customers accounted for approximately 42%, 12%, 11% and 10%, respectively, of consolidated revenue for the three months ended June 30, 2011. For the six months ended June 30, 2011, three customers accounted for approximately 41%, 11% and 10%, respectively, of consolidated revenue.

11. Supplemental Condensed Consolidating Financial Information

In July 2010, the Issuer issued $1.0 billion aggregate principal amount of its Notes under an indenture. In June 2011, the Issuer issued $225.0 million aggregate principal amount of additional Notes under the existing indenture. In April 2012, the Issuer issued $775.0 million aggregate principal amount of additional Notes under the existing indenture. The Notes are fully and unconditionally

15

guaranteed, jointly and severally, on a senior secured basis by us and certain of our subsidiaries (the “Subsidiary Guarantors”). Our other existing subsidiaries have not guaranteed or pledged assets to secure the Notes (collectively, the “Non-Guarantor Subsidiaries”).

The following tables present the condensed consolidating financial information as of June 30, 2012 and 2011 and for the three and six months ended June 30, 2012 and 2011 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.

Condensed Consolidating Balance Sheet (in thousands)

	As of June 30, 2012
	Parent			Issuer			Subsidiary Guarantors		Non- Guarantors		Eliminations			Consolidated
Cash and cash equivalents	$	1,424		$	27,797		$	93,356	$	1,132	$	—		$	123,709
Other current assets		353			—			121,956		8,465		—			130,774
Total current assets		1,777			27,797			215,312		9,597		—			254,483
Property and equipment, net		—			253			2,513,087		134,886		—			2,648,226
Investment in and advances to subsidiaries		644,344			1,418,637			1,037,090		1,468		(3,101,539	)		—
Other assets		—			63,062			21,751		1,562		—			86,375
Total assets	$	646,121		$	1,509,749		$	3,787,240	$	147,513	$	(3,101,539	)	$	2,989,084
Accounts payable and accrued liabilities	$	24,798		$	95,919		$	42,753	$	33,484	$	—		$	196,954
Intercompany (receivable) payable		(194,893	)		(895,186	)		997,535		92,544		—			—
Total current liabilities		(170,095	)		(799,267	)		1,040,288		126,028		—			196,954
Long-term debt		36,065			2,046,601			—		—		—			2,082,666
Other long term liabilities		—			—			16,132		3,922		—			20,054
Shareholders’ equity (deficit)		780,151			262,415			2,730,820		17,563		(3,101,539	)		689,410
Total liabilities and shareholders’ equity	$	646,121		$	1,509,749		$	3,787,240	$	147,513	$	(3,101,539	)	$	2,989,084

Condensed Consolidating Statement of Operations (in thousands)

	Three Months Ended June 30, 2012
	Parent			Issuer			Subsidiary Guarantors		Non- Guarantors			Consolidated
Revenues	$	—		$	—		$	102,444	$	2,681		$	105,125
Operating costs and expenses		3,241			(154	)		67,098		2,921			73,106
Income (loss) from operations		(3,241	)		154			35,346		(240	)		32,019
Other income (expense)		(1,925	)		(34,226	)		76		140			(35,935	)
Income (loss) before income taxes		(5,166	)		(34,072	)		35,422		(100	)		(3,916	)
Income tax provision		—			8			5,742		311			6,061
Net income (loss)	$	(5,166	)	$	(34,080	)	$	29,680	$	(411	)	$	(9,977	)

Condensed Consolidating Statement of Operations (in thousands)

	Six Months Ended June 30, 2012
	Parent			Issuer			Subsidiary Guarantors		Non- Guarantors		Consolidated
Revenues	$	—		$	—		$	210,170	$	26,804	$	236,974
Operating costs and expenses		6,168			(154	)		133,326		24,922		164,262
Income (loss) from operations		(6,168	)		(154	)		76,844		1,882		72,712
Other income (expense)		(3,840	)		(69,062	)		557		304		(72,041	)
Income (loss) before income taxes		(10,008	)		(68,908	)		77,401		2,186		671
Income tax provision		—			8			11,032		787		11,827
Net income (loss)	$	(10,008	)	$	(68,916	)	$	66,369	$	1,399	$	(11,156	)

16

Condensed Consolidating Statement of Cash Flows (in thousands)

