UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2014
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 |
| (I.R.S. Employer |
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| |
777 Post Oak Boulevard, Suite 800, Houston, Texas |
| 77056 |
(Address of Principal Executive Offices) |
| (Zip Code) |
Registrant’s telephone number, including area code:
(281) 404-4700
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
| Name of each exchange on which registered |
Ordinary Shares, par value $.001 per share |
| NYSE MKT |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x
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 ¨
Indicated by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
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 definition of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
| ¨ |
| Accelerated filer |
| x |
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| |||
Non-accelerated filer |
| ¨ |
| 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
Aggregate market value of the voting and non-voting stock held by nonaffiliates as of June 30, 2014 based on the closing price of $1.92 per share on the NYSE MKT on such date, was approximately $380.0 million.
The number of the registrant’s ordinary shares outstanding as of February 11, 2015 is 310,486,258 shares.
Documents incorporated by reference
Portions of the registrant’s proxy statement for its Annual Meeting of Shareholders to be held in 2015 are incorporated by reference into Part III of this Annual Report.
TABLE OF CONTENTS
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Item 1. |
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Item 1A. |
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Item 1B. |
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Item 2. |
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Item 3. |
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Item 4. |
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Item 5. |
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Item 6. |
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Item 7. |
| Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 7A. |
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Item 8. |
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Item 9. |
| Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
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Item 9A. |
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Item 9B. |
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Item 10. |
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Item 11. |
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Item 12. |
| Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
| 65 |
Item 13. |
| Certain Relationships and Related Transactions, and Director Independence |
| 65 |
Item 14. |
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Item 15. |
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This Annual Report on Form 10-K 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 are included throughout this Annual Report, including under “Item 1A. Risk Factors” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.” When used, statements which are not historical in nature, including those containing words such as “anticipate,” “assume,” “believe,” “budget,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “would,” “will,” “future” and similar expressions are intended to identify forward-looking statements in this Annual Report.
These forward-looking statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties. You should not place undue reliance on these forward-looking statements. Our actual results could differ materially from those anticipated in these forward-looking statements.
Among the factors that could cause actual results to differ materially are the risks and uncertainties described under “Item 1A. Risk Factors,” under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the following:
· | 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 or renegotiation of our customer contracts; |
· | general economic conditions and conditions in the oil and gas industry; |
· | our inability to replace existing contracts as they expire, or obtain an initial contract for the Cobalt Explorer; |
· | failure to obtain delivery, or a delay in delivery, of the Cobalt Explorer; |
· | delays and cost overruns in construction projects; |
· | competition within our industry; |
· | limited mobility between geographic regions; |
· | operating hazards in the oilfield service industry; |
· | ability to obtain indemnity from customers; |
· | adequacy of insurance coverage upon the occurrence 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; |
· | 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; |
· | increased cost of obtaining supplies; |
· | the sufficiency of our internal controls; |
· | changes in tax laws, treaties or regulations; |
· | any non-compliance with the U.S. Foreign Corrupt Practices Act; |
1
· | our obligation to repurchase certain indebtedness upon a change of control or other triggering events; |
· | various risks in our relationship with F3 Capital and its affiliates; and |
· | our incorporation under the laws of the Cayman Islands and the limited rights to relief that may be available compared to U.S. laws. |
Many of these factors are beyond our ability to control or predict. Any, 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 www.vantagedrilling.com or through the SEC’s Electronic Data Gathering and Analysis Retrieval system (EDGAR) at www.sec.gov. The contents of our website are not part of this Annual Report.
Unless the context indicates otherwise, all references to “we,” “our” or “us” refer to Vantage Drilling Company and its consolidated subsidiaries.
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Our Company
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 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. We are an exempted company incorporated with limited liability in the Cayman Islands, organized in 2007.
Drilling Fleet
Jackups
A jackup rig is a mobile, self-elevating drilling platform equipped with legs that are lowered to the ocean floor until a foundation is established for support, at which point the hull is raised out of the water into position to conduct drilling and workover operations. All of our jackup rigs were built at PPL Shipyard in Singapore. The design of our jackup rigs is the Baker Marine Pacific Class 375. These units are ultra-premium jackup rigs with independent legs capable of drilling in up to 375 feet of water, a cantilever drilling floor and a total drilling depth capacity of approximately 30,000 feet.
Drillships
Drillships are self-propelled, dynamically positioned and suited for drilling in remote locations because of their mobility and large load carrying capacity. All of our drillships are designed for drilling in water depths of up to 12,000 feet, with a total vertical drilling depth capacity of up to 40,000 feet. The drillships’ hull design has a variable deck load of approximately 20,000 tons and measures approximately 781 feet long by 137 feet wide. All of our drillships were built at Daewoo Shipbuilding & Marine Engineering shipyard in South Korea.
The following table sets forth certain information concerning our offshore drilling fleet.
Name |
| Year Built/ |
|
| Water Depth |
|
| Drilling Depth |
|
| Status | |||
Jackups |
|
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|
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|
|
|
|
|
|
Emerald Driller |
|
| 2008 |
|
|
| 375 |
|
|
| 30,000 |
|
| Operating |
Sapphire Driller |
|
| 2009 |
|
|
| 375 |
|
|
| 30,000 |
|
| Operating |
Aquamarine Driller |
|
| 2009 |
|
|
| 375 |
|
|
| 30,000 |
|
| Operating |
Topaz Driller |
|
| 2009 |
|
|
| 375 |
|
|
| 30,000 |
|
| Operating |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Drillships (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Platinum Explorer |
|
| 2010 |
|
|
| 12,000 |
|
|
| 40,000 |
|
| Operating |
Titanium Explorer |
|
| 2012 |
|
|
| 12,000 |
|
|
| 40,000 |
|
| Operating |
Tungsten Explorer |
|
| 2013 |
|
|
| 12,000 |
|
|
| 40,000 |
|
| Operating |
Cobalt Explorer |
|
| 2016 |
|
|
| 12,000 |
|
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| 40,000 |
|
| Under construction |
(1) | The drillships are designed to drill in up to 12,000 feet of water. The Platinum Explorer, Titanium Explorer and Tungsten Explorer are currently equipped to drill in 10,000 feet of water. The Cobalt Explorer will be equipped to drill in 10,000 feet of water with a dual derrick and two seven-ram blowout preventers (“BOPs”). |
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Strengths
We believe our primary competitive strengths include the following:
· Premium fleet. Our fleet is currently comprised of seven ultra-premium high specification drilling units: four jackup rigs and three drillships. We believe the Emerald Driller, Sapphire Driller, Aquamarine Driller and Topaz Driller are ultra-premium jackup rigs due to their ability to drill in deeper depths, as well as their enhanced operational efficiency and technical capabilities when compared to a majority of the current global jackup rig fleet, which is primarily comprised of older, smaller, less capable rigs using less modern technology. The Platinum Explorer, Titanium Explorer and Tungsten Explorer are ultra-deepwater drillships that are designed to drill in up to 12,000 feet of water. Our drillships are currently equipped to drill in water depths of up to 10,000 feet. We believe 10,000 feet to be the upper-limit water depth currently being developed by leading offshore exploration and production companies, though we also believe that they are evaluating future deepwater development projects in water depths in excess of 10,000 feet.
· Strong asset coverage. Our owned fleet includes four jackups, three drillships and one drillship under construction at a total cost of approximately $3.5 billion as of December 31, 2014. These costs reflect all incurred costs associated with the purchase, construction, delivery and commissioning of the vessels, as well as significant supplies of major components with respect to the drillships, and capitalized interest. As of December 31, 2014, we had approximately $2.7 billion of debt outstanding, which represents a ratio of 1.3x total cost to debt outstanding.
· Proven track record. We have a proven track record of successfully managing, constructing, marketing and operating offshore drilling units, having previously managed significant drilling fleets for some of our competitors. Our in-house team of engineers and construction personnel has overseen complex rig construction projects. As a result, our rigs have generally been delivered within budget and either on time or ahead of schedule.
· Experienced management and operational team. We benefit from our management team, which has extensive experience in the drilling industry, including international and domestic public company experience involving numerous acquisitions and debt and equity financings.
Strategy
Our strategy is to:
· Capitalize on customer demand for modern, high specification units. We own and manage high specification drilling units, which are well suited to meet the requirements of customers for efficiently drilling through deep and complex geological formations, and drilling horizontally. Additionally, high specification drilling units generally provide faster drilling and moving times. A majority of the bid invitations for jackups that we receive require high specification units. Aside from their drilling capabilities, we believe that customers generally prefer new drilling units because of improved safety features and less frequent downtime for maintenance. New, modern drilling units are also generally preferred by crews, which makes it easier to hire and retain high quality operating personnel.
· Focus on international markets. We have been able to successfully deploy and operate our drilling units in some of the most active international oil and natural gas producing regions. We believe that exposure to certain international markets with major, national and independent oil and natural gas companies will increase the predictability of our cash flows because those markets have exhibited less cyclicality. We also believe that our internationally diverse platform reduces our exposure to a single market. Through the continued growth of our presence in North America, Asia and West Africa, we intend to capitalize on our existing infrastructure to better serve our customers.
· Expand key industry relationships. We are focused on expanding relationships with major, national and independent oil and natural gas companies, focused primarily on international markets, which we believe will allow us to obtain longer-term contracts to build our backlog of business when dayrates and operating margins justify entering into such contracts. We believe that our existing relationships with these companies have contributed to our strong contract backlog. Longer-term contracts increase revenue visibility and mitigate some of the volatility in cash flows caused by cyclical market downturns.
· Use contracted cash flow to reduce leverage. We have been able to successfully contract our drillships under multi-year contracts, which we believe will enable us to further reduce our long-term debt.
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· Increase our deepwater exposure. In recent years, there has been increased emphasis on exploration in deeper waters due, in part, to technological developments that have made such exploration more feasible and cost-effective. We believe that the water-depth capability of our ultra-deepwater drilling units is attractive to our customers and allows us to compete effectively in obtaining long-term deepwater drilling contracts. We may seek to manage or acquire additional deepwater drilling units to service this market.
· Identify and pursue acquisition opportunities. We may consider strategic acquisitions of assets and other offshore drilling companies from time to time. As part of our acquisition strategy, we might raise additional debt and equity capital and/or seek co-investment from partners.
Our Industry
The offshore contract drilling industry provides drilling, workover and well construction services to oil and natural gas exploration and production companies through the use of mobile offshore drilling rigs. Historically, the offshore drilling industry has been very cyclical with periods of high demand, limited rig supply and high dayrates alternating with periods of low demand, excess rig supply and low dayrates. Periods of low demand and excess rig supply intensify the competition in the industry and often result in some rigs becoming idle for long periods of time. As is common throughout the oilfield services industry, offshore drilling is largely driven by actual or anticipated changes in oil and natural gas prices and capital spending by companies exploring for and producing oil and natural gas. Sustained high commodity prices historically have led to increases in expenditures for offshore drilling activities and, as a result, greater demand for our services. Due to a recent decline in the price of oil there has been a reduced demand for offshore drilling rigs by our customers. The reduced demand is occurring at the same time that a significant number of drilling rigs are scheduled for delivery resulting in an oversupply of equipment. We expect that these adverse market conditions are likely to continue for the duration of 2015 and into 2016.
Offshore drilling rigs are generally marketed on a worldwide basis as rigs can be moved from one region to another. The cost of moving a rig and the availability of rig-moving vessels may cause the supply and demand balance to vary between regions. However, significant variations between regions do not tend to exist long-term because of rig mobility.
The offshore drilling market generally consists of shallow water (<400 ft.), midwater (>400 ft.), deepwater (>4,000 ft.) and ultra-deepwater (>7,500 ft.). The global shallow water market is serviced primarily by jackups.
Our jackup fleet is focused on the “long-legged” (350+ ft.) high specification market. The drillships that we operate are focused on the ultra-deepwater segment.
Customers
Our customers are primarily large multinational oil and natural gas companies, government owned oil and natural gas companies and independent oil and natural gas producers. For the years ended December 31, 2014, 2013 and 2012, the following customers accounted for more than 10% of our consolidated revenue:
|
| For the Year Ended December 31, | |||||||||||
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| 2014 |
|
| 2013 |
|
| 2012 |
|
| |||
Oil & Natural Gas Corporation |
|
| 24% |
|
|
| 28% |
|
|
| 44% |
|
|
Olio Energy Sdn Bhd |
|
| 18% |
|
| --- |
|
|
| 24% |
|
| |
Ophir Energy |
|
| 17% |
|
| --- |
|
| --- |
|
| ||
Perenco Oil and Gas |
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| 14% |
|
| --- |
|
| --- |
|
| ||
PTT Exploration and Production |
| --- |
|
| --- |
|
|
| 11% |
|
| ||
Petrobras America Inc. |
| --- |
|
|
| 24% |
|
| --- |
|
| ||
Foxtrot International LDC |
| --- |
|
| --- |
|
|
| 10% |
|
|
(1) Olio Energy Sdn Bhd is a contracting party through which we operate for Petronas Carigali, a subsidiary of the national oil company of Malaysia.
Drilling Agreements
Our drilling contracts are the result of negotiation with our customers, and most contracts are awarded through competitive bidding against other contractors. Drilling contracts generally provide for payment on a dayrate basis, with higher rates while the drilling unit is operating and lower rates for periods of mobilization or when drilling operations are interrupted or restricted by equipment breakdowns, adverse environmental conditions or other conditions beyond our control. Currently all of our drilling contracts are on a dayrate basis. A dayrate drilling contract generally extends over a period of time covering either the drilling of a single well or group of wells or covering a stated term. Certain of our contracts with customers may be cancelable at the option of the customer upon payment of an early termination fee. Such payments may not, however, fully compensate us for the loss of the contract. Contracts also customarily provide for either automatic termination or termination at the option of the customer typically without the
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payment of any termination fee, under various circumstances such as non-performance, in the event of extensive downtime or impaired performance caused by equipment or operational issues, or sustained periods of downtime due to force majeure events. Many of these events are beyond our control. The contract term in some instances may be extended by the client exercising options for the drilling of additional wells or for an additional term. Our contracts also typically include a provision that allows the client to extend the contract to finish drilling a well-in-progress. During periods of depressed market conditions, our clients may seek to renegotiate drilling contracts to reduce their obligations or may seek to repudiate their contracts. Suspension of drilling contracts will result in the reduction in or loss of dayrate for the period of the suspension. If our customers cancel some of our contracts and we are unable to secure new contracts on a timely basis and on substantially similar terms, if contracts are suspended for an extended period of time or if a number of our contracts are renegotiated, it could adversely affect our consolidated statements of financial position, results of operations or cash flows.
The following table sets forth certain information concerning the current contract status of our owned offshore drilling fleet.
Name |
| Region |
| Contract |
| Average |
|
| Customer | |
Emerald Driller |
| Southeast Asia |
| Q2 2015 |
| $ | 156,000 |
|
| PTTEP |
Sapphire Driller |
| West Africa |
| Q4 2015 |
| $ | 185,000 |
|
| Perenco |
Aquamarine Driller |
| Southeast Asia |
| Q1 2015 |
| $ | 135,000 |
|
| Petronas Carigali |
Topaz Driller |
| Southeast Asia |
| Q3 2015 |
| $ | 155,000 |
|
| Petronas Carigali |
Platinum Explorer |
| India |
| Q4 2015 |
| $ | 590,000 |
|
| ONGC |
Titanium Explorer |
| U.S. Gulf of Mexico |
| Q4 2020 |
| $ | 556,000 | (2) |
| Petrobras |
Tungsten Explorer |
| West Africa |
| Q4 2016 |
| $ | 667,000 |
|
| Total Congo |
(1) | Average drilling revenue per day is based on the total estimated revenue divided by the minimum number of days committed in a contract. Unless otherwise noted, the total estimated revenue includes mobilization and demobilization fees and other contractual revenues associated with the drilling services. |
(2) | The average drilling revenue per day includes the achievement of a 12.5% bonus opportunity, but excludes mobilization revenues and future revenue escalations included in the contract. |
Contract Backlog
As of December 31, 2014, our owned fleet had total contract backlog of approximately $2.1 billion, including estimated contract backlog with ONGC for the Platinum Explorer of approximately $212 million, with Petrobras for the Titanium Explorer of approximately $1.4 billion and with Total Congo for the Tungsten Explorer of approximately $397 million. We expect that approximately $766 million of our total contract backlog will be performed during 2015, with the remainder performed in subsequent years.
Construction Supervision and Operations Management Agreements
In September 2013, we signed an agreement to supervise and manage the construction of two ultra-deepwater drillships for a third party. We receive management fees and reimbursable costs during the construction phase of the two drillships, subject to a maximum amount on each drillship.
In connection with our November 2012 investment of $31 million for a 41.9% ownership interest in Sigma Drilling Ltd. (“Sigma”), we entered into an agreement to supervise and manage the construction of the Palladium Explorer, an ultra deepwater drillship to be built by STX Offshore & Shipbuilding Co. Ltd. (“STX”) in South Korea. Pursuant to the terms of the construction management agreement, we were entitled to a fixed monthly management fee during the expected thirty-six month construction period for the vessel. Following the receipt of notice in September 2013 that STX was suspending construction of the Palladium Explorer, Sigma terminated our construction management agreement in January 2014. In May 2014, we reached an agreement with Sigma regarding amounts owed to us under the construction management agreement, which resulted in payment to us of $4.0 million, including a $3.0 million termination fee. The remaining $1.7 million of outstanding receivables will be received on the earlier of the receipt of any further monies from STX or one year from the date of the agreement. In July 2014, a reduction in Sigma’s capital was approved by the appropriate authorities and in August 2014, a distribution of $55.5 million was made to the shareholders of Sigma, of which we received $23.3 million. While we continue to believe we will recover substantially all of our remaining investment, there can be no assurance that we will receive payments equal to the current amount of our investment in Sigma and the amount due under the construction management agreement.
In October 2012, we reached an understanding with a contractor in Mexico to manage the construction and operations of a newbuild jackup rig. The contractor subsequently acquired a second jackup rig, ordered two additional rigs and awarded us
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construction management contracts for each of the four rigs. Effective September 30, 2013, the contractor assumed construction management responsibilities for the third and fourth rigs; however, we continued to receive our management fees until mid-November 2013. We managed the operations of the first two rigs in Mexico until May 31, 2014 when we transitioned the rig operations to the contractor. In connection therewith, we received a termination fee of $2.75 million.
In July 2010, we signed an agreement to supervise and manage the construction and marketing of the ultra-deepwater drillship the Dalian Developer. In September 2013, the agreement was modified and notice was given to us that the contract would terminate in six months. The agreement terminated in March 2014 and we have no further obligations with regard to the Dalian Developer.
Competition
The contract drilling industry is highly competitive. Demand for contract drilling and related services is influenced by a number of factors, including the current and expected prices of oil and natural gas and the expenditures of oil and natural gas companies for exploration and development of oil and natural gas. In addition, demand for drilling services remains dependent on a variety of political and economic factors beyond our control, including worldwide demand for oil and natural gas, the ability of the Organization of Petroleum Exporting Countries, or OPEC, to set and maintain production levels and pricing, the level of production of non-OPEC countries and the policies of various governments regarding exploration and development of their oil and natural gas reserves.
Drilling contracts are generally awarded on a competitive bid or negotiated basis. Pricing is often the primary factor in determining which qualified contractor is awarded a job. Rig availability, capabilities, age and each contractor’s safety performance record and reputation for quality also can be key factors in the determination. Operators also may consider crew experience, rig location and efficiency. We believe that the market for drilling contracts will continue to be highly competitive for the foreseeable future. Certain competitors may have greater financial resources than we do, which may better enable them to withstand periods of low utilization, compete more effectively on the basis of price, build new rigs or acquire existing rigs.
Our competition ranges from large international companies offering a wide range of drilling and other oilfield services to smaller, locally owned companies. Competition for rigs is usually on a global basis, as these rigs are highly mobile and may be moved, at a cost that is sometimes substantial, from one region to another in response to demand.
Operating Hazards
Our operations are subject to many hazards inherent in the offshore drilling business, including, but not limited to: blowouts, craterings, fires, explosions, equipment failures, loss of well control, loss of hole, damaged or lost equipment and damage or loss from inclement weather or natural disasters.
These hazards could cause personal injury or death, serious damage to or destruction of property and equipment, suspension of drilling operations, or damage to the environment, including damage to producing formations and surrounding areas. Generally, we seek to obtain contractual indemnification from our customers for some of these risks. To the extent not transferred to customers by contract, we seek protection against some of these risks through insurance, including property casualty insurance on our rigs and drilling equipment, protection and indemnity, commercial general liability, which has coverage extension for underground resources and equipment coverage, commercial contract indemnity and commercial umbrella insurance.
There are risks that are outside of our control. Nonetheless, we believe that we are adequately insured for liability and property damage to others with respect to our operations. However, such insurance may not be sufficient to protect us against liability for all consequences of well disasters, extensive fire damage or damage to the environment. For more, see “Risk Factors—Our business involves numerous operating hazards, and our insurance and contractual indemnity rights may not be adequate to cover our losses.”
Insurance
We maintain insurance coverage that includes coverage for physical damage, third party liability, employer’s liability, loss of hire, war risk, general liability, vessel pollution and other coverages. However, our insurance is subject to exclusions and limitations and there is no assurance that such coverage will adequately protect us against liability from all potential consequences and damages.
Our primary marine package provides for hull and machinery coverage for our drilling units up to a scheduled value for each asset, which we believe approximates replacement cost. The maximum coverage for our seven drilling units is $3.0 billion. The policies are subject to certain exclusions, limitations, deductibles and other conditions. Deductibles for physical damage to our jackup rigs and our drillships are $2.5 million and $5.0 million, respectively, per occurrence. Our protection and indemnity policy provides liability coverage limits of $500 million per rig. In addition to these policies, we have separate policies providing coverage for onshore general liability, employer’s liability, auto liability and non-owned aircraft liability, with customary coverage, limits and deductibles.
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Environmental Regulation
Our operations are conducted primarily in foreign jurisdictions and are subject to, and affected in varying degrees by, governmental laws and regulations in countries in which we operate, including laws and regulations relating to the importation of and operation of drilling units, currency conversions and repatriation, oil and natural gas exploration and development, environmental protection, taxation of offshore earnings and earnings of expatriate personnel, the use of local employees and suppliers by foreign contractors and duties on the importation and exportation of drilling units and other equipment. Governments in some foreign countries have become increasingly active in regulating and controlling the ownership of concessions and companies holding concessions, the exploration for oil and natural gas and other aspects of the oil and natural gas industries in their countries. In some areas of the world, this governmental activity has adversely affected the amount of exploration and development work done by major oil and natural gas companies and may continue to do so. Operations in less developed countries can be subject to legal systems that are not as mature or predictable as those in more developed countries, which can lead to greater uncertainty in legal matters and proceedings. For a discussion of the effects of environmental regulation on our current operations, see “Risk Factors—Our business is subject to numerous governmental laws and regulations, including those that may impose significant costs and liability on us for environmental and natural resource damages.” As our operations increase, we anticipate that we will make expenditures to comply with environmental requirements. To date, we have not expended material amounts in order to comply and we do not believe that our compliance with such requirements will have a material adverse effect upon our results of operations or competitive position or materially increase our capital expenditures.
Heightened environmental concerns in the U.S. Gulf of Mexico have led to greater and more stringent environmental regulation, higher drilling costs, and a more difficult and lengthy well permitting process. In the United States, requirements applicable to our operations include regulations that require us to obtain and maintain specified permits or governmental approvals, control the discharge of materials into the environment, require removal and cleanup of materials that may harm the environment, or otherwise relate to the protection of the environment. Laws and regulations protecting the environment have become more stringent and may in some cases impose strict liability, rendering a person liable for environmental damage without regard to negligence or fault on the part of such person. Some of these laws and regulations may expose us to liability for the conduct of or conditions caused by others or for acts which were in compliance with all applicable laws at the time they were performed. The application of these requirements or the adoption of new or more stringent requirements could have a material adverse effect on our financial condition and results of operations.
The U.S. Federal Water Pollution Control Act of 1972, commonly referred to as the Clean Water Act, prohibits the discharge of pollutants, including petroleum, into the navigable waters of the United States without a permit. The regulations implementing the Clean Water Act require permits to be obtained by an operator before discharge from specified exploration activities occurs. Certain facilities that store or otherwise handle oil are required to prepare and implement Spill Prevention Control and Countermeasure Plans and Facility Response Plans relating to the possible discharge of oil to surface waters. Violations of monitoring, reporting, permitting and other requirements can result in the imposition of administrative, civil and criminal penalties.
The U.S. Oil Pollution Act of 1990 (“OPA”) and related regulations impose a variety of requirements on “responsible parties” related to the prevention of oil spills and liability for damages resulting from such spills. A “responsible party” includes the owners or operator of a facility or vessel, or the lessee or permittee of the area in which an offshore facility is located. OPA assigns liability to each responsible party for oil removal costs and a variety of public and private damages. While liability limits apply in some circumstances, a party cannot take advantage of liability limits if the spill was caused by gross negligence or willful misconduct or resulted from violation of a federal safety, construction or operating regulation. If the party fails to report a spill or to cooperate fully in the cleanup, liability limits likewise do not apply. OPA establishes a liability limit for offshore facilities of all removal costs plus $75.0 million, and a lesser limit for some vessels depending on their size. Few defenses exist to the liability imposed by OPA, and the liability could be substantial. Failure to comply with ongoing requirements or inadequate cooperation in the event of a spill could subject a responsible party to administrative, civil or criminal enforcement actions. Congress has been urged to consider changes to OPA that would increase or eliminate the limits on liability. OPA requires owners and operators of certain vessels to establish and maintain with the U.S. Coast Guard evidence of financial responsibility. Vessel owners and operators may evidence their financial responsibility by showing proof of insurance, surety bond, self-insurance or financial guaranty.
Laws governing air emissions and solid and hazardous waste also apply to our operations. The U.S. Outer Continental Shelf Lands Act authorizes regulations relating to safety and environmental protection applicable to lessees and permittees operating on the outer continental shelf. Included among these are regulations that require the preparation of spill contingency plans and establishment of air quality standards for certain pollutants, including particulate matter, volatile organic compounds, sulfur dioxide, carbon monoxide and nitrogen oxides. Specific design and operational standards may apply to outer continental shelf vessels, rigs, platforms, vehicles and structures. Violations of lease conditions or regulations related to the environment issued pursuant to the U.S. Outer Continental Shelf Lands Act can result in substantial civil and criminal penalties, as well as potential court injunctions curtailing operations and canceling leases. Such enforcement liabilities can result from either governmental or citizen prosecution.
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In recent years, a variety of initiatives intended to enhance vessel security were adopted to address terrorism risks, including the U.S. Coast Guard regulations implementing the Maritime Transportation Security Act of 2002. These regulations require, among other things, the development of vessel security plans and on-board installation of automatic information systems, or AIS, to enhance vessel-to-vessel and vessel-to-shore communications.
The United States is one of approximately 165 member countries to the International Maritime Organization (“IMO”), a specialized agency of the United Nations that is responsible for developing measures to improve the safety and security of international shipping and to prevent marine pollution from ships. Among the various international conventions negotiated by the IMO is the International Convention for the Prevention of Pollution from Ships (“MARPOL”). MARPOL imposes environmental standards on the shipping industry relating to oil spills, management of garbage, the handling and disposal of noxious liquids, harmful substances in packaged forms, sewage and air emissions.
Annex VI to MARPOL sets limits on sulfur dioxide and nitrogen oxide emissions from ship exhausts and prohibits deliberate emissions of ozone depleting substances. Annex VI also imposes a global cap on the sulfur content of fuel oil and allows for specialized areas to be established internationally with more stringent controls on sulfur emissions. For vessels 400 gross tons and greater, platforms and drilling units, Annex VI imposes various survey and certification requirements. For this purpose, gross tonnage is based on the International Tonnage Certificate for the vessel. The United States has ratified Annex VI. In addition, any drilling units we operate internationally are subject to the requirements of Annex VI in those countries that have implemented its provisions. We believe the drilling units we currently offer for international projects comply with Annex VI, but changes to our equipment and ratifying countries’ regulatory interpretations of the Annex VI requirements could impose additional costs on us, which could be significant.
Although significant capital expenditures may be required to comply with these governmental laws and regulations, such compliance has not materially adversely affected our earnings or competitive position. We believe that we are currently in compliance in all material respects with the environmental regulations to which we are subject.
Employees
At January 31, 2015, we had a managed headcount of approximately 1,295, of which 786 were our direct employees.
Available Information
We file annual, quarterly and current reports, proxy statements and other information with the SEC. Our SEC filings are available to the public over the Internet at the SEC’s web site at www.sec.gov. You may also read and copy any document we file at the SEC’s public reference room in Washington, D.C. Please call the SEC at 1-800-SEC-0330 for further information on their public reference room. Our SEC filings are also available to the public on our website at www.vantagedrilling.com. Please note that information contained on our website, whether currently posted or posted in the future, is not a part of this Annual Report on Form 10-K or the documents incorporated by reference in this Annual Report on Form 10-K. This Annual Report on Form 10-K also contains summaries of the terms of certain agreements that we have entered into that are filed as exhibits to this Annual Report on Form 10-K or other reports that we have filed with the SEC. The descriptions contained in this Annual Report on Form 10-K of those agreements do not purport to be complete and are subject to, and qualified in their entirety by reference to, the definitive agreements. You may request a copy of the agreements described herein at no cost by writing or telephoning us at the following address: Vantage Drilling Company, Attention: General Counsel, 777 Post Oak Boulevard, Suite 800, Houston, Texas 77056, phone number (281) 404-4700.
There are numerous factors that affect our business and operating results, many of which are beyond our control. The following is a description of significant factors that might cause our future operating results to differ materially from those currently expected. The risks described below are not the only risks facing us. Additional risks and uncertainties not specified herein, not currently known to us or currently deemed to be immaterial also may materially adversely affect our business, financial position, operating results or cash flows.
A small number of customers account for a significant portion of our revenues, and the loss of one or more of these customers could materially adversely affect our financial condition and results of operations.
We derive a significant portion of our revenues from a few customers. During the fiscal year ended December 31, 2014, four customers accounted for approximately 24%, 18%, 17% and 14%, respectively, of our revenue. Our financial condition and results of operations could be materially and adversely affected if any one of these customers interrupts or curtails their activities, fails to pay for the services that have been performed, terminates their contracts, fails to renew their existing contracts or refuse to award new contracts and we are unable to enter into contracts with new customers on comparable terms. The loss of any of our significant customers could materially adversely affect our financial condition and results of operations.
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We are exposed to the credit risks of our key customers, including certain affiliated companies, and certain other third parties, and nonpayment by these customers and other parties could adversely affect our financial position, results of operations and cash flows.
