vdi-10k_20181231.htm

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

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 ☒

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark 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, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

The number of the registrant’s ordinary shares outstanding as of February 28, 2019 is 5,000,053 shares.

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☒ No ☐

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:

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

In addition, each forward-looking statement speaks only as of the date of the particular statement, and we undertake no obligation to publicly update or revise any forward-looking statements. We may not update these forward-looking statements, even if our situation changes in the future. All forward-looking statements attributable to us are expressly qualified by these cautionary statements. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained from time to time in filings we may make with the 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 the “Company,” “Vantage,” “VDI,” “we,” “our” or “us” refer to Vantage Drilling International and its consolidated subsidiaries.

Vantage Drilling International, a Cayman Islands exempted company, is 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. 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 on international markets. Additionally, for drilling units owned by others, we provide construction supervision services for rigs that are under construction, preservation management services for rigs that are stacked and operations and marketing services for operating rigs.

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 premium jackup rigs were built at PPL Shipyard in Singapore. The design of our premium 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 are self-propelled and suited for drilling in remote locations because of their mobility and large load carrying capacity. While all of our drillships are dynamically positioned and 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 Platinum Explorer, Titanium Explorer and Tungsten Explorer are currently equipped to drill in 10,000 feet of water. 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 as of February 28, 2019.

Restructuring Agreement and Emergence from Voluntary Reorganization under Chapter 11 Proceeding

On December 1, 2015, we and Vantage Drilling Company (“VDC”), our former parent company, entered into a restructuring support agreement (the “Restructuring Agreement”) with a majority of our secured creditors. Pursuant to the terms of the Restructuring Agreement, the Company agreed to pursue a pre-packaged plan of reorganization (the “Reorganization Plan”) under Chapter 11 of Title 11 of the United States Bankruptcy Code and VDC agreed to commence official liquidation proceedings under the laws of the Cayman Islands. On December 2, 2015, pursuant to the Restructuring Agreement, the Company acquired two subsidiaries responsible for the management of the Company from VDC in exchange for a $61.5 million promissory note (the “VDC Note”). As this transaction involved a reorganization of entities under common control, it was reflected in the consolidated financial statements, at carryover basis, on a retrospective basis. Effective as of the Company’s emergence from bankruptcy on February 10, 2016 (the

“Effective Date”), VDC’s former equity interest in the Company was cancelled. Immediately following that event, the VDC Note was converted into 655,094 new ordinary shares of the reorganized Company (the “New Shares”) in accordance with the terms thereof, in satisfaction of the obligation thereunder, which, including accrued interest, totaled approximately $62.6 million as of such date.

On December 3, 2015 (the “Petition Date”), the Company, certain of its subsidiaries and certain VDC subsidiaries that were guarantors of the Company’s pre-bankruptcy secured debt, filed the Reorganization Plan in the United States Bankruptcy Court for the District of Delaware (In re Vantage Drilling International (F/K/A Offshore Group Investment Limited), et al., Case No. 15-12422). On January 15, 2016, the United States District Court for the District of Delaware confirmed the Company’s pre-packaged Reorganization Plan and the Company emerged from bankruptcy on the Effective Date.

Pursuant to the terms of the Reorganization Plan, the pre-bankruptcy term loans and senior notes were retired on the Effective Date by issuing to the debtholders 4,344,959 units in the reorganized Company (the “Units”). Each Unit of securities originally consisted of one New Share and $172.61 of principal of the Company’s 1%/12% Step-Up Senior Secured Third Lien Convertible Notes due 2030 (the “Convertible Notes”), subject to adjustment upon the payment of interest in kind (“PIK interest”) and certain cases of redemption or conversion of the Convertible Notes, as well as share splits, share dividends, consolidation or reclassification of the New Shares. The New Shares and the Convertible Notes are subject to the terms of an agreement that prohibits the New Shares and Convertible Notes from being traded separately.

The Convertible Notes are convertible into New Shares in certain circumstances, at a conversion price (subject to adjustment in accordance with the terms of the Indenture for the Convertible Notes), which was $95.60 as of the issue date. The Indenture for the Convertible Notes contains customary covenants that restrict the granting of liens and customary events of default, including among other things, failure to issue securities upon conversion of the Convertible Notes. As of December 31, 2018, after taking into account the payment of PIK interest on the Convertible Notes to such date, each such Unit consisted of one New Share and $177.66 of principal of Convertible Notes.

Second Amended and Restated Credit Agreement. The Company’s pre-petition credit agreement was amended and restated (the “Credit Agreement”) to (i) replace the $32.0 million revolving letter of credit commitment under its pre-petition facility with a new $32.0 million revolving letter of credit facility and (ii) repay the $150.0 million of outstanding borrowings with (a) $7.0 million of cash and (b) the issuance of $143.0 million initial term loans (the “2016 Term Loan Facility”). In November 2018, all obligations under the 2016 Term Loan Facility were repaid and the 2016 Term Loan Facility and the Credit Agreement were terminated in connection with the issuance of the 9.25% First Lien Notes (as defined below). See “Recent Developments—Refinancing”.

10% Senior Secured Second Lien Notes. Holders of the Company’s pre-petition term loans and senior notes claims were eligible to participate in a rights offering conducted by the Company for $75.0 million of the Company’s new 10% Senior Secured Second Lien Notes due 2020 (the “10% Second Lien Notes”). In connection with this rights offering, certain creditors entered into a “backstop” agreement to purchase 10% Second Lien Notes if the offer was not fully subscribed. The premium paid to such creditors under the backstop agreement was approximately $2.2 million, which was paid $1.1 million in cash and $1.1 million in additional 10% Second Lien Notes, resulting in a total issued amount of $76.1 million of 10% Second Lien Notes and net cash proceeds to the Company of $73.9 million, after deducting the cash portion of the backstop premium. In November 2018, all of the 10% Second Lien Notes were redeemed in connection with the issuance of the 9.25% First Lien Notes (as defined below). See “Recent Developments—Refinancing”.

The Reorganization Plan allowed the Company to continue business operations during the court proceedings and maintain all operating assets and agreements. The Company had adequate liquidity prior to the filing and did not have to seek any debtor-in-possession financing. All trade payables, credits, wages and other related obligations were unimpaired by the Reorganization Plan.

On November 30, 2018, we issued $350.0 million in aggregate principal amount of 9.25% Senior Secured First Lien Notes due November 15, 2023 (“9.25% First Lien Notes”) in a private placement at par. The proceeds of the issuance were used (i) to repay all obligations under the 2016 Term Loan Facility and to terminate the Credit Agreement, (ii) to redeem all outstanding 10% Second Lien Notes, (iii) to fund the remaining amounts to be paid in connection with the Rig Purchase (as defined below), (iv) to pay fees and expenses related to the foregoing and to the offering of the 9.25% First Lien Notes and (v) for general corporate purposes. The 9.25% First Lien Notes are guaranteed on a joint and several basis by the Company’s direct and indirect subsidiaries and are secured by a first priority lien on substantially all of the assets of the Company and its subsidiaries, in each case subject to certain exceptions. The 9.25% First Lien Notes will not be registered under the Securities Act of 1933, as amended (the “Securities Act”), or any state securities laws.

Concurrently with the issuance of the 9.25% First Lien Notes, we entered into a new letter of credit facility to replace the letter of credit facility existing under the Credit Agreement. The new facility has a capacity of $50.0 million, with all outstanding letters of credit being cash collateralized. As of December 31, 2018, we had $36.3 million available for the issuance of letters of credit under this cash collateralized letter of credit facility.

On June 13, 2018, we entered into a share purchase agreement with Ship Finance International Limited to acquire the shares of Rig Finance Limited, an entity that owns the Soehanah jackup rig, a Baker Marine Pacific Class 375 jackup rig, and related bareboat charter to which Rig Finance Limited is a party, for $84.6 million, subject to certain adjustments for working capital and liabilities of the entity not discharged by the acquisition date (the “Rig Purchase”). We made a down payment of $15.0 million in connection with the execution of the share purchase agreement, and the remaining $69.6 million was paid at closing on December 31, 2018. Pursuant to the bareboat charter currently in place with respect to the Soehanah jackup rig, the entity to which the rig is chartered has the right to acquire the rig at the end of the term of the bareboat charter for $100.0 million (or more depending on the rig’s valuation).

On March 1, 2019, VAALCO Gabon S.A. awarded us a 120 day contract for our premium jack-up, the Topaz Driller, to perform drilling services in Gabon.

On March 5, 2019, Dana Gas Egypt Limited (“Dana Gas”) awarded a drilling contract to Advanced Energy Systems (ADES) S.A.E. (“ADES”) in respect of our ultra-deepwater drillship, the Tungsten Explorer, to provide drilling services offshore of Egypt. On March 13, 2019, ADES assigned its rights and obligations under the drilling contract to ADVantage Drilling Services S.A.E, a joint venture between a wholly owned subsidiary of the Company and a wholly owned subsidiary of ADES. The term of the contract is for one well, with operations estimated to last 77 days, and the client has the right to extend the term by up to three additional wells.

On August 31, 2015, Petrobras America, Inc. (“PAI”) and Petrobras Venezuela Investments & Services, BV (“PVIS”), both subsidiaries of Petroleo Brasileiro S.A. (“Petrobras”), notified the Company of the termination of the Agreement for the Provision of Drilling Services for the Titanium Explorer dated February 4, 2009 (the “Drilling Contract”) between PVIS and Vantage Deepwater Company, which had been novated to PAI and Vantage Deepwater Drilling, Inc., claiming the Company had breached its obligations under the Drilling Contract. Vantage Deepwater Company and Vantage Deepwater Drilling, Inc. are both wholly-owned subsidiaries of the Company. We immediately filed an international arbitration claim against PAI, PVIS and Petrobras, claiming wrongful termination of the Drilling Contract.

On July 2, 2018, an international arbitration tribunal issued an award in favor of Vantage Deepwater Company and Vantage Deepwater Drilling, Inc. The tribunal found that PAI and PVIS breached the Drilling Contract, and awarded Vantage Deepwater Company and Vantage Deepwater Drilling, Inc. damages in the aggregate amount of $622.0 million against PAI, PVIS and Petrobras, and dismissed the Petrobras parties’ counterclaims against the Company with prejudice. The tribunal also awarded the Company interest on the foregoing award amount at an annual rate of 15.2%, compounded monthly, to accrue from (i) April 1, 2018, with respect to $615.6 million thereof, (ii) October 20, 2015, with respect to $5.2 million thereof, and (iii) November 19, 2015, with respect to $1.2 million thereof, in each case, until final payment of the awarded sums. In accordance with the terms of the award, each of the Company and Petrobras will bear its own legal fees, and the fees and expenses of the tribunal, including the compensation of the arbitrators, aggregating approximately $1.5 million, will be borne equally by both sides. Pursuant to the terms of the award, the amount due to the Company as of December 31, 2018, totaled approximately $701.4 million, inclusive of interest.

On July 2, 2018, our subsidiaries, Vantage Deepwater Company and Vantage Deepwater Drilling, Inc., filed a petition in the U.S. District Court for the Southern District of Texas to confirm the arbitration award against the Petrobras parties. On August 31, 2018, Petrobras, PAI and PVIS filed with the court, among other things, a response to our petition and a motion to vacate the arbitration award. The court heard our petition and their response and motion to vacate on March 8, 2019.

In connection with enforcing the arbitration award against the Petrobras parties, we secured an order from the Amsterdam District Court in the Netherlands on August 22, 2018, which froze certain assets of Petrobras and PVIS in the Netherlands that we believe are valued in excess of our claim at this time. On November 15, 2018, we filed a petition in the Court of Appeals in The Hague, the Netherlands, to recognize and enforce the arbitration award against the Petrobras parties in the Netherlands. On March 1, 2019, the Petrobras parties filed their statement of defense with the court. The court is scheduled to hear our petition and the Petrobras parties’ statement of defense on May 14, 2019.

The Company’s ability to fully recover the award against the Petrobras parties is subject to legal, procedural, solvency and other risks associated with enforcing arbitration awards in these circumstances. In addition, any award ultimately recovered will be subject to reduction in respect of legal fees owed (including, among others, fees contingent on the size of the award, less amounts previously paid) and any applicable taxes. Accordingly, no assurances can be given as to whether, or to what extent, such award will ultimately be recovered, if at all.

company, VDC, used in the contracting of the Titanium Explorer drillship to Petrobras, and Mr. Hsin-Chi Su, a former member of the Board of Directors and a significant shareholder of VDC. We first became aware of the legal proceeding on July 19, 2018 as it was previously under seal. The Company has not been formally served nor advised by any Brazilian authorities of any particular charges. The Company understands that the legal proceeding, which is called an improbity action, is a civil action and is part of the Brazilian Federal Prosecutor’s larger “Car Wash” investigation into money laundering and corruption allegations at Petrobras.

The damages claimed in the proceeding are in the amount of BRL 102.8 million (approximately $31.0 million), together with a civil fine equal to three times that amount. The Company understands that the Brazilian court hearing the proceeding has issued an order authorizing the seizure and freezing of the assets of the Company and the other three defendants in the legal proceeding, as a precautionary measure, in the amount of approximately $124.0 million. The Company and the other three defendants are jointly and severally liable for this amount. The seizure order has not had an effect on the Company’s assets or operations. The Company does not own any assets in Brazil, and does not currently intend to relocate any assets to Brazil.

On February 13, 2019, we learned that the Brazilian Federal Prosecutor has requested mutual legal assistance from the U.S. Department of Justice pursuant to the United Nations Convention against Corruption of 2003 to obtain a freezing order against the Company’s U.S. assets in the amount of $124.0 million. The Company believes this request is not supported by applicable law and intends to vigorously oppose and defend against any attempts to seize its assets. Further, the Company intends to vigorously defend against the allegations made in the underlying improbity action. However, we can neither predict the ultimate outcome of this matter nor that there will not be further developments in the “Car Wash” investigation or in any other ongoing investigation or related proceeding that could adversely affect us.