	Six Months Ended June 30, 2012
	Parent			Issuer			Subsidiary Guarantors			Non- Guarantors			Consolidated
Net cash provided by (used in) operating activities	$	2,312		$	(53,111	)	$	53,088		$	27,579		$	29,868
Net cash provided by (used in) investing activities		(22	)		(253	)		(809,865	)		(6,582	)		(816,722	)
Net cash provided by (used in) financing activities		(15,815	)		81,150			759,237			(24,040	)		800,532
Net increase in cash and cash equivalents		(13,525	)		27,786			2,460			(3,043	)		13,678
Cash and cash equivalents—beginning of period		14,949			11			90,896			4,175			110,031
Cash and cash equivalents—end of period	$	1,424		$	27,797		$	93,356		$	1,132		$	123,709

Condensed Consolidating Balance Sheet (in thousands)

	As of June 30, 2011
	Parent			Issuer			Subsidiary Guarantors		Non- Guarantors			Eliminations			Consolidated
Cash and cash equivalents	$	33,045		$	2,981		$	72,627	$	5,843		$	—		$	114,496
Other current assets		763			—			99,896		21,534			—			122,193
Total current assets		33,808			2,981			172,523		27,377			—			236,689
Property and equipment, net		1,531			—			1,694,436		107,427			—			1,803,394
Investment in and advances to subsidiaries		488,230			424,451			66,559		20			(979,260	)		—
Other assets		—			38,508			18,892		1,298			—			58,698
Total assets	$	523,569		$	465,940		$	1,952,410	$	136,122		$	(979,260	)	$	2,098,781
Accounts payable and accrued liabilities	$	9,094		$	58,698		$	34,239	$	27,996		$	—		$	130,027
Intercompany (receivable) payable		(310,615	)		(1,211,208	)		1,363,843		157,980			—			—
Total current liabilities		(301,521	)		(1,152,510	)		1,398,082		185,976			—			130,027
Long-term debt		31,773			1,210,738			—		—			—			1,242,511
Other long term liabilities		—			—			8,997		3,404			—			12,401
Shareholders’ equity (deficit)		793,317			407,712			545,331		(53,258	)		(979,260	)		713,842
Total liabilities and shareholders’ equity	$	523,569		$	465,940		$	1,952,410	$	136,122		$	(979,260	)	$	2,098,781

17

Condensed Consolidating Statement of Operations (in thousands)

	Three Months Ended June 30, 2011
	Parent			Issuer			Subsidiary Guarantors			Non- Guarantors		Consolidated
Revenues	$	—		$	—		$	100,098		$	20,996	$	121,094
Operating costs and expenses		4,402			19			64,669			19,770		88,860
Income (loss) from operations		(4,402	)		(19	)		35,429			1,226		32,234
Other income (expense)		(1,840	)		(33,724	)		(29,042	)		60		(64,546	)
Income (loss) before income taxes		(6,242	)		(33,743	)		6,387			1,286		(32,312	)
Income tax provision		—			—			7,332			426		7,758
Net income (loss)	$	(6,242	)	$	(33,743	)	$	(945	)	$	860	$	(40,070	)

Condensed Consolidating Statement of Operations (in thousands)

	Six Months Ended June 30, 2011
	Parent			Issuer			Subsidiary Guarantors			Non- Guarantors		Consolidated
Revenues	$	—		$	—		$	188,337		$	57,388	$	245,725
Operating costs and expenses		9,006			20			125,846			54,340		189,212
Income (loss) from operations		(9,006	)		(20	)		62,491			3,048		56,513
Other income (expense)		(3,696	)		(65,862	)		(35,772	)		760		(104,570	)
Income (loss) before income taxes		(12,702	)		(65,882	)		26,719			3,808		(48,057	)
Income tax provision		576			—			9,882			209		10,667
Net income (loss)	$	(13,278	)	$	(65,882	)	$	16,837		$	3,599	$	(58,724	)

Condensed Consolidating Statement of Cash Flows (in thousands)