We are subject to risks of loss resulting from nonpayment or nonperformance by our customers. Any material nonpayment or nonperformance by key customers and certain other third parties could adversely affect our financial position, results of operations and cash flows. If any key customers or other parties default on their obligations to us, our financial results and condition could be adversely affected. Furthermore, some of these customers and other parties may be highly leveraged and subject to their own operating and regulatory risks.
A material or extended decline in expenditures by oil and natural gas exploration and production companies due to a decline or volatility in oil and natural gas prices, a decrease in demand for oil and natural gas, or other factors, would adversely affect our business.
Our business, including the utilization rates and dayrates we achieve for our owned and managed drilling units, depends on the level of activity in oil and natural gas exploration, development and production expenditures of our customers. Oil and natural gas prices and customers’ expectations of potential changes in these prices significantly affect this level of activity. Commodity prices are affected by numerous factors, including the following:
· | changes in global economic conditions; |
· | the worldwide production and demand for oil and natural gas; |
· | the cost of exploring for, producing and delivering oil and natural gas; |
· | expectations regarding future prices; |
· | advances in exploration, development and production technology; |
· | the ability of the Organization of Petroleum Exporting Countries (“OPEC”) to set and maintain production levels and pricing; |
· | the availability and discovery rate of new oil and natural gas reserves in offshore areas; |
· | the rate of decline of existing and new oil and natural gas reserves; |
· | the level of production in non-OPEC countries; |
· | domestic and international tax policies; |
· | the development and exploitation of alternative fuels; |
· | weather; |
· | blowouts and other catastrophic events; |
· | governmental laws and regulations, including environmental laws and regulations; |
· | the policies of various governments regarding exploration and development of their oil and natural gas reserves; |
· | volatility in the exchange rate of the U.S. dollar against other currencies; and |
· | the worldwide military and political environment, uncertainty or instability resulting from an escalation or additional outbreak of armed hostilities or other crises in significant oil and natural gas producing regions or further acts of terrorism. |
In addition to oil and gas prices, the offshore drilling industry is influenced by additional factors, including:
· | the availability of competing offshore drilling vessels and the level of construction activity for new drilling vessels; |
· | the level of costs for associated offshore oilfield and construction services; |
· | oil and gas transportation costs; |
· | the discovery of new oil and gas reserves; |
· | the cost of non-conventional hydrocarbons; and |
· | regulatory restrictions on offshore drilling. |
Any of these factors could reduce demand for or prices paid for our services and adversely affect our business and results of operations.
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Our jackup drilling contracts are generally short-term, and we could experience reduced profitability if customers reduce activity levels, terminate or seek to renegotiate drilling contracts with us, or if market conditions dictate that we enter into contracts that provide for payment based on a footage or turnkey basis, rather than on a dayrate basis.
Many jackup drilling contracts are short-term, and oil and natural gas companies tend to reduce shallow water activity levels quickly in response to downward changes in oil and natural gas prices. Due to the short-term nature of most of our jackup drilling contracts, a decline in market conditions can quickly affect our business if customers reduce their levels of operations. During depressed market conditions, a customer may no longer need a unit that is currently under contract or may be able to obtain a comparable unit at a lower dayrate. As a result, customers may seek to renegotiate the terms of their existing drilling contracts or avoid their obligations under those contracts. In addition, our customers may have the right to terminate, or may seek to renegotiate, existing contracts if we experience excessive downtime, operational problems above the contractual limit or safety-related issues, if the drilling unit is a total loss, if the drilling unit is not delivered to the customer within the period specified in the contract or in other specified circumstances, which include events beyond the control of either party.
Some of our current jackup drilling contracts, and some drilling contracts that we may enter into in the future, may include terms allowing customers to terminate contracts without cause, with little or no prior notice and without penalty or early termination payments. In addition, we could be required to pay penalties, which could be material, if some of these contracts are terminated due to downtime, operational problems or failure to deliver. Some of the contracts with customers that we enter into in the future may be cancellable at the option of the customer upon payment of a penalty, which may not fully compensate us for the loss of the contract. Early termination of a contract may result in a drilling unit being idle for an extended period of time. The likelihood that a customer may seek to terminate a contract is increased during periods of market weakness. Under most of our contracts, it is an event of default if we file a petition for bankruptcy or reorganization, which would allow the customer to terminate such contract.
Currently, our drilling contracts are dayrate contracts, where we charge a fixed rate per day regardless of the number of days needed to drill the well. While we plan to continue to perform services on a dayrate basis, market conditions may dictate that we enter into contracts that provide for payment based on a footage basis, where we are paid a fixed amount for each foot drilled regardless of the time required or the problems encountered in drilling the well, or enter into turnkey contracts, where we agree to drill a well to a specific depth for a fixed price and bear some of the well equipment costs. These types of contracts are riskier for us than a dayrate contract as we would be subject to downhole geologic conditions in the well that cannot always be accurately determined and subject us to greater risks associated with equipment and downhole tool failures. Unfavorable downhole geologic conditions and equipment and downhole tool failures may result in significant cost increases or may result in a decision to abandon a well project which would result in us not being able to invoice revenues for providing services. Any such termination or renegotiation of contracts and unfavorable costs increases or loss of revenue could have a material adverse impact on our financial condition and results of operations.
Lower prices for oil and natural gas may reduce demand for our services and could have a material adverse effect on our revenue and profitability.
Benchmark crude prices peaked at over $140 per barrel in July 2008 and then declined to approximately $55 per barrel at year-end 2014. During 2014, the benchmark for crude prices fluctuated between the mid $50’s per barrel and mid $110’s per barrel. Demand for our services depends on oil and natural gas industry activity and expenditure levels that are directly affected by trends in oil and natural gas prices. In addition, demand for our services is particularly sensitive to the level of exploration, development and production activity of and the corresponding capital spending by, oil and natural gas companies. Any prolonged weakness in oil and natural gas prices could depress the near-term levels of exploration, development, and production activity. Perceptions of longer-term lower oil and natural gas prices by oil and natural gas companies could similarly reduce or defer major expenditures given the long- term nature of many large-scale development projects. Lower levels of activity result in a corresponding decline in the demand for our services, which could have a material adverse effect on our revenue and profitability. Additionally, these factors may adversely impact our financial position if they are determined to cause an impairment of our long-lived assets.
We may not be able to replace expiring contracts for our existing rigs or obtain contracts for the Cobalt Explorer.
Due to the cyclical nature and high level of competition in our industry, we may not be able to replace expiring contracts, or obtain a contract for our newbuild drillship, the Cobalt Explorer, prior to delivery. Our ability to replace expiring contracts and obtain a contract for the Cobalt Explorer will depend on prevailing market conditions, the specific needs of our customers, and numerous other factors beyond our control. Additionally, any contracts for our drilling units may be at dayrates that are below, or substantially below, existing dayrates, which could have a material adverse effect on our overall business, financial condition, results of operations and future prospects.
Failure to obtain delivery of the Cobalt Explorer could have a material and adverse effect on our business.
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We expect to take delivery of the Cobalt Explorer in the first quarter of 2016, but the vessel may not be delivered to us on time, or at all. A delay in the delivery date of the Cobalt Explorer beyond what we expect, or non-delivery of such vessel, could result from a variety of factors affecting the shipyard, or our failure to make construction payments due under the Cobalt Explorer construction contract. Failure to obtain delivery of the Cobalt Explorer in a timely manner, or at all, may have a material adverse effect on our business, financial condition and results of operations.
Construction projects are subject to risks, including delays and cost overruns, which could have an adverse impact on our liquidity and results of operations.
As part of our growth strategy we may contract from time to time for the construction of drilling units or may enter into agreements to manage the construction of drilling units for others. Construction projects are subject to the risks of delay or cost overruns inherent in any large construction project, including costs or delays resulting from the following:
· | unexpected long delivery times for, or shortages of, key equipment, parts and materials; |
· | shortages of skilled labor and other shipyard personnel necessary to perform the work; |
· | unforeseen increases in the cost of equipment, labor and raw materials, particularly steel; |
· | unforeseen design and engineering problems; |
· | unanticipated actual or purported change orders; |
· | work stoppages; |
· | latent damages or deterioration to hull, equipment and machinery in excess of engineering estimates and assumptions; |
· | failure or delay of third-party service providers and labor disputes; |
· | disputes with shipyards and suppliers; |
· | delays and unexpected costs of incorporating parts and materials needed for the completion of projects; |
· | financial or other difficulties at shipyards; |
· | adverse weather conditions; and |
· | inability to obtain required permits or approvals. |
If we experience delays and costs overruns in the construction of drilling units due to certain of the factors listed above, it could also adversely affect our business, financial condition and results of operations.
Our business is affected by local, national and worldwide economic conditions and the condition of the oil and natural gas industry.
Recent economic data indicates the rate of economic growth worldwide has declined significantly from the growth rates experienced in recent years. Current economic conditions have resulted in uncertainty regarding energy and commodity prices. In addition, future economic conditions may cause many oil and natural gas production companies to further reduce or delay expenditures in order to reduce costs, which in turn may cause a further reduction in the demand for drilling services. If conditions worsen, our business and financial condition may be adversely impacted.
Our industry is highly competitive, cyclical and subject to intense price competition.
The offshore contract drilling industry is highly competitive, and contracts have traditionally been awarded on a competitive bid basis. The technical capabilities, availability and pricing of a drilling unit are often the primary factors in determining which qualified contractor is awarded a job. Other key factors include a contractor’s reputation for service, safety record, environmental record, technical and engineering support and long-term relationships with major, national and independent oil and natural gas companies. Our competitors in the offshore contract drilling industry generally have larger, more diverse fleets, longer operating histories with established safety and environmental records over a measurable period of time and long-term relationships with customers. This provides our competitors with competitive advantages that may adversely affect our efforts to contract our drilling units on favorable terms, if at all, and correspondingly negatively impact our financial position and results of operations. Additionally, we are at a competitive disadvantage to those competitors that are better capitalized because they are in a better position to withstand the effects of a downturn in our industry.
The offshore contract drilling industry, historically, has been very cyclical with periods of high demand, limited supply and high dayrates alternating with periods of low demand, excess supply and low dayrates. Many offshore drilling units are highly mobile.
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Competitors may move drilling units from region to region in response to changes in demand. It is currently estimated that 72 newly constructed jackup rigs will be entered into service between now and December 2015 and 33 deepwater rigs are scheduled for delivery through 2015. This could result in an excess supply of rigs in the markets in which we operate. Periods of low demand and excess supply intensify competition in the industry and often result in some drilling units becoming idle for long periods of time. Prolonged periods of low utilization and dayrates, or extended idle time, could result in the recognition of impairment charges on our drilling units if cash flow estimates, based upon information available to management at the time, indicate that the carrying value of the drilling units may not be recoverable.
There may be limits to our ability to mobilize drilling units between geographic markets and the time and costs of such drilling unit mobilizations may be material to our business.
The offshore contract drilling market is generally a global market as drilling units may be mobilized from one market to another market. However, geographic markets can, from time to time, have material fluctuations in costs and risks as the ability to mobilize drilling units can be impacted by several factors including, but not limited to, governmental regulation and customs practices, the significant costs to move a drilling unit, availability of tow boats, weather, political instability, civil unrest, military actions, and the technical capability of the drilling units to operate in various environments. Any increase in the supply of drilling units in the geographic areas in which we operate, whether through new construction, refurbishment or conversion of drilling units from other uses, remobilization or changes in the law or its application, could increase competition and result in lower dayrates and/or utilization, which would adversely affect our financial position, results of operations and cash flows. Additionally, while a drilling unit is being mobilized from one geographic market to another, we may not be paid by the customer for the time that the drilling unit is out of service. Also, we may mobilize the drilling unit to another geographic market without a customer contract which will result in costs not reimbursable by future customers.
Our business involves numerous operating hazards, and our insurance and contractual indemnity rights may not be adequate to cover our losses.
Our operations are subject to the usual hazards inherent in the drilling and operation of oil and natural gas wells, such as blowouts, reservoir damage, loss of production, loss of well control, punch-throughs, craterings, fires and pollution. The occurrence of these events could result in the suspension of drilling or production operations, claims by the operator and others affected by such events, severe damage to, or destruction of, the property and equipment involved, injury or death to drilling unit personnel, environmental damage and increased insurance costs. We may also be subject to personal injury and other claims of drilling unit personnel as a result of our drilling operations. Operations also may be suspended because of machinery breakdowns, abnormal operating conditions, failure of subcontractors to perform or supply goods or services and personnel shortages.
In addition, our operations will be subject to perils particular to marine operations, including capsizing, grounding, collision and loss or damage from severe weather. Severe weather could have a material adverse effect on our operations. Our drilling units could be damaged by high winds, turbulent seas, or unstable sea bottom conditions which could potentially cause us to curtail operations for significant periods of time until such damages are repaired.
Damage to the environment could result from our operations, particularly through oil spillage or extensive uncontrolled fires. We may also be subject to property, environmental and other damage claims by host governments, oil and natural gas companies and other businesses operating offshore and in coastal areas, as well as claims by individuals living in or around coastal areas.
As is customary in our industry, the risks of our operations are partially covered by our insurance and partially by contractual indemnities from our customers. However, insurance policies and contractual rights to indemnity may not adequately cover losses, and we may not have insurance coverage or rights to indemnity for all risks. Moreover, pollution and environmental risks generally are not fully insurable. If a significant accident or other event resulting in damage to our drilling units, including severe weather, terrorist acts, war, civil disturbances, pollution or environmental damage, occurs and is not fully covered by insurance or a recoverable indemnity from a customer, it could adversely affect our financial condition and results of operations.
Our offshore drilling operations could be adversely impacted by changes in regulation of offshore oil and gas exploration and development activity.
Offshore drilling operations in the United States and elsewhere could be adversely impacted by changes in regulation of offshore oil and gas exploration and development activities. Significant new requirements with respect to development and production activities in the U.S. Gulf of Mexico have been imposed in recent years. These new requirements generally relate to the design of wells and testing of the integrity of wellbores, the use of drilling fluids, the functionality and testing of well control equipment, including blowout preventers, and other environmental and safety matters.
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Customers may be unable or unwilling to indemnify us.
Consistent with standard industry practice, our customers generally assume liability for and indemnify us against well control and subsurface risks under our dayrate contracts, and we do not separately purchase insurance for such indemnified risks. These risks are those associated with the loss of control of a well, such as blowout or cratering, the cost to regain control or redrill the well and associated pollution. In the future, we may not be able to obtain agreements from customers to indemnify us for such damages and risks or the indemnities that we do obtain may be limited in scope and duration. Additionally, even if our customers agree to indemnify us, there can be no assurance that they will necessarily be financially able to indemnify us against all of these risks.
Our insurance coverage may not be adequate if a catastrophic event occurs.
As a result of the number and significance of catastrophic events in the offshore drilling industry in recent years, such as hurricanes and spills in the Gulf of Mexico, insurance underwriters have increased insurance premiums and increased restrictions on coverage and have made other coverages, such as Gulf of Mexico windstorm coverage, unavailable to us on commercially reasonable terms.
While we believe we have reasonable policy limits of property, casualty, liability, and business interruption insurance, including coverage for acts of terrorism, with financially sound insurers, we cannot guarantee that our policy limits for property, casualty, liability, and business interruption insurance, including coverage for severe weather, terrorist acts, war, civil disturbances, pollution or environmental damage, would be adequate should a catastrophic event occur related to our property, plant or equipment, or that our insurers would have adequate financial resources to sufficiently or fully pay related claims or damages. When any of our coverage expires, or when we seek coverage in the future, we cannot guarantee that adequate coverage will be available, offered at reasonable prices, or offered by insurers with sufficient financial soundness. Additionally, we do not have third party windstorm insurance for our drillship operating in the Gulf of Mexico and we may not have windstorm insurance for any vessel that we operate in the Gulf of Mexico in the future. The occurrence of an incident or incidents affecting any one or more of our drilling units could have a material adverse effect on our financial position and future results of operations if asset damage and/or our liability were to exceed insurance coverage limits or if an insurer was unable to sufficiently or fully pay related claims or damages.
Our international operations are subject to additional political, economic, legal and other uncertainties not generally associated with domestic operations.
A primary component of our business strategy is to operate in international oil and natural gas producing areas. Our international operations are subject to a number of risks inherent in any business operating in foreign countries, including:
· | political, social and economic instability, war and acts of terrorism; |
· | government corruption; |
· | potential seizure, expropriation or nationalization of assets; |
· | damage to our equipment or violence directed at our employees, including kidnappings; |
· | piracy; |
· | increased operating costs; |
· | complications associated with repairing and replacing equipment in remote locations; |
· | repudiation, modification or renegotiation of contracts; |
· | limitations on insurance coverage, such as war risk coverage in certain areas; |
· | import-export quotas; |
· | confiscatory taxation; |
· | work stoppages; |
· | unexpected changes in regulatory requirements; |
· | wage and price controls; |
· | imposition of trade barriers; |
· | imposition or changes in enforcement of local content laws; |
· | restrictions on currency or capital repatriations; |
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· | currency fluctuations and devaluations; and |
· | other forms of government regulation and economic conditions that are beyond our control. |
Our financial condition and results of operations could be susceptible to adverse events beyond our control that may occur in the particular countries or regions in which we are active. Additionally, we may experience currency exchange losses where, at some future date, revenues are received and expenses are paid in nonconvertible currencies or where we do not hedge exposure to a foreign currency. We may also incur losses as a result of an inability to collect revenues because of a shortage of convertible currency available in the country of operation, controls over currency exchange or controls over the repatriation of income or capital.
Many governments favor or effectively require that drilling contracts be awarded to local contractors or require foreign contractors to employ citizens of, or purchase supplies from, a particular jurisdiction. These practices may result in inefficiencies or put us at a disadvantage when bidding for contracts against local competitors.
Our offshore contract drilling operations are subject to various laws and regulations in countries in which we operate, including laws and regulations relating to the equipment and operation of drilling units, currency conversions and repatriation, oil and natural gas exploration and development, taxation of offshore earnings and earnings of expatriate personnel, the use of local employees and suppliers by foreign contractors and duties on the importation and exportation of drilling units and other equipment. Governments in some foreign countries have become increasingly active in regulating and controlling the ownership of concessions and companies holding concessions, the exploration for oil and natural gas and other aspects of the oil and natural gas industries in their countries. In some areas of the world, this governmental activity has adversely affected the amount of exploration and development work done by major oil and natural gas companies and may continue to do so. Operations in less developed countries can be subject to legal systems which are not as mature or predictable as those in more developed countries, which can lead to greater uncertainty in legal matters and proceedings.
Our business is subject to numerous governmental laws and regulations, including those that may impose significant costs and liability on us for environmental and natural resource damages.
Many aspects of our operations are affected by governmental laws and regulations that may relate directly or indirectly to the contract drilling industry, including those requiring us to control the discharge of oil and other contaminants into the environment or otherwise relating to environmental protection. Countries where we currently operate have environmental laws and regulations covering the discharge of oil and other contaminants and protection of the environment in connection with operations. Additionally, our operations and activities in the United States and its territorial waters are subject to numerous environmental laws and regulations, including the Clean Water Act, the OPA, the Outer Continental Shelf Lands Act, the Comprehensive Environmental Response, Compensation and Liability Act, the Clean Air Act, the Resource Conservation and Recovery Act and MARPOL. Failure to comply with these laws and regulations may result in the assessment of administrative, civil and criminal penalties, the imposition of remedial obligations, the denial or revocation of permits or other authorizations and the issuance of injunctions that may limit or prohibit our operations.
Laws and regulations protecting the environment have become more stringent in recent years and may in certain circumstances impose strict liability, rendering us liable for environmental and natural resource damages without regard to negligence or fault on our part. These laws and regulations may expose us to liability for the conduct of, or conditions caused by, others or for acts that were in compliance with all applicable laws at the time the acts were performed. The application of these requirements, the modification of existing laws or regulations or the adoption of new laws or regulations relating to exploratory or development drilling for oil and natural gas could materially limit future contract drilling opportunities or materially increase our costs. In addition, we may be required to make significant capital expenditures to comply with such laws and regulations.
In addition some financial institutions are imposing, as a condition to financing, requirements to comply with additional non-governmental environmental and social standards in connection with operations outside the United States, such as the Equator Principles, a credit risk management framework for determining, assessing and managing environmental and social risk in project finance transactions. Such additional standards could impose significant new costs on us, which may materially and adversely affect us.
Changes in U.S. federal laws and regulations, or in those of other jurisdictions where we operate, including those that may impose significant costs and liability on us for environmental and natural resource damages, may adversely affect our operations.
If the U.S. government amends or enacts new federal laws or regulations, our potential exposure to liability for operations and activities in the United States and its territorial waters may increase. Although the OPA provides federal caps on liability for pollution or contamination, future laws and regulations may increase our liability for pollution or contamination resulting from any operations and activities we may have in the United States and its territorial waters including punitive damages, and administrative, civil and
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criminal penalties. Additionally, the jurisdictions where we operate have modified or may in the future modify their laws and regulations in a manner that would increase our liability for pollution and other environmental damage.
New technology and/or products may cause us to become less competitive.
The offshore contract drilling industry is subject to the introduction of new drilling techniques and services using new technologies, some of which may be subject to patent protection. As competitors and others use or develop new technologies, we may be placed at a competitive disadvantage. Further, we may face competitive pressure to implement or acquire certain new technologies at a substantial cost. Some of our competitors have greater financial, technical and personnel resources that may allow them to access technological advantages and implement new technologies before we can. We cannot be certain that we will be able to implement new technology or products on a timely basis or at an acceptable cost. Thus, our inability to effectively use and implement new and emerging technology may have a material and adverse effect on our financial condition and results of operations.
Our substantial indebtedness could adversely affect our financial health and prevent us from fulfilling our debt obligations.
As of December 31, 2014, on a consolidated basis, we had total senior indebtedness outstanding of approximately $2.7 billion consisting of our 7.125% Senior Secured Notes and 7.5% Senior Secured Notes (together, the “secured notes”), our term loans, our convertible notes, the note that we issued to F3 Capital in conjunction with our acquisition of Mandarin Drilling Corporation (the “F3 Capital Note”), and we had the ability to borrow $168.0 million under our revolving credit agreement, subject to its terms. Subject to the restrictions in the indentures governing our secured notes, term loans and revolving credit agreement, we may incur additional indebtedness. Our high level of indebtedness could have important consequences for an investment in us and significant effects on our business. For example, our level of indebtedness and the terms of our debt agreements may:
· | make it more difficult for us to satisfy our financial obligations under our indebtedness and our contractual and commercial commitments and increase the risk that we may default on our debt obligations; |
· | prevent us from raising the funds necessary to repurchase notes tendered to us if there is a change of control or in connection with an excess cash flow offer, which would constitute a default under the indenture governing the notes; |
· | require us to use a substantial portion of our cash flow from operations to pay interest and principal on the notes and other debt, which would reduce the funds available for working capital, capital expenditures and other general corporate purposes; |
· | limit our ability to obtain additional financing for working capital, capital expenditures, acquisitions and other investments, or general corporate purposes, which may limit our ability to execute our business strategy; |
· | limit our ability to refinance our indebtedness on terms that are commercially reasonable, or at all; |
· | heighten our vulnerability to downturns in our business, our industry or in the general economy and restrict us from exploiting business opportunities or making acquisitions; |
· | place us at a competitive disadvantage compared to those of our competitors that may have proportionately less debt; |
· | limit management’s discretion in operating our business; |
· | limit our flexibility in planning for, or reacting to, changes in our business, the industry in which we operate or the general economy; and |
· | result in higher interest expense if interest rates increase and we have outstanding floating rate borrowings. |
Each of these factors may have a material and adverse effect on our financial condition and viability. Our ability to satisfy our other debt obligations will depend on our future operating performance, which will be affected by prevailing economic conditions and financial, business and other factors affecting our company and industry, many of which are beyond our control.
We may still be able to incur substantially more debt. This could exacerbate the risks associated with our substantial leverage.
Even with our existing level of debt, we and our subsidiaries may be able to incur substantial amounts of additional secured and unsecured indebtedness in the future, including debt under future credit facilities, some or all of which may be secured on a first priority basis with our secured notes, note guarantees, term loans and our revolving credit agreement. Although the terms of the indentures governing our secured notes, term loans and revolving credit agreement will limit our ability to incur additional debt, these terms do not and will not prohibit us from incurring substantial amounts of additional debt for specific purposes or under certain circumstances. In addition, any such additional debt may, and under certain circumstances, also be guaranteed by the same guarantors and share in the collateral that secures the secured notes, note guarantees, term loans and revolving credit agreement in which case, the holders of that debt will be entitled to share equally with the holders of our secured notes, note guarantees, term loans and our revolving credit agreement in any proceeds distributed in connection with our winding up, insolvency, liquidation, reorganization or
16
dissolution. If new debt is added to our and our subsidiaries’ current debt levels, the related risks that we and they now face could intensify and could further exacerbate the risks associated with our substantial leverage.
The agreements governing our secured notes, our term loan and our revolving credit agreement impose significant operating and financial restrictions on us and our subsidiaries that may prevent us from capitalizing on business opportunities and restrict our ability to operate our business.
The agreements governing our secured notes, our term loans and our revolving credit agreement contain covenants that restrict our and our restricted subsidiaries’ ability to take various actions, such as:
· | paying dividends, redeeming subordinated indebtedness or making other restricted payments; |
· | incurring or guaranteeing additional indebtedness or, with respect to our restricted subsidiaries or any other subsidiary guarantor, issuing preferred shares; |
· | creating or incurring liens; |
· | incurring dividend or other payment restrictions affecting our restricted subsidiaries; |
· | consummating a merger, consolidation or sale of all or substantially all of our or our subsidiaries’ assets; |
· | entering into transactions with affiliates; |
· | transferring or selling assets, including to a master limited partnership or similar entity; |
· | engaging in business other than our current business and reasonably related extensions thereof; |
· | issuing capital stock of certain subsidiaries; |
· | taking or omitting to take any actions that would adversely affect or impair in any material respect the collateral securing our indebtedness; |
· | terminating or amending certain material contracts; |
· | amending, modifying or changing our organizational documents; and |
· | employing our drilling units in certain jurisdictions. |
We may also be prevented from taking advantage of business opportunities that arise if we fail to meet certain ratios or because of the limitations imposed on us by the restrictive covenants under the indentures governing our secured notes, term loans and revolving credit agreement. In addition, the restrictions contained in the indentures governing our secured notes may also limit our ability to plan for or react to market conditions, meet capital needs or otherwise restrict our activities or business plans and adversely affect our ability to finance our operations, enter into acquisitions, execute our business strategy, effectively compete with companies that are not similarly restricted or engage in other business activities that would be in our interest. We are also subject to additional restrictions in our term loan agreements and revolving credit agreement, and in the future, we may also incur additional debt obligations that might subject us to additional and different restrictive covenants that could further affect our financial and operational flexibility. We cannot assure you that we will be granted waivers or amendments to these agreements if for any reason we are unable to comply with these agreements, or that we will be able to refinance our debt on acceptable terms or at all.
Our ability to comply with these covenants will likely be affected by events beyond our control, and we cannot assure you that we will satisfy those requirements. A breach of any of these provisions could result in a default under our existing and future debt agreements, including the indentures governing our secured notes, our term loans and our revolving credit agreement, which could allow all amounts outstanding thereunder to be declared immediately due and payable. This would likely in turn trigger cross-acceleration and cross-default rights under the indentures governing our secured notes, our term loans, our revolving credit agreement and the terms of our other indebtedness outstanding at such time. If the amounts outstanding in respect of our secured notes, our note guarantees, our term loans, our revolving credit agreement or any other indebtedness outstanding at such time were to be accelerated or were the subject of foreclosure actions, we cannot assure you that our assets would be sufficient to repay in full the money owed to the lenders or to our other debt holders.
Our financial condition may be adversely affected if we are unable to identify and complete future acquisitions, fail to successfully integrate acquired assets or businesses we acquire, or are unable to obtain financing for acquisitions on acceptable terms.
The acquisition of assets or businesses that we believe to be complementary to our drilling operations is an important component of our business strategy. We believe that acquisition opportunities may arise from time to time, and that any such acquisition could be significant. At any given time, discussions with one or more potential sellers may be at different stages. However, any such discussions may not result in the consummation of an acquisition transaction, and we may not be able to identify or complete
17
any acquisitions. We cannot predict the effect, if any, that any announcement or consummation of an acquisition would have on the trading price of our securities. Our business is capital intensive and any such transactions could involve the payment by us of a substantial amount of cash. We may need to raise additional capital through public or private debt or equity financings to execute our growth strategy and to fund acquisitions. Adequate sources of capital may not be available when needed on favorable terms. If we raise additional capital by issuing additional equity securities, existing shareholders may be diluted. If our capital resources are insufficient at any time in the future, we may be unable to fund acquisitions, take advantage of business opportunities or respond to competitive pressures, any of which could harm our business.
Any future acquisitions could present a number of risks, including:
· | the risk of using management time and resources to pursue acquisitions that are not successfully completed; |
· | the risk of incorrect assumptions regarding the future results of acquired operations; |
· | the risk of failing to integrate the operations or management of any acquired operations or assets successfully and timely; and |
· | the risk of diversion of management’s attention from existing operations or other priorities. |
If we are unsuccessful in completing acquisitions of other operations or assets, our financial condition could be adversely affected and we may be unable to implement an important component of our business strategy successfully. In addition, if we are unsuccessful in integrating our acquisitions in a timely and cost-effective manner, our financial condition and results of operations could be adversely affected.
Operating and maintenance costs will not necessarily fluctuate in proportion to changes in operating revenues.
We do not expect operating and maintenance costs to necessarily fluctuate in proportion to changes in operating revenues. Operating revenues may fluctuate as a function of changes in dayrates. However, costs for operating a drilling unit are generally fixed or only semi-variable regardless of the dayrate being earned. In addition, should the drilling units incur idle time between contracts, we would typically maintain the crew to prepare the drilling unit for its next contract and would not reduce costs to correspond to the decrease in revenue. During times of moderate activity, reductions in costs may not be immediate as the crew may be required to prepare the drilling units for stacking, after which time the crew will be reduced to a level necessary to maintain the drilling unit in working condition with the extra crew members assigned to active drilling units or dismissed. In addition, as drilling units are mobilized from one geographic location to another, the labor and other operating and maintenance costs can vary significantly. Equipment maintenance expenses fluctuate depending upon the type of activity the drilling unit is performing and the age and condition of the equipment. Contract preparation expenses vary based on the scope and length of contract preparation required and the duration of the firm contractual period over which such expenditures are amortized.
The loss of some of our key executive officers and employees could negatively impact our business prospects.