We own and operate a diversified, premium fleet. We have a diversified fleet of eight high-specification drilling units that is capable of providing premium drilling services for both shallow water and deepwater applications. We recognize that shallow water and deepwater business cycles may differ, particularly during an industry recovery, and believe our fleet diversity reduces our reliance on any particular market segment. Our fleet currently includes five jackup rigs and three drillships.

Our focus on increased efficiency has led to an optimized cost structure. Following the commodity price downturn in 2014, we implemented company-wide cost savings initiatives in an effort to reduce our rig operating expenses and general and administrative expenses through the right-sizing of shore-based teams and centralization of shore-based operational support in Dubai near key areas of operation. Further, we have significantly reduced our rig operating cost through nationalization and regionalization of senior offshore positions and active supply chain management. We believe our optimized cost structure is among the best in the industry and provides us with the flexibility to operate across business cycles and will lead to enhanced profitability in the event of a recovery in the offshore drilling industry.

We have a strong balance sheet with significant debt coverage. As of December 31, 2018, we have approximately $239.4 million of cash on our balance sheet (including $14.4 million of restricted cash) and no near-term debt maturities. Our long-

term debt consists of $350.0 million of 9.25% First Lien Notes, which are secured on a first priority basis by substantially all of our assets, as well as the Convertible Notes. In addition, in connection with our arbitration with Petrobras and related entities, we were awarded damages in the aggregate amount of $622.0 million, which accrues interest at an annual rate of 15.2%, although no assurances can be given as to whether, or to what extent, such award will ultimately be recovered, if at all.

We are a leading operator with strong client relationships. We believe that our safety and operational performance, experienced and skilled employees, and modern and highly advanced fleet have produced a track record of high-quality client service and operational safety, efficiency and effectiveness. We have received special recognition from several of our clients for superior drilling services based on key operational metrics, including with respect to drilling efficiency, low non-productive time, safe operations and best contractor performance.

We have a proven management team. Our executive team has a strong reputation for sound execution, customer focus and delivering strong financial performance. Our management team has extensive experience in the oilfield services and offshore drilling industries, as well as experience operating in key global offshore development locations, including the Gulf of Mexico, West Africa, the Middle East, South East Asia and India, with major international and national oil companies as well as independent exploration and production companies. In addition to the members of the management team, we have highly trained personnel operating and maintaining our rigs. We believe that our team’s significant experience, technical expertise and strong client relationships, as well as the functional depth throughout our organization, enhance our ability to deliver superior drilling service to our clients and effectively operate on a global basis.

Our principal business objective is to be the preferred provider of premium offshore drilling rig services to the oil and gas industry. Our operating strategy is designed to enable us to provide high-quality, safe and cost-competitive services through the current business cycle, positioning us to benefit from an expected increase in demand for offshore drilling and to increase our cash flow and profits. Specifically, we expect to achieve our business objectives through the following strategies:

Enhanced focus on safety and operational excellence. With current decreased demand for offshore drilling services, excelling in safety and operational ability is a key factor for success. We intend to continue our focus on minimizing safety incidents, while also continually increasing our operational uptime and efficiency. This dual focus is intended to enable us to develop and maintain long-term customer relationships and maximize the utilization of our fleet while also ensuring the safety of our and our customers’ employees and contractors. We intend to maintain our exemplary safety and operational performance through attentive and engaged leadership, ongoing competency and training programs, appropriate incentive structures at all levels and effective management oversight.

Efficiently manage costs to adapt to and withstand a range of market conditions. With a cost-competitive fleet, we believe we are well-positioned to operate across business cycles and achieve enhanced profitability in the event of a recovery in the offshore drilling industry. We have assembled and deployed an active fleet that we believe is at the low end of the cost-of-supply curve through right sizing and centralization of shore-based support, nationalization and regionalization of senior offshore positions, and active supply chain management. We believe these efforts to manage costs will enable us to maintain our industry-leading fleet utilization while generating positive operational cash flows in the current low dayrate environment.

Maintain high fleet utilization and consistent activity levels to capitalize on customer preferences for active rigs. We enjoy an industry-leading fleet utilization, which serves as a competitive advantage in securing contracts given operators’ strong preference for rigs with consistent activity levels. Consistent activity helps reduce the uncertainty of any associated costs and preparation time for rigs to undertake new contracts. All of our jackup rigs are currently contracted with client options to extend their contracts. One of our drillships is currently contracted, one drillship is having its special periodic survey performed in advance of returning to work, and one drillship is maintained warm-stacked in anticipation of what we believe to be an improved dayrate and contract term environment commencing as early as 2020.

Preserve balance sheet and maintain significant liquidity through business cycles. With approximately $239.4 million cash on our balance sheet as of December 31, 2018 (including $14.4 million of restricted cash) and no near-term debt maturities, we continue to focus on preservation of liquidity as the offshore drilling business cycle continues. Additionally, the award we obtained in connection with our arbitration with Petrobras and related entities provides potential future upside and financial cushion in our capital structure.

Maintain high-quality asset portfolio with diverse footprint by selectively pursuing acquisitions that we believe align with our operational model and are likely to increase cash flow. Our balanced fleet of jackup rigs and drillships allows us to address the dynamic opportunity set in the offshore drilling industry. We believe the quality of our jackup rig and drillship fleets, combined with our experience in shallow and deepwater markets, position us to compete in various market segments and geographies. We maintain a young fleet with an average age of approximately eight years; accordingly, our high-specification assets enable us to capitalize on the bifurcation in utilization levels between modern and older rigs, and to secure contracts with premium dayrates. Additionally, high-

specification modern drilling units generally provide superior and more efficient drilling performance, as well as enhanced and more cost effective logistics. Newer and more modern drilling units are also generally preferred by crews, which makes it easier to hire and retain high-quality operating personnel. As a result, our fleet is well suited to meet the requirements of customers for efficiently drilling complex wells in demanding locations. To maintain our high-quality asset portfolio, we are focused on disciplined investment in, and the growth of, our active drilling fleet to maximize our profitability. We believe the most attractive returns on invested capital are in opportunistic acquisitions of rigs that are complementary to our fleet, and that rigs of this type are currently available at historically low acquisition prices due to the offshore industry downturn. Additionally, we have invested in MPD technology for the Tungsten Explorer ultra-deepwater drillship, technology which is currently required by a significant number of the tenders in the market and is becoming increasingly prevalent in the industry, making such drillship highly regarded and sought after by customers. We have the ability to use this MPD system on our other drillships.

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 units. 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 the case today. 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. As a result of the persistence of reduced oil and gas prices since late 2014, reduced demand for offshore drilling rigs by our customers has continued. The reduced demand is occurring at the same time that drilling rigs continue to be brought into the market or scheduled for delivery resulting in an oversupply of equipment. We expect that these adverse market conditions are likely to continue for the duration of 2019 and potentially beyond.

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 primarily on the ultra-deepwater segment, but can also operate efficiently and cost effectively in the midwater and deepwater markets.

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, 2018 and 2017 and for the periods from January 1, 2016 to February 10, 2016 and from February 10, 2016 to December 31, 2016, the following customers accounted for more than 10% of our consolidated revenue, in the respective periods:

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 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 or for convenience by the customer. 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. To the extent (i) our customers cancel some of our contracts and we are unable to secure new contracts on a timely basis and on substantially similar terms, (ii) our contracts are suspended for an extended period of time or (iii) 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 offshore drilling fleet as of February 28, 2019.

As of December 31, 2018, our owned fleet had total drilling contract backlog of approximately $156.7 million. We expect that approximately $108.9 million of our total contract backlog will be performed during 2019, with the remainder performed in subsequent years.

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 the Petroleum Exporting Countries (“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 (day rate) 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 in a low price environment, build new rigs or acquire existing rigs. In the current market, contractors that are awarded a job are more often the ones that submit proposals for contracts at very low day rates thereby depressing global pricing.

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, although at a cost that is sometimes substantial, from one region to another in response to demand.

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 information regarding the risks related to our insurance policies, see “Risk Factors—Our business involves numerous operating hazards, and our insurance and contractual indemnity rights may not be adequate to cover our losses”.

We maintain insurance coverage that includes coverage for physical damage, third party liability, employer’s liability, war risk, general liability, vessel pollution and other coverage. 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 eight drilling units is $1.5 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 $500.0 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.

Our operations are conducted 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, regulations and duties relating to the importation and exportation of and operation of drilling units and other equipment, currency conversions and repatriation, oil and natural gas exploration and development, environmental protection, taxation of offshore earnings and earnings of expatriate personnel and the use of local employees and suppliers by foreign contractors. 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. Furthermore, these regulations have limited the opportunities for international drilling contractors to participate in tenders for contracts or to perform services in certain countries as the governments have strongly favored local service providers. Operations in less developed countries may be subject to legal systems that are not as predictable as those in more developed countries, which can lead to greater uncertainty in legal matters and proceedings.

The shipment of goods, services and technology across international borders subjects us to extensive trade laws and regulations. Our import and export activities are governed by unique customs laws and regulations in each of the countries where we operate. The laws and regulations concerning import and export activity, recordkeeping and reporting, import and export control and economic sanctions are complex and constantly changing. These laws and regulations may be enacted, amended, enforced or interpreted in a manner materially impacting our operations. Governments also may impose economic sanctions against certain countries, persons and other entities that may restrict or prohibit transactions involving such countries, persons and entities. Shipments can be delayed and denied import or export for a variety of reasons, some of which are outside our control and some of which may result from failure to comply with existing legal and regulatory regimes. Shipping delays or denials could cause unscheduled operational downtime.

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”. We anticipate that we will continue to make expenditures to comply with environmental requirements. To date, we have not expended material amounts beyond those amounts spent on our basic rig designs 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.

We have historically conducted work in the Gulf of Mexico and may conduct such work in the future. Although we are not currently conducting any operations under the jurisdiction of U.S. environmental and natural resource agencies, similar restrictions and concerns apply in the jurisdictions in which we currently operate. These requirements and concerns may be more or less stringent than those associated with the following U.S. laws.

Heightened environmental concerns have led to greater and more stringent environmental regulations, higher drilling costs, and a more difficult and lengthy well permitting process in many jurisdictions throughout the world. Requirements applicable to our operations include regulations that would 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.

Environmental requirements include water quality laws, regulations and policies that prohibit and/or regulate the discharge of pollutants, including petroleum, into the waters. 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. Laws governing air emissions and solid and hazardous waste also apply to our operations.

A variety of initiatives intended to enhance vessel security have been adopted in certain jurisdictions where we operate. For example, these initiatives may require 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 International Maritime Organization (the “IMO”), a specialized agency of the United Nations, 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 (“Annex IV”) 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.

At December 31, 2018, we managed a workforce of approximately 894 people, of which approximately 400 were our direct employees.

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. 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 respective 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 International, Attention: General Counsel, c/o Vantage Energy Services, Inc., 777 Post Oak Boulevard, Suite 800, Houston, Texas 77056, phone number (281) 404-4700. You can also obtain copies of any of the agreements that are filed as exhibits to this Annual Report on Form 10-K from the SEC through the SEC’s website at www.sec.gov.

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.

Our industry is highly competitive, cyclical and subject to intense price competition.

The offshore contract drilling industry, historically, has been cyclical and volatile 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. Competitors may move drilling units from region to region in response to changes in demand. According to Bassoe Offshore A.S., as of January 2019 there were 71 jackups and 29 deepwater/harsh environment floaters on order at shipyards with scheduled deliveries extending out to June 2021. It is unclear when or whether delivery of these drilling rigs will occur as many rig deliveries have been deferred and some have been canceled. Notwithstanding such deferrals and cancellations, excess supply may continue to depress the markets in which we operate. Periods of low demand and excess supply intensify competition in our industry and often result in some of our 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.

We may engage in certain strategic or transformational transactions in the future which could affect the value or type of our assets.

From time to time, our management independently evaluates, and separately receives indications of interest in respect of, a variety of strategic and/or transformational transactions in respect of our assets or a particular subset thereof. While the documents governing our indebtedness include certain restrictions on our ability to dispose of our assets or to finance the acquisitions of new assets, such restrictions contain various exceptions and limitations.

To the extent we were to pursue or engage in such transactions, there is no guarantee that such transactions will be successful or, even if consummated, improve our operating results. We may incur costs, breakage fees or other expenses in connection with any such transactions, and any such transactions may ultimately have a material adverse effect on our operating results and on our ability to pay amounts due on our debt.

In addition, such transactions may be transformative and consequently, may result in a change in the type of the assets we hold. Such new assets may be valued differently as compared to our current assets in the event of a liquidation thereof or due to changes in applicable market conditions even absent such a liquidation scenario. Accordingly, there can be no guarantee that any replacement assets will continue to hold comparable value to our current assets. Any such changes to our asset mix may also be viewed negatively by the market and could have an adverse effect on the trading price of our securities.

We could be adversely affected by violations of the U.S. Foreign Corrupt Practices Act and similar worldwide anti-bribery laws.