	Six Months Ended June 30, 2011
	Parent			Issuer			Subsidiary Guarantors			Non- Guarantors			Consolidated
Net cash provided by (used in) operating activities	$	(13,566	)	$	(49,227	)	$	60,740		$	(5,359	)	$	(7,412	)
Net cash provided by (used in) investing activities		(757	)		—			(11,679	)		(104,440	)		(116,876	)
Net cash provided by (used in) financing activities		(47,916	)		51,073			3,604			111,580			118,341
Net increase in cash and cash equivalents		(62,239	)		1,846			52,665			1,781			(5,947	)
Cash and cash equivalents—beginning of period		95,284			1,135			19,962			4,062			120,443
Cash and cash equivalents—end of period	$	33,045		$	2,981		$	72,627		$	5,843		$	114,496

18

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 June 30, 2012 and our results of operations for the three and six months ended June 30, 2012 and 2011. The discussion should be read in conjunction with the financial statements and notes thereto, included in our Annual Report on Form 10-K, as amended, for the year ended December 31, 2011. 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 offshore drilling company focused on operating a fleet of modern, high specification drilling units. Our principal business is to contract drilling units, related equipment and work crews, primarily on a dayrate basis to drill oil and 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 drilling units we are a provider of offshore contract drilling services to major, national and independent oil and natural gas companies, focused primarily on international markets.

The following table sets forth certain information concerning our owned offshore drilling fleet.

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	Operating
Titanium Explorer (1) (2)	100%	2012		12,000		40,000	Acceptance testing
Tungsten Explorer	100%	2013		12,000		40,000	Under construction

(1) ThePlatinum Explorer and theTitanium Explorerare designed to drill in up to 12,000 feet of water, but are currently equipped to drill in 10,000 feet of water.

(2) TheTitanium Explorer was formerly known as theDragonquest. We have an eight-year contract with Petrobras to operate this vessel upon completion of acceptance testing.

Business Outlook

The current outlook for global oil and gas remains favorable as global activity continues to increase at a moderate pace. During the second quarter of 2012, expectations for worldwide economic growth were negatively impacted by concerns over European sovereign debt and fiscal policy in emerging economies to reduce inflationary forces. As a result of these lowered expectations, the price of oil was negatively impacted during the quarter; however, this negative impact was not severe enough or long enough in duration to negatively impact long term expectations for oil and gas demand and the demand for our services. If the expectations continue to be lower or are reduced further, this may have a longer term negative impact on the price of oil and gas and a corresponding decrease in the demand for our services.

Due to lack of infrastructure needed to transport natural gas, natural gas remains a regional commodity in comparison to oil. While there is an abundance of natural gas in North America, there continues to be very tight supplies of natural gas relative to demand in Europe and Asia, resulting in significantly higher natural gas prices for these markets. We believe these conditions will continue to increase the demand for our services in West Africa and Asia.

We believe the market for jackups is continuing to improve as operators are actively developing oil and natural gas reserves. As demand from operators for modern, high-specification jackups has increased, contract rates and utilization have risen with recent contracts being awarded with dayrates in excess of $150,000 per day. The continued improvement in the dayrates for modern, high specification jackup rigs could be tempered by several factors, including the future deliveries of newbuild premium jackup rigs and the possible re-activation of older, less efficient rigs by our competitors.

Deepwater and ultra-deepwater projects are typically 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 economic conditions and oil and natural gas prices and demand. We believe the long-term fundamentals for demand for oil and natural gas support a significant increase in deepwater and ultra-deepwater development. This is further supported by significant oilfield discoveries offshore Brazil, West Africa and in the U.S. Gulf of Mexico. We believe oil and gas companies are generally planning to increase their upstream capital spending levels.

As of July 2012, we estimate there are approximately 26 deepwater and ultra-deepwater rigs scheduled for delivery through 2013, most of which are contracted to customers. We believe that demand is likely to exceed rig supply despite newbuilds. The demand has caused an increase in dayrates with recent deepwater contract fixtures awarded in the international markets in excess of $600,000 per day.

19

Following the Macondo well incident in April 2010, the U.S. government undertook a comprehensive regulatory review of domestic offshore drilling operations, significantly expanding and enhancing governmental oversight and regulation. Additionally, oil and gas operators are requiring more testing of rig equipment and are extensively reviewing contractors’ drilling and safety procedures. These measures have resulted in increased operating costs.