Our future operational performance depends to a significant degree upon the continued service of key members of our management as well as marketing, sales and operations personnel. The loss of one or more of our key personnel could have a material adverse effect on our business. We believe our future success will also depend in large part upon our ability to attract, retain and further motivate highly skilled management, marketing, sales and operations personnel. We may experience intense competition for personnel, and we cannot assure you that we will be able to retain key employees or that we will be successful in attracting, assimilating and retaining personnel in the future.
Failure to employ a sufficient number of skilled workers or an increase in labor costs could hurt our operations.
We require skilled personnel to operate and provide technical services to, and support for, our drilling units. In periods of increasing activity and when the number of operating units in our areas of operation increases, either because of new construction, re-activation of idle units or the mobilization of units into the region, shortages of qualified personnel could arise, creating upward pressure on wages and difficulty in staffing. The shortages of qualified personnel or the inability to obtain and retain qualified personnel also could negatively affect the quality and timeliness of our work. In addition, our ability to expand operations depends in part upon our ability to increase the size of the skilled labor force.
Consolidation of suppliers may increase the cost of obtaining supplies, which may have a material adverse effect on our results of operations and financial condition.
We rely on certain third parties to provide supplies and services necessary for our offshore drilling operations, including, but not limited to, drilling equipment suppliers, catering and machinery suppliers. Recent mergers have reduced the number of available suppliers, resulting in fewer alternatives for sourcing key supplies. Such consolidation, combined with a high volume of drilling units under construction, may result in a shortage of supplies and services thereby increasing the cost of supplies and/or potentially
18
inhibiting the ability of suppliers to deliver on time, or at all. These cost increases, delays or unavailability could have a material adverse effect on our results of operations and result in drilling unit downtime, and delays in the repair and maintenance of our drilling units.
While we believe that we currently have adequate internal control procedures in place, we are still exposed to potential risks from the requirement that we evaluate our internal controls under Section 404 of the Sarbanes-Oxley Act of 2002.
We have evaluated our internal controls systems in order to allow management to report on, and our independent registered public accounting firm to attest to, our internal controls, as required by Section 404 of the Sarbanes-Oxley Act of 2002. We have performed the system and process evaluation and testing required to comply with the management certification requirements of, and preparing for the auditor attestation under, Section 404. As a result, we have incurred additional expenses and a diversion of management’s time. While we have been able to fully implement the requirements relating to internal controls and all other aspects of Section 404 in a timely fashion, we cannot be certain that our internal control over financial reporting will be adequate in the future to ensure compliance with the requirements of the Sarbanes-Oxley Act or the Foreign Corrupt Practices Act. If we are not able to maintain adequate internal control over financial reporting, we may be susceptible to sanctions or investigation by regulatory authorities, such as the SEC. Any such action could adversely affect our financial results and the market price of our securities.
Changes in tax laws, treaties or regulations, effective tax rates or adverse outcomes resulting from examination of our tax returns could adversely affect our financial results.
Our future effective tax rates could be adversely affected by changes in tax laws, treaties, and regulations both internationally and domestically. Tax laws, treaties and regulations are highly complex and subject to interpretation. We are subject to changing tax laws, treaties and regulations in and between the countries in which we operate. Our income tax expense is based upon the interpretation of the tax laws in effect in various countries at the time that the expense was incurred. A change in these tax laws, treaties or regulations, or in the interpretation thereof, could result in a materially higher tax expense or a higher effective tax rate on our worldwide earnings. If any country successfully challenges our income tax filings based on our structure or the presence of our operations there, or if we otherwise lose a material dispute, our effective tax rate on worldwide earnings could increase substantially and our financial results could be materially adversely affected.
We could be adversely affected by violations of the U.S. Foreign Corrupt Practices Act and similar worldwide anti-bribery laws.
The U.S. Foreign Corrupt Practices Act, or the FCPA, and similar worldwide anti-bribery laws generally prohibit companies and their intermediaries from making improper payments to government officials for the purpose of obtaining or retaining business. Our policies mandate compliance with these laws. We operate in many parts of the world that have experienced governmental corruption to some degree and, in certain circumstances, strict compliance with anti-bribery laws may conflict with local customs and practices. Despite our extensive training and compliance program, we cannot assure you that our internal control policies and procedures will always protect us from improper acts committed by our employees or agents. Violations of these laws, or allegations of such violations, could disrupt our business and result in a material adverse effect on our business and operations. We may be subject to competitive disadvantages to the extent that our competitors are able to secure business, licenses or other preferential treatment by making payments to government officials and others in positions of influence or using other methods that U.S. laws and regulations prohibit us from using.
In order to effectively compete in some foreign jurisdictions, we utilize local agents and seek to establish joint ventures with local operators or strategic partners. Although we have procedures and controls in place to monitor internal and external compliance, if we are found to be liable for FCPA violations (either due to our own acts or omissions, or due to the acts or omissions of others, including actions taken by our agents and our strategic or local partners, even though our agents and partners may not be subject to the FCPA), we could suffer from civil and criminal penalties or other sanctions, which could have a material adverse effect on our business, financial position, results of operations and cash flows.
We face various risks in our relationship with F3 Capital and Hsin-Chi Su, its owner.
As of December 31, 2014, on a fully diluted basis, F3 Capital owned approximately 28.9% of our issued and outstanding ordinary shares, including shares issuable upon exercise of outstanding warrants. Through his ownership of F3 Capital, Hsin-Chi Su, a former director of the Company, has significant influence over all matters upon which shareholders may vote, including the election of our directors. The interests of F3 Capital and Mr. Su, on the one hand, and our shareholders, on the other hand, may differ, and neither F3 Capital nor Mr. Su is under any fiduciary duty to consider the interests of our company or our shareholders. In fact, F3 Capital and Mr. Su may take action that they perceive benefits themselves and that may be detrimental to our other shareholders, our debt holders and, as a result, our employees as well.
We have entered into various agreements with F3 Capital and its affiliates that are publicly available and filed with the SEC. Because F3 Capital is our largest shareholder, our relationship could create, or appear to create, conflicts of interest, including when
19
our board of directors is faced with decisions that could have different implications for us and F3 Capital or its affiliates. The appearance of such conflicts, even if such conflicts do not materialize, might adversely affect the public’s perception of us, the price of our securities as well as our relationship with other companies and our ability to enter into new relationships in the future, which may have a material adverse effect on our business.
On August 21, 2012, we filed a lawsuit styled Vantage Drilling Company vs. Hsin-Chi Su a/k/a Nobu Su against Mr. Su asserting breach of fiduciary duties, fraud, fraudulent inducement, negligent misrepresentation, and unjust enrichment. We are seeking to recover actual and punitive damages as well as other relief, in each case, relating to our past transactions with Mr. Su and F3 Capital, including our joint venture with Mandarin Drilling Corporation, an entity formerly owned and controlled by Mr. Su, our acquisition of the Platinum Explorer from Mandarin Drilling Corporation and the financing thereof, and our acquisition of the Titanium Explorer.
On June 20, 2014, Mr. Su filed a counterclaim against the Company and certain of our current and former officers and directors, now seeking damages in excess of $2 billion in the amended pleading. The counterclaim alleges fraud, breach of fiduciary duty, negligent misrepresentation, tortious interference with contract, and unjust enrichment and seeks indemnification from us with respect to the matters that are the basis of our lawsuit.
As of February 6, 2015, proceedings associated with our lawsuit and Mr. Su’s counterclaim have been stayed by the Texas state court, pending the determination of certain matters in arbitration. We intend to vigorously pursue our claims and vigorously defend against the charges made in the counterclaim either in arbitration or in court, but we can provide no assurance as to the outcome of this legal action.
In addition to the counterclaim, F3 Capital and Mr. Su could bring additional legal actions against us to preserve their own interests or make arguments that their interests have somehow been damaged by us, among other things. The fact that we have sued Mr. Su may motivate F3 Capital or Mr. Su to take additional actions or positions that negatively impact the interests of other shareholders or employees, including but not limited to voting against our existing board of directors when they stand for re-election. Finally, even if we prevail in any of these legal proceedings, we may not be able to collect any amounts or damages and these legal proceedings could result in the incurrence of significant legal and related expenses. Our ability to collect damages or recover legal and related expenses may be limited by several factors in addition to the outcome of the litigation, including but not limited to our ability to enforce any such awards in the various jurisdictions where F3 Capital and Mr. Su maintain assets. These risks and the perception of them could adversely impact our business, financial condition and results of operations and the price of our securities.
In July 2013, F3 Capital delivered formal notice to us that it believes we have breached the F3 Capital Note. Among its claims, F3 Capital has alleged that we failed to use commercially reasonable efforts to obtain shareholder approval for the issuance of shares upon the conversion of the F3 Capital Note. In connection with its claims, F3 Capital may attempt to accelerate the maturity of the F3 Capital Note in an amount totaling approximately $63.0 million of principal and interest, plus F3 Capital’s claims for penalties and additional interest in excess of $35.0 million. We believe we have met our obligations under the F3 Capital Note to use commercially reasonable efforts to obtain shareholder approvals, and we intend to vigorously defend our position. In recognition that the standards of what constitutes commercially reasonable efforts may be subject to interpretation, there can be no assurances that a court would agree with our interpretation.
We may be required to repurchase certain of our indebtedness with cash upon a change of control or other triggering events.
Upon the occurrence of specified change of control events or certain losses of our vessels in the indentures governing our secured notes, our term loans and our revolving credit agreement, and upon a termination of trading of our ordinary shares as defined in our 7.875% Senior Convertible Senior Notes and a fundamental change as defined in our 5.50% Senior Convertible Notes, we will be required to offer to repurchase or repay all of such outstanding debt under such debt agreements at the prices and upon the terms set forth in the applicable agreements. In addition, in connection with certain asset sales, we will be required to offer to repurchase or repay such outstanding debt as set forth in the applicable debt agreements and we would also be required to repurchase the outstanding convertible notes. Furthermore, we may be required to repurchase our 7.875% Senior Convertible Senior Notes in 2015 and 2017 and our 5.50% Senior Convertible Notes in 2016 and 2018, each at the option of the holders of such notes. We may not have sufficient funds available to repurchase or repay all of the debt that becomes due and payable pursuant to any such offer, which would constitute an event of default which in turn would likely trigger a default under our existing and any future debt agreements. Moreover, the holders and lenders under such debt agreements and any other of our future debt agreements may also limit our ability to repurchase debt. In that event, we would need to cure or refinance the applicable debt agreements before making an offer to purchase. Additionally, our existing debt agreements and any future indebtedness we incur may restrict our ability to repurchase these notes, including following a fundamental change. We may be unable to repay all of such indebtedness or obtain a waiver. Any requirement to offer to repurchase or repay any of our existing debt may therefore require us to refinance some or all of our other outstanding debt, which we may not be able to accomplish on commercially reasonable terms, if at all. These repurchase requirements may also delay or make it more difficult for others to obtain control of us.
20
Because we are incorporated under the laws of the Cayman Islands, you may face difficulties in protecting your interests, and your ability to protect your rights through the U.S. federal courts may be limited.
We are an exempted company incorporated with limited liability under the laws of the Cayman Islands. In addition, most of our directors and executive officers are nationals or residents of jurisdictions other than the United States and a substantial portion of our assets are located outside the United States. As a result, it may be difficult for holders of our securities to effect service of process within the United States upon our directors or executive officers, or enforce judgments obtained in the U.S. courts against our directors or executive officers.
Our corporate affairs are governed by our amended and restated memorandum and articles of association, the Companies Law (as the same may be supplemented or amended from time to time) of the Cayman Islands, and the common law of the Cayman Islands. The rights of holders of our securities to take action against the directors, actions by minority shareholders and the fiduciary responsibilities of our directors under Cayman Islands law are, to a large extent, governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from English common law, the decisions of whose courts are of persuasive authority, but are not binding on a court in the Cayman Islands. The rights of our shareholders and the fiduciary responsibilities of our directors under Cayman Islands law are different from those under statutes or judicial precedent in some jurisdictions in the United States. In particular, the Cayman Islands has a different body of securities laws which may provide significantly less protection to investors as compared to the United States, and some states, such as Delaware, which have more fully developed and judicially interpreted bodies of corporate law.
The Cayman Islands courts are also unlikely:
· | to recognize or enforce against us judgments of courts of the United States based on certain civil liability provisions of U.S. securities laws; and |
· | to impose liabilities against us, in original actions brought in the Cayman Islands, based on certain civil liability provisions of U.S. securities laws that are penal in nature. |
Additionally, Cayman Islands companies may not have standing to sue before the federal courts of the United States. There is no statutory recognition in the Cayman Islands of judgments obtained in the United States, although the courts of the Cayman Islands recognize and enforce a non-penal judgment of a foreign court of competent jurisdiction without re-examination of the merits of the underlying dispute, provided such judgment:
· | is final; |
· | imposes on the judgment debtor a liability to pay a liquidated sum for which the judgment has been given; |
· | is not in respect of taxes, a fine, or a penalty; and |
· | was neither obtained in a manner, nor is of a kind enforcement of which is contrary to natural justice or the public policy of the Cayman Islands. |
The Grand Court of the Cayman Islands may stay proceedings if concurrent proceedings are being brought elsewhere.
None.
We maintain offices, land bases and other facilities worldwide, including our principal executive offices in Houston, Texas, regional operational office in Singapore and a marketing office in Dubai. We lease all of these facilities.
The description of our drilling fleet included under “Item 1. Business” is incorporated by reference herein.
We may be involved in litigation, claims and disputes incidental to our business, which may involve claims for significant monetary amounts, some of which would not be covered by insurance. In the opinion of management, none of the existing disputes to which we are a party will have a material adverse effect on our financial position, results of operations or cash flows.
21
On August 21, 2012, we filed a lawsuit styled Vantage Drilling Company vs. Hsin-Chi Su a/k /a Nobu Su against Mr. Hsin-Chi Su, a former member of our Board of Directors and the owner of F3 Capital, our largest shareholder, asserting breach of fiduciary duties, fraud, fraudulent inducement and negligent misrepresentation, and unjust enrichment based on Mr. Su’s conduct in his dealings with the Company both immediately prior to and during his tenure as one of our directors. In the lawsuit, we are seeking to recover actual and punitive damages as well as other relief, in each case, relating to our past transactions with Mr. Su and F3 Capital, including our joint venture with Mandarin Drilling Corporation, an entity formerly owned and controlled by Mr. Su, our acquisition of the Platinum Explorer from Mandarin Drilling Corporation and the financing thereof, and the acquisition of the Titanium Explorer.
In late July 2013, F3 Capital delivered formal notice to us that it believes we have breached the F3 Capital Note. Among its claims, F3 Capital has alleged that we failed to use commercially reasonable efforts to obtain shareholder approval for the issuance of shares upon the conversion of the F3 Capital Note. In connection with its claims, F3 Capital may attempt to accelerate the maturity of the F3 Capital Note in an amount totaling approximately $63.0 million of principal and interest, plus F3 Capital’s claims for penalties and additional interest in excess of $35.0 million. We believe we have met our obligations under the F3 Capital Note to use commercially reasonable efforts to obtain shareholder approvals, and we intend to vigorously defend our position. In recognition that the standards of what constitutes commercially reasonable efforts may be subject to interpretation, there can be no assurances that a court will agree with our interpretation.
On June 20, 2014, Mr. Su filed a counterclaim against the Company and certain of our current and former officers and directors, now seeking damages in excess of $2 billion in the amended pleading. The counterclaim alleges fraud, breach of fiduciary duty, negligent misrepresentation, tortious interference with contract, and unjust enrichment and seeks indemnification from us with respect to the matters that are the basis of our lawsuit.
The lawsuit had been pending in the 270th Judicial District Court of Harris County, Texas. However, as of February 6, 2015, proceedings associated with our lawsuit and Mr. Su’s counterclaim have been stayed by the Texas state court, pending determination of certain matters in arbitration We intend to vigorously pursue our claims and vigorously defend against the charges made in the counterclaim either in arbitration or in court, but we can provide no assurance as to the outcome of this legal action.
Not applicable.
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Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. |
Market Prices and Dividends
Our ordinary shares are listed on the NYSE MKT under the symbol “VTG”. The following table sets forth the range of the high and low sale prices for our ordinary shares for the periods indicated.
|
| Common Stock / |
| |||||
|
| High |
|
| Low |
| ||
Year Ending December 31, 2015: |
|
|
|
|
|
|
|
|
First quarter (through February 11, 2015) |
| $ | 0.69 |
|
| $ | 0.30 |
|
Year Ended December 31, 2014: |
|
|
|
|
|
|
|
|
Fourth quarter |
| $ | 1.30 |
|
| $ | 0.42 |
|
Third quarter |
| $ | 1.99 |
|
| $ | 1.25 |
|
Second quarter |
| $ | 2.02 |
|
| $ | 1.61 |
|
First quarter |
| $ | 1.94 |
|
| $ | 1.59 |
|
Year Ended December 31, 2013: |
|
|
|
|
|
|
|
|
Fourth quarter |
| $ | 1.95 |
|
| $ | 1.70 |
|
Third quarter |
| $ | 2.06 |
|
| $ | 1.68 |
|
Second quarter |
| $ | 2.05 |
|
| $ | 1.57 |
|
First quarter |
| $ | 1.90 |
|
| $ | 1.55 |
|
As of February 11, 2015, there were approximately 16 holders of record of our ordinary shares and approximately four holders of record of our units, not including beneficial owners holding shares through nominee names.
We have not paid dividends on our ordinary shares to date and do not anticipate paying cash dividends in the immediate future as we contemplate that our cash flows will be used for debt reduction and growth. The payment of future dividends, if any, will be determined by our board of directors in light of conditions then existing, including our earnings, financial condition, capital requirements, restrictions in financing agreements, business conditions and other factors. We are subject to certain restrictive covenants under the terms of the agreements governing our indebtedness, including restrictions on our ability to pay any cash dividends.
Repurchases of Equity Securities
There were no repurchases of equity securities during the fiscal fourth quarter ended December 31, 2014.
Stock Performance Graph
This graph shows the cumulative total shareholder return of our ordinary shares over the five-year period from December 31, 2009 to December 31, 2014. The graph also shows the cumulative total returns for the same period of the S&P 500 Index and the Dow Jones U.S. Oil Equipment & Services Index. The graph assumes that $100 was invested in our ordinary shares and the two indices on December 31, 2009 and that all dividends were reinvested on the date of payment.
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Indexed Returns | Dec 2009 | Dec 2010 | Dec 2011 | Dec 2012 | Dec 2013 | Dec 2014 |
Vantage Drilling Company | $ 100.00 | $ 126.09 | $ 72.05 | $ 109.94 | $ 114.29 | $ 30.43 |
S&P 500 Index | $ 100.00 | $ 112.78 | $ 112.78 | $ 128.05 | $ 165.76 | $ 184.64 |
DJ U.S. Oil Equip & Service Index | $ 100.00 | $ 130.99 | $ 120.69 | $ 118.55 | $ 150.65 | $ 116.13 |
Investors are cautioned against drawing any conclusions from the data contained in the graph, as past results are not necessarily indicative of future performance. The above graph and related information shall not be deemed “soliciting material” or to be “filed” with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933 or Securities Exchange Act of 1934, each as amended, except to the extent that we specifically incorporate it by reference into such filing.
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Equity Compensation Plan Information
The following table sets forth our issuance of awards under our 2007 Long-Term Incentive Plan (“2007 LTIP”) as of December 31, 2014:
Equity Compensation Plan Information |
| |||||||||||
Plan Category |
| Number of securities to be |
|
| Weighted average exercise |
|
| Number of securities |
| |||
|
| (a) |
|
| (b) |
|
| (c) |
| |||
Equity compensation plans approved by security holders (1) |
|
| 104,000 |
|
| $ | 8.40 |
|
|
| 16,269,766 |
|
Equity compensation plans not approved by security holders |
|
| N/A |
|
|
| N/A |
|
|
| N/A |
|
Total |
|
| 104,000 |
|
| $ | 8.40 |
|
|
| 16,269,766 |
|
(1) | Our only equity compensation plan is the 2007 LTIP. |
(2) | Does not include an additional 11,961,923 shares of restricted stock that have been granted and are outstanding as of December 31, 2014 under the 2007 LTIP. |
25
The following selected financial information should be read in conjunction with the consolidated financial statements and the notes thereto included in “Item 8. Financial Statements and Supplementary Data.”
|
| As of and For the Year Ended December 31, | |||||||||||||||||||
|
| 2014 |
|
| 2013 |
|
| 2012 |
|
| 2011 |
|
| 2010 |
|
| |||||
|
| (In thousands, except per share amounts) | |||||||||||||||||||
Consolidated Statement of Operations Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
| $ | 875,561 |
|
| $ | 732,060 |
|
| $ | 471,472 |
|
| $ | 485,829 |
|
| $ | 278,403 |
|
|
Operating costs |
|
| 421,505 |
|
|
| 335,915 |
|
|
| 230,089 |
|
|
| 284,881 |
|
|
| 176,387 |
|
|
General and administrative expenses |
|
| 34,106 |
|
|
| 32,612 |
|
|
| 26,002 |
|
|
| 26,317 |
|
|
| 21,719 |
|
|
Depreciation and amortization |
|
| 126,610 |
|
|
| 106,609 |
|
|
| 68,747 |
|
|
| 64,477 |
|
|
| 33,384 |
|
|
Income from operations |
|
| 293,340 |
|
|
| 256,924 |
|
|
| 146,634 |
|
|
| 110,154 |
|
|
| 46,913 |
|
|
Gain (loss) on debt extinguishment |
|
| 3,752 |
| (1) |
| (98,327 | ) | (2) |
| (124,599 | ) | (3) |
| (25,196 | ) | (4) |
| (24,006 | ) | (5) |
Loss on acquisition of subsidiary |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (3,780 | ) | (6) |
Interest expense |
|
| (213,879 | ) |
|
| (213,928 | ) |
|
| (149,028 | ) |
|
| (154,801 | ) |
|
| (49,265 | ) |
|
Other income (expense) |
|
| (1,179 | ) |
|
| 1,621 |
|
|
| 595 |
|
|
| 1,324 |
|
|
| 1,510 |
|
|
Income (loss) before income taxes |
|
| 82,034 |
|
|
| (53,710 | ) |
|
| (126,398 | ) |
|
| (68,519 | ) |
|
| (28,628 | ) |
|
Income tax provision |
|
| 40,028 |
|
|
| 28,115 |
|
|
| 18,906 |
|
|
| 11,432 |
|
|
| 18,951 |
|
|
Net income (loss) |
| $ | 42,006 |
|
| $ | (81,825 | ) |
| $ | (145,304 | ) |
| $ | (79,951 | ) |
| $ | (47,579 | ) |
|
Earnings (loss) per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | 0.14 |
|
| $ | (0.27 | ) |
| $ | (0.50 | ) |
| $ | (0.28 | ) |
| $ | (0.19 | ) |
|
Diluted |
| $ | 0.14 |
|
| $ | (0.27 | ) |
| $ | (0.50 | ) |
| $ | (0.28 | ) |
| $ | (0.19 | ) |
|
Other Financial Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA Reconciliation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
| $ | 42,006 |
|
| $ | (81,825 | ) |
| $ | (145,304 | ) |
| $ | (79,951 | ) |
| $ | (47,579 | ) |
|
Interest expense |
|
| 213,879 |
|
|
| 213,928 |
|
|
| 149,028 |
|
|
| 154,801 |
|
|
| 49,265 |
|
|
Income tax provision |
|
| 40,028 |
|
|
| 28,115 |
|
|
| 18,906 |
|
|
| 11,432 |
|
|
| 18,951 |
|
|
Depreciation |
|
| 126,610 |
|
|
| 106,609 |
|
|
| 68,747 |
|
|
| 64,477 |
|
|
| 33,384 |
|
|
EBITDA (7) |
|
| 422,523 |
|
|
| 266,827 |
|
|
| 91,377 |
|
|
| 150,759 |
|
|
| 54,021 |
|
|
(Gain) loss on debt extinguishment |
|
| (3,752 | ) |
|
| 98,327 |
|
|
| 124,599 |
|
|
| 25,196 |
|
|
| 24,006 |
|
|
Loss on acquisition of subsidiary |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 3,780 |
|
|
Adjusted EBITDA (8) |
| $ | 418,771 |
|
| $ | 365,154 |
|
| $ | 215,976 |
|
| $ | 175,955 |
|
| $ | 81,807 |
|
|
Balance Sheet Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 82,812 |
|
| $ | 54,686 |
|
| $ | 502,726 |
|
| $ | 110,031 |
|
| $ | 120,443 |
|
|
Total other current assets |
|
| 247,938 |
|
|
| 250,300 |
|
|
| 186,119 |
|
|
| 149,221 |
|
|
| 110,426 |
|
|
Property and equipment, net |
|
| 3,117,892 |
|
|
| 3,190,648 |
|
|
| 2,717,506 |
|
|
| 1,805,075 |
|
|
| 1,718,132 |
|
|
Total other assets |
|
| 81,215 |
|
|
| 132,509 |
|
|
| 123,856 |
|
|
| 58,173 |
|
|
| 54,193 |
|
|
Total assets |
|
| 3,529,857 |
|
|
| 3,628,143 |
|
|
| 3,530,207 |
|
|
| 2,122,500 |
|
|
| 2,003,194 |
|
|
Total current liabilities |
|
| 256,054 |
|
|
| 224,997 |
|
|
| 205,643 |
|
|
| 150,171 |
|
|
| 116,065 |
|
|
Long-term debt |
|
| 2,632,802 |
|
|
| 2,852,050 |
|
|
| 2,710,559 |
|
|
| 1,246,428 |
|
|
| 1,103,480 |
|
|
Other long-term liabilities |
|
| 85,327 |
|
|
| 45,640 |
|
|
| 45,520 |
|
|
| 29,755 |
|
|
| 13,498 |
|
|
Shareholders’ equity |
|
| 555,674 |
|
|
| 505,456 |
|
|
| 568,485 |
|
|
| 696,146 |
|
|
| 770,151 |
|
|
Total liabilities and shareholders’ equity |
|
| 3,529,857 |
|
|
| 3,628,143 |
|
|
| 3,530,207 |
|
|
| 2,122,500 |
|
|
| 2,003,194 |
|
|
Cash Flow Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
| $ | 247,624 |
|
| $ | (48,431 | ) |
| $ | (150,565 | ) |
| $ | 15,873 |
|
| $ | 9,585 |
|
|
Net cash used in investing activities |
|
| (28,496 | ) |
|
| (564,297 | ) |
|
| (905,117 | ) |
|
| (144,336 | ) |
|
| (645,536 | ) |
|
Net cash provided by (used in) financing activities |
|
| (191,002 | ) |
|
| 164,688 |
|
|
| 1,448,377 |
|
|
| 118,051 |
|
|
| 740,402 |
|
|
(1) | Includes redemption discounts totaling $7.1 million in connection with discretionary open market debt repurchases offset by $1.0 million and $2.3 million for the write-off of associated issuance discounts and deferred financing costs, respectively. |
(2) | Includes $92.3 million in prepayment and consent fees and $24.0 million for the write-off of deferred financing costs offset by $18.0 million of issuance premium associated with the early retirement of $1 billion of our 11.5% Senior Notes due 2015 (“11.5% Senior Notes”). |
26
(3) | Includes $115.0 million for consent fees and $28.2 million for the write-off of deferred financing costs offset by $21.1 million of issuance premium associated with the early retirement of $1 billion of 11.5% Senior Notes and approximately $2.5 million for the write off of issuance discount associated with the partial conversion of the F3 Capital Note. |
(4) | Includes $21.7 million in prepayment fees and approximately $3.5 million for the write-off of deferred financing costs associated with the early retirement of the debt for the acquisition of the Aquamarine Driller. |
(5) | Includes $10.8 million in prepayment fees and $12.3 million for the write-off of deferred financing costs associated with the retirement of outstanding debt under our original revolving credit facility and our 13.5% Senior Secured Notes. |
(6) | Includes a bargain purchase gain of $12.3 million in connection with the acquisition of the 55% interest in Mandarin Drilling Corporation, and a $16.1 million loss on the remeasurement of our previously held 45% in Mandarin Drilling Corporation under purchase accounting. |
(7) | Earnings before Interest, Taxes and Depreciation and Amortization (“EBITDA”) represents net income (loss) before (i) interest expense, (ii) provision for income taxes and (iii) depreciation and amortization expense. EBITDA is a non-GAAP financial measure as defined under the rules of the SEC, and is intended as a supplemental measure of our performance. We believe this measure is commonly used by analysts and investors to analyze and compare companies on the basis of operating performance that have different financing and capital structures and tax rates. EBITDA is not a substitute for GAAP measures of net income, operating income or any other performance measure derived in accordance with GAAP or as an alternative to cash flows from operating activities or other liquidity measures derived in accordance with GAAP. |
(8) | Adjusted EBITDA represents EBITDA adjusted to exclude (gain) loss on debt extinguishment and loss on acquisition of subsidiary. Adjusted EBITDA is a non-GAAP financial measure as defined under the rules of the SEC, and is intended as a supplemental measure of our performance. We believe this measure is commonly used by analysts and investors to analyze and compare companies on the basis of operating performance that have different financing and capital structures and tax rates. Adjusted EBITDA is not a substitute for GAAP measures of net income, operating income or any other performance measure derived in accordance with GAAP or as an alternative to cash flows from operating activities or other liquidity measures derived in accordance with GAAP. |
The following discussion is intended to assist you in understanding our financial position at December 31, 2014 and 2013, and our results of operations for the years ended December 31, 2014, 2013 and 2012. The following discussion should be read in conjunction with the information contained in “Item 1. Business,” “Item 1A. Risk Factors” and “Item 8. Financial Statements and Supplementary Data” elsewhere in this Annual Report on Form 10-K. 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 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 offshore drilling fleet.
Name |
|
| Year Built/ |
|
| Water Depth |
|
| Drilling Depth |
|
| Status | |||
Jackups |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Emerald Driller |
|
|
| 2008 |
|
|
| 375 |
|
|
| 30,000 |
|
| Operating |
Sapphire Driller |
|
|
| 2009 |
|
|
| 375 |
|
|
| 30,000 |
|
| Operating |
Aquamarine Driller |
|
|
| 2009 |
|
|
| 375 |
|
|
| 30,000 |
|
| Operating |
Topaz Driller |
|
|
| 2009 |
|
|
| 375 |
|
|
| 30,000 |
|
| Operating |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Drillships (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Platinum Explorer |
|
|
| 2010 |
|
|
| 12,000 |
|
|
| 40,000 |
|
| Operating |
Titanium Explorer |
|
|
| 2012 |
|
|
| 12,000 |
|
|
| 40,000 |
|
| Operating |
Tungsten Explorer |
|
|
| 2013 |
|
|
| 12,000 |
|
|
| 40,000 |
|
| Operating |
Cobalt Explorer |
|
|
| 2016 |
|
|
| 12,000 |
|
|
| 40,000 |
|
| Under construction |
(1) | The drillships are designed to drill in up to 12,000 feet of water. The Platinum Explorer, Titanium Explorer and Tungsten Explorer are currently equipped to drill in 10,000 feet of water. The Cobalt Explorer will be equipped to drill in 10,000 feet of water with a dual derrick and two seven-ram BOPs. |
27
Business Outlook
Expectations about future oil and natural gas prices have historically been a key driver of demand for our services. In a series of estimate revisions, the International Energy Agency now estimates that demand growth for 2015 will increase by approximately 900,000 barrels per day or 1.0% which is a modest reduction from prior demand growth estimates. At the same time, there has been a significant increase in the estimates of future production from existing producing countries, including United States shale oil projects. The combination of these two factors has led to a significant decline in world oil prices.