The FCPA and similar worldwide anti-bribery laws (together, anti-corruption laws) 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 protect us from improper acts committed by our directors, 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. In addition, in some foreign jurisdictions in which we operate, we are required to retain the

services of a national agent or sponsor. Although we have procedures and controls in place to monitor internal and external compliance, if we are found to be liable for violations of anti-corruption laws (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. In July 2015, we became aware of media reports that Hamylton Padilha, the Brazilian agent VDC used in the contracting of the Titanium Explorer drillship to Petrobras, had entered into a plea arrangement with the Brazilian authorities in connection with his role in facilitating the payment of bribes to former Petrobras executives. Among other things, Mr. Padilha provided information to the Brazilian authorities of an alleged bribery scheme between former Petrobras executives and Mr. Hsin-Chi Su, who was, at the time of the alleged bribery scheme, a member of the Board of Directors and a significant shareholder of VDC. When we learned of Mr. Padilha’s plea agreement and the allegations, we voluntarily contacted the DOJ and the SEC to advise them of these developments, as well as the fact that we had engaged outside counsel to conduct an internal investigation of the allegations. Since disclosing this matter to the DOJ and SEC, we have cooperated fully in their investigation of these allegations. In connection with such cooperation, we advised both agencies that in early 2010, we engaged outside counsel to investigate a report of alleged improper payments to customs and immigration officials in Asia. That investigation was concluded in 2011, and we determined at that time that no disclosure was warranted; however, in an abundance of caution, we provided the results of this investigation to the DOJ and SEC in light of the allegations in the Petrobras matter. In August 2017, we received a letter from the DOJ acknowledging our full cooperation in the DOJ’s investigation concerning possible violations of the FCPA by VDC in the Petrobras matter and indicating that the DOJ had closed such investigation without any action.

On November 19, 2018, we concluded a settlement agreement with the SEC resolving the SEC’s investigation into possible violations of the internal accounting control provisions of the FCPA by VDC and VDC’s subsidiaries (including Vantage and Vantage’s subsidiaries, the foregoing having been subsidiaries of VDC at the commencement of the investigation). As part of the settlement agreement, we paid the SEC $5.0 million. We neither admitted nor denied any of the SEC’s allegations, except as to jurisdiction, which we admitted. We accrued a liability for the payment in the fourth quarter of 2017. With the settlement of this matter with the SEC and the earlier decision by the DOJ to close its inquiry into Vantage and VDC without taking any action, the U.S. government’s investigation of Vantage and VDC for possible violations of the FCPA has formally concluded.

Media coverage and public statements that insinuate improper actions by us, regardless of their factual accuracy or truthfulness, may result in negative publicity, litigation or governmental investigations by regulators. Addressing negative publicity and any resulting litigation or investigations may distract management, increase costs and divert resources. Negative publicity may have an adverse impact on our reputation and the morale of our employees, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Our substantial indebtedness could adversely affect our financial health and prevent us from fulfilling our debt obligations.

As of December 31, 2018, we had approximately $1,121.9 million aggregate principal amount of debt outstanding, consisting of $350.0 million under the 9.25% First Lien Notes and approximately $771.9 million of the Convertible Notes. Our high level of indebtedness could have significant effects on our business. For example, our level of indebtedness and the terms of our debt agreements may:

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.

In the event the Convertible Notes accelerate, the holders are entitled to the outstanding principal, accrued interest and a premium (“Applicable Premium”). The Applicable Premium is calculated as the greater of (i) 1.0% of the then outstanding principal amount and (ii) the difference between the present value, computed using a discount rate equal to the treasury rate plus 50 basis points, of the accreted value at maturity, less the outstanding principal of the Convertible Notes. The estimated Applicable Premium is in excess of $1.0 billion.

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 agreements governing the 9.25% First Lien Notes and the Convertible Notes, we will be required to offer to repurchase or repay all (or in the case of events of losses of vessels, an amount up to the amount of proceeds received from such event of loss, with the 9.25% Senior Notes having priority over the Convertible Notes) of the 9.25% First Lien Notes and the Convertible Notes 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 the 9.25% First Lien Notes and the Convertible Notes (with the 9.25% First Lien Notes having priority over the Convertible Notes) as set forth in the agreements governing the 9.25% First Lien Notes and the Convertible 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 that, in turn, would likely trigger a default under any other then-existing debt agreements. Moreover, the creditors under certain of our debt agreements may limit our ability to repurchase debt. In that event, we would need to refinance the applicable debt, or obtain a waiver under the applicable debt agreement, before making an offer to purchase. We may be unable to refinance 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.

The international nature of our operations results in additional political, economic, legal and other uncertainties not generally associated with domestic operations.

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:

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 predictable as those in more developed countries, which can lead to greater uncertainty in legal matters and proceedings.

Political disturbances, war, or terrorist attacks and changes in global trade policies and economic sanctions could adversely impact our operations.

Our operations are subject to political and economic risks and uncertainties, including instability resulting from civil unrest, political demonstrations, mass strikes, or an escalation or additional outbreak of armed hostilities or other crises in oil or natural gas producing areas, which may result in extended business interruptions, suspended operations and danger to our employees, or result in claims by our customers of a force majeure situation and payment disputes. Additionally, we are subject to risks of terrorism, piracy, political instability, hostilities, expropriation, confiscation or deprivation of our assets or military action impacting our operations, assets or financial performance in many of our areas of operations.

A continued low amount of, or further reduction in, expenditures by oil and natural gas exploration and production companies due to the recent low level of 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 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:

In addition to oil and gas prices, the offshore drilling industry is influenced by additional factors, including:

Any of these factors could reduce demand for or prices paid for our services and adversely affect our business and results of operations.

Low prices for oil and natural gas may reduce demand for our services and could have a material adverse effect on our revenue and profitability.

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.

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. The concentration of revenue with a small number of customers also exposes us to credit risk of these customers for non-payment or contract termination.

We derive a significant portion of our revenues from a few customers. During the fiscal year ended December 31, 2018, three customers accounted for approximately 69% 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 refuses 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.

Our drilling contracts are generally short-term in duration, and we could experience reduced profitability if customers reduce activity levels or if we otherwise fail to secure new drilling contracts or extend existing contracts upon their termination.

Many 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 drilling contracts, a decline in market conditions can quickly affect our business if customers reduce their levels of operations. We may not be able to secure new contracts for our vessels or extend contracts on favorable terms or at all, or satisfy any conditions precedent to finalizing any letters of intent or award with respect to our vessels. This could result in one or more of our vessels being idle for an extended period of time, which could adversely affect our profitability, financial position, results of operations and cash flows.

Our drilling contracts may be terminated early in certain circumstances and our customers may seek to renegotiate the terms of their existing drilling contracts with us.

Our customers may have the right to terminate, or may seek to renegotiate, their existing drilling contracts with us 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 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.

Further, 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.

Our past financial performance may not be indicative of our future financial performance. We have a limited operating history since our emergence from bankruptcy on February 10, 2016. Further, we became a new entity for financial reporting purposes when we adopted fresh-start accounting as of our emergence from bankruptcy. As a result, our financial results for periods following our emergence from bankruptcy are different from historical trends and the differences may be material.

Our current backlog of contract drilling revenue may not be fully realized, which may have a material adverse impact on our consolidated statement of financial position, results of operations or cash flows.

As of December 31, 2018, our owned fleet had total drilling contract backlog of approximately $156.7 million. This amount was calculated based on certain estimates and assumptions regarding operations and payments to be received under such drilling contracts. Although management believes that such estimates and assumptions are reasonable, actual amounts received under these contracts could materially differ from the projected amount. Material differences between the projected contract backlog amount and the amounts actually received pursuant to such contracts could be caused by a number of factors, including rig downtime or suspension of operations. We may not be able to realize the full amount of our contract backlog due to events beyond our control.

We may not be able to replace expiring or terminated contracts for our existing rigs at dayrates that are economically feasible for us.

Due to the cyclical nature and high level of competition in our industry, we may not be able to replace expiring or terminated contracts. Our ability to replace expiring or terminated contracts 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 existing dayrates, which could have a material adverse effect on our overall business, financial condition, results of operations and future prospects.

In particular, the Tungsten Explorer’s most recently concluded drilling contract, which ended in October 2018, accounted for the highest dayrate of any of our other drillships’ drilling contracts for the current year. The Tungsten Explorer is currently completing certain equipment recertifications and upgrades and is scheduled to work offshore of Egypt under a drilling services contract with a term for one well and options to add up to three additional wells. Given current market conditions, the dayrate associated with this contract is lower than the rate associated with the previous drilling contract and it is unlikely that we will be able to secure additional new drilling contracts at rates comparable to the previous rate in the near-term. If we are unable to secure a new drilling contract at a comparable rate, our financial condition, results of operations and cash flows may be adversely affected.

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 or heavy lift vessels, 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 could be adversely impacted by changes in regulation of offshore oil and gas exploration and development activities. New regulatory requirements in the future could impose greater costs on our operations, which could have a material adverse impact on our results of operations. We do not currently operate in the United States, but may do so in the future. The jurisdictions in which we currently operate have imposed requirements for offshore oil and gas exploration and development activities and, like the U.S., may impose new regulatory requirements in the future.

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 or subject to exceptions. 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.

As a result of the number and significance of catastrophic events in the history of the offshore drilling industry, insurance underwriters have increased insurance premiums and increased restrictions on coverage and have made other coverages unavailable to us on commercially reasonable terms. During the recent industry downturn, in addition to paying lower day rates, many oil and gas companies have negotiated less favorable terms with respect to risk allocation and indemnity rights in the drilling service contracts to which we are or may become a party.

While we believe we have reasonable policy limits of property, casualty and liability 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 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 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, regulations and policies 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. 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 Oil Pollution Act, 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. While we do not currently operate in the United States, many of the countries in which we currently operate have similar requirements. 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 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.

Further, certain governments at the international, national, regional and state level are at various stages of considering or implementing treaties and environmental laws that could limit emissions of greenhouse gases, including carbon dioxide, associated with the burning of fossil fuels. It is not possible to predict how new laws to address greenhouse gas emissions would impact our business or that of our customers, but these laws and regulations could impose costs on us or negatively impact the market for offshore drilling services, and consequently, our business.

Changes in laws and regulations of 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. 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.

We may be required to make substantial capital and operating expenditures to maintain and upgrade our fleet to maintain our competitiveness and to comply with laws and the applicable regulations and standards of governmental authorities and organizations, each of which could negatively affect our financial condition, results of operations and cash flows.

Our business is highly capital intensive and dependent on having sufficient cash flow and or available sources of financing in order to fund capital expenditure requirements. We can provide no assurance that we will have access to adequate or economical sources of capital to fund necessary capital expenditures. Such capital expenditures could increase as a result of changes in the following:

Changes in offshore drilling technology, customer requirements for new or upgraded equipment and competition within our industry may require us to make significant capital expenditures in order to maintain our competitiveness. In addition, changes in governmental regulations, safety or other equipment standards, as well as compliance with standards imposed by maritime self-regulatory organizations, may require us to make additional unforeseen capital expenditures. As a result, we may be required to take our rigs out of service for extended periods of time, with corresponding losses of revenues, in order to make such alterations or to add such equipment. In the future, market conditions may not justify these expenditures or enable us to operate our older rigs profitably during the remainder of their economic lives.

In addition, we may require additional capital in the future. If we are unable to fund capital expenditures with our cash flow from operations or sales of non-strategic assets, we may be required to either incur additional borrowings or raise capital through the sale of debt or equity securities. Our ability to access the capital markets may be limited by our financial condition at the time, by certain restrictive covenants under the agreements governing our credit agreement and notes, by changes in laws and regulations or interpretation thereof and by adverse market conditions resulting from, among other things, general economic conditions and contingencies and uncertainties that are beyond our control. If we raise funds by issuing equity securities, existing shareholders may experience dilution. Our failure to obtain the funds for necessary future capital expenditures could have a material adverse effect on our business and on our consolidated statements of financial condition, results of operations and cash flows.

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:

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.

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 information technology systems and those of our service providers are subject to cybersecurity risks and threats.

We depend on information technology systems that we manage, and others that are managed by our third-party service and equipment providers, to conduct our operations, including critical systems on our drilling units, and these systems are subject to risks associated with cyber incidents or attacks as well as breaches due to human error. It has been reported that unknown entities or groups have mounted cyber-attacks on businesses and other organizations solely to disable or disrupt computer systems, disrupt operations and, in some cases, steal data. Due to the nature of cyber-attacks, breaches to our systems or the systems of our service or equipment providers could go unnoticed for a prolonged period of time. These cybersecurity risks could disrupt our operations and result in downtime, loss of revenue or the loss of critical data, as well as result in higher costs to correct and remedy the effects of such incidents. The Audit Committee of our Board of Directors has oversight responsibility related to our cybersecurity risk management programs and periodically reviews reports on cybersecurity and other information technology risks.

In 2018, we experienced a cybersecurity breach which temporarily hindered our ability to utilize our email server and obstructed certain back-up data. However, the breach did not have a material adverse effect on our business, reputation, financial condition, results of operations or cash flows, and did not compromise any customer data. The costs to restore the data and services impacted by the cybersecurity breach were not material. While we believe such breach to be an isolated incident, we cannot provide assurance that we will not in the future experience any other actual or attempted breaches of our cybersecurity. If either our systems or the systems of our service or equipment providers used for protecting against cyber incidents or attacks prove to be insufficient and another incident were to occur, it could have a material adverse effect on our business, reputation, financial condition, results of operations or cash flows. Currently, we do not carry insurance for losses related to cybersecurity attacks and may elect to not obtain such insurance in the future.

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 any acquisitions. We cannot predict the effect, if any, that any announcement or consummation of an acquisition would have on the 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 acceptable 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.

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 cannot predict what operating and maintenance costs will 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 may not be able to 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, technical 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, technical 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. Due to the extremely weak conditions in the offshore drilling market, the lack of employment and lower wages for offshore personnel have caused and will continue to cause many of our current offshore personnel to permanently leave the industry for employment opportunities in other industries. If industry conditions improve, there is no guarantee these workers will return to the offshore industry resulting in a shortage of qualified personnel that we will be able to employ.

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 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.

We are 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 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 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 FCPA. 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 DOJ and the SEC. Any such action could adversely affect our financial results.