In April 2012, we completed the acquisition of theTitanium Explorer. TheTitanium Exploreris undergoing acceptance testing and is expected to commence drilling operations late in the third quarter of 2012 in the U.S Gulf of Mexico.

Results of Operations

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 began operating under its first contract in August 2009 and our third jackup rig commenced operations in January 2010. Our fourth jackup rig was delivered in December 2009 and began operating in March 2010. Our first drillship, thePlatinum Explorer, was delivered in November 2010 and commenced operations in December 2010. Our second drillship, theTitanium Explorer, was delivered in April 2012 and is currently undergoing customer acceptance testing.

The following table sets forth selected contract drilling operational information for the periods indicated:

	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
Jackups
Operating rigs, end of period		4			4			4			4
Available days (1)		364			364			728			724
Utilization (2)		99.6	%		99.9	%		99.8	%		92.9	%
Average daily revenues (3)	$	144,447		$	131,286		$	144,495		$	126,292
Platinum Explorer
Available days (1)		91			91			182			181
Utilization (2)		91.1	%		95.1	%		95.0	%		94.3	%
Average daily revenues (3)	$	570,524		$	580,317		$	576,731		$	584,382

(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. A revenue earning day is defined as a day for which a rig earns dayrate after commencement of operations.

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

The following table is an analysis of our operating results for the three and six months ended June 30, 2012 and 2011.

	Three Months Ended June 30,									Six Months Ended June 30,
	2012			2011			Change			2012			2011			Change
	(In thousands)									(In thousands)
Contract drilling services	$	99,683		$	97,977		$	1,706		$	204,681		$	184,731		$	19,950
Management fees		956			3,171			(2,215	)		3,678			7,214			(3,536	)
Reimbursables		4,486			19,946			(15,460	)		28,615			53,780			(25,165	)
		105,125			121,094			(15,969	)		236,974			245,725			(8,751	)
Operating costs		50,030			65,433			15,403			119,354			142,826			23,472
General and administrative		6,704			7,402			698			11,964			14,249			2,285
Depreciation		16,372			16,025			(347	)		32,944			32,137			(807	)
Operating income		32,019			32,234			(215	)		72,712			56,513			16,199
Other income (expense)
Interest income		21			22			(1	)		33			60			(27	)
Interest expense		(36,172	)		(39,350	)		3,178			(72,935	)		(80,892	)		7,957
Loss on debt extinguishment		—			(25,196	)		25,196			—			(25,196	)		25,196
Other income (expense)		216			(22	)		238			861			1,458			(597	)
Income tax provision (benefit)		6,061			7,758			1,697			11,827			10,667			(1,160	)
Net loss	$	(9,977	)	$	(40,070	)	$	30,093		$	(11,156	)	$	(58,724	)	$	47,568

20

Revenue: Total revenue for the three months ended June 30, 2012 was $105.1 million compared to $121.1 million for the three months ended June 30, 2011, a decrease of $16.0 million, or 13%. Contract drilling revenue totaled $99.7 million for the three months ended June 30, 2012 compared to $98.0 million for the same period in 2011, an increase of $1.7 million, or 2%. The increase in drilling revenue was primarily due to increased dayrates on theTopaz Drillerin the quarter ended June 30, 2012, offset by the lower utilization for thePlatinum Explorer. Jackup utilization for the three months ended June 30, 2012 was 99.6% which was consistent with the 99.9% achieved in the prior year. ThePlatinum Explorer utilization for the three months ended June 30, 2012 and 2011 was 91.1% and 95.1%, respectively, as thePlatinum Explorer had scheduled out-of-service time in 2012 for an equipment vendor to complete upgrades to the rig’s tubular handling system, and in 2011 thePlatinum Explorer experienced normal amounts of downtime for a rig which had recently commenced operations.

Management fees and reimbursable revenue for the three months ended June 30, 2012 were $956,000 and $4.5 million, respectively, as compared to $3.2 million and $19.9 million in the prior year. The significant decrease in management fees and reimbursable revenue is due to having one on-going project during 2012 as compared to four projects in 2011. Two shipyard oversight projects we were conducting for a third party were completed at the end of 2011 and with the acquisition of theTitanium Explorer, this shipyard project was completed.