In response to the significant decline in oil prices, exploration and development companies have been significantly reducing capital expenditure budgets for 2015 with estimates generally ranging from 5% to in excess of 30% depending on the region of the world. As a result of these dramatic capital expenditure reductions, exploration and development companies have been releasing rigs and significantly reducing equipment orders. It will take time for these budget revisions to reduce actual spending and for this to impact the level of oil production. Some estimates indicate that oil in storage may be reaching record levels. We believe that oil production declines in some regions will be necessary to stimulate a significant recovery in the offshore drilling market. Accordingly, we anticipate that our industry will experience depressed market conditions through the remainder of 2015 and into 2016.
In addition to the generally depressed market conditions, the industry has a significant number of newbuild drilling rig deliveries scheduled for 2015 and 2016. The order book for jackups currently indicates that 72 additional jackups are scheduled for delivery through the end of 2015 with another 51 jackups scheduled for delivery in 2016. The order book for ultra deepwater floaters, including drillships and semisubmersibles, indicates that 33 additional floaters are scheduled for delivery in 2015 with another 21 floaters scheduled for delivery in 2016. The delivery of these new drilling rigs, during a period of depressed market conditions with little contracting activity, is creating a significant period of oversupply of drilling rigs. Offshore drilling contractors are faced with taking delivery of newbuild drilling rigs without contracts, resulting in their willingness to significantly reduce dayrates to get these rigs working.
In response to the oversupply of drilling rigs, a number of competitors are removing older less efficient rigs from their fleets by either cold stacking the drilling rigs or sending them to scrap yards. This process takes time as many of the drilling rigs are still working for customers on contracts. Accordingly, while we believe this is an important element in bringing the supply of drilling rigs back into balance with demand, it will not be sufficient to materially improve market conditions in 2015.
A summary of our backlog coverage of days contracted and related revenue is as follows:
|
| Percentage of Days Contracted |
|
|
| Revenues Contracted (in thousands) |
|
| ||||||||||||||
|
| 2015 |
|
| 2016 |
|
|
| 2015 |
|
| 2016 |
|
| Beyond |
|
| |||||
Jackups |
|
| 55% |
|
|
| 0% |
|
|
| $ | 123,002 |
|
| $ | — |
|
| $ | — |
|
|
Drillships |
|
| 100% |
|
|
| 61% |
|
|
| $ | 642,695 |
|
| $ | 396,249 |
|
| $ | 924,241 |
|
|
Results of Operations
Our four jackup rigs began operations under their initial contracts in February 2009, August 2009, January 2010 and March 2010, respectively. Our first drillship, the Platinum Explorer, commenced operations in December 2010. Our second drillship, the Titanium Explorer, commenced operations in December 2012. Our third drillship, the Tungsten Explorer, commenced operations in September 2013.
28
Operating results for our contract drilling services are dependent on three primary metrics: available days, rig utilization and dayrates. The following table sets forth this selected operational information for the years indicated:
|
| Years Ended December 31, |
|
| |||||||||
|
| 2014 |
|
| 2013 |
|
| 2012 |
|
| |||
| Jackups |
|
|
|
|
|
|
|
|
|
|
|
|
| Operating rigs, end of period |
| 4 |
|
|
| 4 |
|
|
| 4 |
|
|
| Available days (1) |
| 1,460 |
|
|
| 1,460 |
|
|
| 1,464 |
|
|
| Utilization (2) |
| 99.2 | % |
|
| 87.1 | % |
|
| 96.7 | % |
|
| Average daily revenues (3) | $ | 161,328 |
|
| $ | 166,188 |
|
| $ | 145,794 |
|
|
| Deepwater |
|
|
|
|
|
|
|
|
|
|
|
|
| Operating rigs, end of period |
| 3 |
|
|
| 3 |
|
|
| 2 |
|
|
| Available days (1) |
| 1,095 |
|
|
| 832 |
|
|
| 391 |
|
|
| Utilization (2) |
| 85.1 | % |
|
| 93.3 | % |
|
| 96.4 | % |
|
| Average daily revenues (3) | $ | 615,571 |
|
| $ | 585,597 |
|
| $ | 577,148 |
|
|
(1) | Available days are the total number of rig calendar days in the period. Newbuild rigs are included upon acceptance by the customer. |
(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. |
2014 compared to 2013
The following table is an analysis of our operating results for the years ended December 31, 2014 and 2013.
|
|
| Year Ended December 31, |
|
| |||||||||
|
|
| 2014 |
|
| 2013 |
|
| Change |
|
| |||
|
|
| (In thousands) |
|
| |||||||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Contract drilling services |
| $ | 807,164 |
|
| $ | 666,129 |
|
| $ | 141,035 |
|
|
| Management fees |
|
| 14,396 |
|
|
| 14,622 |
|
|
| (226 | ) |
|
| Reimbursables |
|
| 54,001 |
|
|
| 51,309 |
|
|
| 2,692 |
|
|
| Total revenues |
|
| 875,561 |
|
|
| 732,060 |
|
|
| 143,501 |
|
|
Operating costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Operating costs |
|
| 421,505 |
|
|
| 335,915 |
|
|
| (85,590 | ) |
|
| General and administrative |
|
| 34,106 |
|
|
| 32,612 |
|
|
| (1,494 | ) |
|
| Depreciation |
|
| 126,610 |
|
|
| 106,609 |
|
|
| (20,001 | ) |
|
| Total operating expenses |
|
| 582,221 |
|
|
| 475,136 |
|
|
| (107,085 | ) |
|
Income from operations |
|
| 293,340 |
|
|
| 256,924 |
|
|
| 36,416 |
|
| |
Other income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Interest income |
|
| 45 |
|
|
| 221 |
|
|
| (176 | ) |
|
| Interest expense and financing charges |
|
| (213,924 | ) |
|
| (214,149 | ) |
|
| 225 |
|
|
| Gain (loss) on debt extinguishment |
|
| 3,752 |
|
|
| (98,327 | ) |
|
| 102,079 |
|
|
| Other income (expense) |
|
| (1,179 | ) |
|
| 1,621 |
|
|
| (2,800 | ) |
|
| Total other income (expense) |
|
| (211,306 | ) |
|
| (310,634 | ) |
|
| 99,328 |
|
|
Income (loss) before income taxes |
|
| 82,034 |
|
|
| (53,710 | ) |
|
| 135,744 |
|
| |
Income tax provision |
|
| 40,028 |
|
|
| 28,115 |
|
|
| 11,913 |
|
| |
Net income (loss) |
| $ | 42,006 |
|
| $ | (81,825 | ) |
| $ | 123,831 |
|
|
Revenue: Total revenue for the year ended December 31, 2014 increased 20% as compared to the year ended December 31, 2013 and contract drilling revenue increased 21% for the year ended December 31, 2014 as compared to the same period in 2013. The increase in contract drilling revenue was primarily due to the following: (a) approximately $103.0 million due to commencement of operations of the Tungsten Explorer in September 2013, (b) approximately $16.6 million resulting from improved uptime performance on the Titanium Explorer, and (c) approximately $26.7 million due to increased operating days on the Sapphire Driller.
29
Jackup utilization for the year ended December 31, 2014 was up approximately 12% compared to the prior year due to days out of service for the Sapphire Driller following the early termination of its drilling contract in May 2013. Drillship utilization for the year ended December 31, 2014 decreased approximately 8% compared to the prior year due to the mobilization of the Tungsten Explorer from Asia to West Africa during 2014.
The approximate 5% increase in reimbursable revenue is primarily due to having one additional drillship operating for the full year in 2014 as compared to 2013 and additional reimbursable purchase requests from jackup drilling customers.
Operating costs: Operating costs for the year ended December 31, 2014 increased 25% compared to the year ended December 31, 2013, due primarily to the following: (a) approximately $50.7 million due to commencement of operations on the Tungsten Explorer, (b) approximately $23.3 million associated with the relocation of the Titanium Explorer from the U.S. Gulf of Mexico to West Africa, and (c) approximately $8.6 million due to increased operating days on the Sapphire Driller.
General and administrative expenses: Increases in general and administrative expenses for the year ended December 31, 2014 as compared to the year ended December 31, 2013 were primarily due to increased legal fees related to ongoing litigation.
Depreciation expense: The increase in depreciation expense for the year ended December 31, 2014 as compared to the year ended December 31, 2013 was primarily due to the addition of the Tungsten Explorer to our operating fleet in the third quarter of 2013.
Interest expense and other financing charges: Interest expense and other financing charges for the year ended December 31, 2014 were comparable to the fiscal year 2013; lower interest expense in 2014, due to lower debt levels, was offset by a reduction of capitalized interest. We capitalized $5.2 million of interest and amortization costs in the year ended December 31, 2014, as compared to $18.7 million in the year ended December 31, 2013. The reduction in capitalized interest was due to the Tungsten Explorer commencing operations in September 2013.
Gain (loss) on extinguishment of debt: In the year ended December 31, 2014, we repurchased in the open market, at a discount to face value, $47.4 million of our 7.125% Senior Notes, $31.4 million of our 7.5% Senior Notes and $13.4 million of our 7.875% Convertible Notes and recognized gains of $2.7 million, $4.0 million and $404,000, respectively. The gains were partially offset by the write-off of deferred financing costs of $1.5 million. In connection with an additional principal payment of $42.0 million in June 2014 on the 2017 Term Loan, we recognized a loss of $1.4 million resulting from the write-off of deferred financing costs of $820,000 and original debt issuance discount of $576,000, and in connection with an open market purchase of $2 million of the 2017 Term Loan in December 2014, we recognized a gain of $313,000.
In the year ended December 31, 2013, in connection with the early retirement of the remaining $1.0 billion of 11.5% Senior Notes, we recognized a loss of $98.3 million resulting from the payment of early redemption fees and consent fees of $92.3 million and the write-off of deferred financing costs of $24.0 million, which were offset by the early recognition of debt issuance premium of $18.0 million.
Income tax expense: The $11.9 million increase in income tax expense for the year ended December 31, 2014 was primarily due to increased revenue earned in deemed profit jurisdictions as compared to 2013. In some jurisdictions we do not pay taxes or incur tax impacts for certain income and expense items including interest expense and gain or loss on extinguishment of debt.
30
2013 compared to 2012
The following table is an analysis of our operating results for the years ended December 31, 2013 and 2012.
|
| Year Ended December 31, |
| |||||||||
|
| 2013 |
|
| 2012 |
|
| Change |
| |||
|
| (In thousands) |
| |||||||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
Contract drilling services |
| $ | 666,129 |
|
| $ | 423,897 |
|
| $ | 242,232 |
|
Management fees |
|
| 14,622 |
|
|
| 6,605 |
|
|
| 8,017 |
|
Reimbursables |
|
| 51,309 |
|
|
| 40,970 |
|
|
| 10,339 |
|
Total revenues |
|
| 732,060 |
|
|
| 471,472 |
|
|
| 260,588 |
|
Operating costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs |
|
| 335,915 |
|
|
| 230,089 |
|
|
| (105,826 | ) |
General and administrative |
|
| 32,612 |
|
|
| 26,002 |
|
|
| (6,610 | ) |
Depreciation |
|
| 106,609 |
|
|
| 68,747 |
|
|
| (37,862 | ) |
Total operating expenses |
|
| 475,136 |
|
|
| 324,838 |
|
|
| (150,298 | ) |
Income from operations |
|
| 256,924 |
|
|
| 146,634 |
|
|
| 110,290 |
|
Other income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
| 221 |
|
|
| 90 |
|
|
| 131 |
|
Interest expense and financing charges |
|
| (214,149 | ) |
|
| (149,118 | ) |
|
| (65,031 | ) |
Loss on debt extinguishment |
|
| (98,327 | ) |
|
| (124,599 | ) |
|
| 26,272 |
|
Other income |
|
| 1,612 |
|
|
| 595 |
|
|
| 1,026 |
|
Total other expense |
|
| (310,634 | ) |
|
| (273,032 | ) |
|
| (37,602 | ) |
Loss before income taxes |
|
| (53,710 | ) |
|
| (126,398 | ) |
|
| 72,688 |
|
Income tax provision |
|
| 28,115 |
|
|
| 18,906 |
|
|
| 9,209 |
|
Net loss |
| $ | (81,825 | ) |
| $ | (145,304 | ) |
| $ | 63,479 |
|
Revenue: Total revenue for the year ended December 31, 2013 increased 55% as compared to the year ended December 31, 2012 and contract drilling revenue increased 57% for the year ended December 31, 2013 as compared to the same period in 2012. The increase in contract drilling revenue was primarily due to the commencement of operations of the Titanium Explorer in December 2012 and the Tungsten Explorer in September 2013, which added $160.6 million and $75.0 million of revenue, respectively.
Jackup utilization for the year ended December 31, 2013 was down approximately 10% compared to the prior year due to the days out of service for the Sapphire Driller following the early termination of its drilling contract in May 2013. Drillship utilization for the year ended December 31, 2013 decreased slightly compared to the prior year due to normal and expected start-up issues with new mobile offshore drilling units as the Titanium Explorer and the Tungsten Explorer commenced operations in December 2012 and September 2013, respectively.
The increase in management fees in 2013 is due to having multiple construction management services contracts in 2013 as compared to one on-going construction management services project during 2012 and managing the operations of two jackups for a contractor in Mexico. The approximately 25% increase in reimbursable revenue is primarily due to having two additional drillships operating in 2013 as compared to 2012 and additional reimbursable purchase requests from jackup drilling customers.
Operating costs: Operating costs for the year ended December 31, 2013 increased 46% compared to the year ended December 31, 2012, due primarily to operating costs on the Titanium Explorer and Tungsten Explorer of approximately $61.6 million and $28.1 million, respectively, and to increased reimbursable costs associated with our construction management contracts.
General and administrative expenses: Increases in general and administrative expenses for the year ended December 31, 2013 as compared to the year ended December 31, 2012 were primarily due to increased personnel and related infrastructure support costs of $4.5 million required to support our expanded global operations and to $2.1 million of increased legal fees related to ongoing litigation.
Depreciation expense: The increase in depreciation expense for the year ended December 31, 2013 as compared to the year ended December 31, 2012 was primarily due to the addition of the Titanium Explorer and the Tungsten Explorer to our operating fleet in the fourth quarter of 2012 and the third quarter of 2013, respectively.
Interest expense and other financing charges: Interest expense and other financing charges for the year ended December 31, 2013 increased over the same period in 2012 because of increased average levels of debt outstanding in 2013 and lower amounts of capitalized interest in 2013. Average debt levels increased in 2013 due to the acquisition of the Titanium Explorer in April 2012 and
31
the October 2012 issuance of $1.15 billion of 7.5% Senior Notes and the closing of the $500 million 2017 Term Loan, of which a portion of the proceeds were used to pre-fund the final shipyard payment on the Tungsten Explorer that was made in July 2013.
We capitalized $18.7 million of interest and amortization costs in the year ended December 31, 2013, as compared to $75.1 million in the year ended December 31, 2012. The reduction in capitalized interest was due to the Titanium Explorer and Tungsten Explorer commencing operations in December 2012 and September 2013, respectively.
Loss on extinguishment of debt: In the year ended December 31, 2013, in connection with the early retirement of the remaining $1.0 billion of 11.5% Senior Notes, we recognized a loss of $98.3 million resulting from the payment of early redemption fees and consent fees of $92.3 million and the write-off of deferred financing costs of $24.0 million, which were offset by the early recognition of debt issuance premium of $18.0 million.
In the year ended December 31, 2012, in connection with the early retirement of $1.0 billion of 11.5% Senior Notes, we recognized a loss of $122.1 million resulting from the payment of “make-whole” and consent fees of $115.0 million and the write-off of deferred financing costs of $28.2 million, which were offset by the early recognition of debt issuance premium of $21.1 million. Additionally, we recognized a charge of approximately $2.5 million related to the early extinguishment of $6.5 million aggregate principal of the F3 Capital Note applied as consideration for an equivalent principal amount of 7.875% Senior Convertible Notes.
Income tax expense: The $9.2 million increase in income tax expense for the year ended December 31, 2013 was primarily due to increased revenue earned in deemed profit jurisdictions as compared to 2012. In some jurisdictions we do not pay taxes or receive benefits for certain income and expense items including interest expense and loss on extinguishment of debt.
Liquidity and Capital Resources
As of December 31, 2014, we had working capital of approximately $74.7 million, including approximately $82.8 million of cash available for general corporate purposes. Additionally, we have posted $6.6 million cash as collateral for bid tenders and performance bonds. We have approximately $250.8 million in available liquidity, including our available cash and $168.0 million available under our Credit Agreement. Under our Credit Agreement, $32.0 million is reserved for letters of credit and as of December 31, 2014, we had issued letters of credit of $21.5 million. As of December 31, 2014, we have not drawn down any amounts under the Credit Agreement.
During 2014, we retired approximately $199.7 million principal amount of debt, including $53.5 million of scheduled term loan maturities. See the table below for a summary of our 2014 quarterly debt payments. For 2015, we have scheduled debt maturities of approximately $53.5 million and forecast making approximately $185.0 million of interest payments. We intend to continue making open market purchases and discretionary debt payments with a total targeted principal debt retirement, including scheduled maturities, of $125.0 million to $150.0 million for 2015. We may be required to repurchase our 7.875% Convertible Notes at the option of the holders in September 2015; if required to do so, these amounts will be included in the targeted principal reduction. During the first quarter of 2015 we have acquired approximately $43.1million of face value debt in the open market for total cash consideration of approximately $31.3 million.
We anticipate 2015 capital expenditures, excluding any expenditures on the Cobalt Explorer, of approximately $50 to $55 million for sustaining capital expenditures, fleet capital spares program and information technology. During 2015, we will complete our 3-year $50 million fleet capital spares program and anticipate that capital expenditures will decrease $20 to $30 million in future years for costs associated with the program. We expect to fund these expenditures from our available working capital, cash flow from operations and advances under the Credit Agreement, if necessary.
We made the initial milestone shipyard payment of $59.5 million on the Cobalt Explorer in July 2013. We have agreed with the shipyard to defer the second milestone payment of $59.5 million, which was originally due in January 2015 to July 15, 2015. The third, and final, milestone payment is due upon delivery, which is currently expected to be in the first quarter of 2016. Additionally, we are currently forecasting spending an additional $30 million to $50 million on capital expenditures related to the final outfitting of the Cobalt Explorer, which will be impacted by initial contract requirements of our customer. These amounts do not include any capitalized interest related to the construction project.
In the next twelve months, we will be evaluating financing alternatives for the remaining shipyard funding commitments for the Cobalt Explorer. We are currently pursuing contracting opportunities for the Cobalt Explorer, however, market conditions make the timing of a contract award and the terms and conditions of potential contracts difficult to estimate. Additionally, we now anticipate that the delivery of the Cobalt Explorer will not occur prior to the first quarter 2016. Each of these factors may have a significant impact on the financing alternatives for the Cobalt Explorer commitments. While we are in discussions with certain financial institutions for the financing, due to the uncertainty of each of these factors, there can be no assurances that financing will be available, or available on satisfactory terms, to fund the final delivery of the Cobalt Explorer.
32
Debt
As of December 31, 2014 and 2013, our debt consisted of the following:
|
| December 31, |
|
| |||||
|
| 2014 |
|
| 2013 |
|
| ||
|
| (In thousands) |
|
| |||||
7.5% Senior Notes, issued at par |
| $ | 1,118,615 |
|
| $ | 1,150,000 |
|
|
7.125% Senior Notes, issued at par |
|
| 727,622 |
|
|
| 775,000 |
|
|
$500 million 2017 Term Loan, net of discount of $4,406 and $7,109 |
|
| 364,159 |
|
|
| 455,391 |
|
|
$350 million 2019 Term Loan, net of discount of $3,668 and $4,561 |
|
| 340,207 |
|
|
| 342,814 |
|
|
5.50% Convertible Notes, net of discount of $6,016 and $9,923 |
|
| 93,984 |
|
|
| 90,077 |
|
|
7.875% Convertible Notes, net of discount of $1,181 and $2,130 |
|
| 41,878 |
|
|
| 54,370 |
|
|
Revolving credit agreement |
|
| — |
|
|
| 10,000 |
|
|
F3 Capital Note, net of discount of $11,785 and $15,602 |
|
| 41,715 |
|
|
| 37,898 |
|
|
|
|
| 2,728,180 |
|
|
| 2,915,550 |
|
|
Less current maturities of long-term debt and revolving credit facility |
|
| 95,378 |
|
|
| 63,500 |
|
|
Long-term debt, net |
| $ | 2,632,802 |
|
| $ | 2,852,050 |
|
|
During 2014, we made numerous open market purchases of our outstanding debt issuances and an additional principal payment on our 2017 Term Loan. The following table summarizes our quarterly debt payments, both scheduled and discretionary, for the year ended December 31, 2014 (in thousands).
|
| First Quarter |
|
| Second Quarter |
|
| Third Quarter |
|
| Fourth Quarter |
|
| Total |
|
| |||||
7.125% Senior Notes (1) |
| $ | 6,000 |
|
| $ | 1,527 |
|
| $ | 32,500 |
|
| $ | 7,351 |
|
| $ | 47,378 |
|
|
7.5% Senior Notes (1) |
|
| — |
|
|
| — |
|
|
| 7,000 |
|
|
| 24,385 |
|
|
| 31,385 |
|
|
7.875% Convertible Notes (1) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 13,441 |
|
|
| 13,441 |
|
|
2017 Term Loan (2)(3) |
|
| — |
|
|
| 42,000 |
|
|
| — |
|
|
| 2,000 |
|
|
| 44,000 |
|
|
Scheduled maturities payments |
|
| 23,375 |
| (4) |
| 13,375 |
|
|
| 13,375 |
|
|
| 13,375 |
|
|
| 63,500 |
|
|
Total |
| $ | 29,375 |
|
| $ | 56,902 |
|
| $ | 52,875 |
|
| $ | 60,552 |
|
| $ | 199,704 |
|
|
| |||||||||||||||||||||
(1) Discretionary open market debt repurchases through December 31, 2014 | |||||||||||||||||||||
(2) Additional principal payment in June 2014 | |||||||||||||||||||||
(3) Discretionary open market purchase in December 2014 | |||||||||||||||||||||
(4) Includes $10 million repayment of revolving credit agreement |
33
Contractual Obligations
In the table below, we set forth our contractual obligations as of December 31, 2014. Some of the figures included in this table are based on our estimates and assumptions about these obligations, including their duration and other factors. The contractual obligations we will actually pay in future periods may vary from those reflected in the table because the estimates and assumptions are subjective.
|
| Total |
|
| 2015 |
|
| 2016-2017 |
|
| 2018-2019 |
|
| After 5 Years |
|
| |||||
|
| (In thousands) |
|
| |||||||||||||||||
Principal payments on 7.5% Senior Notes |
| $ | 1,118,615 |
|
| $ | - |
|
| $ | - |
|
| $ | 1,118,615 |
|
| $ | - |
|
|
Principal payments on 7.125% Senior Notes |
|
| 727,622 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 727,622 |
|
|
Principal payments on $500 million 2017 Term Loan (1) |
|
| 368,565 |
|
|
| 50,000 |
|
|
| 318,565 |
|
|
| - |
|
|
| - |
|
|
Principal payments on $350 million 2019 Term Loan (1) |
|
| 343,875 |
|
|
| 3,500 |
|
|
| 7,000 |
|
|
| 333,375 |
|
|
| - |
|
|
Principal payments on 5.5% Convertible Notes (2) |
|
| 100,000 |
|
|
| - |
|
|
| 100,000 |
|
|
| - |
|
|
| - |
|
|
Principal payments on 7 .875% Convertible Notes (3) |
|
| 43,059 |
|
|
| 43,059 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
Principal payments on F3 Capital Note (1) |
|
| 53,500 |
|
|
| - |
|
|
| - |
|
|
| 53,500 |
|
|
| - |
|
|
Shipyard payment on Cobalt Explorer (4) |
|
| 535,500 |
|
|
| 59,500 |
|
|
| 476,000 |
|
|
| - |
|
|
| - |
|
|
Interest payments |
|
| 1,039,400 |
|
|
| 184,223 |
|
|
| 352,424 |
|
|
| 321,302 |
|
|
| 181,451 |
|
|
Operating lease payments (5) |
|
| 23,532 |
|
|
| 12,900 |
|
|
| 4,332 |
|
|
| 2,118 |
|
|
| 4,182 |
|
|
Purchase obligations |
|
| 53,217 |
|
|
| 53,217 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
Total as of December 31, 2014 (6) |
| $ | 4,406,885 |
|
| $ | 406,399 |
|
| $ | 1,258,321 |
|
| $ | 1,828,910 |
|
| $ | 913,255 |
|
|
(1) | Amounts represent the accreted value of the debt at maturity. |
(2) | The convertible notes are subject to repurchase at the option of the holders on July 15, 2016 and July 15, 2018; the scheduled repurchase represents the July 15, 2016 repurchase date as this is the date that the preferential conversion features expire and was the initial expectation for the retirement of the convertible notes. |
(3) | The convertible notes are subject to repurchase at the option of the holders on September 1, 2015 and September 1, 2017; the scheduled repurchase represents the earliest repurchase date. |
(4) | Amount represents the second installment of $59.5 million due July 15, 2015 and the estimated amount due the shipyard upon delivery of the Cobalt Explorer in 2016, exclusive of any adjustments. |
(5) | Amounts represent lease payments under existing operating leases. We enter into operating leases in the normal course of business, some of which contain renewal options. Our future cash payments would change if we exercised those renewal options and if we enter into additional operating leases. |
(6) | As of December 31, 2014 our unrecognized tax benefits related to uncertain tax positions represented a liability of $3.4 million, inclusive of potential penalties and interest. Due to the high degree of uncertainty regarding the timing of future cash outflows associated with the liabilities recognized in this balance, we are unable to make reasonably reliable estimates of the period of cash settlement with the respective taxing authorities, and we have excluded this amount from the contractual obligations presented in the table above. |
Commitments and Contingencies
We enter into operating leases in the normal course of business for office space, housing, vehicles and specified operating equipment. Some of these leases contain options which would cause our future cash payments to change if we exercised those options.
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.
On August 21, 2012, we filed a lawsuit styled Vantage Drilling Company vs. Hsin-Chi Su a/k/a Nobu Su against Mr. Hsin-Chi Su, a former member of our Board of Directors and the owner of F3 Capital, our largest shareholder, asserting breach of fiduciary duties, fraud, fraudulent inducement and negligent misrepresentation, and unjust enrichment based on Mr. Su’s conduct in his dealings with the Company both immediately prior to and during his tenure as one of our directors. In the lawsuit, we are seeking to recover actual and punitive damages as well as other relief, in each case, relating to our past transactions with Mr. Su and F3 Capital, including our joint venture with Mandarin Drilling Corporation, an entity formerly owned and controlled by Mr. Su, our acquisition of the Platinum Explorer from Mandarin Drilling Corporation and the financing thereof, and the acquisition of the Titanium Explorer.
34
In July 2013, F3 Capital delivered formal notice to us that it believes we have breached the F3 Capital Note. Among its claims, F3 Capital has alleged that we failed to use commercially reasonable efforts to obtain shareholder approval for the issuance of shares upon the conversion of the F3 Capital Note. In connection with its claims, F3 Capital may attempt to accelerate the maturity of the F3 Capital Note in an amount totaling approximately $63.0 million of principal and interest, plus F3 Capital’s claims for penalties and additional interest in excess of $35.0 million. We believe we have met our obligations under the F3 Capital Note to use commercially reasonable efforts to obtain shareholder approvals, and we intend to vigorously defend our position. In recognition that the standards of what constitutes commercially reasonable efforts may be subject to interpretation, there can be no assurances that a court will agree with our interpretation.
On June 20, 2014, Mr. Su filed a counterclaim against the Company and certain of our current and former officers and directors now seeking damages in excess of $2 billion in the amended pleading. The counterclaim alleges fraud, breach of fiduciary duty, negligent misrepresentation, tortious interference with contract, and unjust enrichment and seeks indemnification from us with respect to the matters that are the basis of our lawsuit.
The lawsuit had been pending in the 270th Judicial District Court of Harris County, Texas. However, as of February 6, 2015, proceedings associated with our lawsuit and Mr. Su’s counterclaim have been stayed by the Texas state court, pending determination of certain matters in arbitration. We intend to vigorously pursue our claims and vigorously defend against the charges made in the counterclaim either in arbitration or in court, but we can provide no assurance as to the outcome of this legal action.
Off-Balance Sheet Arrangements, Commitments and Guarantees
In connection with a private placement of our ordinary shares in June 2009, we issued warrants to the lead placement agent to purchase 371,429 ordinary shares at $2.10 per share. These warrants expired June 5, 2014.
Critical Accounting Estimates
The preparation of financial statements and related disclosures in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. 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.
Property and Equipment: Our long-lived assets, primarily consisting of the values of our drilling rigs, are the most significant amount of our total assets. We make judgments with regard to the carrying value of these assets, including amounts capitalized, componentization, depreciation and amortization methods, salvage values and estimated useful lives. We capitalize interest costs related to the financings of our drilling rigs while they are under construction and prior to the commencement of each vessel’s first contract, which has increased the carrying value of the drilling rigs. Our weighted average cost of capital, which is the key component used in our calculation of capitalized interest, is directly impacted by the volatility in the global financial and credit markets. The completion of a construction project has an impact on the amount of interest expense that is prospectively recognized in our results of operations. We have capitalized interest and amortization costs of $5.2 million, $18.7 million and $75.1 million for the years ended December 31, 2014, 2013 and 2012, respectively.