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. On December 22, 2017, Public Law 115-97, commonly known as the Tax Cuts and Jobs Act of 2017 (the “Act”)

was enacted. The Act, among other things, made significant changes to the U.S. corporate income tax system, including reducing the federal corporate income tax rate from 35.0% to 21.0%; changed certain business-related deductions, including modifying the rules regarding limitations on certain deductions for executive compensation, introducing a capital investment deduction in certain circumstances, placing certain limitations on the interest deduction, modifying the rules regarding the usability of certain net operating losses; and transitioned U.S. international taxation from a worldwide tax system to a modified territorial tax system. We completed the evaluation of the impact of the Act on our financial statements under the guidance as of December 2018, and have concluded that no further adjustments are required beyond the re-measurement of the deferred taxes recorded in 2017.

It is our intention to continue to indefinitely reinvest the earnings of foreign subsidiaries to finance our foreign activities. Should a future distribution be made from any unremitted earnings of these subsidiaries, we may be required to record additional taxes in certain jurisdictions. However, it is not practical to estimate the unremitted earnings or the potential tax liability due to the complexity of the hypothetical calculations.

Tax laws, treaties and regulations are highly complex and subject to interpretation. 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’s tax authority 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.

Because we are incorporated under the laws of the Cayman Islands, stakeholders may face difficulties in protecting their interests, and their ability to protect their 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, substantially all 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 third 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.

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:

The Grand Court of the Cayman Islands may stay proceedings if concurrent proceedings are being brought elsewhere.

District of Delaware seeking a reversal of (i) the Court’s determination that Mr. Hsin-Chi Su and F3 Capital did not have standing to appear and be heard in the bankruptcy cases, which was made on the record at a hearing held on January 14, 2016, and (ii) the Court’s Findings of Fact, Conclusions of Law, and Order (I) Approving the Debtors’ (A) Disclosure Statement Pursuant to Sections 1125 and 1126(b) of the Bankruptcy Code, (B) Solicitation of Votes and Voting Procedures, and (C) Forms of Ballots, and (II) Confirming the Amended Joint Prepackaged Chapter 11 Plan of Offshore Group Investment Limited and its Affiliated Debtors [Docket No. 188], which was entered on January 15, 2016. The appeals were consolidated on June 14, 2016. We cannot predict with certainty the ultimate outcome of any such appeals. An adverse outcome could negatively affect our business, results of operations and financial condition.

On January 10, 2019, Mr. Hsin-Chi Su and his company, F3 Capital, filed a declaratory action against us in the United States District Court for the District of Delaware seeking a ruling from the court that the confirmation of the Reorganization Plan does not prevent Mr. Hsin-Chi Su or F3 Capital from suing the Company for certain unspecified claims based on a theory of fraud alleged to be valued in excess of $2.0 billion. We filed a motion to dismiss with the court on March 4, 2019. We intend to vigorously defend against these claims, which we deem to be meritless. However, we cannot predict with certainty the ultimate decision by the court with respect to Mr. Hsin-Chi Su’s request.

Reactivation of idle rigs may take longer and be more costly than anticipated. As our rigs are mobilized from one geographic location to another, the labor and other operating and maintenance costs can vary significantly. In general, labor costs increase primarily due to higher salary levels and inflation. Equipment maintenance expenses fluctuate depending upon the type of activity the rig 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 market value of our current vessels may decrease, which could cause us to take accounting charges or incur losses if we decide to sell them following a decline in their values.

If the offshore contract drilling industry continues to suffer adverse developments, the fair market values of our vessels may decline. The fair market values of the vessels we currently own or may acquire in the future may increase or decrease depending on a number of factors, many of which are beyond our control, including the general economic and market conditions affecting the oil and gas industry and the possible corresponding adverse effect on the level of offshore drilling activity.

Any such deterioration in the market values of our vessels could require us to record an impairment charge in our financial statements, which could adversely affect our results of operations. If we sell any of our vessels when prices for such vessels have fallen, the sale may be at less than such drillship’s carrying amount on our financial statements, resulting in a loss.

We may experience downtime as a result of repairs or maintenance, human error, defective or failed equipment, or delays waiting for replacement parts.

Our operations may be suspended because of machinery breakdowns, human error, abnormal operating conditions, failure of subcontractors to perform or supply goods or services, delays on replacement parts or personnel shortages, which may cause us to experience operational downtime and could have an adverse effect on our results of operations.

Public health threats could have a material adverse effect on our financial position, results of operations or cash flows.

Public health threats, including, but not limited to, Ebola, the H1N1 flu virus, the Zika virus, Severe Acute Respiratory Syndrome, and other highly communicable diseases, outbreaks of which have occurred fairly recently in various parts of the world in which we operate, could adversely impact our operations, the operations of our clients and the global economy, including the worldwide demand for oil and natural gas and the level of demand for our services. Any quarantine of personnel or the inability to access our offices or rigs could adversely affect our operations. Travel restrictions or operational problems in any part of the world in which we operate, or any reduction in the demand for drilling services caused by public health threats in the future, may adversely affect our financial position, results of operations or cash flows.

A significant portion of the contract revenues of our foreign operations will be paid in U.S. dollars; however, some payments are made in foreign currencies. As a result, we are exposed to currency fluctuations and exchange rate risks as a result of our foreign operations. To minimize the financial impact of these risks when we are paid in foreign currency, we attempt to match the currency of operating costs with the currency of contract revenue. If we are unable to substantially match the timing and amounts of these payments, any increase in the value of the U.S. dollar in relation to the value of applicable foreign currencies could adversely affect our operating results.

We maintain offices, land bases and other facilities in several worldwide locations, including our principal executive offices in Houston, Texas, an operational, executive and marketing office in Dubai and a regional administrative office in Singapore. 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.

In July 2015, we became aware of media reports that Hamylton Padilha, the Brazilian agent VDC used in the contracting of the Titanium Explorer drillship to Petrobras, had entered into a plea arrangement with the Brazilian authorities in connection with his role in facilitating the payment of bribes to former Petrobras executives. Among other things, Mr. Padilha provided information to the Brazilian authorities of an alleged bribery scheme between former Petrobras executives and Mr. Hsin-Chi Su, who was, at the time of the alleged bribery scheme, a member of the Board of Directors and a significant shareholder of our former parent company, VDC. When we learned of Mr. Padilha’s plea agreement and the allegations, we voluntarily contacted the DOJ and the SEC to advise them of these developments, as well as the fact that we had engaged outside counsel to conduct an internal investigation of the allegations. Since disclosing this matter to the DOJ and SEC, we have cooperated fully in their investigation of these allegations. In connection with such cooperation, we advised both agencies that in early 2010, we engaged outside counsel to investigate a report of alleged improper payments to customs and immigration officials in Asia. That investigation was concluded in 2011, and we determined at that time that no disclosure was warranted; however, in an abundance of caution, we provided the results of this investigation to the DOJ and SEC in light of the allegations in the Petrobras matter. In August 2017, we received a letter from the DOJ acknowledging our full cooperation in the DOJ’s investigation and closing the investigation without any action against the Company. On November 19, 2018, we concluded a settlement agreement with the SEC resolving the SEC’s investigation into possible violations of the internal accounting control provisions of the FCPA by VDC and VDC’s subsidiaries (including Vantage and Vantage’s subsidiaries, the foregoing having been subsidiaries of VDC at the commencement of the investigation). As part of the settlement agreement, we paid the SEC $5.0 million. We neither admitted nor denied any of the SEC’s allegations, except as to jurisdiction, which we admitted. We accrued a liability for the payment in the fourth quarter of 2017. With the settlement of this matter with the SEC and the earlier decision by the DOJ to close its inquiry into Vantage and VDC without taking any action, the U.S. government’s investigation of Vantage and VDC for possible violations of the FCPA has formally concluded.

On April 27, 2018, the Company was added as an additional defendant in a legal proceeding initiated by the Brazilian Federal Prosecutor against certain individuals, including an executive of Petrobras and two political lobbyists, in connection with the contracting of the Titanium Explorer drillship to Petrobras under the Drilling Contract, with the Brazilian Government and Petrobras as plaintiffs. Vantage is alleged to have been involved in and benefitted from the purported bribery scheme at Petrobras through Hamylton Padilha and Mr. Hsin-Chi Su. We first became aware of the legal proceeding on July 19, 2018 as it was previously under seal. The Company has not been formally served nor advised by any Brazilian authorities of any particular charges. The Company understands that the legal proceeding, which is called an improbity action, is a civil action and is part of the Brazilian Federal Prosecutor’s larger “Car Wash” investigation into money laundering and corruption allegations at Petrobras.

The damages claimed in the proceeding are in the amount of BRL 102.8 million (approximately $31.0 million), together with a civil fine equal to three times that amount. The Company understands that the Brazilian court hearing the proceeding has issued an order authorizing the seizure and freezing of the assets of the Company and the other three defendants in the legal proceeding, as a precautionary measure, in the amount of approximately $124.0 million. The Company and the other three defendants are jointly and severally liable for this amount. The seizure order has not had an effect on the Company’s assets or operations, as the Company does not own any assets in Brazil, and does not currently intend to relocate any assets to Brazil.

On August 31, 2015, PAI and PVIS, both subsidiaries of Petrobras, notified the Company of the termination of the Drilling Contract between PVIS and Vantage Deepwater Company, which had been novated to PAI and Vantage Deepwater Drilling, Inc., claiming the Company had breached its obligations under the Drilling Contract. Vantage Deepwater Company and Vantage Deepwater Drilling, Inc. are both wholly-owned subsidiaries of the Company. We immediately filed an international arbitration claim against PAI, PVIS and Petrobras, claiming wrongful termination of the Drilling Contract.

On July 2, 2018, an international arbitration tribunal issued an award in favor of Vantage Deepwater Company and Vantage Deepwater Drilling, Inc. The tribunal found that PAI and PVIS breached the Drilling Contract, and awarded Vantage Deepwater Company and Vantage Deepwater Drilling, Inc. damages in the aggregate amount of $622.0 million against PAI, PVIS and Petrobras, and dismissed the counterclaims made by PAI and PVIS against the Company with prejudice. The tribunal also awarded the Company interest on the foregoing award amount at an annual rate of 15.2%, compounded monthly, to accrue from (i) April 1, 2018, with respect to $615.6 million thereof, (ii) October 20, 2015, with respect to $5.2 million thereof, and (iii) November 19, 2015, with respect to $1.2 million thereof, in each case, until final payment of the awarded sums. In accordance with the terms of the award, each of the Company and Petrobras will bear its own legal fees, and the fees and expenses of the tribunal, including the compensation of the arbitrators, aggregating approximately $1.5 million, will be borne equally by both sides. Pursuant to the terms of the award, the amount due to the Company as of December 31, 2018, totaled approximately $701.4 million, inclusive of interest.

On July 2, 2018, our subsidiaries, Vantage Deepwater Company and Vantage Deepwater Drilling, Inc., filed a petition in the U.S. District Court for the Southern District of Texas to confirm the arbitration award against Petrobras. On August 31, 2018, Petrobras, PAI and PVIS filed with the court, among other things, a response to our petition and a motion to vacate the arbitration award. The court heard our petition and their response and motion to vacate on March 8, 2019.

The Company’s ability to fully recover the award against Petrobras is subject to legal, procedural, solvency and other risks associated with enforcing arbitration awards in these circumstances. In addition, any award ultimately recovered will be subject to reduction in respect of legal fees owed (including, among others, fees contingent on the size of the award, less amounts previously paid) and any applicable taxes. Accordingly, no assurances can be given as to whether, or to what extent, such award will ultimately be recovered, if at all.

There is no established trading market for our New Shares and there has not been an established trading market for our New Shares since we emerged from bankruptcy on February 10, 2016. Therefore, we are not able to provide information regarding the trading prices for the New Shares.

We have not paid dividends on our New 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.

There were no repurchases of equity securities during the fiscal fourth quarter ended December 31, 2018.

The following selected financial information should be read in conjunction with “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and the notes thereto included in “Item 8. Financial Statements and Supplementary Data.”