Total revenue for the six months ended June 30, 2012 was $237.0 million compared to $245.7 million for the six months ended June 30, 2011, a decrease of $8.7 million, or 4%. Contract drilling revenue totaled $204.7 million for the six months ended June 30, 2012 compared to $184.7 million for the same period in 2011, an increase of $20.0 million, or 11%. The increase in drilling revenue was primarily due to the increased dayrates on our jackups operating in Malaysia, and increased fleet utilization for thejackups. The jackup utilization for the six months ended June 30, 2012 was 99.8% as compared to utilization of 92.9% in the prior year. The utilization in the prior year was negatively impacted by out of service time for theSapphire Driller due to a customer declaring force majeure on a contract in West Africa. ThePlatinum Explorer achieved utilization of 95.0% for the six months ended June 30, 2012, consistent with the prior year utilization of 94.3%.

Management fees and reimbursable revenue for the six months ended June 30, 2012 were $3.7 million and $28.6 million, respectively, as compared to $7.2 million and $53.8 million in the prior year. The significant decrease in management fees and reimbursable revenue is due to having one on-going project and managing theTitanium Explorer for four months during 2012 as compared to having on average four on-going projects during the six months ended June 30, 2011 as we completed two projects and started two additional projects.

Operating expenses: Operating expenses for the three months ended June 30, 2012 were $50.0 million compared to $65.4 million for the three months ended June 30, 2011, a decrease of $15.4 million, or approximately 24%. This decrease was due primarily to a reduction of reimbursable costs associated with shipyard oversight projects to $1.8 million as compared to $17.8 million in the prior year.

Operating expenses for the six months ended June 30, 2012 were $119.4 million compared to $142.8 million for the six months ended June 30, 2011, a decrease of $23.4 million, or approximately 16%. This decrease was due primarily to a reduction of reimbursable costs associated with shipyard oversight projects to $23.2 million as compared to $50.2 million in the prior year.

General and administrative expenses: General and administrative expenses were $6.7 million and $12.0 million for the three and six month periods ended June 30, 2012 as compared to $7.4 million and $14.2 million, respectively, for the comparable periods in 2011. The decreases of $698,000 for the three month and $2.3 million for the six month comparative periods are primarily due to reduced company expenditures related to information technology projects and legal expenses in 2012.

Depreciation expense:Depreciation expense was $16.4 million and $32.9 million for the three and six month periods ended June 30, 2012, as compared to $16.0 million and $32.1 million, respectively, for the comparable periods in 2011. The increases are primarily due to the depreciation of capital upgrades on theTopaz Driller and theAquamarine Driller.

Interest expense and other financing charges:Interest expense and other financing charges for the three and six month periods ended June 30, 2012 decreased $3.2 million and $8.0 million, respectively, over the same periods of 2011. The decreases are primarily due to the refinancing of higher interest rate debt in 2011. Additionally, we incurred $2.0 million in fees related to an amendment of a term loan associated with the construction of theAquamarine Driller in the first quarter of 2011.

We capitalized $22.3 million and $26.0 million of interest and amortization costs in the three and six month periods ended June 30, 2012, respectively. We capitalized $0.5 million of interest and amortization costs in the three and six month periods ended June 30, 2011.

21

Loss on extinguishment of debt:For the three and six month periods ended June 2011, in connection with the early retirement of a term loan related toAquamarine Driller, we paid approximately $21.7 million in prepayment fees. Additionally, we wrote off approximately $3.5 million of deferred financing costs.

Income tax expense:Income tax expense was $6.1 million and $11.8 million, respectively, for the three and six month periods ended June 30, 2012, as compared to $7.8 million and $10.7 million, respectively, for the comparable periods in 2011. The changes are primarily due to revenues in 2012 being earned in jurisdictions where we are subject to deemed profit tax regimes that determine taxes based on specified percentages of revenue rather than profit or loss before tax.