We evaluate the realization of property and equipment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss on our property and equipment exists when estimated undiscounted cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount. Any impairment loss recognized would be computed as the excess of the asset’s carrying value over the estimated fair value. Estimates of future cash flows require us to make long-term forecasts of our future revenues and operating costs with regard to the assets subject to review. Our business, including the utilization rates and dayrates we receive for our drilling rigs, depends on the level of our customers’ expenditures for oil and natural gas exploration, development and production expenditures. Oil and natural gas prices and customers’ expectations of potential changes in these prices, the general outlook for worldwide economic growth, political and social stability in the major oil and natural gas producing basins of the world, availability of credit and changes in governmental laws and regulations, among many other factors, significantly affect our customers’ levels of expenditures. Sustained declines in oil and natural gas prices, worldwide rig counts and utilization, reduced access to credit markets and any other significant adverse economic news could require us to evaluate the realization of our drilling rigs. The rapid and significant decline in oil prices over the last six months of 2014, coupled with steep capital budget cuts by exploration and production companies and the significant number of newbuild ultra deepwater floaters and jackups deliveries scheduled for 2015 and 2016, were indicators that an analysis of recoverability of the carrying value of our drilling rigs should be undertaken. The results of the analysis indicated that the estimated undiscounted future cash flows exceeded the carrying values of our drilling rigs by factors ranging from 2.6x to 4.5x.
35
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. Revenue deferred under drilling contracts totaled $72.2 million and $39.4 million at December 31, 2014 and 2013, respectively. Deferred revenue is included in either accrued liabilities or other long-term liabilities in our consolidated balance sheet, based upon the initial term of the related drilling contract.
We record reimbursements from customers for rebillable costs and expenses as revenue and the related direct costs as operating expenses.
Rig and Equipment Certifications: We are required to obtain regulatory certifications to operate our drilling rigs and certain specified equipment 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 income taxes in income tax expense.
Share-Based Compensation: We account for 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. Employment agreements with certain executives provide for immediate vesting of outstanding share awards upon retirement, as defined. Retirement is defined as any separation from the Company, other than a termination for cause, so long as the executive has had at least five years of continuous service with the Company and provides at least six months advance notice to the Board of Directors. When a notification of intent to retire is received, making an executive retirement-eligible, the remaining unamortized portion of existing share awards is amortized through the original vesting date or the retirement date, whichever is earlier.
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.
Recent Accounting Standards: In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers. The ASU will supersede most of the existing revenue recognition requirements in U.S. GAAP, including industry-specific guidance. The ASU is based on the principle that revenue is recognized when an entity transfers promised goods and services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new standard also requires significant additional disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The ASU is effective for annual reporting periods beginning after December 15, 2016, and interim periods within those years, using either a full or a modified retrospective application approach. We are beginning the process of evaluating the impact the pronouncement will have on our consolidated financial statements and related disclosures.
In August 2014, the FASB issued Accounting Standards Update No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”). ASU 2014-15 requires management to assess an entity’s ability to continue as a going concern and to provide related footnote disclosures in certain circumstances. The standard is effective for annual periods ending after December 15, 2016, and for annual and interim reporting periods thereafter, with early adoption permitted. We will adopt the accounting standard on January 1, 2016.We are still evaluating the provisions of ASU 2014-15 and assessing the impact, if any, it may have on our consolidated financial statements.
36
General. Our rigs operate in various international markets and thus are sometimes subject to foreign exchange risk. Our functional currency is primarily the U.S. dollar which is consistent with the oil and gas industry. All of our drilling contracts and construction supervision agreements thus far have been denominated in U.S. dollars. Because a portion of our expenses may be incurred in the local currencies of the international markets, we could be exposed to foreign exchange risk when the U.S. dollar weakens (strengthens) in relation to the currency of the country in which we operate. The risks associated with foreign exchange rates were not significant in 2014. We do not enter into derivatives or other financial instruments for trading or speculative purposes.
Interest Rate Risk: As of December 31, 2014, we had $704.4 million of variable rate debt, net of discount of $8.1 million, outstanding. In October 2012, we entered into the $500.0 million 2017 Term Loan which, after amendment in November 2013, bears interest at LIBOR plus 4%, with a LIBOR floor of 1.0%. The 2017 Term Loan has scheduled debt maturities, payable quarterly, of 5% of the original principal amount in the first year and 10% in subsequent years with final maturity in October 2017. In March 2013, we entered into the $350.0 million 2019 Term Loan. The 2019 Term Loan bears interest at LIBOR plus 4.5%, with a LIBOR floor of 1.25%. The 2019 Term Loan has annual scheduled debt maturities of 1% of the original principal amount that are payable quarterly commencing in June 2013. The maturity date of the 2019 Term Loan is March 28, 2019. Increases in the LIBOR rate would impact the amount of interest that we are required to pay on the term loans. For every 1% increase in LIBOR, we would be subject to an increase in interest expense of $7.1 million based on December 31, 2014 outstanding principal amounts. As of December 31, 2014, the 1-year LIBOR rate was 0.63% which means the LIBOR floor is triggered and the current interest rates on the 2017 Term Loan and the 2019 Term Loan would be approximately 5.0% and 5.75%, respectively, or approximately $35.6 million per year in interest expense. We have not entered into any interest rate hedges or swaps with regard to either of the term loans.
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 December 31, 2014, we did not have any open foreign exchange derivative contracts or material foreign currency exposure risk.
37
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Vantage Drilling Company:
We have audited the accompanying consolidated balance sheet of Vantage Drilling Company and subsidiaries (the “Company”) as of December 31, 2014, and the related consolidated statements of operations, shareholders’ equity and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Vantage Drilling Company and subsidiaries as of December 31, 2014, and the consolidated results of their operations and their cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Vantage Drilling Company’s internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO - 2013 framework), and our report dated March 6, 2015 expressed an unqualified opinion thereon.
/s/ BDO USA, LLP
Houston, Texas
March 6, 2015
38
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Vantage Drilling Company:
We have audited the accompanying consolidated balance sheet of Vantage Drilling Company and subsidiaries (the “Company”) as of December 31, 2013, and the related consolidated statements of operations, shareholders’ equity and cash flows for each of the two years in the period ended December 31, 2013. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Vantage Drilling Company and subsidiaries as of December 31, 2013, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2013, in conformity with accounting principles generally accepted in the United States of America.
/s/ UHY LLP
Houston, Texas
February 28, 2014
39
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders of
Vantage Drilling Company:
We have audited Vantage Drilling Company’s internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria - 2013 framework). Vantage Drilling Company’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Item 9A, Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting of Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Vantage Drilling Company and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014, based on the COSO criteria – 2013 framework.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Vantage Drilling Company and subsidiaries as of December 31, 2014, and the related consolidated statements of operations, shareholders’ equity, and cash flows for the year then ended, and our report dated March 6, 2015 expressed an unqualified opinion thereon.
/s/ BDO USA, LLP
Houston, Texas
March 6, 2015
40
Vantage Drilling Company
Consolidated Balance Sheet
(In thousands, except par value information)
|
| December 31, 2014 |
|
| December 31, 2013 |
|
| ||
ASSETS |
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 82,812 |
|
| $ | 54,686 |
|
|
Restricted cash |
|
| — |
|
|
| 2,125 |
|
|
Trade receivables |
|
| 153,428 |
|
|
| 168,654 |
|
|
Inventory |
|
| 65,892 |
|
|
| 55,804 |
|
|
Prepaid expenses and other current assets |
|
| 28,618 |
|
|
| 23,717 |
|
|
Total current assets |
|
| 330,750 |
|
|
| 304,986 |
|
|
Property and equipment |
|
|
|
|
|
|
|
|
|
Property and equipment |
|
| 3,524,566 |
|
|
| 3,472,407 |
|
|
Accumulated depreciation |
|
| (406,674 | ) |
|
| (281,759 | ) |
|
Property and equipment, net |
|
| 3,117,892 |
|
|
| 3,190,648 |
|
|
Other assets |
|
|
|
|
|
|
|
|
|
Investment in joint venture |
|
| 1,318 |
|
|
| 32,482 |
|
|
Other assets |
|
| 79,897 |
|
|
| 100,027 |
|
|
Total other assets |
|
| 81,215 |
|
|
| 132,509 |
|
|
Total assets |
| $ | 3,529,857 |
|
| $ | 3,628,143 |
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
Accounts payable |
| $ | 59,139 |
|
| $ | 65,115 |
|
|
Accrued liabilities |
|
| 101,537 |
|
|
| 96,382 |
|
|
Current maturities of long-term debt and revolving credit agreement, net of discount of $1,181 |
|
| 95,378 |
|
|
| 63,500 |
|
|
Total current liabilities |
|
| 256,054 |
|
|
| 224,997 |
|
|
Long–term debt, net of discount of $25,875 and $39,325 |
|
| 2,632,802 |
|
|
| 2,852,050 |
|
|
Other long-term liabilities |
|
| 85,327 |
|
|
| 45,640 |
|
|
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, 500,000 shares authorized; 307,808 and 304,101 shares issued and outstanding |
|
| 308 |
|
|
| 304 |
|
|
Additional paid-in capital |
|
| 905,136 |
|
|
| 896,928 |
|
|
Accumulated deficit |
|
| (349,770 | ) |
|
| (391,776 | ) |
|
Total shareholders’ equity |
|
| 555,674 |
|
|
| 505,456 |
|
|
Total liabilities and shareholders’ equity |
| $ | 3,529,857 |
|
| $ | 3,628,143 |
|
|
The accompanying notes are an integral part of these consolidated financial statements.
41
Vantage Drilling Company
Consolidated Statement of Operations
(In thousands, except per share amounts)
|
| Year Ended December 31, |
|
| |||||||||
|
| 2014 |
|
| 2013 |
|
| 2012 |
|
| |||
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract drilling services |
| $ | 807,164 |
|
|
| 666,129 |
|
| $ | 423,897 |
|
|
Management fees |
|
| 14,396 |
|
|
| 14,622 |
|
|
| 6,605 |
|
|
Reimbursables |
|
| 54,001 |
|
|
| 51,309 |
|
|
| 40,970 |
|
|
Total revenue |
|
| 875,561 |
|
|
| 732,060 |
|
|
| 471,472 |
|
|
Operating costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs |
|
| 421,505 |
|
|
| 335,915 |
|
|
| 230,089 |
|
|
General and administrative |
|
| 34,106 |
|
|
| 32,612 |
|
|
| 26,002 |
|
|
Depreciation |
|
| 126,610 |
|
|
| 106,609 |
|
|
| 68,747 |
|
|
Total operating costs and expenses |
|
| 582,221 |
|
|
| 475,136 |
|
|
| 324,838 |
|
|
Income from operations |
|
| 293,340 |
|
|
| 256,924 |
|
|
| 146,634 |
|
|
Other income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
| 45 |
|
|
| 221 |
|
|
| 90 |
|
|
Interest expense and other financing charges |
|
| (213,924 | ) |
|
| (214,149 | ) |
|
| (149,118 | ) |
|
Gain (loss) on debt extinguishment |
|
| 3,752 |
|
|
| (98,327 | ) |
|
| (124,599 | ) |
|
Other, net |
|
| (1,179 | ) |
|
| 1,621 |
|
|
| 595 |
|
|
Total other income (expense) |
|
| (211,306 | ) |
|
| (310,634 | ) |
|
| (273,032 | ) |
|
Income (loss) before income taxes |
|
| 82,034 |
|
|
| (53,710 | ) |
|
| (126,398 | ) |
|
Income tax provision |
|
| 40,028 |
|
|
| 28,115 |
|
|
| 18,906 |
|
|
Net income (loss) |
| $ | 42,006 |
|
| $ | (81,825 | ) |
| $ | (145,304 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | 0.14 |
|
| $ | (0.27 | ) |
| $ | (0.50 | ) |
|
Diluted |
| $ | 0.14 |
|
| $ | (0.27 | ) |
| $ | (0.50 | ) |
|
The accompanying notes are an integral part of these consolidated financial statements.
42
Vantage Drilling Company
Consolidated Statement of Shareholders’ Equity
(In thousands)
|
| Ordinary Shares |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
| Shares |
|
| Amount |
|
| Additional Paid-in Capital |
|
| Accumulated Deficit |
|
| Total Shareholders' Equity |
| |||||
Balance December 31, 2011 |
|
| 291,241 |
|
| $ | 291 |
|
| $ | 860,502 |
|
| $ | (164,647 | ) |
| $ | 696,146 |
|
Issuance of ordinary shares in settlement of agent fees |
|
| 5,000 |
|
|
| 5 |
|
|
| 7,645 |
|
|
| - |
|
|
| 7,650 |
|
Vesting of equity awards |
|
| 3,406 |
|
|
| 3 |
|
|
| (3 | ) |
|
| - |
|
|
| - |
|
Fair value of conversion option of 7.875% Senior Convertible Notes |
|
| - |
|
|
| - |
|
|
| 2,920 |
|
|
| - |
|
|
| 2,920 |
|
Share-based compensation expense |
|
| - |
|
|
| - |
|
|
| 7,073 |
|
|
| - |
|
|
| 7,073 |
|
Net loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (145,304 | ) |
|
| (145,304 | ) |
Balance December 31, 2012 |
|
| 299,647 |
|
| $ | 299 |
|
| $ | 878,137 |
|
| $ | (309,951 | ) |
| $ | 568,485 |
|
Vesting of equity awards |
|
| 4,454 |
|
|
| 5 |
|
|
| (5 | ) |
|
| - |
|
|
| - |
|
Fair value of conversion option of 5.5% Senior Convertible Notes |
|
| - |
|
|
| - |
|
|
| 11,732 |
|
|
| - |
|
|
| 11,732 |
|
Share-based compensation expense |
|
| - |
|
|
| - |
|
|
| 7,064 |
|
|
| - |
|
|
| 7,064 |
|
Net loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (81,825 | ) |
|
| (81,825 | ) |
Balance December 31, 2013 |
|
| 304,101 |
|
| $ | 304 |
|
| $ | 896,928 |
|
| $ | (391,776 | ) |
| $ | 505,456 |
|
Vesting of equity awards |
|
| 3,707 |
|
|
| 4 |
|
|
| (4 | ) |
|
| - |
|
|
| - |
|
Share-based compensation expense |
|
| - |
|
|
| - |
|
|
| 8,212 |
|
|
| - |
|
|
| 8,212 |
|
Net income |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 42,006 |
|
|
| 42,006 |
|
Balance December 31, 2014 |
|
| 307,808 |
|
| $ | 308 |
|
| $ | 905,136 |
|
| $ | (349,770 | ) |
| $ | 555,674 |
|
The accompanying notes are an integral part of these consolidated financial statements.
43
Vantage Drilling Company
Consolidated Statement of Cash Flows
(In thousands)
|
| Year Ended December 31, |
|
| |||||||||
|
| 2014 |
|
| 2013 |
|
| 2012 |
|
| |||
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
| $ | 42,006 |
|
| $ | (81,825 | ) |
| $ | (145,304 | ) |
|
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense |
|
| 126,610 |
|
|
| 106,609 |
|
|
| 68,747 |
|
|
Amortization of debt financing costs |
|
| 11,535 |
|
|
| 12,356 |
|
|
| 16,930 |
|
|
Amortization of debt discount (premium) |
|
| 11,266 |
|
|
| 7,523 |
|
|
| (3,828 | ) |
|
Non-cash (gain) loss on debt extinguishment |
|
| (3,752 | ) |
|
| 6,070 |
|
|
| 9,546 |
|
|
Share-based compensation expense |
|
| 8,212 |
|
|
| 7,064 |
|
|
| 7,073 |
|
|
Deferred income tax expense (benefit) |
|
| (305 | ) |
|
| 997 |
|
|
| 3,785 |
|
|
Equity in loss of joint venture |
|
| 570 |
|
|
| 513 |
|
|
| 49 |
|
|
Loss on disposal of assets |
|
| 3,008 |
|
|
| 1,603 |
|
|
| 1,321 |
|
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash |
|
| 2,125 |
|
|
| 1,390 |
|
|
| 3,513 |
|
|
Trade receivables |
|
| 15,226 |
|
|
| (49,202 | ) |
|
| (52,207 | ) |
|
Inventory |
|
| (10,088 | ) |
|
| (17,860 | ) |
|
| (13,568 | ) |
|
Prepaid expenses and other current assets |
|
| (4,914 | ) |
|
| 1,169 |
|
|
| (9,724 | ) |
|
Other assets |
|
| 6,307 |
|
|
| (12,654 | ) |
|
| 318 |
|
|
Accounts payable |
|
| (5,976 | ) |
|
| 14,206 |
|
|
| 4,546 |
|
|
Accrued liabilities and other long-term liabilities |
|
| 45,794 |
|
|
| (46,390 | ) |
|
| (41,762 | ) |
|
Net cash provided by (used in) operating activities |
|
| 247,624 |
|
|
| (48,431 | ) |
|
| (150,565 | ) |
|
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property and equipment |
|
| (51,746 | ) |
|
| (564,319 | ) |
|
| (874,117 | ) |
|
(Investment) return of investment in joint venture |
|
| 23,250 |
|
|
| — |
|
|
| (31,000 | ) |
|
Proceeds from sale of property and equipment |
|
| — |
|
|
| 22 |
|
|
| — |
|
|
Net cash used in investing activities |
|
| (28,496 | ) |
|
| (564,297 | ) |
|
| (905,117 | ) |
|
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of senior secured notes, net |
|
| — |
|
|
| 775,000 |
|
|
| 1,987,000 |
|
|
Proceeds from issuance of term loan, net |
|
| — |
|
|
| 344,750 |
|
|
| 490,000 |
|
|
Proceeds from the issuance of senior convertible notes |
|
| — |
|
|
| 100,000 |
|
|
| 50,000 |
|
|
Repayment of long-term debt |
|
| (181,002 | ) |
|
| (1,033,874 | ) |
|
| (1,006,251 | ) |
|
Proceeds from (repayment of) revolving credit agreement, net |
|
| (10,000 | ) |
|
| 10,000 |
|
|
| — |
|
|
Debt issuance costs |
|
| — |
|
|
| (31,188 | ) |
|
| (72,372 | ) |
|
Net cash provided by (used in) financing activities |
|
| (191,002 | ) |
|
| 164,688 |
|
|
| 1,448,377 |
|
|
Net increase (decrease) in cash and cash equivalents |
|
| 28,126 |
|
|
| (448,040 | ) |
|
| 392,695 |
|
|
Cash and cash equivalents—beginning of year |
|
| 54,686 |
|
|
| 502,726 |
|
|
| 110,031 |
|
|
Cash and cash equivalents—end of year |
| $ | 82,812 |
|
| $ | 54,686 |
|
| $ | 502,726 |
|
|
SUPPLEMENTAL CASH FLOW INFORMATION |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
| $ | 194,768 |
|
| $ | 248,652 |
|
| $ | 212,600 |
|
|
Taxes |
|
| 27,839 |
|
|
| 21,859 |
|
|
| 15,486 |
|
|
Non-cash investing and financing transactions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest capitalized |
| $ | 5,220 |
|
| $ | 18,733 |
|
| $ | 75,087 |
|
|
Trade-in value on equipment upgrades |
|
| 922 |
|
|
| 831 |
|
|
| 2,955 |
|
|
Fair value of embedded conversion option of Convertible Notes |
|
| — |
|
|
| 11,732 |
|
|
| 2,920 |
|
|
Write-off of joint venture deferred construction supervision revenue |
|
| 7,344 |
|
|
| — |
|
|
| — |
|
|
Reclassification of receivable in Titanium Explorer acquisition |
|
| — |
|
|
| — |
|
|
| 33,664 |
|
|
Issuance of ordinary shares in settlement of agent fees |
|
| — |
|
|
| — |
|
|
| 7,650 |
|
|
The accompanying notes are an integral part of these consolidated financial statements.
44
VANTAGE DRILLING COMPANY
NOTES TO 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 mobile offshore drilling units (“MODUs”). Our operating fleet currently consists of four ultra-premium jackup rigs and three ultra-deepwater drillships. Our global fleet is currently located in India, Southeast Asia, West Africa and the U.S. Gulf of Mexico.
During the year ended December 31, 2014, in addition to the scheduled maturities payments on our various debt issuances of $63.5 million, we made discretionary open market repurchases of $47.4 million of our 7.125% Senior Secured Notes (the “7.125% Senior Notes”), $31.4 million of our 7.5% Senior Secured First Lien Notes (the “7.5% Senior Notes”) and $13.4 million of our 7.875% Senior Convertible Notes (the “7.875% Convertible Notes”). In June 2014, we made an additional principal payment of $42.0 million on our $500 million Term Loan (the “2017 Term Loan”) and in December 2014, we purchased $2.0 million of the 2017 Term Loan in the open market.
During the first quarter of 2015 we have acquired approximately $43.1 million of face value debt for total cash consideration of approximately $31.3 million.
2. Basis of Presentation and Significant Accounting Policies
Basis of Consolidation: The accompanying consolidated financial information as of December 31, 2014 and 2013 and for each of the three years in the period ended December 31, 2014 has been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and 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. Our investment in Sigma Drilling, Ltd. (“Sigma”), over which we exercise significant influence, but not control, is accounted for under the equity method. Certain previously reported amounts have been reclassified to conform to the current year presentation.
Cash and Cash Equivalents: Includes deposits with financial institutions as well as short-term money market instruments with maturities of three months or less when purchased.
Restricted Cash: Consists of cash and cash equivalents established as debt reserves and 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 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 a gain or loss is recognized.
Interest costs and the amortization of debt financing costs related to the financings of our MODUs are capitalized as part of the cost while they are under construction and prior to the commencement of each vessel’s first contract. Total interest and amortization costs capitalized for assets under construction for the years ended December 31, 2014, 2013 and 2012 were $5.2 million, $18.7 million and $75.1 million, respectively. We evaluate the realization of property and equipment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss on our property and equipment exists when estimated undiscounted cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount. Any impairment loss recognized would represent the excess of the asset’s carrying value over the estimated fair value. The rapid and significant decline in oil prices over the last six months of 2014, coupled with steep capital budget cuts by exploration and production companies and the significant number of newbuild ultra deepwater floaters and jackups deliveries scheduled for 2015 and
45
VANTAGE DRILLING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
2016, were indicators that an analysis of recoverability of the carrying value of our drilling rigs should be undertaken. The results of the analysis indicated that the estimated undiscounted future cash flows exceeded the carrying values of our drilling rigs by factors ranging from 2.6x to 4.5x.
Debt Financing Costs: Costs incurred with debt financings are deferred and amortized over the term of the related financing facility on a straight line basis which approximates the interest method.
Investment in Joint Venture: In November 2012, we acquired 41.9% of Sigma, which had contracted to build an ultra-deepwater drillship, to be known as the Palladium Explorer, at STX Offshore & Shipbuilding Co. Ltd.’s (“STX”) shipyard in Korea. We account for our interest in Sigma as an equity method investment. Accordingly, we recognize 41.9% of the profit or loss of Sigma as other income (expense) in our consolidated statement of operations with a corresponding adjustment to our investment in joint venture account. We capitalized interest on our investment in Sigma until September 2013 when STX suspended construction of the drillship. In January 2014, Sigma issued a termination notice to STX on the Palladium Explorer construction contract and Sigma terminated our construction management agreement. In July 2014, a reduction in Sigma’s capital was approved by the appropriate authorities and in August 2014, a distribution of $55.5 million was made to the remaining shareholders of Sigma, of which we received $23.3 million. See “Note 4.Construction Supervision and Operations Management Agreements.” During the years ended December 31, 2014 and 2013, Sigma recognized losses from operations consisting primarily of general administrative expenses.
The change in our investment in joint venture account was composed of the following:
|
| 2014 |
|
| 2013 |
|
| ||
|
| (In thousands) |
|
| |||||
Balance, beginning of year |
| $ | 32,482 |
|
| $ | 31,320 |
|
|
Return of investment |
|
| (23,250 | ) |
|
| — |
|
|
Write-off of deferred construction supervision revenue |
|
| (7,344 | ) |
|
| — |
|
|
Vantage share of net losses |
|
| (570 | ) |
|
| (513 | ) |
|
Capitalized interest |
|
| — |
|
|
| 1,675 |
|
|
Balance, end of year |
| $ | 1,318 |
|
| $ | 32,482 |
|
|
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 or the demobilization of equipment and personnel upon completion. Mobilization fees received 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. Upon completion of drilling contracts, any demobilization fees received are recorded as revenue. We record reimbursements from customers for rebillable costs and expenses as revenue and the related direct costs as operating expenses.
Rig and Equipment Certifications: We are required to obtain regulatory certifications to operate our drilling rigs and certain specified equipment 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 are provided for 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 basis 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 income taxes as a component of income tax expense.
Earnings per Share: Basic earnings (loss) per share are based on the weighted average number of ordinary shares outstanding during the applicable period. Diluted earnings (loss) per share are 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).
46
VANTAGE DRILLING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following is a reconciliation of the number of shares used for the basic and diluted earnings (loss) per share (“EPS”) computations:
|
| Year Ended December 31, |
| |||||||||
|
| 2014 |
|
| 2013 |
|
| 2012 |
| |||
|
| (In thousands) |
| |||||||||
Weighted average ordinary shares outstanding for basic EPS |
|
| 306,487 |
|
|
| 302,432 |
|
|
| 293,008 |
|
Restricted share equity awards |
|
| 4,154 |
|
|
| - |
|
|
| - |
|
Adjusted weighted average ordinary shares outstanding for diluted EPS |
|
| 310,641 |
|
|
| 302,432 |
|
|
| 293,008 |
|
The following is a reconciliation of the number of shares excluded from diluted EPS computations:
|
|
| Year Ended December 31, |
|
| |||||||||
|
|
| 2014 |
|
| 2013 |
|
| 2012 |
|
| |||
|
|
| (In thousands) |
|
| |||||||||
Options and warrants |
|
| 2,087 |
|
|
| 2,469 |
|
|
| 2,534 |
|
| |
Convertible notes |
|
| 76,849 |
|
|
| 79,002 |
|
|
| 31,876 |
|
| |
Restricted share equity awards |
|
| - |
|
|
| 10,703 |
|
|
| 10,539 |
|
| |
Future potentially dilutive ordinary shares excluded from diluted EPS |
|
| 78,936 |
|
|
| 92,174 |
|
|
| 44,949 |
|
|
The warrants and share options are anti-dilutive as the exercise or conversion price of such securities exceeded the average market price of our shares for the applicable periods. The ordinary shares issuable for the convertible notes, if converted, are excluded as the effect of including convertible debt and the related adjustments to income under the “if-converted” method of computing diluted earnings per share is anti-dilutive 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 deposits. We have a limited number of key customers, who are primarily large international oil and gas operators, national oil companies and other international oil and gas companies. Our contracts provide for monthly billings as services are performed and we monitor compliance with contract payment terms on an ongoing basis. Outstanding receivables beyond payment terms are promptly investigated and discussed with the specific customer. We do not have an allowance for doubtful accounts on our trade receivables as of December 31, 2014 and 2013.
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 generally equivalent to the time required to vest the share options and share grants. Employment agreements with certain executives provide for immediate vesting of outstanding share awards upon retirement, as defined. Retirement is defined as any separation from the Company, other than a termination for cause, so long as the executive has had at least five years of continuous service with the Company and provides at least six months advance notice to the Board of Directors. When a notification of intent to retire is received, making an executive retirement-eligible, the remaining unamortized portion of existing share awards is amortized through the original vesting date or the retirement date, whichever is earlier. For the years ended December 31, 2014, 2013 and 2012, we recognized share-based compensation of $8.2 million, $7.1 million and $7.1 million, respectively.
Use of Estimates: The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. While management believes current estimates are appropriate and reasonable, actual results could differ from those estimates.
Fair Value of Financial Instruments: The fair value of our short-term financial assets and liabilities approximates the carrying amounts represented in the balance sheets principally due to the short-term or floating rate nature of these instruments. At December 31, 2014, the fair value of the 7.125% Senior Notes, the 7.5% Senior Notes, the 7.875% Convertible Notes and the 5.50% Convertible
47
VANTAGE DRILLING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Senior Notes (the “5.50% Convertible Notes”) discussed below under “Note 5. Debt” was approximately $495.2 million, $837.5 million, $37.8 million and $65.4 million, respectively, based on quoted market prices, a Level 1 measurement.
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. At December 31, 2014 and December 31, 2013, we had no outstanding derivative instruments.
Recent Accounting Standards: In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers. The ASU will supersede most of the existing revenue recognition requirements in U.S. GAAP, including industry-specific guidance. The ASU is based on the principle that revenue is recognized when an entity transfers promised goods and services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new standard also requires significant additional disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The ASU is effective for annual reporting periods beginning after December 15, 2016, and interim periods within those years, using either a full or a modified retrospective application approach. We are beginning the process of evaluating the impact the pronouncement will have on our consolidated financial statements and related disclosures.
In August 2014, the FASB issued Accounting Standards Update No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”). ASU 2014-15 requires management to assess an entity’s ability to continue as a going concern and to provide related footnote disclosures in certain circumstances. The standard is effective for annual periods ending after December 15, 2016, and for annual and interim reporting periods thereafter, with early adoption permitted. We will adopt the accounting standard on January 1, 2016.We are still evaluating the provisions of ASU 2014-15 and assessing the impact, if any, it may have on our consolidated financial statements.
3. Transactions with F3 Capital and Affiliates
F3 Capital Note
In connection with the acquisition of the Platinum Explorer, we issued a promissory note to F3 Capital (the “F3 Capital Note”). The F3 Capital Note accrues interest at 5% per annum and matures in January 2018. 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. 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 contingent conversion price of $1.10 per share so long as the F3 Capital Note is outstanding.
In conjunction with our acquisition of the Titanium Explorer in March 2012, we provided F3 Capital with the right to participate in an offering of equity or equity linked securities by applying a portion of the F3 Capital Note. In August 2012, F3 Capital elected to apply $6.5 million aggregate principal amount of the F3 Capital Note as consideration for an equivalent amount of 7.875% Convertible Notes. We did not receive any cash proceeds from this direct placement.
We originally valued the F3 Capital Note based on our weighted average cost of capital which resulted in a discounted present value of $27.8 million. As of December 31, 2014, 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 $46.7 million, a Level 3 measurement.
Lawsut
On August 21, 2012, we filed a lawsuit styled Vantage Drilling Company vs. Hsin-Chi Su a/k/a Nobu Su against Mr. Hsin-Chi Su, a former member of our Board of Directors and the owner of F3 Capital, our largest shareholder, asserting breach of fiduciary duties, fraud, fraudulent inducement and negligent misrepresentation, and unjust enrichment based on Mr. Su’s conduct in his dealings with the Company both immediately prior to and during his tenure as one of our directors. In the lawsuit, we are seeking to recover actual and punitive damages as well as other relief, in each case, relating to our past transactions with Mr. Su and F3 Capital, including our joint venture with Mandarin Drilling Corporation, an entity formerly owned and controlled by Mr. Su, our acquisition of the Platinum Explorer from Mandarin Drilling Corporation and the financing thereof, and the acquisition of the Titanium Explorer.