	Successor										Predecessor
	Year Ended December 31,							Period from February 10, 2016 to December 31, 2016			Period from January 1, 2016 to February 10, 2016				Year Ended December 31,
	2018				2017			Period from February 10, 2016 to December 31, 2016			Period from January 1, 2016 to February 10, 2016				2015				2014
(in thousands)
Consolidated Statement of Operations Data
Revenue	$	225,747			$	212,846		$	158,648		$	23,540			$	772,265			$	882,904
Operating costs		171,041				161,974			123,069			25,213				359,610				405,697
General and administrative expenses		29,544				41,648			36,922			2,558				25,322				25,390
Depreciation and amortization		70,447				73,925			67,920			10,696				127,359				126,610
Income (loss) from operations		(45,285	)			(64,701	)		(69,263	)		(14,927	)			259,974				325,207
Gain (loss) on debt extinguishment		(1,271	)	(1)		—			—			—				10,823		(2)		4,408		(3)
Interest expense, net		(76,881	)			(75,633	)		(67,005	)		(1,725	)			(173,550	)	(4)		(196,089	)
Other income (expense)		(1,505	)			2,807			1,179			(69	)			4,231				(596	)
Reorganization items		—				—			(1,380	)		(452,919	)	(5)		(39,354	)	(6)		—
Bargain purchase gain		—				1,910			—			—				—				—
Income (loss) before income taxes		(124,942	)			(135,617	)		(136,469	)		(469,640	)			62,124				132,930
Income tax provision		16,526				14,168			10,948			2,371				39,870				39,817
Net income (loss)		(141,468	)			(149,785	)		(147,417	)		(472,011	)			22,254				93,113
Net income (loss) attributable to noncontrolling interests		—				—			—			(969	)			5,036				257
Net income (loss) attributable to VDI	$	(141,468	)		$	(149,785	)	$	(147,417	)	$	(471,042	)		$	17,218			$	92,856
Net loss per share, basic and diluted	$	(28.29	)		$	(29.96	)	$	(29.48	)	N/A				N/A				N/A
Other Financial Data
EBITDA Reconciliation
Net income (loss)	$	(141,468	)		$	(149,785	)	$	(147,417	)	$	(472,011	)		$	22,254			$	93,113
Interest expense		76,881				75,633			67,005			1,725				173,550				196,089
Income tax provision		16,526				14,168			10,948			2,371				39,870				39,817
Depreciation		70,447				73,925			67,920			10,696				127,359				126,610
EBITDA (7)		22,386				13,941			(1,544	)		(457,219	)			363,033				455,629
Gain (loss) on debt extinguishment		1,271				—			—			—				(10,823	)			(4,408	)
Reorganization items		—				—			1,380			452,919				39,354				—
Bargain purchase gain		—				(1,910	)		—			—				—				—
Adjusted EBITDA (8)	$	23,657			$	12,031		$	(164	)	$	(4,300	)		$	391,564			$	451,221
Balance Sheet Data (as of end of period)
Cash and cash equivalents	$	224,967			$	195,455		$	231,727		N/A				$	203,420			$	75,801
Total other current assets		101,266				102,541			78,479		N/A					157,323				245,537
Property and equipment, net		787,303				763,191			834,528		N/A					2,948,387				3,032,568
Total other assets		16,026				21,935			15,694		N/A					23,050				71,226
Total assets	$	1,129,562			$	1,083,122		$	1,160,428		N/A				$	3,332,180			$	3,425,132
Total current liabilities	$	62,355			$	69,213		$	55,161		N/A				$	132,616			$	341,380
Long-term debt		1,109,011				919,939			867,372		N/A					—		(9)		2,497,103
Other long-term liabilities		22,889				17,195			11,335		N/A					33,097				85,243
Liabilities subject to compromise		—				—			—		N/A					2,694,456				—
VDI shareholder's equity		(64,693	)			76,775			226,560		N/A					456,756				490,689

The following discussion is intended to assist you in understanding our financial position at December 31, 2018 and 2017 and our results of operations for the years ended December 31, 2018 and 2017 and for the periods from February 10, 2016 to December 31, 2017 (the “Successor Period”) and from January 1, 2016 to February 10, 2016 (the “Predecessor Period”). The Successor Period and the Predecessor Period referred to in the results of operations are two distinct reporting periods as a result of our emergence from bankruptcy on February 10, 2016. 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.

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. 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 on international markets. Additionally, for drilling units owned by others, we provide construction supervision services for rigs that are under construction, preservation management services for rigs that are stacked and operations and marketing services for operating rigs.

The following table sets forth certain information concerning our offshore drilling fleet as of February 28, 2019.

On December 3, 2015, we filed a reorganization plan in the United States Bankruptcy Court for the District of Delaware (In re Vantage Drilling International (F/K/A Offshore Group Investment Limited), et al., Case No. 15-12422). On January 15, 2016, the United States District Court for the District of Delaware confirmed the Company’s pre-packaged reorganization plan and we emerged from bankruptcy effective on the Effective Date.

Pursuant to the terms of the Reorganization Plan, the pre-bankruptcy term loans and senior notes were retired on the Effective Date by issuing to the debtholders 4,344,959 Units in the reorganized Company. Each Unit of securities originally consisted of one New Share and $172.61 of principal of the Convertible Notes, subject to adjustment upon the payment of PIK interest and certain cases of redemption or conversion of the Convertible Notes, as well as share splits, share dividends, consolidation or reclassification of the New Shares. The New Shares and the Convertible Notes are subject to the terms of an agreement that prohibits the New Shares and Convertible Notes from being traded separately.

The Convertible Notes are convertible into New Shares in certain circumstances, at a conversion price (subject to adjustment in accordance with the terms of the Indenture for the Convertible Notes), which was $95.60 as of the issue date. The Indenture for the Convertible Notes includes customary covenants that restrict, among other things, the granting of liens and customary events of default, including among other things, failure to issue securities upon conversion of the Convertible Notes. As of December 31, 2018, after taking into account the payment of PIK interest on the Convertible Notes to such date, each such Unit consisted of one New Share and $177.66 of principal of Convertible Notes.

Second Amended and Restated Credit Agreement. The Company’s pre-petition credit agreement was amended and restated to (i) replace the $32.0 million revolving letter of credit commitment under its pre-petition facility with a new $32.0 million revolving letter of credit facility and (ii) repay the $150.0 million of outstanding borrowings under its pre-petition facility with (a) $7.0 million of cash and (b) the issuance of $143.0 million initial term loans. In November 2018, all obligations under the 2016 Term Loan Facility were repaid and the 2016 Term Loan Facility and the Credit Agreement were terminated in connection with the issuance of the 9.25% First Lien Notes. See “Business—Recent Developments—Refinancing”.

10% Senior Secured Second Lien Notes. Holders of the Company’s pre-petition secured debt claims were eligible to participate in a rights offering conducted by the Company for $75.0 million of the 10% Second Lien Notes. In connection with this rights offering, certain creditors entered into a “backstop” agreement to purchase 10% Second Lien Notes if the offer was not fully subscribed. The premium paid to such creditors under the backstop agreement was approximately $2.2 million, paid $1.1 million in cash and $1.1 million in additional 10% Second Lien Notes, resulting in a total issued amount of $76.1 million of 10% Second Lien Notes, and in net cash proceeds of $73.9 million, after deducting the cash portion of the backstop premium. In November 2018, all of the 10% Second Lien Notes were redeemed in connection with the issuance of the 9.25% First Lien Notes. See “Business—Recent Developments—Refinancing”.

VDC Note. Effective as of the Company’s emergence from bankruptcy, VDC’s former equity interest in the Company was cancelled. Immediately following that event, the VDC Note was converted into 655,094 New Shares in accordance with the terms thereof, in satisfaction of the obligation thereunder, which, including accrued interest, totaled approximately $62.6 million as of such date.

The Reorganization Plan allowed the Company to maintain all operating assets and agreements. All trade payables, credits, wages and other related obligations were unimpaired by the Reorganization Plan.

Upon emergence from bankruptcy on the Effective Date, in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 852, Reorganizations (“ASC 852”), we adopted fresh-start accounting in accordance with ASC 852, which resulted in the Company becoming a new entity for financial reporting purposes. Upon adoption of fresh-start accounting, our assets and liabilities were recorded at their fair values as of the Effective Date. The Effective Date fair values of our assets and liabilities differed materially from the recorded values of our assets and liabilities as reflected in our historical consolidated balance sheets. The effects of the Reorganization Plan and the application of fresh-start accounting are reflected in our consolidated balance sheet as of December 31, 2016 and the related adjustments thereto were recorded in our consolidated statements of operations as reorganization items. As a result, our consolidated balance sheets and consolidated statements of operations subsequent to the Effective Date are not comparable to our consolidated balance sheets and statements of operations prior to the Effective Date. Our consolidated financial statements and related notes are presented with a black line division which delineates the lack of comparability between amounts presented on or after February 10, 2016 and dates prior. Our financial results for periods following the application of fresh-start accounting are different from historical trends and the differences may be material.

Expectations about future oil and natural gas prices have historically been a key driver of demand for our services. The International Energy Agency (the “Agency”), in their January 2019 Oil Market Report, forecasts global oil demand growth estimates of 1.4 million barrels per day for 2019, up from demand growth of 1.3 million barrels per day in 2018. Although oil prices partially rebounded from the historical lows experienced during early 2016, reaching highs near $80 per barrel in early October 2018, oil prices continue to fluctuate, ending 2018 near $50 per barrel and currently trading around $60 per barrel. As a result of this price volatility and uncertainty for the future, operators have generally adopted a cautious approach to offshore capital expenditures.

In addition to the reduction in demand for drilling rigs, the additional supply of newbuild rigs is further depressing the market. According to Bassoe Offshore A.S. (“Bassoe”), there are currently 71 jackups and 29 deepwater/harsh environment floaters on order at shipyards with scheduled deliveries extending out to June 2021. It is unclear when these drilling rigs will actually be delivered as many rig deliveries have already been deferred to later dates and some rig orders have been canceled. 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 taking them permanently out of service.

Furthermore, according to Bassoe, 216 rigs (with an average age of approximately 36 years) have been removed from the drilling fleet since the oil price decline in 2014. Of these 216 rigs, 118 are floaters (semisubmersibles and drillships) and 98 are jackups. While we believe rig recycling to be an important element in bringing the supply of drilling rigs back into alignment with demand, we do not anticipate that it will be sufficient to materially improve market conditions in 2019.

In response to both market conditions and excessive levels of idle capacity in recent years, there has been intense pressure on operating dayrates as drilling contractors generally prefer to maintain rigs in an active state and customers generally favor recently operating rigs over reactivated cold-stacked rigs. Therefore, while opportunities for our services have increased over the past year, increases in dayrates have been limited to the jackup sector and pricing improvements have yet to be observed in the floater sector.

The following table reflects a summary of our contract drilling backlog coverage of days contracted and related revenue as of December 31, 2018 forward (based on information available at that time).

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

	Successor									Predecessor
	Year Ended December 31,						Period from February 10, 2016 to December 31, 2016			Period from January 1, 2016 to February 10, 2016
	2018			2017			Period from February 10, 2016 to December 31, 2016			Period from January 1, 2016 to February 10, 2016
Jackups
Rigs available		5			5			4			4
Available days (1)		1,514			1,657			1,304			160
Utilization (2)		92.2	%		82.0	%		42.3	%		53.6	%
Average daily revenues (3)	$	61,452		$	62,556		$	88,450		$	88,347
Deepwater
Rigs available		3			3			3			3
Available days (1)		1,095			1,095			978			120
Utilization (2)		54.5	%		36.2	%		33.3	%		33.3	%
Average daily revenues (3)	$	197,284		$	265,887		$	263,043		$	332,715

Net loss for the year ended December 31, 2018 (the “Current Year”) was $141.5 million, or $28.29 per basic and diluted share, on operating revenues of $225.7 million, compared to net loss for the year ended December 31, 2017 (the “Comparable Year”) of $149.8 million, or $29.96 per basic and diluted share, on operating revenues of $212.8 million.

The following table is an analysis of our operating results for the year ended December 31, 2018 and 2017.

		Year Ended December 31,						Change
		2018			2017			$			%
(in thousands)
Revenues
	Contract drilling services	$	203,565		$	190,553		$	13,012			7	%
	Management fees		1,220			1,456			(236	)		-16	%
	Reimbursables		20,962			20,837			125			1	%
	Total revenues		225,747			212,846			12,901			6	%
Operating costs and expenses
	Operating costs		171,041			161,974			9,067			6	%
	General and administrative		29,544			41,648			(12,104	)		-29	%
	Depreciation		70,447			73,925			(3,478	)		-5	%
	Total operating costs and expenses		271,032			277,547			(6,515	)		-2	%
Loss from operations			(45,285	)		(64,701	)		19,416			-30	%
Other income (expense)
	Interest income		1,898			808			1,090			135	%
	Interest expense and financing charges		(78,779	)		(76,441	)		(2,338	)		3	%
	Loss on debt extinguishment		(1,271	)		-			(1,271	)		100	%
	Other, net		(1,505	)		2,807			(4,312	)		-154	%
	Bargain purchase gain		-			1,910			(1,910	)		-100	%
	Total other expense		(79,657	)		(70,916	)		(8,741	)		12	%
Loss before income taxes			(124,942	)		(135,617	)		10,675			-8	%
Income tax provision			16,526			14,168			2,358			17	%
Net loss		$	(141,468	)	$	(149,785	)	$	8,317			-6	%

Revenue: Total revenue increased 6% and contract drilling revenue increased 7% for the Current Year as compared to the Comparable Year. The increase in contract drilling revenue in the Current Year was primarily due to the commencement of operations on the Platinum Explorer, which contributed an incremental $28.7 million contract drilling revenue in the Current Year. Higher utilization on the Jackups contributed incremental drilling revenues of $0.8 million in the Current Year, with 37 more revenue earning days than the Comparable Year. These increases were partially offset by lower utilization on the Tungsten Explorer with the completion of operations in West Africa in October 2018, which resulted in $16.5 million decreased drilling revenue in the Current Year. The Tungsten Explorer is currently undergoing certain equipment recertifications and upgrades in the Canary Islands.

Management fees and reimbursable revenue for the Current Year were $1.2 million and $21.0 million, respectively, as compared to $1.5 million and $20.8 million, respectively, in the Comparable Year.

Operating costs: Operating costs for the Current Year increased 6% as compared to the Comparable Year. Deepwater operating costs for the Current Year increased $15.0 million due primarily to incremental costs for the Platinum Explorer operations in India which commenced in November 2017. Operating costs on our jackup fleet for the Current Year decreased $5.8 million as compared to the Comparable Year, which included costs associated with the reactivation of the Topaz Driller and the Sapphire Driller. Jackup operating cost decreases in the Current Year included a gain on disposal of the Vantage 260 in the amount of $2.9 million. Jackup operating costs in the Current Year and Comparable Year included $6.3 million and $4.7 million, respectively, for non-cash amortization of the contract value acquired with the Vantage 260.

General and administrative expenses: Decreases in general and administrative expenses for the Current Year as compared to the Comparable Year were primarily due to a $10.8 million decrease in legal expenses associated with non-routine legal matters, including our internal FCPA investigation and the Petrobras arbitration. General and administrative expenses for the Current Year and for the Comparable Year included approximately $5.2 million and $2.9 million, respectively, of non-cash share-based compensation expense.