Liquidity and Capital Resources

Long-term Debt

In April 2012, in connection with the acquisition of theTitanium Explorer,one of our wholly-owned subsidiaries issued an additional $775.0 million aggregate principal amount of our existing Notes. These additional Notes were issued at a price equal to 108% of their face value and are fully and unconditionally guaranteed, on a senior secured basis, by us and certain of our subsidiaries. The issuance premium, reported as an addition to the face amount of the Notes, is being recognized over the remaining life of the Notes using the effective interest rate method. The net proceeds, after fees and expenses, of approximately $820.6 million were used by the Issuer to fund the purchase of theTitanium Explorer for approximately $169.0 million, including repayment of certain of the seller’s expenses, and pay DSME the remaining amounts due under theTitanium Explorerconstruction contract of approximately $608.2 million. The remaining proceeds will be used to outfit and mobilize theTitanium Explorerto the U.S. Gulf of Mexico, pay a portion of the August 2012 interest payment on the Notes and for general corporate purposes.

In June 2012, we entered into a secured revolving credit agreement with Royal Bank of Canada (the “RBC Credit Agreement”) to provide us with advances and letters of credit up to an aggregate principal amount of $25.0 million, maturing June 21, 2015. Advances under the RBC Credit Agreement bear interest at the ABR (as defined in the RBC Credit Agreement) plus a margin of 3.50% or LIBOR plus a margin of 4.50%, at our option. We may prepay outstanding advances subject to certain prepayment minimums at any time.

The RBC Credit Agreement includes customary covenants and events of default, including covenants that, among other things, restrict the granting of liens on certain assets, restrict the incurrence of indebtedness and the conveyance of and modification to vessels and require us to maintain certain financial ratios and provide periodic financial reports. The RBC Credit Agreement also contains certain other covenants similar to those in the indenture governing the Notes. Advances under the RBC Credit Agreement are secured by a lien on certain of our assets, which are substantially similar to those assets pledged in connection with the Notes. We believe we were in compliance with all financial covenants of the RBC Credit Agreement at June 30, 2012.

Our long-term debt was composed of the following:

	June 30, 2012		December 31, 2011
	(Unaudited)
	(In thousands)
11 1/2% Senior Secured Notes, net of premium (discount) of $46,601 and ($12,503)	$	2,046,601	$	1,212,497
F3 Capital Note, net of discount of $23,935 and $26,069		36,065		33,931
RBC Credit Agreement		—		—
		2,082,666		1,246,428
Less current maturities of long-term debt		—		—
Long-term debt	$	2,082,666	$	1,246,428

11  ¹/₂% Senior Secured Notes

On July 30, 2010, Offshore Group Investment Limited, one of our wholly-owned subsidiaries (the “Issuer”), issued $1.0 billion aggregate principal amount of Notes under an indenture. These 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 and certain of our subsidiaries. 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. The Notes mature on August 1, 2015, and bear interest from the date of their issuance at the rate of 11.5% per year. Interest on outstanding Notes is payable semi-annually in arrears, commencing on February 1, 2011. The net proceeds, after fees and expenses, of approximately $931.9 million were used to acquire thePlatinum Explorer,retire certain outstanding debt and for general corporate purposes.

22

In June 2011, the Issuer issued $225.0 million aggregate principal amount of additional Notes. The additional Notes were issued at a price equal to 107% of their face value, and are fully and unconditionally guaranteed, on a senior secured basis, by us and certain of our subsidiaries. The issuance premium, reported as an addition to the face amount of the Notes, will be recognized over the remaining life of the Notes using the effective interest rate method. The net proceeds, after fees and expenses, of approximately $227.8 million were used by the Issuer to purchase from the Company all of the equity interests of P2020 Rig Co., the entity that owns theAquamarine Driller, and the related purchase of our subsidiary that is the party to the drilling contract for theAquamarine Driller.

We used the proceeds to repay a term loan related to theAquamarine Driller, make the initial payment to DSME under the construction contract for theTungsten Explorer and for general corporate purposes.

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 governing the Notes, 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. The indenture governing the Notes, among other things, limits the Issuer 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 the Issuer; (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 our 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. Our future subsidiaries may become restricted subsidiaries and guarantors under limited circumstances.

F3 Capital Note

As part of the purchase price for the Mandarin Acquisition, we issued a promissory note to F3 Capital. The F3 Capital Note accrues interest at 5% per annum and will mature 90 months from the issue date. The F3 Capital Note contains 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 at a price per share less than the conversion price of the F3 Capital Note so long as the F3 Capital Note is outstanding. 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.