In July 2013, F3 Capital delivered formal notice to us that it believes we breached the F3 Capital Note. Among its claims, F3 Capital alleged that we failed to use commercially reasonable efforts to obtain shareholder approval for the issuance of shares upon the conversion of the F3 Capital Note. In connection with its claims, F3 Capital may attempt to accelerate the maturity of the F3 Capital Note in an amount totaling approximately $63.0 million of principal and interest, plus F3 Capital’s claims for penalties and additional
48
VANTAGE DRILLING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
interest in excess of $35.0 million. We believe we have met our obligations under the F3 Capital Note to use commercially reasonable efforts to obtain shareholder approvals and we intend to vigorously defend our position. In recognition that the standards of what constitutes commercially reasonable efforts may be subject to interpretation, there can be no assurances that a court will agree with our interpretation.
On June 20, 2014, Mr. Su filed a counterclaim against the Company and certain of our current and former officers and directors now seeking damages in excess of $2 billion in the amended pleading. The counterclaim alleges fraud, breach of fiduciary duty, negligent misrepresentation, tortious interference with contract, and unjust enrichment and seeks indemnification from us with respect to the matters that are the basis of our lawsuit.
The lawsuit had been pending in the 270th Judicial District Court of Harris County, Texas. However, as of February 6, 2015, proceedings associated with our lawsuit and Mr. Su’s counterclaim have been stayed by the Texas state court, pending determination of certain matters in arbitration. We intend to vigorously pursue our claims and vigorously defend against the charges made in the counterclaim either in arbitration or in court, but we can provide no assurance as to the outcome of this legal action.
4. Construction Supervision and Operations Management Agreements
In September 2013, we signed an agreement to supervise and manage the construction of two ultra-deepwater drillships for a third party. We will receive management fees and reimbursable costs during the construction phase of the two drillships, subject to a maximum amount for each drillship.
In connection with our November 2012 investment of $31 million for a 41.9% ownership interest in Sigma, we entered into an agreement to supervise and manage the construction of the Palladium Explorer an ultra deepwater drillship to be built by STX in South Korea. Pursuant to the terms of the construction management agreement, we were entitled to a fixed monthly management fee during the expected thirty-six month construction period for the vessel. Following the receipt of notice in September 2013 that STX was suspending construction of the Palladium Explorer, Sigma terminated our construction management agreement in January 2014. In May 2014, we reached an agreement with Sigma regarding amounts owed to us under the construction management agreement, which resulted in payment to us of $4.0 million, including a $3 million termination fee. The remaining $1.7 million outstanding will be received on the earlier of the receipt of any further monies from STX or one year from the date of the agreement. In July 2014, a reduction in Sigma’s capital was approved by the appropriate authorities and in August 2014, a distribution of $55.5 million was made to the shareholders of Sigma, of which we received $23.3 million. While we continue to believe we will recover substantially all of our remaining investment, there can be no assurance that we will receive payments equal to the current amount of our investment in Sigma and the amount due under the construction management agreement.
In October 2012, we reached an understanding with a contractor in Mexico to manage the construction and operations of a newbuild jackup rig. The contractor subsequently acquired a second jackup rig and ordered two additional rigs, and awarded us construction management contracts for each of the four rigs. Effective September 30, 2013, the contractor assumed construction management responsibilities for the third and fourth rigs, however, we continued to receive our management fees until mid-November. We managed the operations of the first two rigs in Mexico until May 31, 2014 when we transitioned the rig operations to the contractor. In connection therewith, we received a termination fee of $2.75 million.
In July 2010, we signed an agreement to supervise and manage the construction and marketing of the ultra-deepwater drillship the Dalian Developer. In September 2013, the agreement was modified and notice was given to us that the contract would terminate in six months. The agreement terminated in March 2014 and we have no further obligations with regard to the Dalian Developer.
49
VANTAGE DRILLING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
5. Debt
Our debt was composed of the following:
|
| December 31, |
|
| |||||
|
| 2014 |
|
| 2013 |
|
| ||
|
| (In thousands) |
|
| |||||
7.5% Senior Notes, issued at par |
| $ | 1,118,615 |
|
| $ | 1,150,000 |
|
|
7.125% Senior Notes, issued at par |
|
| 727,622 |
|
|
| 775,000 |
|
|
$500 million 2017 Term Loan, net of discount of $4,406 and $7,109 |
|
| 364,159 |
|
|
| 455,391 |
|
|
$350 million 2019 Term Loan, net of discount of $3,668 and $4,561 |
|
| 340,207 |
|
|
| 342,814 |
|
|
5.50% Convertible Notes, net of discount of $6,016 and $9,923 |
|
| 93,984 |
|
|
| 90,077 |
|
|
7.875% Convertible Notes, net of discount of $1,181 and $2,130 |
|
| 41,878 |
|
|
| 54,370 |
|
|
Revolving credit agreement |
|
| — |
|
|
| 10,000 |
|
|
F3 Capital Note, net of discount of $11,785 and $15,602 |
|
| 41,715 |
|
|
| 37,898 |
|
|
|
|
| 2,728,180 |
|
|
| 2,915,550 |
|
|
Less current maturities of long-term debt and revolving credit facility |
|
| 95,378 |
|
|
| 63,500 |
|
|
Long-term debt, net |
| $ | 2,632,802 |
|
| $ | 2,852,050 |
|
|
During 2014, we made numerous open market purchases of our outstanding debt issuances and an additional principal payment on our 2017 Term Loan. The following table summarizes our quarterly debt payments, both scheduled and discretionary, for the year ended December 31, 2014 (in thousands).
|
| First Quarter |
|
| Second Quarter |
|
| Third Quarter |
|
| Fourth Quarter |
|
| Total |
|
| |||||
7.125% Senior Notes (1) |
| $ | 6,000 |
|
| $ | 1,527 |
|
| $ | 32,500 |
|
| $ | 7,351 |
|
| $ | 47,378 |
|
|
7.5% Senior Notes (1) |
|
| — |
|
|
| — |
|
|
| 7,000 |
|
|
| 24,385 |
|
|
| 31,385 |
|
|
7.875% Convertible Notes (1) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 13,441 |
|
|
| 13,441 |
|
|
2017 Term Loan (2)(3) |
|
| — |
|
|
| 42,000 |
|
|
| — |
|
|
| 2,000 |
|
|
| 44,000 |
|
|
Scheduled maturities payments |
|
| 23,375 |
| (4) |
| 13,375 |
|
|
| 13,375 |
|
|
| 13,375 |
|
|
| 63,500 |
|
|
Total |
| $ | 29,375 |
|
| $ | 56,902 |
|
| $ | 52,875 |
|
| $ | 60,552 |
|
| $ | 199,704 |
|
|
(1) Discretionary open market debt repurchases through December 31, 2014 |
(2) Additional principal payment in June 2014 |
(3) Discretionary open market purchase in December 2014 |
(4) Includes $10 million repayment of revolving credit agreement |
Aggregate scheduled principal maturities of our debt for the next five years and thereafter are as follows (in thousands):
2015 (1) | $ |
| 96,559 |
|
|
2016 (2) |
|
| 153,500 |
|
|
2017 |
|
| 272,065 |
|
|
2018 |
|
| 57,000 |
|
|
2019 |
|
| 1,448,490 |
|
|
Thereafter |
|
| 727,622 |
|
|
Total debt (3) |
|
| 2,755,236 |
|
|
Less: |
|
|
|
|
|
Current maturities of long-term debt |
|
| (95,378 | ) |
|
Future amortization of note discounts |
|
| (27,056 | ) |
|
Long-term debt | $ |
| 2,632,802 |
|
|
(1) Includes the assumed repayment of the outstanding $43.1 million 7.875% Convertible Notes
(2) Includes the assumed repayment of the $100 million 5.5% Convertible Notes
(3)Excludes original issuance discount of $4.4 million, $3.7 million, $6.0 million, $1.2 million and $11.8 million on the 2017 Term Loan, the 2019 Term Loan, the 5.5% Convertible Notes, the 7.875% Convertible Notes and the F3 Capital Note, respectively
50
VANTAGE DRILLING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
7.5% Senior Notes and $500 Million 2017 Term Loan
In October 2012, Offshore Group Investment Limited (“OGIL”), a wholly-owned subsidiary, issued $1.150 billion in aggregate principal amount of 7.5% Senior Notes under an indenture. The 7.5% Senior Notes were issued at par, and are fully and unconditionally guaranteed, on a senior secured basis, by us and certain of our subsidiaries. The 7.5% Senior Notes mature on November 1, 2019, and bear interest from the date of their issuance at the rate of 7.5% per year. Interest on outstanding 7.5% Senior Notes is payable semi-annually in arrears, commencing on May 1, 2013. Interest is computed on the basis of a 360-day year comprised of twelve 30-day months.
Concurrently with the closing of the 7.5% Senior Notes, we entered into a $500 million 2017 Term Loan (the “2017 Term Loan”). The 2017 Term Loan was issued at 98% of the face value and did bear interest at LIBOR plus 5%, with a LIBOR floor of 1.25%. The 2017 Term Loan has scheduled debt maturities, payable quarterly, of 5% in the first year and 10% in subsequent years with final maturity in October 2017. The original issue discount, reported as a direct deduction from the face amount of the 2017 Term Loan, will be recognized over the life of the 2017 Term Loan using the effective interest rate method. The 2017 Term Loan is secured on a senior secured basis by us and certain of our subsidiaries and includes the MODUs and contractual obligations of OGIL and its subsidiaries.
In November 2013, the 2017 Term Loan was amended to modify the applicable interest rates to; (i) decrease the adjusted LIBOR margin from 5.0% to 4.0% per annum, (ii) decrease the LIBOR floor from 1.25% to 1.0% per annum and (iii) decrease the ABR margin from 4.0% to 3.0%. The amendment also reflected a decrease in the principal amount due from $500 million to $475 million as result of us making scheduled principal repayments under the original note.
The net proceeds from the above described financings, after fees and expenses, of approximately $1.6 billion were used (i) to pay the total consideration and accrued and unpaid interest on a concurrent tender offer of $1.0 billion of our 11.5% Senior Notes and related consent solicitation, (ii) for general corporate purposes, including to fund the final construction payment for the Tungsten Explorer drillship pursuant to the construction contract with DSME, and (iii) to pay fees and expenses related to both of the financings, consent solicitation and related transactions.
In connection with the repurchases of $31.4 million of the 7.5% Senior Notes during 2014 (see table above), we recognized a gain of $3.6 million related to the redemption discount on the debt that was partially offset by the write-off of deferred financing costs on the debt.
In connection with the additional principal payment and the open market repurchase of the 2017 Term Loan, we recognized a loss of $1.1 million related to the write-off of the original issuance discount and deferred financing costs that was partially offset by the redemption discount on the repurchase of the loan.
7.125% Senior Notes and $350 Million 2019 Term Loan
In March 2013, OGIL issued $775.0 million in aggregate principal amount of 7.125% Senior Notes under an indenture. The 7.125% Senior Notes were issued at par, and are fully and unconditionally guaranteed, on a senior secured basis, by us and certain of our subsidiaries. The 7.125% Senior Notes mature on April 1, 2023, and bear interest from the date of their issuance at the rate of 7.125% per year. Interest on outstanding 7.125% Senior Notes is payable semi-annually in arrears, commencing on October 1, 2013. Interest is computed on the basis of a 360-day year comprised of twelve 30-day months.
Additionally during March 2013, we entered into the $350 million 2019 Term Loan. The 2019 Term Loan was issued at 98.5% of the face value and bears interest at LIBOR plus 4.5%, with a LIBOR floor of 1.25%. The 2019 Term Loan has annual scheduled debt maturities of 1% of the original principal amount that are payable quarterly commencing in June 2013. The maturity date of the 2019 Term Loan is March 28, 2019. The original issue discount, reported as a direct deduction from the face amount of the 2019 Term Loan, will be recognized over the life of the 2019 Term Loan using the effective interest rate method. The 2019 Term Loan is secured on a senior secured basis by us and certain of our subsidiaries and includes the MODUs and contractual obligations of OGIL and its subsidiaries.
The net proceeds, after fees and expenses, from the 7.125% Senior Notes and the 2019 Term Loan of approximately $1.1 billion were used to retire approximately $1.0 billion of OGIL’s existing 11.5% Senior Notes for total consideration of approximately $1.1 billion, including $92.3 million paid for the early redemption and consent fees and $18.2 million for accrued and unpaid interest. The balance of the proceeds was used for payment of transaction expenses and general corporate purposes.
51
VANTAGE DRILLING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
In connection with the repurchases of $47.4 million of the 7.125% Senior Notes during 2014 (see table above), we recognized a gain of $1.9 million related to the redemption discount on the debt that was partially offset by the write-off of deferred financing costs on the debt.
5.50% Senior Convertible Notes
In July 2013, we issued $100 million aggregate principal amount of 5.50% Convertible Notes under an indenture. The 5.50% Convertible Notes will mature on July 15, 2043, unless earlier converted, redeemed or repurchased, and bear interest at a rate of 5.50% per annum payable semi-annually in arrears on January 15 and July 15 of each year, commencing on January 15, 2014. The 5.50% Convertible Notes are our senior, unsecured obligations, and rank senior in right of payment to all of our existing and future subordinated indebtedness and equal in right of payment with any of our other existing and future senior unsecured indebtedness, including our 7.875% Convertible Notes. The 5.50% Convertible Notes are structurally subordinated to all debt and other liabilities of our subsidiaries and are effectively junior to our secured debt to the extent of the value of the assets securing such debt. The net proceeds, after fees and expenses, of approximately $96.5 million were used to fund the initial payment of $59.5 million under the Cobalt Explorer construction contract and the remainder was used for general corporate purposes.
The 5.50% Convertible Notes are convertible into our ordinary shares, cash or a combination of ordinary shares and cash, at our election, based upon an initial conversion rate of 418.6289 ordinary shares per $1,000 principal amount of 5.50% Convertible Notes (equivalent to an initial conversion price of approximately $2.39 per ordinary share). In addition, for conversions by holders after July 15, 2013 and prior to July 15, 2016, converting holders are entitled to a conversion make whole payment upon conversion.
The 5.50% Convertible Notes contain an embedded conversion option related to the cash settlement provisions and under U.S. GAAP is required to be separated into liability and equity components. We evaluated the 5.50% Convertible Notes based on the market terms of new, nonconvertible debt issuances made by companies with similar credit ratings, adjusting for the unsecured nature of the 5.50% Convertible Notes. Based on this evaluation, we determined that the fair value of the 5.50% Convertible Notes absent the conversion feature was approximately $88.3 million at issuance. The difference between the par value of the 5.50% Convertible Notes and the fair value at date of issuance was recorded as equity and as a discount to the face amount of the 5.50% Convertible Notes and is being amortized to interest expense over the expected life using the effective interest rate method.
The 5.50% Convertible Notes are subject to redemption at our option on or after July 15, 2016 and before July 15, 2018 if the volume weighted average price of our ordinary shares is greater than or equal to 150% of the applicable conversion price for at least 20 trading days during any 30 consecutive trading day period ending within five trading days prior to the notice of redemption. In addition, we may redeem the 5.50% Convertible Notes at any time on and after July 15, 2018. In each case, the redemption purchase price is equal to 100% of the principal amount of the 5.50% Convertible Notes being redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.
The 5.50% Convertible Notes are subject to repurchase by us at the option of holders of the notes on July 15, 2016 and on July 15, 2018 for cash at a price equal to 100% of the principal amount of the 5.50% Convertible Notes being repurchased, plus accrued and unpaid interest to, but excluding, the repurchase date.
7.875% Senior Convertible Notes
In August 2012, we issued $56.5 million aggregate principal amount of 7.875% Convertible Notes under an indenture. The 7.875% Convertible Notes will mature on September 1, 2042, unless earlier converted, repurchased or redeemed, and bear interest at a rate of 7.875% per annum, payable semiannually, in arrears, on March 1 and September 1 of each year, commencing on March 1, 2013. The 7.875% Convertible Notes are our senior unsecured obligation and rank equal in payment with our other senior unsecured debt but are structurally subordinated to the debt of our subsidiaries as the 7.875% Convertible Notes are not guaranteed by any of our subsidiaries. We issued $6.5 million of the 7.875% Convertible Notes to F3 Capital. The net proceeds, after fees and expenses, of approximately $48.3 million were used to fund capital expenditures and working capital needs, and for general corporate purposes.
The 7.875% Convertible Notes are convertible into our ordinary shares, or a combination of cash and ordinary shares, if any, at our election, based upon an initial conversion rate of 476.1905 ordinary shares per $1,000 principal amount of 7.875% Convertible Notes (equivalent to an initial conversion price of approximately $2.10 per ordinary share). Holders of the 7.875% Convertible Notes may voluntarily elect to convert all, or any portion, of their holdings at any time. In addition, for any conversions prior to September 1, 2017, holders will be entitled to a make-whole payment upon conversion.
52
VANTAGE DRILLING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Due to the embedded conversion option related to the cash settlement provisions, we evaluated the 7.875% Convertible Notes based on the market terms of new, nonconvertible debt issuances made by companies with similar credit ratings, adjusting for the unsecured nature of the 7.875% Convertible Notes. Based on this evaluation, we determined that the fair value of the 7.875% Convertible Notes absent the conversion feature was approximately $53.6 million at issuance. The difference between the par value and the fair value at date of issuance of the 7.875% Convertible Notes was recorded as equity and as a debt discount, and is being amortized to interest expense over the expected life of the 7.875% Convertible Notes using the effective interest rate method.
The 7.875% Convertible Notes are subject to redemption at our option on or after September 1, 2015 and before September 1, 2017 if the volume weighted average price of our ordinary shares is greater than or equal to 125% of the applicable conversion price for at least 20 trading days during any 30 consecutive trading day period. Further, the 7.875% Convertible Notes are subject to mandatory conversion at our option on or before September 1, 2015 if the volume weighted average price of our ordinary shares is greater than or equal to 150% of the applicable conversion price for at least 20 trading days during any 30 consecutive trading day period. In each case, the redemption purchase price is equal to 100% of the principal amount of the 7.875% Convertible Notes being redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.
The 7.875% Convertible Notes are subject to repurchase by us at the option of holders of the notes on September 1, 2015 and on September 1, 2017 for cash at a price equal to 100% of the principal amount of the 7.875% Convertible Notes being repurchased, plus accrued and unpaid interest to, but excluding, the repurchase date.
In connection with the repurchase of $13.4 million of the 7.875% Convertible Notes during 2014 (see table above), we recognized a loss of $0.6 million related to the write-off of the original issuance discount and deferred financing costs on the debt.
Credit Agreement
In June 2012, we entered into a secured revolving credit agreement (the “Credit Agreement”) to provide us with advances and letters of credit up to an aggregate principal amount of $25.0 million. In March 2013, in connection with the issuance of the 7.125% Senior Notes and the 2019 Term Loan, we amended the Credit Agreement to increase the aggregate principal amount to $200.0 million, of which $32.0 million is reserved for letters of credit. The Credit Agreement will now mature on April 25, 2017. Advances under the Credit Agreement bear interest at the adjusted base rate (as defined in the Credit Agreement) plus a margin of 2.50% or LIBOR plus a margin of 3.50%, at our option. We may prepay outstanding advances subject to certain prepayment minimums at any time. As of December 31, 2014, we had issued letters of credit of $21.5 million and we had no outstanding borrowings under the Credit Agreement.
The 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. Advances under the Credit Agreement are secured by a lien on certain of our assets, which are substantially similar to those assets pledged in connection with the 7.125% Senior Notes, the 7.5% Senior Notes, the 2017 Term Loan and the 2019 Term Loan. We were in compliance with all financial covenants of the Credit Agreement at December 31, 2014.
6. Shareholders’ Equity
Preferred Shares
We have 10,000,000 authorized preferred shares, par value $0.001 per share. As of December 31, 2014, no preferred shares were issued and outstanding.
Ordinary Shares
We have 500,000,000 authorized ordinary shares, par value $0.001 per share. As of December 31, 2014, 307,808,359 ordinary shares were issued and outstanding. .
2007 Long-Term Incentive Plan
Under our 2007 Long-Term Incentive Plan (the “LTIP”), we may issue a maximum of 45 million ordinary shares. We have awarded time-vested restricted share and performance units awards to officers and employees under our LTIP. The restricted stock awards are valued on the date of the award at our underlying ordinary share price and the value for the ordinary shares that ultimately vest is amortized to expense over the vesting period. The ordinary shares and related par value are recorded when the restricted stock
53
VANTAGE DRILLING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
is issued and “Additional paid-in capital” is recorded as the share-based compensation expense is recognized for financial reporting purposes.
During the year ended December 31, 2014, we granted to employees and directors 4,377,305 time-vested restricted shares and 2,006,526 performance unit awards under our LTIP. 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 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 ranging from 0 to 1.5. The value of the 2014 time-vested restricted share awards and performance units is amortized to expense over the respective vesting period based on the fair value of the awards at the grant dates, which was approximately $11.8 million, based on an average share price of $1.85 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 is used. In the year ended December 31, 2014, 572,374 of the previously granted performance units vested and an additional 96,176 shares were issued pursuant to over target performance of the performance units. Additionally, we issued 186,010 ordinary shares in 2014 to four directors who had elected to receive their quarterly director’s retainer fee in our ordinary shares. These shares were issued quarterly and were valued at approximately $304,000 based on an average price of $1.63 per share,
A summary of the restricted share awards for the three years ended December 31, 2014 is as follows:
|
| Year Ended December 31, |
| |||||||||
|
| 2014 |
|
| 2013 |
|
| 2012 |
| |||
Time vested restricted shares |
|
|
|
|
|
|
|
|
|
|
|
|
Shares awarded |
|
| 4,563,315 |
|
|
| 3,629,285 |
|
|
| 3,701,908 |
|
Weighted-average share price at award date |
| $ | 1.84 |
|
| $ | 1.86 |
|
| $ | 1.06 |
|
Weighted average vesting period (years) |
|
| 3.8 |
|
|
| 3.8 |
|
|
| 3.8 |
|
Shares vested |
|
| 3,038,928 |
|
|
| 3,135,014 |
|
|
| 2,784,825 |
|
Shares forfeited |
|
| 562,341 |
|
|
| 704,949 |
|
|
| 602,849 |
|
Performance vested restricted shares |
|
|
|
|
|
|
|
|
|
|
|
|
Shares awarded |
|
| 2,102,702 |
|
|
| 1,923,951 |
|
|
| 1,671,198 |
|
Weighted-average share price at award date |
| $ | 1.85 |
|
| $ | 1.86 |
|
| $ | 1.07 |
|
Weighted average vesting period (years) |
|
| 3 |
|
|
| 3 |
|
|
| 3 |
|
Shares vested |
|
| 668,550 |
|
|
| 1,318,930 |
|
|
| 621,118 |
|
Shares forfeited |
|
| 1,137,025 |
|
|
| 230,639 |
|
|
| 173,593 |
|
A summary of the status of non-vested restricted shares at December 31, 2014 and changes during the year ended December 31, 2014 is as follows:
|
| Time |
|
| Weighted |
|
| Performance |
|
| Weighted |
| ||||
Nonvested restricted shares at January 1, 2014 |
|
| 7,690,794 |
|
| $ | 1.53 |
|
|
| 3,011,956 |
|
| $ | 1.52 |
|
Awarded |
|
| 4,563,315 |
|
|
| 1.84 |
|
|
| 2,102,702 |
|
|
| 1.84 |
|
Vested |
|
| (3,038,928 | ) |
|
| 1.52 |
|
|
| (668,550 | ) |
|
| 1.45 |
|
Forfeited |
|
| (562,341 | ) |
|
| 1.75 |
|
|
| (1,137,025 | ) |
|
| 1.21 |
|
Nonvested restricted shares at December 31, 2014 |
|
| 8,652,840 |
|
| $ | 1.68 |
|
|
| 3,309,083 |
|
| $ | 1.85 |
|
(1) | The number of performance vested restricted shares shown as outstanding at the beginning and the end of 2014 equals the number of shares that would vest if the “target” level of performance is achieved. Under the terms of the performance vested restricted share awards, the minimum and maximum number of shares that may vest is zero and 1.5 times the target level, respectively. |
As of December 31, 2014, there was approximately $14.5 million of total unrecognized share-based compensation expense related to time vested restricted shares which is expected to be recognized over the remaining weighted average period of approximately 2.1 years. The total award date value of time vested restricted shares that vested during the year ended December 31, 2014 was approximately $4.6 million.
54
VANTAGE DRILLING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
As of December 31, 2014, there was approximately $6.1 million of total unrecognized share-based compensation expense related to performance vested restricted shares which is expected to be recognized over the remaining weighted average period of approximately 1.7 years. The total award date value of performance vested restricted shares that vested during the year ended December 31, 2014 was approximately $966,000.
As of December 31, 2014, we had outstanding non-qualified stock options to acquire 104,000 ordinary shares that had been granted to key employees on June 12, 2008. The stock options have an exercise price of $8.40 per share, vested ratably over four years and have a ten-year life from date of grant. The fair value of each stock option grant was estimated on the date of grant using the Black-Scholes option pricing model and the aggregate fair value of the options was approximately $321,000. As of December 31, 2014, all of the stock options were vested and exercisable; no stock options have been exercised to date.
For the years ended December 31, 2014, 2013 and 2012, we recognized share-based compensation of $8.2 million, 7.1 million and $7.1 million, respectively.
Warrants
The following table summarizes certain information regarding our outstanding warrants as of December 31, 2014, 2013 and 2012.
Issuance Date |
| Expiration Date |
| Exercise |
|
| Warrants Outstanding |
| ||||||||||
|
|
| 2014 |
|
| 2013 |
|
| 2012 |
| ||||||||
November 18, 2008 (1) |
| November 18, 2018 |
| $ | 2.50 |
|
|
| 1,983,471 |
|
|
| 1,983,471 |
|
|
| 1,983,471 |
|
June 5, 2009 |
| June 5, 2014 |
| $ | 2.10 |
|
|
| - |
|
|
| 371,429 |
|
|
| 371,429 |
|
(1) | Issued in connection with the purchase of the Platinum Explorer |
7. Income Taxes
We are a Cayman Islands entity. The Cayman Islands does not impose corporate income taxes. Consequently, we have provided income taxes based on the laws and tax rates in effect in the countries in which operations are conducted, or in which we and/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. Tax rates vary between jurisdictions, as does the tax base to which the rates are applied. Taxes may be levied based on net profit before taxes, gross revenues or withholding taxes 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. Our income tax expense may vary substantially from one period to another as a result of changes in tax laws, regulations, agreements and treaties, foreign currency exchange restrictions, rig movements or our level of operations or profitability in each tax jurisdiction.
The income tax expense (benefit) consisted of the following:
|
| Year Ended December 31, |
| |||||||||
|
| 2014 |
|
| 2013 |
|
| 2012 |
| |||
|
| (In thousands) |
| |||||||||
Current |
| $ | 40,333 |
|
| $ | 27,118 |
|
| $ | 15,121 |
|
Deferred |
|
| (305 | ) |
|
| 997 |
|
|
| 3,785 |
|
Total |
| $ | 40,028 |
|
| $ | 28,115 |
|
| $ | 18,906 |
|
55
VANTAGE DRILLING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
A reconciliation of statutory and effective income tax rates is shown below:
|
| Year Ended December 31, |
| |||||||||
|
| 2014 |
|
| 2013 |
|
| 2012 |
| |||
Statutory rate |
|
| 0.0 | % |
|
| 0.0 | % |
|
| 0.0 | % |
Effect of: |
|
|
|
|
|
|
|
|
|
|
|
|
Taxes on foreign earnings |
|
| 49.1 |
|
|
| (51.1 | ) |
|
| (14.5 | ) |
Other |
|
| (0.3 | ) |
|
| (1.2 | ) |
|
| (0.5 | ) |
Total |
|
| 48.8 | % |
|
| (52.3 | )% |
|
| (15.0 | )% |
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 and liabilities 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 is established to reduce deferred tax assets when it is more likely than not that some portion or all of the deferred tax asset will not be realized. The increase to the valuation allowance during the year, which is included in the taxes on foreign earnings rate in the above table, is related to net loss carry forwards generated during the year where we believe it is more likely than not that substantially all of the deferred tax asset will not be realized.
The components of the net deferred tax assets and liabilities were as follows:
|
| December 31, |
| |||||
|
| 2014 |
|
| 2013 |
| ||
|
| (In thousands) |
| |||||
Deferred tax assets: |
|
|
|
|
|
|
|
|
Share-based compensation |
| $ | 1,052 |
|
| $ | 623 |
|
Accrued bonuses |
|
| 1,165 |
|
|
| 1,360 |
|
Start-up costs |
|
| 141 |
|
|
| 159 |
|
Deferred revenue |
|
| - |
|
|
| 194 |
|
Loss carry-forwards |
|
| 506 |
|
|
| 976 |
|
Other |
|
| 6 |
|
|
| 3 |
|
Total deferred tax assets |
|
| 2,870 |
|
|
| 3,315 |
|
Valuation allowance |
|
| (484 | ) |
|
| (920 | ) |
Net deferred tax assets |
|
| 2,386 |
|
|
| 2,395 |
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
Property and equipment |
|
| (2,749 | ) |
|
| (3,057 | ) |
Total deferred tax liabilities |
|
| (2,749 | ) |
|
| (3,057 | ) |
Net deferred tax liability |
| $ | (363 | ) |
| $ | (662 | ) |
At December 31, 2014, we had foreign tax loss carry forwards of approximately $0.5 million which will begin to expire in 2016.
We include as a component of our income tax provision potential interest and penalties related to recognized tax contingencies within our global operations. Interest and penalties expense of $0.2 million is included in 2014 income tax expense and interest and penalties of $1.2 million are accrued as of December 31, 2014.
56
VANTAGE DRILLING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
A reconciliation of our unrecognized tax benefits amount is as follows (in thousands):
Gross balance at January 1, 2014 |
| $ | 2,149 |
|
Additions based on tax positions related to the current year |
|
| - |
|
Additions for tax positions of prior years |
|
| 233 |
|
Reductions for tax positions of prior years |
|
| - |
|
Expiration of statutes |
|
| (117 | ) |
Tax settlements |
|
| - |
|
Gross balance at December 31, 2014 |
|
| 2,265 |
|
Related tax benefits |
|
| - |
|
Net balance at December 31, 2014 |
| $ | 2,265 |
|
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.
Our periodic tax returns are subject to examination by taxing authorities in the jurisdictions in which we operate in accordance with the normal statute 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 and forward remain open to examination in many of our jurisdictions and we are currently involved in several tax examinations in jurisdictions where we are operating or have previously operated. As information becomes available during the course of these examinations, we may increase or decrease our estimates of tax assessments and accruals.
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.