Depreciation expense: Depreciation expense for the Current Year decreased 5% as compared to the Comparable Year, due primarily to drill pipe assets becoming fully depreciated.

Interest income: Interest income for the Current Year increased $1.1 million as compared to the Comparable Year due to higher interest rates and to increased cash available for investing.

Interest expense and financing charges: Interest expense for the Current Year increased 3% as compared to the Comparable Year due to rising interest rates and to increased payment-in-kind interest compounding on the Convertible Notes. Interest expense included non-cash discount accretion, payment-in-kind interest and deferred financing costs totaling approximately $57.6 million and $57.0 million for the Current Year and for the Comparable Year, respectively.

Loss on debt extinguishment: In November 2018, we paid approximately $0.3 million in prepayment interest penalties and wrote off approximately $1.0 million in deferred financing costs in connection with the early redemption of all outstanding 10% Second Lien Notes.

Other, net: Our functional currency is the U.S. dollar; however, a portion of the revenues earned and expenses incurred by certain of our subsidiaries are denominated in currencies other than the U.S. dollar. These transactions are remeasured in U.S. dollars based on a combination of both current and historical exchange rates. A net foreign currency exchange loss of $1.5 million and a net foreign currency exchange gain of $2.8 million were included in other, net, for the Current Year and the Comparable Year, respectively.

Bargain purchase gain: We recorded a bargain purchase gain of $1.9 million during the Comparable Year related to our Vantage 260 acquisition. The gain on bargain purchase resulted from the excess of the net fair value of the assets acquired and liabilities assumed in the acquisition over the purchase price. We believe that we were able to negotiate a lower purchase price as a result of our operational presence in West Africa and the seller’s liquidation.

Income tax provision: For the Current Year and the Comparable Year, we had losses before income taxes resulting in negative tax rates. Our income taxes are generally dependent upon the results of our operations and the local income taxes in the jurisdictions in which we operate. The increase in taxes in the Current Year is primarily due to increases in taxable income due to operational status of some of the rigs in 2018. In some jurisdictions we do not pay taxes or receive benefits for certain income and expense items, including interest expense, loss on extinguishment of debt and gains or losses on disposal or transfer or assets.

Net loss for the year ended December 31, 2017 was $149.8 million, or $29.96 per basic and diluted share, on operating revenues of $212.8 million. Net loss for the Successor Period was $147.4 million, or $29.48 per basic and diluted share, on operating revenues of $158.6 million. Net loss attributable to VDI for the Predecessor Period was $471.0 million, on operating revenues of $23.5 million.

The following table is an analysis of our operating results for the Comparable Year, the Successor Period and the Predecessor Period.

		Successor						Predecessor
		Year Ended December 31, 2017			Period from February 10, 2016 to December 31, 2016			Period from January 1, 2016 to February 10, 2016
(in thousands)
Revenues
	Contract drilling services	$	190,553		$	134,370		$	20,891
	Management fees		1,456			4,074			752
	Reimbursables		20,837			20,204			1,897
	Total revenues		212,846			158,648			23,540
Operating costs and expenses
	Operating costs		161,974			123,069			25,213
	General and administrative		41,648			36,922			2,558
	Depreciation		73,925			67,920			10,696
	Total operating costs and expenses		277,547			227,911			38,467
Loss from operations			(64,701	)		(69,263	)		(14,927	)
Other income (expense)
	Interest income		808			18			3
	Interest expense and financing charges		(76,441	)		(67,023	)		(1,728	)
	Other, net		2,807			1,179			(69	)
	Reorganization items		-			(1,380	)		(452,919	)
	Bargain purchase gain		1,910			-			-
	Total other expense		(70,916	)		(67,206	)		(454,713	)
Loss before income taxes			(135,617	)		(136,469	)		(469,640	)
Income tax provision			14,168			10,948			2,371
Net loss			(149,785	)		(147,417	)		(472,011	)
Net loss attributable to noncontrolling interests			-			-			(969	)
Net loss attributable to VDI		$	(149,785	)	$	(147,417	)	$	(471,042	)

Revenue: : During the Comparable Year jackup utilization averaged 82% with both the Emerald Driller and the Aquamarine Driller working throughout while the remaining three jackups working a combined additional 633 days, which generated a combined average daily revenue of $62,556 across the jackup fleet. During the Successor Period, the Aquamarine Driller worked throughout, the Topaz Driller completed its contract in early July 2016, and the Sapphire Driller worked approximately 31 days on a short-term contract in West Africa. Additionally, the Emerald Driller commenced a contract in Qatar in November 2016, working approximately 56 days during the Successor Period. These rigs generated average daily revenue of approximately $88,450 per day for the Successor Period. In the Predecessor Period, we had two jackups working at an average daily revenue of approximately $88,347 per day as the Sapphire Driller completed its contract in November 2015 and did not work during the Predecessor Period and the Emerald Driller completed its contract in early January 2016.

Deepwater utilization for the Comparable Year averaged 36% with the Tungsten Explorer working throughout and the Platinum Explorer commencing its contract in India in late November 2017. Deepwater utilization for both the Successor Period and the Predecessor Period averaged 33% as only the Tungsten Explorer worked throughout these periods. Neither of our other two ultra-deepwater drillships worked during the Successor Period and Predecessor Period as the Platinum Explorer completed its initial 5-year contract during the fourth quarter of 2015 and the Titanium Explorer drilling contract was cancelled by the operator in August 2015. Our ultra-deepwater drillships generated average daily revenue of $265,887 per day, $263,043 per day and $332,715 per day for the Comparable Year, the Successor Period and the Predecessor Period, respectively.

Average daily revenues have declined for both jackups and drillships since 2015 because drilling contractors have reduced dayrates in an effort to keep rigs working in a market where the supply of drilling rigs continues to exceed demand for the rigs. At the end of 2017 all of our jackups and two of our drillships were contracted whereas only one drillship and two jackup rigs were operating at the end of 2016.

Management fees for the Comparable Year and the Successor Period averaged approximately $4,000 per day and $12,500 per day, respectively. During the Predecessor Period management fees averaged approximately $18,800 per day. Per day management fees have decreased as we completed the pre-delivery construction phase of a management contract to supervise and manage the construction of two ultra-deepwater drillships for a third party. Reimbursable revenue for the Comparable Year and the Successor Period was $20.8 million and $20.2 million, respectively. Reimbursable revenue for the Predecessor Period was $1.9 million. Reimbursable revenue is dependent on rig utilization and the project status of our construction management contracts.

Operating costs: Operating costs for the Comparable Year were approximately $161.7 million including $12.2 million of reimbursable costs, or an average daily cost of approximately $54,300 per available day excluding reimbursables. Operating costs for the Successor Period were approximately $123.0 million including $15.9 million of reimbursable costs, or an average daily cost of approximately $47,000 per available day excluding reimbursables. The increase in per day costs in the Comparable Year is primarily a result of increased operations together with costs associated with the reactivation of the Platinum Explorer, the Topaz Driller and the Sapphire Driller during 2017. For the Predecessor Period, operating costs were approximately $25.2 million, including approximately $1.4 million of reimbursable costs, or an average of approximately $85,200 per available day excluding reimbursables.

General and administrative expenses: General and administrative expenses for the Comparable Year and the Successor Period were $41.6 million and $36.9 million, respectively, including approximately $18.9 million and $12.2 million, respectively in expenses associated with our internal FCPA investigation, the Petrobras arbitration and non-routine legal matters. Similar charges incurred in the Predecessor Period totaled $531,000 with total general and administrative charges of approximately $2.6 million. General and administrative expenses for the Successor Period also included accrued severance costs of $5.7 million in connection with the resignations of former executives. Additionally, general and administrative expenses for the Comparable Year and for the Successor Period include approximately $4.0 million and $0.4 million of non-cash share-based compensation expense, respectively. There was no share-based compensation expense in the Predecessor Period.

Depreciation expense: For the Predecessor Period, depreciation expense was based on the historical cost basis of our property and equipment. Upon our emergence from bankruptcy, we applied the provisions of fresh-start accounting and revalued our property and equipment to fair value which resulted in a significant decrease in those historical values. Depreciation expense for the Comparable Year and for the Successor Period is based on the reduced asset values of property and equipment resulting from the adoption of fresh-start accounting.

Interest expense and other financing charges: Interest expense for the Comparable Year and for the Successor Period is calculated on the debt that was issued in connection with our emergence from bankruptcy in February 2016. Interest expense for the Predecessor Period was calculated on the debt under our prior credit agreement as provided for in the Reorganization Plan and on the debt under the VDC Note issued in connection with the Reorganization Plan. Interest expense for the Comparable Year and for the Successor Period includes approximately $57.0 million and $50.3 million, respectively, of non-cash payment in kind interest and amortization of debt discount and deferred financing costs.

Reorganization items: In the Predecessor Period, we incurred $22.7 million of post-petition professional fees associated with the bankruptcy cases. Additionally, we incurred non-cash charges of $2.06 billion in fresh-start accounting adjustments, offset by a $1.63 billion non-cash gain on settlement of LSTC. During the Successor Period we incurred $1.4 million in professional fee expenses in connection with our bankruptcy cases. No reorganization related expenses were incurred in the Comparable Year.

Bargain purchase gain: We recorded a bargain purchase gain of $1.9 million during the Comparable Year related to our Vantage 260 acquisition. The gain on bargain purchase resulted from the excess of the net fair value of the assets acquired and liabilities assumed in the acquisition over the purchase price. We believe that we were able to negotiate a bargain purchase price as a result of our operational presence in West Africa and the seller’s liquidation.

Income tax expense: For the Comparable Year, the Successor Period and the Predecessor Period, we had losses before income taxes resulting in negative tax rates. Our income taxes are generally dependent upon the results of our operations and the local income taxes in the jurisdictions in which we operate. Increase in taxes in the Comparable Year is primarily due to increases in income before tax due to operational status of some of the rigs in 2017 and impact of the corporate tax rate decrease on the deferred tax assets we have in relation to the U.S. activity. In some jurisdictions we do not pay taxes or receive benefits for certain income and expense items, including interest expense, loss on extinguishment of debt and reorganization expenses.

As of December 31, 2018, we had working capital of approximately $263.9 million, including approximately $225.0 million of cash available for general corporate purposes. Scheduled principal debt maturities and interest payments through December 31, 2019 are approximately $31.1 million. We anticipate capital expenditures through December 31, 2019 to be between approximately $11.2 million and approximately $13.7 million, including expenditures for an MPD system, in order to increase the marketability of our drillships, and for sustaining capital and capital spares. As our rigs obtain new contracts, we could incur reactivation and mobilization costs for these rigs, as well as customer requested equipment upgrades. These costs could be significant and may not be fully recoverable from the customer. Additionally, through December 31, 2019, we anticipate incremental expenditures for special periodic surveys, major repair and maintenance expenditures and equipment recertifications to be between approximately $14.7 million and

approximately $18.0 million. As of December 31, 2018, we had $36.3 million available for the issuance of letters of credit under our cash collateralized letter of credit facility.

The Tungsten Explorer’s most recently concluded drilling contract, which ended in October 2018, accounted for the highest dayrate of any of our other drillships’ drilling contracts for the current year. The Tungsten Explorer is currently completing certain equipment recertifications and upgrades and is scheduled to work offshore of Egypt under a drilling services contract with a term for one well and options to add up to three additional wells. Given current market conditions, the dayrate associated with this contract is lower than the rate associated with the previous drilling contract and it is unlikely that we will be able to secure additional drilling contracts at rates comparable to the previous rate in the near-term.

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

Changes in cash flows from operating activities are driven by changes in net income (see discussion of changes in net income in “Results of Operations” above) during the periods.

Cash flows from investing activities in the Current Year are primarily a net result of $85.0 million for the acquisition of the Soehanah and $12.0 million on an MPD system for our drillships, partially offset by a net cash inflow of $4.7 million from the sale of the Vantage 260. Cash used for the acquisition of the Vantage 260 and related drilling contract totaled $13.0 million in the Comparable Year. Cash used for capital expenditures of approximately $12.0 million in the Successor Period related primarily to final installment payments on capital spares for our drilling fleet.

In the Current Year we received financing proceeds of $342.3 million, net of debt issuance costs of $7.7 million, from the issuance of the 9.25% First Lien Notes. Proceeds from the issuance were used to repay all obligations under the 2016 Term Loan Facility and to redeem all outstanding 10% Second Lien Notes. Cash flows from financing activities in the Current Year also included an additional payment of $5.1 million made on the 2016 Term Loan Facility, which was required in conjunction with the sale of the Vantage 260. In the Comparable Year and the Successor Period, we made scheduled maturity payments on post-bankruptcy debt totaling $1.4 million. In the Predecessor Period we received proceeds of $73.9 million, net of debt issuance costs of $2.3 million, from the issuance of the 10% Second Lien Notes. Additionally, we made a $7.0 million payment on our pre-petition credit agreement during the Predecessor Period.

The significant elements of our post-petition debt and 9.25% First Lien Notes are described in “Note 6. Debt” to our consolidated financial statements included elsewhere in this report.

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

In the table below, we set forth our contractual obligations as of December 31, 2018. 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 may actually pay in future periods may vary from those reflected in the table because the estimates and assumptions are subjective.

(3) Amounts represent lease payments under existing operating leases, net of associated sublease proceeds. 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.