In connection with the Titanium Explorer Acquisition, F3 Capital entered into a voting agreement and irrevocable proxy pertaining to its ownership of our shares. Pursuant to the terms of the voting agreement, F3 Capital voted its shares in favor of an increase in our authorized capital by 100,000,000 ordinary shares and the slate of directors proposed by our board of directors at our Extraordinary General Meeting in lieu of Annual General Meeting of Shareholders held on July 10, 2012. Additionally, F3 Capital has a continuing obligation to vote in favor of the slate of directors approved by our board of directors for a period of twelve months after the date of the Titanium Explorer Acquisition

Liquidity

As of June 30, 2012, we had working capital of approximately $57.5 million. Included in working capital is approximately $123.7 million of cash available for general corporate purposes, including the August 1, 2012 semi-annual interest payment on our Notes. Additionally, we have posted $5.9 million cash as collateral for bid tenders and performance bonds. For the remainder of 2012, we anticipate spending approximately $7.0 million on sustaining capital expenditures and $20.3 million for the outfitting and mobilization of theTitanium Explorer. We expect to fund these expenditures from our available working capital, cash flow from operations including the $38.4 million mobilization fee for theTitanium Explorer and advances under the RBC Credit Agreement. The timing of theTitanium Explorer commencing operations is a significant factor in determining our liquidity position. The timing and extent of our customer’s acceptance testing and, in some cases, third party verification will impact the commencement date of operations and could negatively impact liquidity.

Additionally, we expect to spend approximately $12.4 million, excluding capitalized interest, over the remainder of 2012 on theTungsten Explorer. In May 2013, the final shipyard payment on theTungsten Explorer will be due upon completion of construction. We expect to fund pre-delivery expenditures from working capital, from advances under the RBC Credit Agreement or from additional capital raising.

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

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

23

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 this 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: 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 drillships and the amortization of debt financing costs were capitalized as part of the cost while they were under construction. In June 2011, we made our initial construction payments on theTungsten Explorerand began capitalizing interest for this project. In April 2012, we began capitalizing interest on theTitanium Explorer upon acquisition of the drillship. Total interest and amortization costs capitalized for the three and six months ended June 30, 2012 were $22.3 million and $26.0 million, respectively. For the three and six months ended June 30, 2011, we capitalized interest and amortization costs of $0.5 million.

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.

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.

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.

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.

24

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Our rigs operate in various international locations, and thus are sometimes subject to foreign exchange risk. We may from time to time also be exposed to certain commodity price risk, equity price risk and risks related to other market driven rates or prices. The risks associated with foreign exchange rates, commodity prices and equity prices have not been significant in the first six months of 2012 as all of our drilling contracts thus far have been denominated in U.S. dollars. We do not enter into derivatives or other financial instruments for trading or speculative purposes.

Interest Rate Risk: As of June 30, 2012, we did not have any variable rate debt outstanding.

Foreign Currency Exchange Rate Risk. As we operate in international areas, we are 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. As of June 30, 2012, we did not have any open foreign exchange derivative contracts or material foreign currency exposure risk.

Item 4. Controls and Procedures

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports we 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 June 30, 2012 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.

25

PART II—OTHER INFORMATION

Item 6. Exhibits

Exhibit No.	Description
3.2	Amended and Restated Memorandum & Articles of Association of Vantage Drilling Company effective December 21, 2009, as amended effective July 10, 2012*
4.1	Credit Agreement dated as of June 21, 2012 among Offshore Group Investment Limited and Vantage Drilling Company, as borrowers, Vantage Drilling Company and certain subsidiaries thereof as Guarantors, the Lenders, and Royal Bank of Canada as Collateral Agent (incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K filed with the SEC on June 25, 2012)
10.1	Form of Indemnification Agreement for the Directors and Officers of the Company and its Subsidiaries*
10.2	Consulting Services Agreement between Vantage Drilling Company and Strand Energy dated May 8, 2012*
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*
101.INS	— XBRL Instance Document **
101.SCH	— XBRL Schema Document **
101.CAL	— XBRL Calculation Document **
101.DEF	— XBRL Definition Linkbase Document **
101.LAB	— XBRL Label Linkbase Document **
101.PRE	— XBRL Presentation Linkbase Document **

* Filed herewith.

** Furnished with this Form 10-Q

26

SIGNATURES

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

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

Date: July 30, 2012

27