On August 21, 2012, we filed a lawsuit against Mr. Hsin-Chi Su, a former member of our Board of Directors and the owner of F3 Capital, our largest shareholder, asserting breach of fiduciary duties, fraud, fraudulent inducement and negligent misrepresentation, and unjust enrichment based on Mr. Su’s conduct in his dealings with the Company both immediately prior to, and during his tenure as one of our directors. On June 20, 2014, we received notice that Mr. Su had filed a countersuit against the Company and certain of the Company’s current and former officers and directors. The countersuit alleges fraud, breach of fiduciary duty, negligent misrepresentation, tortious interference with contract, and unjust enrichment and seeks indemnification from us with respect to the matters that are the basis of our lawsuit. See above under “Note 3. Transactions with F3 Capital and Affiliates—Lawsuit” for additional information.
In July 2013, we made the initial milestone shipyard payment of $59.5 million on the Cobalt Explorer. We have agreed with the shipyard to defer the second milestone payment of $59.5 million, which was originally due in January 2015 to July 15, 2015. The third, and final, milestone payment based on the initial construction contract of approximately $476 million is due upon delivery, which is currently expected to be in the first quarter of 2016. We are currently pursuing drilling contracts for the Cobalt Explorer, and the timing and extent of any such contracts is a significant factor that will affect our financing alternatives, which may have a significant impact on our liquidity position in 2015. We expect to fund the balance of the purchase price of the Cobalt Explorer by debt financing, which we may not be able to accomplish on commercially reasonable terms, if at all.
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.
As of December 31, 2014, we were obligated under leases, with varying expiration dates, for office space, housing, vehicles and specified operating equipment. Future minimum annual rentals under these operating leases having initial or remaining terms in excess of one year are $12.9 million, $2.9 million, $1.4 million and $1.1 million for each of the years ending December 31, 2015, 2016, 2017
57
VANTAGE DRILLING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
and 2018, respectively, and $1.1 million in the aggregate for the years 2019 and thereafter. Rental expenses for the three years ended December 31, 2014, 2013 and 2012 were approximately $15.2 million, $13.9 million and $15.1 million, respectively.
9. Supplemental Financial Information
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following:
|
| December 31, |
|
| |||||
|
| 2014 |
|
| 2013 |
|
| ||
|
| (In thousands) |
|
| |||||
Prepaid insurance |
| $ | 12,260 |
|
| $ | 13,178 |
|
|
Sales tax receivable |
|
| 7,847 |
|
|
| 3,621 |
|
|
Income tax receivable |
|
| 279 |
|
|
| 962 |
|
|
Current deferred tax asset |
|
| 2,126 |
|
|
| 2,139 |
|
|
Other receivables |
|
| 1,468 |
|
|
| 278 |
|
|
Deferred mobilization costs |
|
| — |
|
|
| 665 |
|
|
Other |
|
| 4,638 |
|
|
| 2,874 |
|
|
|
| $ | 28,618 |
|
| $ | 23,717 |
|
|
Property and Equipment, net
Property and equipment, net consisted of the following:
|
| December 31, |
|
| |||||
|
| 2014 |
|
| 2013 |
|
| ||
|
| (In thousands) |
|
| |||||
Drilling equipment |
| $ | 3,391,024 |
|
| $ | 3,376,631 |
|
|
Assets under construction |
|
| 113,229 |
|
|
| 75,993 |
|
|
Office and technology equipment |
|
| 18,333 |
|
|
| 17,750 |
|
|
Leasehold improvements |
|
| 1,980 |
|
|
| 2,033 |
|
|
|
|
| 3,524,566 |
|
|
| 3,472,407 |
|
|
Accumulated depreciation |
|
| (406,674 | ) |
|
| (281,759 | ) |
|
Property and equipment, net |
| $ | 3,117,892 |
|
| $ | 3,190,648 |
|
|
Other Assets
Other assets consisted of the following:
|
| December 31, |
|
| |||||
|
| 2014 |
|
| 2013 |
|
| ||
|
| (In thousands) |
|
| |||||
Deferred financing costs, net |
| $ | 42,294 |
|
| $ | 56,145 |
|
|
Performance bond collateral |
|
| 6,600 |
|
|
| 24,882 |
|
|
Deferred certification costs |
|
| 7,767 |
|
|
| 6,494 |
|
|
Deferred agent fees |
|
| 6,127 |
|
|
| 7,160 |
|
|
Deferred mobilization costs |
|
| 15,715 |
|
|
| 4,066 |
|
|
Deferred income taxes |
|
| 29 |
|
|
| - |
|
|
Deposits |
|
| 1,365 |
|
|
| 1,280 |
|
|
|
| $ | 79,897 |
|
| $ | 100,027 |
|
|
58
VANTAGE DRILLING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Accrued Liabilities
Accrued liabilities consisted of the following:
|
| December 31, |
|
| |||||
|
| 2014 |
|
| 2013 |
|
| ||
|
| (In thousands) |
|
| |||||
Interest |
| $ | 44,770 |
|
| $ | 43,064 |
|
|
Compensation |
|
| 21,490 |
|
|
| 20,045 |
|
|
Insurance premiums |
|
| 9,956 |
|
|
| 10,136 |
|
|
Unearned income |
|
| — |
|
|
| 615 |
|
|
Deferred revenue |
|
| — |
|
|
| 8,928 |
|
|
Property, service and franchise taxes |
|
| — |
|
|
| 1,610 |
|
|
Income taxes payable |
|
| 18,358 |
|
|
| 7,577 |
|
|
Other |
|
| 6,963 |
|
|
| 4,407 |
|
|
|
| $ | 101,537 |
|
| $ | 96,382 |
|
|
Other Long-Term Liabilities
Other long-term liabilities consisted of the following:
|
| December 31, |
|
| |||||
|
| 2014 |
|
| 2013 |
|
| ||
|
| (In thousands) |
|
| |||||
Deferred revenue |
| $ | 72,158 |
|
| $ | 34,385 |
|
|
Deferred income taxes |
|
| 2,517 |
|
|
| 2,801 |
|
|
Other non-current liabilities |
|
| 10,652 |
|
|
| 8,454 |
|
|
|
| $ | 85,327 |
|
| $ | 45,640 |
|
|
10. Business Segment Information
We aggregate our contract drilling operations into one reportable segment even though we provide contract drilling services with different types of MODUs, including jackup rigs and drillships, and in different geographic regions. Our operations are dependent on the global oil and gas industry and our MODUs are relocated based on demand for our services and customer requirements. Our customers consist primarily of large international oil and gas companies, national or government-controlled oil and gas companies and other international exploration and production companies. We also provide construction supervision and operations management services for drilling units owned by others.
For the years ended December 31, 2014, 2013 and 2012, the majority 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 24%, 18%, 17% and 14% of consolidated revenue for the year ended December 31, 2014. Two customers accounted for approximately 28% and 24% of consolidated revenue for the year ended December 31, 2013. Four customers accounted for approximately 44%, 24%, 11% and 10% of consolidated revenue for the year ended December 31, 2012.
11. Supplemental Condensed Consolidating Financial Information
The 7.125% Senior Notes and 7.5% Senior Notes were issued under separate indentures and are fully and unconditionally guaranteed, jointly and severally, on a senior secured basis by us and certain of our 100% owned subsidiaries (the “Subsidiary Guarantors”). A guarantor can be released from its obligations under certain customary circumstances contained in the indentures, loan agreements and credit agreement governing the terms of the indebtedness, including where the guarantor sells or otherwise disposes of all, or substantially all, of its assets, all of the capital stock of a guarantor is sold or otherwise disposed of to an unrelated party, the guarantor is declared “unrestricted” for covenant purposes, or when the requirements for legal defeasance or covenant defeasance to discharge the indenture have been satisfied. Our other subsidiaries have not guaranteed or pledged assets to secure the 7.125% Senior Notes or the 7.5% Senior Notes (collectively, the “Non-Guarantor Subsidiaries���).
59
VANTAGE DRILLING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following tables present the condensed, consolidating financial information as of December 31, 2014 and 2013 and for the years ended December 31, 2014, 2013 and 2012, of (i) Vantage Drilling Company (the “Parent”), (ii) OGIL (the subsidiary issuer), (iii) the Subsidiary Guarantors on a consolidated basis, (iv) the Non-Guarantor Subsidiaries on a consolidated basis 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 December 31, 2014 |
|
| |||||||||||||||||||||
|
| Parent |
|
| OGIL |
|
| Subsidiary Guarantors |
|
| Non-Guarantor Subsidiaries |
|
| Eliminations |
|
| Consolidated |
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 5,731 |
|
| $ | 2,480 |
|
| $ | 60,422 |
|
| $ | 14,179 |
|
| $ | — |
|
| $ | 82,812 |
|
|
Other current assets |
|
| 597 |
|
|
| 101 |
|
|
| 236,013 |
|
|
| 11,227 |
|
|
| — |
|
|
| 247,938 |
|
|
Intercompany receivable |
|
| 288,256 |
|
|
| 682,665 |
|
|
| — |
|
|
| — |
|
|
| (970,921 | ) |
|
| — |
|
|
Total current assets |
|
| 294,584 |
|
|
| 685,246 |
|
|
| 296,435 |
|
|
| 25,406 |
|
|
| (970,921 | ) |
|
| 330,750 |
|
|
Property and equipment, net |
|
| — |
|
|
| 1,694 |
|
|
| 2,991,530 |
|
|
| 124,668 |
|
|
| — |
|
|
| 3,117,892 |
|
|
Investment in and advances to subsidiaries |
|
| 460,197 |
|
|
| 1,433,239 |
|
|
| 1,053,496 |
|
|
| 2,104 |
|
|
| (2,949,036 | ) |
|
| — |
|
|
Investment in joint venture |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,318 |
|
|
| — |
|
|
| 1,318 |
|
|
Other assets |
|
| 8,671 |
|
|
| 39,750 |
|
|
| 26,793 |
|
|
| 4,683 |
|
|
| — |
|
|
| 79,897 |
|
|
Total assets |
| $ | 763,452 |
|
| $ | 2,159,929 |
|
| $ | 4,368,254 |
|
| $ | 158,179 |
|
| $ | (3,919,957 | ) |
| $ | 3,529,857 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
| $ | 30,201 |
|
| $ | 28,646 |
|
| $ | 79,549 |
|
| $ | 22,280 |
|
| $ | — |
|
| $ | 160,676 |
|
|
Current maturities of long-term debt |
|
| 41,878 |
|
|
| 53,500 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 95,378 |
|
|
Intercompany payable |
|
| — |
|
|
| — |
|
|
| 873,531 |
|
|
| 97,390 |
|
|
| (970,921 | ) |
|
| — |
|
|
Total current liabilities |
|
| 72,079 |
|
|
| 82,146 |
|
|
| 953,080 |
|
|
| 119,670 |
|
|
| (970,921 | ) |
|
| 256,054 |
|
|
Long-term debt |
|
| 135,699 |
|
|
| 2,497,103 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,632,802 |
|
|
Other long term liabilities |
|
| — |
|
|
| — |
|
|
| 76,720 |
|
|
| 8,607 |
|
|
| — |
|
|
| 85,327 |
|
|
Shareholders’ equity (deficit) |
|
| 555,674 |
|
|
| (419,320 | ) |
|
| 3,338,454 |
|
|
| 29,902 |
|
|
| (2,949,036 | ) |
|
| 555,674 |
|
|
Total liabilities and shareholders’ equity |
| $ | 763,452 |
|
| $ | 2,159,929 |
|
| $ | 4,368,254 |
|
| $ | 158,179 |
|
| $ | (3,919,957 | ) |
| $ | 3,529,857 |
|
|
Condensed Consolidating Statement of Operations (in thousands)
|
| Year Ended December 31, 2014 |
|
| |||||||||||||||||||||
|
| Parent |
|
| OGIL |
|
| Subsidiary Guarantors |
|
| Non-Guarantor Subsidiaries |
|
| Eliminations |
|
| Consolidated |
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
| $ | — |
|
| $ | — |
|
| $ | 843,444 |
|
| $ | 32,117 |
|
| $ | — |
|
| $ | 875,561 |
|
|
Operating costs and expenses |
|
| 16,915 |
|
|
| 534 |
|
|
| 529,176 |
|
|
| 35,596 |
|
|
| — |
|
|
| 582,221 |
|
|
Income (loss) from operations |
|
| (16,915 | ) |
|
| (534 | ) |
|
| 314,268 |
|
|
| (3,479 | ) |
|
| — |
|
|
| 293,340 |
|
|
Income (loss) from equity method investees |
|
| 77,339 |
|
|
| 271,060 |
|
|
| — |
|
|
| — |
|
|
| (348,399 | ) |
|
| — |
|
|
Other, net |
|
| (18,418 | ) |
|
| (191,744 | ) |
|
| (189,280 | ) |
|
| 188,136 |
|
|
| — |
|
|
| (211,306 | ) |
|
Income (loss) before income taxes |
|
| 42,006 |
|
|
| 78,782 |
|
|
| 124,988 |
|
|
| 184,657 |
|
|
| (348,399 | ) |
|
| 82,034 |
|
|
Income tax provision |
|
| — |
|
|
| — |
|
|
| 38,337 |
|
|
| 1,691 |
|
|
| — |
|
|
| 40,028 |
|
|
Net income (loss) |
| $ | 42,006 |
|
| $ | 78,782 |
|
| $ | 86,651 |
|
| $ | 182,966 |
|
| $ | (348,399 | ) |
| $ | 42,006 |
|
|
60
VANTAGE DRILLING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Condensed Consolidating Statement of Cash Flows (in thousands)
|
| Year Ended December 31, 2014 |
|
| |||||||||||||||||
|
| Parent |
|
| OGIL |
|
| Subsidiary Guarantors |
|
| Non-Guarantor Subsidiaries |
|
| Consolidated |
|
| |||||
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
| $ | (28,763 | ) |
| $ | (182,563 | ) |
| $ | 449,438 |
|
| $ | 9,512 |
|
| $ | 247,624 |
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property and equipment |
|
| — |
|
|
| (844 | ) |
|
| (14,036 | ) |
|
| (36,866 | ) |
|
| (51,746 | ) |
|
Return of investment in joint venture |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 23,250 |
|
|
| 23,250 |
|
|
Net cash provided by (used in) investing activities |
|
| — |
|
|
| (844 | ) |
|
| (14,036 | ) |
|
| (13,616 | ) |
|
| (28,496 | ) |
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayment of debt |
|
| (13,441 | ) |
|
| (177,561 | ) |
|
| — |
|
|
| — |
|
|
| (191,002 | ) |
|
Advances (to) from affiliates |
|
| 44,447 |
|
|
| 357,980 |
|
|
| (412,469 | ) |
|
| 10,042 |
|
|
| — |
|
|
Net cash provided by (used in) financing activities |
|
| 31,006 |
|
|
| 180,419 |
|
|
| (412,469 | ) |
|
| 10,042 |
|
|
| (191,002 | ) |
|
Net increase (decrease) in cash and cash equivalents |
|
| 2,243 |
|
|
| (2,988 | ) |
|
| 22,933 |
|
|
| 5,938 |
|
|
| 28,126 |
|
|
Cash and cash equivalents—beginning of period |
|
| 3,488 |
|
|
| 5,468 |
|
|
| 37,489 |
|
|
| 8,241 |
|
|
| 54,686 |
|
|
Cash and cash equivalents—end of period |
| $ | 5,731 |
|
| $ | 2,480 |
|
| $ | 60,422 |
|
| $ | 14,179 |
|
| $ | 82,812 |
|
|
Condensed Consolidating Balance Sheet (in thousands)
|
| As of December 31, 2013 |
|
| |||||||||||||||||||||
|
| Parent |
|
| OGIL |
|
| Subsidiary Guarantors |
|
| Non-Guarantor Subsidiaries |
|
| Eliminations |
|
| Consolidated |
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 3,488 |
|
| $ | 5,468 |
|
| $ | 37,489 |
|
| $ | 8,241 |
|
| $ | — |
|
| $ | 54,686 |
|
|
Other current assets |
|
| 343 |
|
|
| 2,203 |
|
|
| 229,533 |
|
|
| 18,221 |
|
|
| — |
|
|
| 250,300 |
|
|
Intercompany receivable |
|
| 318,623 |
|
|
| 1,037,978 |
|
|
| — |
|
|
| — |
|
|
| (1,356,601 | ) |
|
| — |
|
|
Total current assets |
|
| 322,454 |
|
|
| 1,045,649 |
|
|
| 267,022 |
|
|
| 26,462 |
|
|
| (1,356,601 | ) |
|
| 304,986 |
|
|
Property and equipment, net |
|
| — |
|
|
| 1,151 |
|
|
| 3,098,768 |
|
|
| 90,729 |
|
|
| — |
|
|
| 3,190,648 |
|
|
Investment in and advances to subsidiaries |
|
| 383,801 |
|
|
| 1,435,939 |
|
|
| 1,054,545 |
|
|
| 2,104 |
|
|
| (2,876,389 | ) |
|
| — |
|
|
Investment in joint venture |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 32,482 |
|
|
| — |
|
|
| 32,482 |
|
|
Other assets |
|
| 11,468 |
|
|
| 51,837 |
|
|
| 31,986 |
|
|
| 4,736 |
|
|
| — |
|
|
| 100,027 |
|
|
Total assets |
| $ | 717,723 |
|
| $ | 2,534,576 |
|
| $ | 4,452,321 |
|
| $ | 156,513 |
|
| $ | (4,232,990 | ) |
| $ | 3,628,143 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
| $ | 29,922 |
|
| $ | 28,413 |
|
| $ | 67,829 |
|
| $ | 35,333 |
|
| $ | — |
|
| $ | 161,497 |
|
|
Current maturities of long-term debt |
|
| — |
|
|
| 63,500 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 63,500 |
|
|
Intercompany payable |
|
| — |
|
|
| — |
|
|
| 1,274,458 |
|
|
| 82,143 |
|
|
| (1,356,601 | ) |
|
| — |
|
|
Total current liabilities |
|
| 29,922 |
|
|
| 91,913 |
|
|
| 1,342,287 |
|
|
| 117,476 |
|
|
| (1,356,601 | ) |
|
| 224,997 |
|
|
Long-term debt |
|
| 182,345 |
|
|
| 2,669,705 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,852,050 |
|
|
Other long term liabilities |
|
| — |
|
|
| — |
|
|
| 38,190 |
|
|
| 7,450 |
|
|
| — |
|
|
| 45,640 |
|
|
Shareholders’ equity (deficit) |
|
| 505,456 |
|
|
| (227,042 | ) |
|
| 3,071,844 |
|
|
| 31,587 |
|
|
| (2,876,389 | ) |
|
| 505,456 |
|
|
Total liabilities and shareholders’ equity |
| $ | 717,723 |
|
| $ | 2,534,576 |
|
| $ | 4,452,321 |
|
| $ | 156,513 |
|
| $ | (4,232,990 | ) |
| $ | 3,628,143 |
|
|
61
VANTAGE DRILLING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Condensed Consolidating Statement of Operations (in thousands)
|
| Year Ended December, 2013 |
|
| |||||||||||||||||||||
|
| Parent |
|
| Issuer |
|
| Subsidiary Guarantors |
|
| Non-Guarantor Subsidiaries |
|
| Eliminations |
|
| Consolidated |
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
| $ | — |
|
| $ | — |
|
| $ | 689,604 |
|
| $ | 42,456 |
|
| $ | — |
|
| $ | 732,060 |
|
|
Operating costs and expenses |
|
| 16,244 |
|
|
| (44 | ) |
|
| 424,801 |
|
|
| 34,135 |
|
|
| — |
|
|
| 475,136 |
|
|
Income (loss) from operations |
|
| (16,244 | ) |
|
| 44 |
|
|
| 264,803 |
|
|
| 8,321 |
|
|
| — |
|
|
| 256,924 |
|
|
Income (loss) from equity method investees |
|
| (50,226 | ) |
|
| 237,615 |
|
|
| — |
|
|
| — |
|
|
| (187,389 | ) |
|
| — |
|
|
Other income (expense) |
|
| (15,355 | ) |
|
| (296,957 | ) |
|
| (2,590 | ) |
|
| 4,268 |
|
|
| — |
|
|
| (310,634 | ) |
|
Income (loss) before income taxes |
|
| (81,825 | ) |
|
| (59,298 | ) |
|
| 262,213 |
|
|
| 12,589 |
|
|
| (187,389 | ) |
|
| (53,710 | ) |
|
Income tax provision |
|
| — |
|
|
| 29 |
|
|
| 25,325 |
|
|
| 2,761 |
|
|
| — |
|
|
| 28,115 |
|
|
Net income (loss) |
| $ | (81,825 | ) |
| $ | (59,327 | ) |
| $ | 236,888 |
|
| $ | 9,828 |
|
| $ | (187,389 | ) |
| $ | (81,825 | ) |
|
Condensed Consolidating Statement of Cash Flows (in thousands)
|
| Year Ended December 31, 2013 |
|
| |||||||||||||||||
|
| Parent |
|
| OGIL |
|
| Subsidiary Guarantors |
|
| Non-Guarantor Subsidiaries |
|
| Consolidated |
|
| |||||
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
| $ | (22,103 | ) |
| $ | (336,644 | ) |
| $ | 293,694 |
|
| $ | 16,622 |
|
| $ | (48,431 | ) |
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property and equipment |
|
| — |
|
|
| (623 | ) |
|
| (483,715 | ) |
|
| (79,959 | ) |
|
| (564,297 | ) |
|
Net cash provided by (used in) investing activities |
|
| — |
|
|
| (623 | ) |
|
| (483,715 | ) |
|
| (79,959 | ) |
|
| (564,297 | ) |
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from debt issuances |
|
| 100,000 |
|
|
| 1,129,750 |
|
|
| — |
|
|
| — |
|
|
| 1,229,750 |
|
|
Repayment of debt |
|
| — |
|
|
| (1,033,874 | ) |
|
| — |
|
|
| — |
|
|
| (1,033,874 | ) |
|
Debt issuance costs |
|
| (3,509 | ) |
|
| (27,679 | ) |
|
| — |
|
|
| — |
|
|
| (31,188 | ) |
|
Advances (to) from affiliates |
|
| (86,371 | ) |
|
| (147,929 | ) |
|
| 169,567 |
|
|
| 64,733 |
|
|
| — |
|
|
Net cash provided by (used in) financing activities |
|
| 10,120 |
|
|
| (79,732 | ) |
|
| 169,567 |
|
|
| 64,733 |
|
|
| 164,688 |
|
|
Net increase (decrease) in cash and cash equivalents |
|
| (11,983 | ) |
|
| (416,999 | ) |
|
| (20,454 | ) |
|
| 1,396 |
|
|
| (448,040 | ) |
|
Cash and cash equivalents—beginning of period |
|
| 15,471 |
|
|
| 422,467 |
|
|
| 57,943 |
|
|
| 6,845 |
|
|
| 502,726 |
|
|
Cash and cash equivalents—end of period |
| $ | 3,488 |
|
| $ | 5,468 |
|
| $ | 37,489 |
|
| $ | 8,241 |
|
| $ | 54,686 |
|
|
Condensed Consolidating Statement of Operations (in thousands)
|
|
| Year Ended December 31, 2012 | ||||||||||||||||||||||||
|
| Parent |
|
| OGIL |
|
| Subsidiary |
|
| Non-Guarantor Subsidiaries |
|
| Eliminations |
|
|
| Consolidated |
|
| |||||||
Revenues |
| $ | - |
|
| $ | - |
|
| $ | 435,390 |
|
| $ | 36,082 |
|
| $ | — |
|
| $ | 471,472 |
|
| ||
Operating costs and expenses |
|
| 12,858 |
|
|
| (271 | ) |
|
| 281,731 |
|
|
| 30,520 |
|
|
| — |
|
|
| 324,838 |
|
| ||
Income (loss) from operations |
|
| (12,858 | ) |
|
| 271 |
|
|
| 153,659 |
|
|
| 5,562 |
|
|
| — |
|
|
| 146,634 |
|
| ||
Income (loss) from equity method investees |
|
| (120,503 | ) |
|
| 139,110 |
|
|
| — |
|
|
| — |
|
|
| (18,607 | ) |
|
| — |
|
| ||
Other, net |
|
| (11,943 | ) |
|
| (261,692 | ) |
|
| (157 | ) |
|
| 760 |
|
|
| — |
|
|
| (273,032 | ) |
| ||
Income (loss) before income taxes |
|
| (145,304 | ) |
|
| (122,311 | ) |
|
| 153,502 |
|
|
| 6,322 |
|
|
| (18,607 | ) |
|
| (126,398 | ) |
| ||
Income tax provision |
|
| - |
|
|
| 8 |
|
|
| 17,716 |
|
|
| 1,182 |
|
|
| — |
|
|
| 18,906 |
|
| ||
Net income (loss) |
| $ | (145,304 | ) |
| $ | (122,319 | ) |
| $ | 135,786 |
|
| $ | 5,140 |
|
| $ | (18,607 | ) |
| $ | (145,304 | ) |
|
62
VANTAGE DRILLING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Condensed Consolidating Statement of Cash Flows (in thousands)
|
| Year Ended December 31, 2012 |
| |||||||||||||||||
|
| Parent |
|
| OGIL |
|
| Subsidiary |
|
| Non-Guarantor Subsidiaries |
|
| Consolidated |
| |||||
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
| $ | (7,657 | ) |
| $ | (309,675 | ) |
| $ | 139,474 |
|
| $ | 27,293 |
|
| $ | (150,565 | ) |
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property and equipment |
|
| (22 | ) |
|
| (644 | ) |
|
| (869,923 | ) |
|
| (3,528 | ) |
|
| (874,117 | ) |
Investment in joint venture |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (31,000 | ) |
|
| (31,000 | ) |
Net cash provided by (used in) investing activities |
|
| (22 | ) |
|
| (644 | ) |
|
| (869,923 | ) |
|
| (34,528 | ) |
|
| (905,117 | ) |
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from debt issuances |
|
| 50,000 |
|
|
| 2,477,000 |
|
|
| — |
|
|
| — |
|
|
| 2,527,000 |
|
Repayment of debt |
|
| — |
|
|
| (1,006,251 | ) |
|
| — |
|
|
| — |
|
|
| (1,006,251 | ) |
Debt issuance costs |
|
| (1,821 | ) |
|
| (70,551 | ) |
|
| — |
|
|
| — |
|
|
| (72,372 | ) |
Advances (to) from affiliates |
|
| (39,978 | ) |
|
| (667,423 | ) |
|
| 697,229 |
|
|
| 10,172 |
|
|
| — |
|
Net cash provided by (used in) financing activities |
|
| 8,201 |
|
|
| 732,775 |
|
|
| 697,229 |
|
|
| 10,172 |
|
|
| 1,448,377 |
|
Net increase (decrease) in cash and cash equivalents |
|
| 522 |
|
|
| 422,456 |
|
|
| (33,220 | ) |
|
| 2,937 |
|
|
| 392,695 |
|
Cash and cash equivalents—beginning of year |
|
| 14,949 |
|
|
| 11 |
|
|
| 91,163 |
|
|
| 3,908 |
|
|
| 110,031 |
|
Cash and cash equivalents—end of year |
| $ | 15,471 |
|
| $ | 422,467 |
|
| $ | 57,943 |
|
| $ | 6,845 |
|
| $ | 502,726 |
|
12. Supplemental Quarterly Information (Unaudited)
The following table reflects a summary of the unaudited interim results of operations for the quarterly periods in the years ended December 31, 2014 and 2013 (in thousands except per share amounts).
|
| First Quarter |
|
| Second Quarter |
|
| Third Quarter |
|
| Fourth Quarter |
|
| ||||
|
| (In thousands, except per share amounts) |
|
| |||||||||||||
2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
| $ | 232,465 |
|
| $ | 219,718 |
|
| $ | 207,518 |
|
| $ | 215,860 |
|
|
Income from operations |
|
| 91,003 |
|
|
| 81,720 |
|
|
| 54,628 |
|
|
| 65,989 |
|
|
Other expense |
|
| (53,801 | ) |
|
| (56,221 | ) |
|
| (51,935 | ) |
|
| (49,349 | ) |
|
Net income (loss) |
|
| 24,824 |
|
|
| 10,178 |
|
|
| (5,616 | ) |
|
| 12,620 |
|
|
Earnings (loss) per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | 0.08 |
|
| $ | 0.03 |
|
| $ | (0.02 | ) |
| $ | 0.04 |
|
|
Diluted |
| $ | 0.07 |
|
| $ | 0.03 |
|
| $ | (0.02 | ) |
| $ | 0.04 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
| $ | 147,001 |
|
| $ | 170,637 |
|
| $ | 175,885 |
|
| $ | 238,537 |
|
|
Income from operations |
|
| 39,396 |
|
|
| 61,486 |
|
|
| 57,976 |
|
|
| 98,066 |
|
|
Other expense |
|
| (156,992 | ) |
|
| (50,193 | ) |
|
| (47,048 | ) |
|
| (56,401 | ) |
|
Net income (loss) |
|
| (123,201 | ) |
|
| 4,216 |
|
|
| 6,844 |
|
|
| 30,316 |
|
|
Earnings (loss) per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | (0.41 | ) |
| $ | 0.01 |
|
| $ | 0.02 |
|
| $ | 0.10 |
|
|
Diluted |
| $ | (0.41 | ) |
| $ | 0.01 |
|
| $ | 0.02 |
|
| $ | 0.09 |
|
|
Earnings (loss) per share is computed independently for each of the quarters presented. Therefore, the sum of the quarters’ earnings (loss) per share may not agree to the total computed for the year.
63
None.
Disclosure 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’s rules and forms.
Disclosure controls and procedures include, without limitation, controls and procedures designed to provide reasonable assurance that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, the Company has evaluated the effectiveness of its disclosure controls and procedures (as such term is defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2014, and, based upon this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these controls and procedures were effective in providing reasonable assurance that information requiring disclosure is recorded, processed, summarized, and reported within the timeframe specified by the SEC’s rules and forms.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as that term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management, under the supervision of and with the participation of our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of our internal control over financial reporting as of December 31, 2014. In making this assessment, management used the criteria set forth in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the 2013 framework). Based on this assessment using these criteria, our management determined that our internal control over financial reporting was effective as of December 31, 2014.
The effectiveness of our internal control over financial reporting as of December 31, 2014 has been audited by BDO USA, LLP, an independent registered public accounting firm, as stated in their report which appears herein.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter ended December 31, 2014 that materially affected, or are reasonably likely to materially affect, internal control over financial reporting.
None.
64
The information required by this item will be filed by amendment to this Annual Report on Form 10-K or is incorporated in this Annual Report by reference to our definitive proxy statement, in either case to be filed with the Securities and Exchange Commission not later than 120 days after the close of our fiscal year ended December 31, 2014.