On November 30, 2018, we issued $350.0 million in aggregate principal amount of 9.25% First Lien Notes in a private placement at par. The proceeds of the issuance were used (i) to repay all obligations under the 2016 Term Loan Facility and to terminate the Credit Agreement, (ii) to redeem all outstanding 10% Second Lien Notes, (iii) to fund the remaining amounts to be paid in connection with the Rig Purchase, (iv) to pay fees and expenses related to the foregoing and to the offering of the 9.25% First Lien Notes and (v) for general corporate purposes. The 9.25% First Lien Notes are guaranteed on a joint and several basis by the Company’s direct and indirect subsidiaries and are secured by a first priority lien on substantially all of the assets of the Company and its subsidiaries, in each case subject to certain exceptions. The 9.25% First Lien Notes will not be registered under the Securities Act or any state securities laws.

Concurrently with the issuance of the 9.25% First Lien Notes, we entered into a new letter of credit facility to replace the letter of credit facility existing under the 2016 Term Loan Facility. The new facility has a capacity of $50.0 million, with all outstanding letters of credit being cash collateralized. As of December 31, 2018, we had $36.3 million available for the issuance of letters of credit under this cash collateralized letter of credit facility.

We are subject to litigation, claims and disputes in the ordinary course of business, some of which may not be covered by insurance. Information regarding our legal proceedings is set forth in “Note 9. Commitments and Contingencies” to our consolidated financial statements included elsewhere in this report. 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.

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.

Fresh-start Accounting: Effective as of our bankruptcy filing on December 3, 2015, we were subject to the requirements of ASC 852. All expenses, realized gains and losses and provisions for losses directly associated with the bankruptcy proceedings were classified as “reorganization items” in the consolidated statements of operations. Certain pre-petition liabilities subject to Chapter 11 proceedings were considered LSTC on the Petition Date and just prior to our emergence from bankruptcy on the Effective Date. The LSTC classification distinguished such liabilities from the liabilities that were not expected to be compromised and liabilities incurred post-petition.

Upon emergence from bankruptcy, we adopted fresh-start accounting, which resulted in the Company becoming a new entity for financial reporting purposes. Upon adoption of fresh-start accounting, our assets and liabilities were recorded at their fair values as of the Effective Date. The Effective Date fair values of our assets and liabilities differed materially from the recorded values of our assets and liabilities as reflected in our historical consolidated balance sheets. The effects of the Reorganization Plan and the application of fresh-start accounting are reflected in our consolidated balance sheet as of December 31, 2016 and the related adjustments thereto were recorded in our consolidated statement of operations as reorganization items for the period January 1, 2016 to February 10, 2016.

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. Drilling rigs are depreciated on a component basis over estimated useful lives on a straight-line basis as of the date placed in service. Other assets are depreciated upon placement in service over estimated useful lives on a straight-line basis.

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 or persistent depressed levels of oil and natural gas prices, worldwide rig counts and utilization, reduced access to credit markets, reduced or depressed sale prices of comparably equipped jackups and drillships and any other significant adverse economic news could require us to evaluate

the realization of our drilling rigs. In connection with our adoption of fresh-start accounting upon our emergence from bankruptcy on February 10, 2016, an adjustment of $2.0 billion was recorded to decrease the net book value of our drilling rigs to estimated fair value. As of December 31, 2018, no triggering event has occurred to indicate that the current carrying value of our drilling rigs may not be recoverable.

Revenue: The activities that primarily drive the revenue earned in our drilling contracts with customers include (i) providing our drilling rig, work crews, related equipment and services necessary to operate the rig, (ii) delivering the drilling rig by mobilizing to and demobilizing from the drill site, and (iii) performing pre-operating activities, including rig preparation activities and/or equipment modifications required for the contract.

The integrated drilling services that we perform under each drilling contract represents a single performance obligation satisfied over time and is comprised of a series of distinct time increments (or service periods).

Dayrate Drilling Revenue. Our drilling contracts generally provide for payment on a dayrate basis, with higher rates for periods when the drilling unit is operating and lower rates or zero rates for periods when drilling operations are interrupted or restricted. The dayrate billed to the customer is determined based on varying rates applicable to the specific activities performed on an hourly basis. Such dayrate consideration is allocated to the distinct hourly increment it relates to within the contract term and therefore, recognized as we perform the daily drilling services.

Mobilization/Demobilization Revenue. In connection with certain contracts, we receive lump-sum fees or similar compensation for the mobilization of equipment and personnel prior to the commencement of drilling services or the demobilization of equipment and personnel upon contract completion. These activities are not considered to be distinct within the context of the contract and therefore, the associated revenue is allocated to the overall single performance obligation. Mobilization fees received prior to commencement of drilling operations are recorded as a contract liability and amortized on a straight‑line basis over the initial contract period. Demobilization fees expected to be received upon contract completion are estimated at contract inception and recognized on a straight-line basis over the initial contract term with an offset to an accretive contract asset. In many contracts, demobilization fees are contingent upon the occurrence or non-occurrence of a future event and the estimate for such revenue may therefore be constrained. Fees received for the mobilization or demobilization of equipment and personnel are included in contract drilling revenues.

Capital Upgrade/Contract Preparation Revenue. In connection with certain contracts, we receive lump-sum fees or similar compensation for requested capital upgrades to our drilling rigs or for other contract preparation work. These activities are not considered to be distinct within the context of the contract and therefore, fees received are recorded as a contract liability and amortized to contract drilling revenues on a straight-line basis over the initial contract term.

Revenues Related to Reimbursable Expenses. We generally receive reimbursements from our customers for the purchase of supplies, equipment, personnel services and other services provided at their request in accordance with a drilling contract or other agreement. We are generally considered a principal in such transactions and therefore, recognize reimbursable revenues and the corresponding costs as we provide the customer‑requested goods and services.

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.

Intangible assets: In connection with our acquisition of the Vantage 260 and related multi-year drilling contract, the Company recorded an identifiable intangible asset of $12.6 million for the fair value of the acquired favorable drilling contract. The fair value of the contract was calculated using estimates of future performance under the contract, including operating efficiency, operating expenditures and income taxes. The resulting intangible asset is being amortized on a straight-line basis over the remaining two-year term of the drilling contract.

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 basis and tax basis of assets and liabilities that will result in future taxable or tax 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. We do not establish deferred tax liabilities for certain of our foreign earnings that we intend to indefinitely reinvest to finance foreign activities. 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.

Change in accounting for lease arrangements (Adoption of ASC Topic 842). We adopted ASC Topic 842: Leases, as amended, on January 1, 2019 electing to apply the standard prospectively and not restating comparative periods. This transition method allows for the initial recognition of a cumulative catch-up adjustment to the opening balance of retained earnings in the year of adoption; however, based on our analysis of current lease arrangements, we do not expect an adjustment to be required. The standard requires an entity to recognize right-of-use assets and lease liabilities on the balance sheet for all leases with a term longer than 12 months, and to disclose key information about leasing arrangements.

classification and initial direct costs. The new standard also provides practical expedients for an entity’s ongoing accounting. We expect to elect the short-term lease recognition exemption for all leases that qualify. We also expect to elect the practical expedient to not separate lease and non-lease components for all of our leases.

Our drilling contracts contain a lease component related to the underlying drilling equipment, in addition to the service component provided by our crews and our expertise to operate such drilling equipment. We have concluded that the non-lease service component of our drilling contracts is the predominant element of the combined component and will account for the combined components as a single performance obligation under Topic 606, Revenue from Contracts with Customers. The bareboat charter contract on the recently acquired Soehanah jackup rig is considered a new lease as of the acquisition date and will be accounted for as an operating lease under the new standard.

Based on the lease arrangements under which we are the lessee as of December 31, 2018, we expect to recognize an aggregate lease liability and a corresponding right‑of‑use asset of between $9.0 million and $10.0 million based on our currently identified lease portfolio. We will continue to refine this estimate.

Recent Accounting Standards: See “Note 2. Basis of Presentation and Significant Accounting Policies” to our consolidated financial statements included elsewhere in this report.

Our rigs operate in various international locations and thus are sometimes subject to foreign exchange risk. We may from time to time also be exposed to certain commodity price risk, equity price risk and risks related to other market driven rates or prices. We do not enter into derivatives or other financial instruments for trading or speculative purposes. The significant decline in worldwide exploration and production spending as a result of reduced oil prices since 2014 has negatively impacted the offshore contract drilling business as discussed in “Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Interest Rate Risk: As of December 31, 2018, we had no variable rate debt outstanding.

Foreign Currency Exchange Rate Risk. Our functional currency is the U.S. Dollar, which is consistent with the oil and gas industry. However, outside the United States, a portion of our expenses are incurred in local currencies. Therefore, when the U.S. Dollar weakens (strengthens) in relation to the currencies of the countries in which we operate, our expenses reported in U.S. Dollars will increase (decrease). A substantial majority of our revenues are received in U.S. dollars, our functional currency; however, in certain countries in which we operate, local laws or contracts may require us to receive some payment in the local currency. We are exposed to foreign currency exchange risk to the extent the amount of our monetary assets denominated in the foreign currency differs from our obligations in that foreign currency. In order to mitigate the effect of exchange rate risk, we attempt to limit foreign currency holdings to the extent they are needed to pay liabilities in the local currency. To further manage our exposure to fluctuations in currency exchange rates, foreign exchange derivative instruments, specifically foreign exchange forward contracts, or spot purchases, may be used. A foreign exchange forward contract obligates us to exchange predetermined amounts of specified foreign currencies at specified exchange rates on specified dates or to make an equivalent 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, 2018, we did not have any open foreign exchange derivative contracts or material foreign currency exposure risk.

We have audited the accompanying consolidated balance sheets of Vantage Drilling International (the “Company”) and subsidiaries as of December 31, 2018 and 2017, the related consolidated statements of operations, shareholders’ equity and cash flows for the years ended December 31, 2018 and 2017, for the periods from February 10, 2016 to December 31, 2016 (Successor) and from January 1, 2016 to February 10, 2016 (Predecessor) and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company and subsidiaries at December 31, 2018 and 2017 and the results of their operations and their cash flows for the years ended December 31, 2018 and 2017 and for the period from February 10, 2016 to December 31, 2016 (Successor) and from January 1, 2016 to February 10, 2016 (Predecessor), in conformity with accounting principles generally accepted in the United States of America.

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

As discussed in Note 2 to the consolidated financial statements, upon emerging from bankruptcy proceedings on February 10, 2016, the Company became a new entity for financial reporting purposes and applied fresh-start accounting. The Company’s assets and liabilities were recorded at their fair values, which differed materially from the previously recorded values. As a result, the consolidated financial statements for periods following the application of fresh-start accounting are not comparable to the financial statements for previous periods.

	December 31, 2018			December 31, 2017
ASSETS
Current assets
Cash and cash equivalents	$	224,967		$	195,455
Restricted cash		10,362			-
Trade receivables		28,431			45,379
Inventory		45,195			43,955
Prepaid expenses and other current assets		17,278			13,207
Total current assets		326,233			297,996
Property and equipment
Property and equipment		996,139			904,584
Accumulated depreciation		(208,836	)		(141,393	)
Property and equipment, net		787,303			763,191
Other assets		16,026			21,935
Total assets	$	1,129,562		$	1,083,122

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable	$	44,372		$	39,666
Accrued liabilities		17,983			25,117
Current maturities of long-term debt		—			4,430
Total current liabilities		62,355			69,213
Long–term debt, net of discount and financing costs of $12,914 and $56,174		1,109,011			919,939
Other long-term liabilities		22,889			17,195
Commitments and contingencies (Note 9)
Shareholders' equity
Ordinary shares, $0.001 par value, 50 million shares authorized; 5,000,053 shares issued and outstanding		5			5
Additional paid-in capital		373,972			373,972
Accumulated deficit		(438,670	)		(297,202	)
Total shareholders' equity		(64,693	)		76,775
Total liabilities and shareholders’ equity	$	1,129,562		$	1,083,122

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

	Successor									Predecessor
	Year Ended December 31,						Period from February 10, 2016 to December 31, 2016			Period from January 1, 2016 to February 10, 2016
	2018			2017			Period from February 10, 2016 to December 31, 2016			Period from January 1, 2016 to February 10, 2016
Revenue
Contract drilling services	$	203,565		$	190,553		$	134,370		$	20,891
Management fees		1,220			1,456			4,074			752
Reimbursables		20,962			20,837			20,204			1,897
Total revenue		225,747			212,846			158,648			23,540
Operating costs and expenses
Operating costs		171,041			161,974			123,069			25,213
General and administrative		29,544			41,648			36,922			2,558
Depreciation		70,447			73,925			67,920			10,696
Total operating costs and expenses		271,032			277,547			227,911			38,467
Loss from operations		(45,285	)		(64,701	)		(69,263	)		(14,927	)
Other income (expense)
Interest income		1,898			808			18			3
Interest expense and other financing charges		(78,779	)		(76,441	)		(67,023	)		(1,728	)
Loss on debt extinguishment		(1,271	)		—			—			—
Other, net		(1,505	)		2,807			1,179			(69	)
Reorganization items		—			—			(1,380	)		(452,919	)
Bargain purchase gain		—			1,910			—			—
Total other expense		(79,657	)		(70,916	)		(67,206	)		(454,713	)
Loss before income taxes		(124,942	)		(135,617	)		(136,469	)		(469,640	)
Income tax provision		16,526			14,168			10,948			2,371
Net loss		(141,468	)		(149,785	)		(147,417	)		(472,011	)
Net loss attributable to noncontrolling interests		—			—			—			(969	)
Net loss attributable to VDI	$	(141,468	)	$	(149,785	)	$	(147,417	)	$	(471,042	)
Net loss per share, basic and diluted	$	(28.29	)	$	(29.96	)	$	(29.48	)	N/A
Weighted average successor ordinary shares outstanding, basic and diluted		5,000			5,000			5,000		N/A