We have adopted a Code of Business Conduct and Ethics that applies to directors, officers and employees, including our principal executive officer, principal financial officer and principal accounting officer. Our Code of Business Conduct and Ethics is posted on our website at www.vantagedrilling.com in the “Corporate Governance” area. Any waivers from our Code of Business Conduct and Ethics must be approved by our board of directors or a designated board committee. Any amendments to, or waivers from, the Code of Business Conduct and Ethics will be posted on our website and reported pursuant to applicable rules and regulations of the SEC.
The information required by this item will be filed by amendment to this Annual Report on Form 10-K or is incorporated in this Annual Report by reference to our definitive proxy statement, in either case to be filed with the Securities and Exchange Commission not later than 120 days after the close of our fiscal year ended December 31, 2014.
Item 12. | Security Ownership and Certain Beneficial Owners and Management and Related Stockholder Matters. |
The information required by this item will be filed by amendment to this Annual Report on Form 10-K or is incorporated in this Annual Report by reference to our definitive proxy statement, in either case to be filed with the Securities and Exchange Commission not later than 120 days after the close of our fiscal year ended December 31, 2014.
The information required by this item will be filed by amendment to this Annual Report on Form 10-K or is incorporated in this Annual Report by reference to our definitive proxy statement, in either case to be filed with the Securities and Exchange Commission not later than 120 days after the close of our fiscal year ended December 31, 2014.
The information required by this item will be filed by amendment to this Annual Report on Form 10-K or is incorporated in this Annual Report by reference to our definitive proxy statement, in either case to be filed with the Securities and Exchange Commission not later than 120 days after the close of our fiscal year ended December 31, 2014.
65
ITEM 15. | Exhibits, Financial Statement Schedules |
(a) | List of documents filed as part of this report |
3. | Exhibits. We hereby file as part of this Annual Report on Form 10-K the Exhibits listed in the attached Exhibit Index. |
Exhibit No. |
| Description | |
3.1 |
| Certificate of Incorporation (Incorporated by reference to Exhibit 3.1 of the Company’s registration statement on Form F-4 (File No. 333-147797))
| |
3.2 |
| Amended and Restated Memorandum and Articles of Association of Vantage Drilling Company effective December 21, 2009 as amended effective July 10, 2012 (Incorporated by reference to Exhibit 3.2 of the Company’s quarterly report on Form 10-Q filed with the SEC on July 30, 2012)
| |
4.1 |
| Specimen Ordinary Share certificate (Incorporated by reference to Exhibit 4.2 of Amendment No. 4 to the Company’s registration statement on Form F-4 (File No. 333-147797))
| |
4.2 |
| Warrant to Purchase Ordinary Shares, dated June 5, 2009 (Incorporated by reference to Exhibit 4.2 of the Company’s current report on Form 8-K filed with the SEC on June 8, 2009)
| |
4.3 |
| Indenture dated as of August 21, 2012 among Vantage and Wells Fargo Bank, National Association, as trustee (Incorporated by reference to Exhibit 4.1 of the Company’s current report on Form 8-K filed with the SEC on August 23, 2012)
| |
4.4 |
| First Supplemental Indenture dated as of August 21, 2012 among Vantage and Wells Fargo Bank, National Association, as trustee (Incorporated by reference to Exhibit 4.2 of the Company’s current report on Form 8-K filed with the SEC on August 23, 2012)
| |
4.5 |
| Indenture dated as of October 25, 2012 by and among Offshore Group Investment Limited, the guarantors named therein, and Wells Fargo Bank, National Association, as trustee and noteholder collateral agent (Incorporated by reference to Exhibit 4.1 of the Company’s current report on Form 8-K filed with the SEC on October 29, 2012)
| |
4.6 |
| First Supplemental Indenture dated as of December 3, 2012 among PT. Vantage Drilling Company Indonesia, OGIL, Vantage, the subsidiary guarantors party thereto, and Wells Fargo Bank, National Association, as trustee (Incorporated by reference to Exhibit 4.2 of the Company’s current report on Form 8-K filed with the SEC on December 6, 2012)
| |
4.7 |
| Second Supplemental Indenture dated as of May 22, 2013 among OGIL, Vantage, Vantage Driller VI Co., the subsidiary guarantors party thereto and Wells Fargo Bank, National Association, as trustee and collateral agent (Incorporated by reference to Exhibit 4.1 of the Company’s current report on Form 8-K filed with the SEC on May 24, 2013)
| |
4.8 |
| Third Supplemental Indenture dates as of October 15, 2013, among OGIL, Vantage Drilling Company, Vantage Drilling ROCO S.R.L., Vantage Drilling Gabon, the subsidiary guarantors party thereto and Wells Fargo Bank, National Association, as trustee and collateral agent (Incorporated by reference to Exhibit 4.1 of the Company’s current report on Form 8-K filed with the SEC on October 16, 2013)
| |
4.9 |
| Indenture dated as of March 28, 2013 by and among Offshore Group Investment Limited, Vantage Drilling Company as a guarantor, the other guarantors party thereto and Wells Fargo Bank, National Association, as trustee and collateral agent (Incorporated by reference to Exhibit 4.1 of the Company’s current report on Form 8-K filed with the SEC on April 3, 2013)
| |
4.10 |
| First Supplemental Indenture dated as of May 22, 2013 among OGIL, Vantage Drilling Company, Vantage Driller VI Co., the subsidiary guarantors party thereto and Wells Fargo Bank, National Association, as trustee and collateral agent (Incorporated by reference to Exhibit 4.2 of the Company’s current report on Form 8-K filed with the SEC on May 24, 2013)
| |
4.11 |
| Second Supplemental Indenture dated as of October 15, 2013, among OGIL, Vantage Drilling Company, Vantage Drilling ROCO S.R.L., Vantage Drilling Gabon, the subsidiary guarantors party thereto and Wells Fargo Bank, National Association, as trustee and collateral agent (Incorporated by reference to Exhibit 4.2 of the Company’s current report on Form 8-K filed with the SEC on October 16, 2013)
|
66
Exhibit No. |
| Description | ||
4.12 |
| Base Indenture dated as of July 16, 2013 by and between Vantage Drilling Company and Wells Fargo Bank, National Association, as trustee (Incorporated by reference to Exhibit 4.1 of the Company’s current report on Form 8-K filed with the SEC on July 16, 2013)
| ||
4.13 |
| First Supplemental Indenture dated as of July 16, 2013 by and between Vantage Drilling Company and Wells Fargo Bank, National Association, as trustee (Incorporated by reference to Exhibit 4.2 of the Company’s current report on Form 8-K filed with the SEC on July 16, 2013)
| ||
10.1 |
| Vantage Drilling Company 2007 Long-Term Incentive Compensation Plan (Incorporated by reference to Exhibit 10.2 of the Company’s current report on Form 8-K filed with the SEC on June 18, 2008)
| ||
10.2 |
| Amended and Restated Employment and Non-Competition Agreement between Vantage Drilling Company and Paul A. Bragg dated July 16, 2014 (Incorporated by reference to Exhibit 10.1 of the Company’s current report on Form 8-K filed with the SEC on July 17, 2014)
| ||
10.3 |
| Amended and Restated Employment and Non-Competition Agreement between Vantage Drilling Company and Douglas W. Halkett dated July 16, 2014 (Incorporated by reference to Exhibit 10.3 of the Company’s current report on Form 8-K filed with the SEC on July 17, 2014)
| ||
10.4 |
| Amended and Restated Employment and Non-Competition Agreement between Vantage Drilling Company and Douglas G. Smith dated July 16, 2014 (Incorporated by reference to Exhibit 10.2 of the Company’s current report on Form 8-K filed with the SEC on July 17, 2014)
| ||
10.5 |
| Amended and Restated Employment and Non-Competition Agreement between Vantage Drilling Company and Michel R. C. Derbyshire dated July 16, 2014 (Incorporated by reference to Exhibit 10.8 of the Company’s current report on Form 8-K filed with the SEC on July 17, 2014)
| ||
10.6 |
| Amended and Restated Employment and Non-Competition Agreement between Vantage Drilling Company and Edward G. Brantley dated July 16, 2014 (Incorporated by reference to Exhibit 10.7 of the Company’s current report on Form 8-K filed with the SEC on July 17, 2014)
| ||
10.7 |
| Amended and Restated Employment and Non-Competition Agreement between Vantage Drilling Company and Donald Munro dated July 16, 2014 (Incorporated by reference to Exhibit 10.4 of the Company’s current report on Form 8-K filed with the SEC on July 17, 2014) | ||
10.8 |
| Amended and Restated Employment and Non-Competition Agreement between Vantage Drilling Company and William L. Thomson dated July 16, 2014 (Incorporated by reference to Exhibit 10.5 of the Company’s current report on Form 8-K filed with the SEC on July 17, 2014)
| ||
10.9 |
| Amended and Restated Employment and Non-Competition Agreement between Vantage Drilling Company and Christopher G. DeClaire dated July 16, 2014 (Incorporated by reference to Exhibit 10.6 of the Company’s current report on Form 8-K filed with the SEC on July 17, 2014)
| ||
10.10 |
| Amended and Restated Employment and Non-Competition Agreement between Vantage Drilling Company and Mark C. Howell dated July 16, 2014 (Incorporated by reference to Exhibit 10.9 of the Company’s current report on Form 8-K filed with the SEC on July 17, 2014)
| ||
10.11 |
| Form of Promissory Note between Vantage Drilling Company and F3 Capital (Incorporated by reference to Exhibit 10.2 of the Company’s current report on Form 8-K filed with the SEC on July 9, 2010)
| ||
10.12 |
| Form of Registration Rights Agreement between Vantage Drilling Company and F3 Capital (Incorporated by reference to Exhibit 10.3 of the Company’s current report on Form 8-K filed with the SEC on July 9, 2010)
| ||
10.13 |
| Change of Control Policy dated and effective as of November 29, 2010 (Incorporated by reference to Exhibit 10.23 of the Company’s Annual Report on Form 10-K filed with the SEC on March 16, 2011)
| ||
10.14 |
| Amendment No. 1 to Term Loan Agreement dated November 20, 2013, amending and restating the Term Loan Agreement dated as of October 25, 2012, by and among Offshore Group Investment Limited and Vantage Delaware Holdings, LLC, as borrowers, Vantage Drilling Company as a guarantor, the other guarantors party thereto, Citibank N.A., as administrative agent, and Wells Fargo Bank, National Association, as collateral agent. (Incorporated by reference to Exhibit 10.1 of the Company’s current report on Form 8-K filed with the SEC on November 22, 2013)
|
67
Exhibit No. |
| Description | |
10.15 |
| Second Term Loan Agreement dated as of March 28, 2013, by and among Offshore Group Investment Limited and Vantage Delaware Holdings, LLC, as borrowers, Vantage Drilling Company as a guarantor, the other guarantors party thereto, Citibank N.A., as administrative agent, and Wells Fargo Bank, National Association, as collateral agent (Incorporated by reference to Exhibit 10.1 of the Company’s current report on Form 8-K filed with the SEC on April 3, 2013)
| |
10.16 |
| Joinder Agreement dated as of May 22, 2013 between Vantage Driller VI Co. and Citibank, N.A. as administrative agent under the Term Loan Agreement dated March 28, 2013 (Incorporated by reference to Exhibit 10.2 of the Company’s current report on Form 8-K filed with the SEC on May 24, 2013)
| |
10.17 |
| Joinder Agreement dated as of October 15, 2013, among between Vantage Drilling ROCO S.R.L., Vantage Drilling Gabon and Citibank, N.A., as administrative agent under the Term Loan Agreement dated March 28, 2013 (Incorporated by reference to Exhibit 10.2 of the Company’s current report on Form 8-K filed with the SEC on October 16, 2013).
| |
10.18 |
| Amended and Restated Credit Agreement dated as of March 28, 2013, by and among Offshore Group Investment Limited, Vantage Drilling Company as a guarantor, the other guarantors party thereto, the lenders from time to time party thereto, Royal Bank of Canada, as administrative agent, and RBC Capital Markets, as sole lead arranger and sole bookrunner (Incorporated by reference to Exhibit 10.2 of the Company’s current report on Form 8-K filed with the SEC on April 3, 2013)
| |
10.19 |
| Joinder Agreement dated May 22, 2013 executed by Vantage Driller VI Co. relating to the Amended and Restated Credit Agreement with Royal Bank of Canada as administrative agent dated as of March 28, 2013 (Incorporated by reference to Exhibit 10.3 of the Company’s current report on Form 8-K filed with the SEC on May 24, 2013)
| |
10.20 |
| Joinder Agreement dated October 15, 2013 executed by Vantage Drilling ROCO S.R.L. and Vantage Drilling Gabon, relating to the Amended and Restated Credit Agreement dated as of March 28, 2013, as amended (Incorporate by reference to Exhibit 10.3 of the Company’s current report on Form 8-K filed with the SEC on October 16, 2013).
| |
10.21 |
| Amended and Restated Intercreditor Agreement dated as of October 25, 2012 by and among Wells Fargo Bank, National Association, as Pari Passu Collateral Agent for the pari passu secured parties, Wells Fargo Bank, National Association, as trustee under the new indenture and as Collateral Agent for the new notes, Royal Bank of Canada as Administrative Agent for the credit agreement, Wells Fargo Bank, National Association as collateral agent for the credit agreement secured parties, Citibank, N.A. as administrative agent for the term loan secured parties, Wells Fargo Bank, National Association as collateral agent for the term loan secured parties, and Wells Fargo Bank, National Association, as trustee under the existing indenture, and acknowledged and agreed by Offshore Group Investment Limited, Vantage Drilling Company, and the guarantors signatory thereto (Incorporated by reference to Exhibit 10.3 of the Company’s current report on Form 8-K filed with the SEC on October 29, 2012)
| |
10.22 |
| Form of Indemnification Agreement for the Directors and Officers of the Company and its Subsidiaries (Incorporated by reference to Exhibit 10.1 of the Company’s quarterly report on Form 10-Q filed with the SEC on July 30, 2012)
| |
10.23 |
| Consulting Services Agreement between Vantage Drilling Company and Strand Energy dated May 8, 2012 (Incorporated by reference to Exhibit 10.2 of the Company’s quarterly report on Form 10-Q filed with the SEC on July 30, 2012)
| |
10.24 |
| Vantage Drilling Company Management Incentive Plan adopted August 20, 2013 (Incorporated by reference to Exhibit 10.1 of the Company’s quarterly report on Form 10-Q filed with the SEC on November 7, 2013)
| |
21.1 |
| Subsidiaries of Vantage Drilling Company (Filed herewith) | |
31.1 |
| Certification of Principal Executive Officer Pursuant to Section 302 (Filed herewith)
| |
31.2 |
| Certification of Principal Financial and Accounting Officer Pursuant to Section 302 (Filed herewith)
| |
32.1 |
| Certification of Principal Executive Officer Pursuant to Section 906 (Filed herewith)
| |
32.2 |
| Certification of Principal Financial and Accounting Officer Pursuant to Section 906 (Filed herewith)
| |
101.INS |
| — XBRL Instance Document (Filed herewith)
| |
101.SCH |
| — XBRL Schema Document (Filed herewith)
| |
101.CAL |
| — XBRL Calculation Document (Filed herewith)
|
68
Exhibit No. |
| Description | |
101.DEF |
| — XBRL Definition Linkbase Document (Filed herewith)
| |
101.LAB |
| — XBRL Label Linkbase Document (Filed herewith)
| |
101.PRE |
| — XBRL Presentation Linkbase Document (Filed herewith)
| |
101.PRE |
| — XBRL Presentation Linkbase Document (Filed herewith) |
69
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
VANTAGE DRILLING COMPANY
| ||
By: |
| /s/ Paul A. Bragg |
Name: |
| Paul A. Bragg |
Title: |
| Chairman and Chief Executive Officer |
Date: |
| March 6, 2015 |
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed by the following persons in the capacities and on the dates indicated.
Name |
| Position |
| Date |
/s/ Paul A. Bragg |
|
Chairman and Chief Executive Officer (Principal Executive Officer) |
|
March 6, 2015 |
Paul A. Bragg | ||||
|
|
|
|
|
/s/ Douglas G. Smith |
| Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) |
| March 6, 2015 |
Douglas G. Smith | ||||
|
|
|
|
|
/s/ Jorge E. Estrada M. |
| Director |
| March 6, 2015 |
Jorge E. Estrada M. | ||||
|
|
|
|
|
/s/ Marcelo D. Guiscardo |
| Director |
| March 6, 2015 |
Marcelo D. Guiscardo | ||||
|
|
|
|
|
/s/ John C.G. O’Leary |
| Director |
| March 6, 2015 |
John C.G. O’Leary | ||||
|
|
|
|
|
/s/ Steinar Thomassen |
| Director |
| March 6, 2015 |
Steinar Thomassen | ||||
|
|
|
|
|
/s/ Robert F. Grantham |
| Director |
| March 6, 2015 |
Robert F. Grantham | ||||
|
|
|
|
|
/s/ Duke R. Ligon |
| Director |
| March 6, 2015 |
Duke R. Ligon | ||||
|
|
|
|
|
/s/ Ong Tian Khiam |
| Director |
| March 6, 2015 |
Ong Tian Khiam | ||||
|
|
|
|
|
/s/ Steven M. Bradshaw |
| Director |
| March 6, 2015 |
Steven M. Bradshaw |
70
EXHIBIT INDEX
Exhibit No. |
| Description | |
3.1 |
| Certificate of Incorporation (Incorporated by reference to Exhibit 3.1 of the Company’s registration statement on Form F-4 (File No. 333-147797))
| |
3.2 |
| Amended and Restated Memorandum and Articles of Association of Vantage Drilling Company effective December 21, 2009 (Incorporated by reference to Exhibit 3.1 of the Company’s current report on Form 8-K filed with the SEC on December 28, 2009)
| |
4.1 |
| Specimen Ordinary Share certificate (Incorporated by reference to Exhibit 4.2 of Amendment No. 4 to the Company’s registration statement on Form F-4 (File No. 333-147797))
| |
4.2 |
| Warrant to Purchase Ordinary Shares, dated June 5, 2009 (Incorporated by reference to Exhibit 4.2 of the Company’s current report on Form 8-K filed with the SEC on June 8, 2009)
| |
4.3 |
| Indenture dated as of August 21, 2012 among Vantage and Wells Fargo Bank, National Association, as trustee (Incorporated by reference to Exhibit 4.1 of the Company’s current report on Form 8-K filed with the SEC on August 23, 2012)
| |
4.4 |
| First Supplemental Indenture dated as of August 21, 2012 among Vantage and Wells Fargo Bank, National Association, as trustee (Incorporated by reference to Exhibit 4.2 of the Company’s current report on Form 8-K filed with the SEC on August 23, 2012)
| |
4.5 |
| Indenture dated as of October 25, 2012 by and among Offshore Group Investment Limited, the guarantors named therein, and Wells Fargo Bank, National Association, as trustee and noteholder collateral agent (Incorporated by reference to Exhibit 4.1 of the Company’s current report on Form 8-K filed with the SEC on October 29, 2012)
| |
4.6 |
| First Supplemental Indenture dated as of December 3, 2012 among PT. Vantage Drilling Company Indonesia, OGIL, Vantage, the subsidiary guarantors party thereto, and Wells Fargo Bank, National Association, as trustee (Incorporated by reference to Exhibit 4.2 of the Company’s current report on Form 8-K filed with the SEC on December 6, 2012)
| |
4.7 |
| Second Supplemental Indenture dated as of May 22, 2013 among OGIL, Vantage, Vantage Driller VI Co., the subsidiary guarantors party thereto and Wells Fargo Bank, National Association, as trustee and collateral agent (Incorporated by reference to Exhibit 4.1 of the Company’s current report on Form 8-K filed with the SEC on May 24, 2013)
| |
4.8 |
| Third Supplemental Indenture dates as of October 15, 2013, among OGIL, Vantage Drilling Company, Vantage Drilling ROCO S.R.L., Vantage Drilling Gabon, the subsidiary guarantors party thereto and Wells Fargo Bank, National Association, as trustee and collateral agent (Incorporated by reference to Exhibit 4.1 of the Company’s current report on Form 8-K filed with the SEC on October 16, 2013)
| |
4.9 |
| Indenture dated as of March 28, 2013 by and among Offshore Group Investment Limited, Vantage Drilling Company as a guarantor, the other guarantors party thereto and Wells Fargo Bank, National Association, as trustee and collateral agent (Incorporated by reference to Exhibit 4.1 of the Company’s current report on Form 8-K filed with the SEC on April 3, 2013)
| |
4.10 |
| First Supplemental Indenture dated as of May 22, 2013 among OGIL, Vantage Drilling Company, Vantage Driller VI Co., the subsidiary guarantors party thereto and Wells Fargo Bank, National Association, as trustee and collateral agent (Incorporated by reference to Exhibit 4.2 of the Company’s current report on Form 8-K filed with the SEC on May 24, 2013)
| |
4.11 |
| Second Supplemental Indenture dated as of October 15, 2013, among OGIL, Vantage Drilling Company, Vantage Drilling ROCO S.R.L., Vantage Drilling Gabon, the subsidiary guarantors party thereto and Wells Fargo Bank, National Association, as trustee and collateral agent (Incorporated by reference to Exhibit 4.2 of the Company’s current report on Form 8-K filed with the SEC on October 16, 2013)
| |
4.12 |
| Base Indenture dated as of July 16, 2013 by and between Vantage Drilling Company and Wells Fargo Bank, National Association, as trustee (Incorporated by reference to Exhibit 4.1 of the Company’s current report on Form 8-K filed with the SEC on July 16, 2013)
| |
4.13 |
| First Supplemental Indenture dated as of July 16, 2013 by and between Vantage Drilling Company and Wells Fargo Bank, National Association, as trustee (Incorporated by reference to Exhibit 4.2 of the Company’s current report on Form 8-K filed with the SEC on July 16, 2013)
|
71
Exhibit No. |
| Description | |
10.1 |
| Vantage Drilling Company 2007 Long-Term Incentive Compensation Plan (Incorporated by reference to Exhibit 10.2 of the Company’s current report on Form 8-K filed with the SEC on June 18, 2008)
| |
10.2 |
| Amended and Restated Employment and Non-Competition Agreement between Vantage Drilling Company and Paul A. Bragg dated July 16, 2014 (Incorporated by reference to Exhibit 10.1 of the Company’s current report on Form 8-K filed with the SEC on July 17, 2014)
| |
10.3 |
| Amended and Restated Employment and Non-Competition Agreement between Vantage Drilling Company and Douglas W. Halkett dated July 16, 2014 (Incorporated by reference to Exhibit 10.3 of the Company’s current report on Form 8-K filed with the SEC on July 17, 2014)
| |
10.4 |
| Amended and Restated Employment and Non-Competition Agreement between Vantage Drilling Company and Douglas G. Smith dated July 16, 2014 (Incorporated by reference to Exhibit 10.2 of the Company’s current report on Form 8-K filed with the SEC on July 17, 2014)
| |
10.5 |
| Amended and Restated Employment and Non-Competition Agreement between Vantage Drilling Company and Michel R. C. Derbyshire dated July 16, 2014 (Incorporated by reference to Exhibit 10.8 of the Company’s current report on Form 8-K filed with the SEC on July 17, 2014)
| |
10.6 |
| Amended and Restated Employment and Non-Competition Agreement between Vantage Drilling Company and Edward G. Brantley dated July 16, 2014 (Incorporated by reference to Exhibit 10.7 of the Company’s current report on Form 8-K filed with the SEC on July 17, 2014)
| |
10.7 |
| Amended and Restated Employment and Non-Competition Agreement between Vantage Drilling Company and Donald Munro dated July 16, 2014 (Incorporated by reference to Exhibit 10.4 of the Company’s current report on Form 8-K filed with the SEC on July 17, 2014) | |
10.8 |
| Amended and Restated Employment and Non-Competition Agreement between Vantage Drilling Company and William L. Thomson dated July 16, 2014 (Incorporated by reference to Exhibit 10.5 of the Company’s current report on Form 8-K filed with the SEC on July 17, 2014)
| |
10.9 |
| Amended and Restated Employment and Non-Competition Agreement between Vantage Drilling Company and Christopher G. DeClaire dated July 16, 2014 (Incorporated by reference to Exhibit 10.6 of the Company’s current report on Form 8-K filed with the SEC on July 17, 2014)
| |
10.10 |
| Amended and Restated Employment and Non-Competition Agreement between Vantage Drilling Company and Mark C. Howell dated July 16, 2014 (Incorporated by reference to Exhibit 10.9 of the Company’s current report on Form 8-K filed with the SEC on July 17, 2014)
| |
10.11 |
| Form of Promissory Note between Vantage Drilling Company and F3 Capital (Incorporated by reference to Exhibit 10.2 of the Company’s current report on Form 8-K filed with the SEC on July 9, 2010)
| |
10.12 |
| Form of Registration Rights Agreement between Vantage Drilling Company and F3 Capital (Incorporated by reference to Exhibit 10.3 of the Company’s current report on Form 8-K filed with the SEC on July 9, 2010)
| |
10.13 |
| Change of Control Policy dated and effective as of November 29, 2010 (Incorporated by reference to Exhibit 10.23 of the Company’s Annual Report on Form 10-K filed with the SEC on March 16, 2011)
| |
10.14 |
| Amendment No. 1 to Term Loan Agreement dated November 20, 2013, amending and restating the Term Loan Agreement dated as of October 25, 2012, by and among Offshore Group Investment Limited and Vantage Delaware Holdings, LLC, as borrowers, Vantage Drilling Company as a guarantor, the other guarantors party thereto, Citibank N.A., as administrative agent, and Wells Fargo Bank, National Association, as collateral agent. (Incorporated by reference to Exhibit 10.1 of the Company’s current report on Form 8-K filed with the SEC on November 22, 2013)
| |
10.15 |
| Second Term Loan Agreement dated as of March 28, 2013, by and among Offshore Group Investment Limited and Vantage Delaware Holdings, LLC, as borrowers, Vantage Drilling Company as a guarantor, the other guarantors party thereto, Citibank N.A., as administrative agent, and Wells Fargo Bank, National Association, as collateral agent (Incorporated by reference to Exhibit 10.1 of the Company’s current report on Form 8-K filed with the SEC on April 3, 2013)
|
72
Exhibit No. |
| Description | |
10.16 |
| Joinder Agreement dated as of May 22, 2013 between Vantage Driller VI Co. and Citibank, N.A. as administrative agent under the Term Loan Agreement dated March 28, 2013 (Incorporated by reference to Exhibit 10.2 of the Company’s current report on Form 8-K filed with the SEC on May 24, 2013)
| |
10.17 |
| Joinder Agreement dated as of October 15, 2013, among between Vantage Drilling ROCO S.R.L., Vantage Drilling Gabon and Citibank, N.A., as administrative agent under the Term Loan Agreement dated March 28, 2013 (Incorporated by reference to Exhibit 10.2 of the Company’s current report on Form 8-K filed with the SEC on October 16, 2013).
| |
10.18 |
| Amended and Restated Credit Agreement dated as of March 28, 2013, by and among Offshore Group Investment Limited, Vantage Drilling Company as a guarantor, the other guarantors party thereto, the lenders from time to time party thereto, Royal Bank of Canada, as administrative agent, and RBC Capital Markets, as sole lead arranger and sole bookrunner (Incorporated by reference to Exhibit 10.2 of the Company’s current report on Form 8-K filed with the SEC on April 3, 2013)
| |
10.19 |
| Joinder Agreement dated May 22, 2013 executed by Vantage Driller VI Co. relating to the Amended and Restated Credit Agreement with Royal Bank of Canada as administrative agent dated as of March 28, 2013 (Incorporated by reference to Exhibit 10.3 of the Company’s current report on Form 8-K filed with the SEC on May 24, 2013)
| |
10.20 |
| Joinder Agreement dated October 15, 2013 executed by Vantage Drilling ROCO S.R.L. and Vantage Drilling Gabon, relating to the Amended and Restated Credit Agreement dated as of March 28, 2013, as amended (Incorporate by reference to Exhibit 10.3 of the Company’s current report on Form 8-K filed with the SEC on October 16, 2013).
| |
10.21 |
| Amended and Restated Intercreditor Agreement dated as of October 25, 2012 by and among Wells Fargo Bank, National Association, as Pari Passu Collateral Agent for the pari passu secured parties, Wells Fargo Bank, National Association, as trustee under the new indenture and as Collateral Agent for the new notes, Royal Bank of Canada as Administrative Agent for the credit agreement, Wells Fargo Bank, National Association as collateral agent for the credit agreement secured parties, Citibank, N.A. as administrative agent for the term loan secured parties, Wells Fargo Bank, National Association as collateral agent for the term loan secured parties, and Wells Fargo Bank, National Association, as trustee under the existing indenture, and acknowledged and agreed by Offshore Group Investment Limited, Vantage Drilling Company, and the guarantors signatory thereto (Incorporated by reference to Exhibit 10.3 of the Company’s current report on Form 8-K filed with the SEC on October 29, 2012)
| |
10.22 |
| Form of Indemnification Agreement for the Directors and Officers of the Company and its Subsidiaries (Incorporated by reference to Exhibit 10.1 of the Company’s quarterly report on Form 10-Q filed with the SEC on July 30, 2012)
| |
10.23 |
| Consulting Services Agreement between Vantage Drilling Company and Strand Energy dated May 8, 2012 (Incorporated by reference to Exhibit 10.2 of the Company’s quarterly report on Form 10-Q filed with the SEC on July 30, 2012)
| |
10.24 |
| Vantage Drilling Company Management Incentive Plan adopted August 20, 2013 (Incorporated by reference to Exhibit 10.1 of the Company’s quarterly report on Form 10-Q filed with the SEC on November 7, 2013)
| |
21.1 |
| Subsidiaries of Vantage Drilling Company (Filed herewith) | |
31.1 |
| Certification of Principal Executive Officer Pursuant to Section 302 (Filed herewith)
| |
31.2 |
| Certification of Principal Financial and Accounting Officer Pursuant to Section 302 (Filed herewith)
| |
32.1 |
| Certification of Principal Executive Officer Pursuant to Section 906 (Filed herewith)
| |
32.2 |
| Certification of Principal Financial and Accounting Officer Pursuant to Section 906 (Filed herewith)
| |
101.INS |
| — XBRL Instance Document (Filed herewith)
| |
101.SCH |
| — XBRL Schema Document (Filed herewith)
| |
101.CAL |
| — XBRL Calculation Document (Filed herewith)
| |
101.DEF |
| — XBRL Definition Linkbase Document (Filed herewith)
| |
101.LAB |
| — XBRL Label Linkbase Document (Filed herewith)
| |
101.PRE |
| — XBRL Presentation Linkbase Document (Filed herewith)
|
73