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

	Ordinary Shares
	Shares			Amount		Additional Paid-in Capital			Accumulated Deficit			Non-Controlling Interests			Total Equity
Predecessor balance December 31, 2015		1			—		595,119			(138,363	)		15,255			472,011
Net loss (period January 1, 2016 through February 10, 2016)		—			—		—			(471,042	)		(969	)		(472,011	)
Acquisition of non-controlling interest		—			—		—			14,286			(14,286	)		—
Cancellation of Predecessor company equity		(1	)		—		(595,119	)		595,119			—			-
Predecessor balance February 10, 2016		—			—		—			—			—			—


Successor balance February 10, 2016		—			—		—			—			—			—
Issuance of Successor company equity		4,345			4		311,346			—			—			311,350
Issuance of shares in settlement of VDC Note		655			1		62,626			—			—			62,627
Net loss (period February 10, 2016 through December 31, 2016)		—			—		—			(147,417	)		—			(147,417	)
Successor balance December 31, 2016		5,000		$	5	$	373,972		$	(147,417	)	$	—		$	226,560
Net loss		—			—		—			(149,785	)		—			(149,785	)
Successor balance December 31, 2017		5,000		$	5	$	373,972		$	(297,202	)	$	—		$	76,775
Net loss		—			—		—			(141,468	)		—			(141,468	)
Successor balance December 31, 2018		5,000		$	5	$	373,972		$	(438,670	)	$	—		$	(64,693	)

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


	Successor									Predecessor
	Year Ended December 31,						Period from February 10, 2016 to December 31, 2016			Period from January 1, 2016 to February 10, 2016
	2018			2017			Period from February 10, 2016 to December 31, 2016			Period from January 1, 2016 to February 10, 2016
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(141,468	)	$	(149,785	)	$	(147,417	)	$	(472,011	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation expense		70,447			73,925			67,920			10,696
Amortization of debt financing costs		556			468			427			—
Amortization of debt discount		49,417			48,925			43,208			—
Amortization of contract value		6,311			4,686			—			—
PIK interest on the Convertible Notes		7,648			7,604			6,712			—
Reorganization items		—			—			—			430,210
Share-based compensation expense		7,165			3,997			402			—
Gain on bargain purchase		—			(1,910	)		—			—
Non-cash loss on debt extinguishment		975			—			—			—
Deferred income tax benefit		1,742			(1,964	)		(3,368	)		—
(Gain) loss on disposal of assets		(1,301	)		335			652			—
Changes in operating assets and liabilities:
Trade receivables		16,948			(24,529	)		53,447			(3,575	)
Inventory		1,911			1,251			(964	)		223
Prepaid expenses and other current assets		(6,121	)		1,267			2,790			6,893
Other assets		2,339			2,638			(3,409	)		941
Accounts payable		4,706			4,383			736			(14,890	)
Accrued liabilities and other long-term liabilities		(8,481	)		8,836			(26,010	)		21,148
Net cash provided by (used in) operating activities		12,794			(19,873	)		(4,874	)		(20,365	)
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment		(14,316	)		(2,224	)		(11,964	)		116
Cash paid for Soehanah acquisition		(85,000	)		—			—			—
Cash paid for Vantage 260 acquisition		—			(13,000	)		—			—
Net proceeds from sale of Vantage 260		4,703			255			—			—
Net cash provided by (used in) investing activities		(94,613	)		(14,969	)		(11,964	)		116
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of long-term debt		(216,265	)		(1,430	)		(1,430	)		(7,000	)
Proceeds from issuance of 9.25% First Lien Notes		350,000			—			—			—
Proceeds from issuance of 10% Second Lien Notes		—			—			—			75,000
Debt issuance costs		(7,688	)		—			(51	)		(1,125	)
Debt prepayment costs		(296	)		—			—			—
Net cash provided by (used in) financing activities		125,751			(1,430	)		(1,481	)		66,875
Net increase (decrease) in cash and cash equivalents		43,932			(36,272	)		(18,319	)		46,626
Unrestricted and restricted cash and cash equivalents—beginning of period		195,455			231,727			250,046			203,420
Unrestricted and restricted cash and cash equivalents—end of period	$	239,387		$	195,455		$	231,727		$	250,046
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for:
Interest	$	22,538		$	15,596		$	16,704		$	1,568
Income taxes (net of refunds)		14,859			17,679			16,659			(1,864	)
Non-cash investing and financing transactions:
Payment of interest in kind on the Convertible Notes	$	7,647		$	7,604		$	6,691		$	—
Additional notes issued for backstop premium		—			—			—			1,125
Trade-in value on equipment upgrades		570			—			—			—

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

Vantage Drilling International (the “Company” or “VDI”), a Cayman Islands exempted company, is 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. 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 on international markets. Additionally, for drilling units owned by others, we provide construction supervision services for rigs that are under construction, preservation management services for rigs that are stacked and operations and marketing services for operating rigs.

On June 13, 2018, we entered into a share purchase agreement with Ship Finance International Limited to acquire the shares of Rig Finance Limited, an entity that owns the Soehanah jackup rig, a Baker Marine Pacific Class 375 jackup rig, and related bareboat charter to which Rig Finance Limited is a party, for $84.6 million, subject to certain adjustments for working capital and liabilities of the entity not discharged by the acquisition date (the “Rig Purchase”). We made a down payment of $15.0 million in connection with the execution of the share purchase agreement, and the remaining $69.6 million was paid at closing on December 31, 2018. Pursuant to the bareboat charter currently in place with respect to the rig, the entity to which the rig is chartered has the right to acquire the rig at the end of the term of the bareboat charter for $100.0 million (or more depending on the rig’s valuation).

On August 31, 2015, Petrobras America, Inc. (“PAI”) and Petrobras Venezuela Investments & Services, BV (“PVIS”), both subsidiaries of Petroleo Brasileiro S.A. (“Petrobras”), notified the Company of the termination of the Agreement for the Provision of Drilling Services for the Titanium Explorer dated February 4, 2009 (the “Drilling Contract”) between PVIS and Vantage Deepwater Company and which had been novated to PAI and Vantage Deepwater Drilling, Inc., claiming the Company had breached its obligations under the Drilling Contract. Vantage Deepwater Company and Vantage Deepwater Drilling, Inc. are both wholly-owned subsidiaries of the Company. We immediately filed an international arbitration claim against PAI, PVIS and Petrobras, claiming wrongful termination of the Drilling Contract.

On July 2, 2018, an international arbitration tribunal issued an award in favor of Vantage Deepwater Company and Vantage Deepwater Drilling, Inc. The tribunal found that PAI and PVIS breached the Drilling Contract, and awarded Vantage Deepwater Company and Vantage Deepwater Drilling, Inc. damages in the aggregate amount of $622.0 million against PAI, PVIS and Petrobras, and dismissed the counterclaims made by the Petrobras parties against the Company with prejudice. The tribunal also awarded the Company interest on the foregoing award amount at an annual rate of 15.2%, compounded monthly, to accrue from (i) April 1, 2018, with respect to $615.6 million thereof, (ii) October 20, 2015, with respect to $5.2 million thereof, and (iii) November 19, 2015, with respect to $1.2 million thereof, in each case, until final payment of the awarded sums. In accordance with the terms of the award, each of the Company and Petrobras will bear its own legal fees, and the fees and expenses of the tribunal, including the compensation of the arbitrators, aggregating approximately $1.5 million, will be borne equally by both sides. Pursuant to the terms of the award, the amount due to the Company as of December 31, 2018, totaled approximately $701.4 million, inclusive of interest.

The Company’s ability to fully recover the award against the Petrobras parties is subject to legal, procedural, solvency and other risks associated with enforcing arbitration awards in these circumstances. In addition, any award ultimately recovered will be subject to reduction in respect of legal fees owed (including, among others, fees contingent on the size of the award, less amounts previously paid) and any applicable taxes. Accordingly, no assurances can be given as to whether or to what extent such award will ultimately be recovered, if at all.

On April 27, 2018, the Company was added as an additional defendant in a legal proceeding initiated by the Brazilian federal public prosecutor’s office in the State of Parana, Brazil (the “Brazilian Federal Prosecutor”) against certain individuals, including an executive of Petrobras and two political lobbyists, in connection with the contracting of the Titanium Explorer drillship to Petrobras under the Drilling Contract, with the Brazilian Government and Petrobras as plaintiffs. Vantage is alleged to have been involved in and benefitted from the purported bribery scheme at Petrobras through Hamylton Padilha, the Brazilian agent our former parent company, Vantage Drilling Company (“VDC”), used in the contracting of the Titanium Explorer drillship to Petrobras, and Mr. Hsin-Chi Su, a former member of the Board of Directors and a significant shareholder of VDC. We first became aware of the legal proceeding on July 19, 2018 as it was previously under seal. The Company has not been formally served nor advised by any Brazilian authorities of any particular charges. The Company understands that the legal proceeding, which is called an improbity action, is a civil action and is part of the Brazilian Federal Prosecutor’s larger “Car Wash” investigation into money laundering and corruption allegations at Petrobras.

The damages claimed in the proceeding are in the amount of BRL 102.8 million (approximately $31.0 million), together with a civil fine equal to three times that amount. The Company understands that the Brazilian court hearing the proceeding has issued an order authorizing the seizure and freezing of the assets of the Company and the other three defendants in the legal proceeding, as a precautionary measure, in the amount of approximately $124.0 million. The Company and the other three defendants are jointly and severally liable for this amount. The seizure order has not had an effect on the Company’s assets or operations, as the Company does not own any assets in Brazil, and does not currently intend to relocate any assets to Brazil.

Restructuring Agreement and Emergence from Voluntary Reorganization under Chapter 11 Proceeding

On December 1, 2015, we and VDC entered into a restructuring support agreement (the “Restructuring Agreement”) with a majority of our secured creditors. Pursuant to the terms of the Restructuring Agreement, the Company agreed to pursue a pre-packaged plan of reorganization (the “Reorganization Plan”) under Chapter 11 of Title 11 of the United States Bankruptcy Code and VDC agreed to commence official liquidation proceedings under the laws of the Cayman Islands. On December 2, 2015, pursuant to the Restructuring Agreement, the Company acquired two subsidiaries responsible for the management of the Company from VDC in exchange for a $61.5 million promissory note (the “VDC Note”). As this transaction involved a reorganization of entities under common control, it was reflected in the consolidated financial statements, at carryover basis, on a retrospective basis. Effective as of the Company’s emergence from bankruptcy on February 10, 2016 (the “Effective Date”), VDC’s former equity interest in the Company was cancelled. Immediately following that event, the VDC Note was converted into 655,094 new ordinary shares of the reorganized Company (the “New Shares”) in accordance with the terms thereof, in satisfaction of the obligation thereunder, which, including accrued interest, totaled approximately $62.6 million as of such date.

On December 3, 2015 (the “Petition Date”), the Company, certain of its subsidiaries and certain VDC subsidiaries who were guarantors of the Company’s pre-bankruptcy secured debt, filed the Reorganization Plan in the United States Bankruptcy Court for the District of Delaware (In re Vantage Drilling International (F/K/A Offshore Group Investment Limited), et al., Case No. 15-12422). On January 15, 2016, the United States District Court for the District of Delaware confirmed the Company’s pre-packaged Reorganization Plan and the Company emerged from bankruptcy on the Effective Date.

cases of redemption or conversion of the Convertible Notes, as well as share splits, share dividends, consolidation or reclassification of the New Shares. The New Shares and the Convertible Notes are subject to the terms of an agreement that prohibits the New Shares and Convertible Notes from being traded separately.

The Convertible Notes are convertible into New Shares in certain circumstances, at a conversion price (subject to adjustment in accordance with the terms of the Indenture for the Convertible Notes), which was $95.60 as of the issue date. The Indenture for the Convertible Notes includes customary covenants that restrict, among other things, the granting of liens and customary events of default, including among other things, failure to issue securities upon conversion of the Convertible Notes. As of December 31, 2018, after taking into account the payment of PIK interest on the Convertible Notes to such date, each such Unit consisted of one New Share and $177.66 of principal of Convertible Notes.

Second Amended and Restated Credit Agreement. The Company’s pre-petition credit agreement was amended to (i) replace the $32.0 million revolving letter of credit commitment under its pre-petition facility with a new $32.0 million revolving letter of credit facility and (ii) repay the $150.0 million of outstanding borrowings with (a) $7.0 million of cash and (b) the issuance of $143.0 million initial term loans (the “2016 Term Loan Facility”). In November 2018, all obligations under the 2016 Term Loan Facility were repaid and the 2016 Term Loan Facility and the Credit Agreement were terminated in connection with the issuance of the 9.25% First Lien Notes. See “—Refinancing”.

Basis of Consolidation: The accompanying consolidated financial information as of December 31, 2018 and 2017, for the years ended December 31, 2018 and 2017, and for the periods from February 10, 2016 to December 31, 2016 and from January 1, 2016 to February 10, 2016 have 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 SEC and include our accounts and those of our majority owned subsidiaries and variable interest entities (“VIEs”) discussed below. All significant intercompany transactions and accounts have been eliminated.

In connection with our bankruptcy filing, we were subject to the provisions of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 852 Reorganizations (“ASC 852”). All expenses, realized gains and losses and provisions for losses directly associated with the bankruptcy proceedings were classified as reorganization items in the consolidated statements of operations. Certain pre-petition liabilities subject to Chapter 11 proceedings were considered as LSTC on the Petition Date and just prior to our emergence from bankruptcy on the Effective Date. The LSTC classification distinguished such liabilities from the liabilities that were not expected to be compromised and liabilities incurred post-petition.

ASC 852 requires that subsequent to the Petition Date, expenses, realized gains and losses and provisions for losses that can be directly associated with the reorganization of the business be reported separately as reorganization items in the consolidated statements of operations. We were required to distinguish pre-petition liabilities subject to compromise from those that were not and post-petition liabilities in our balance sheet. Liabilities that were subject to compromise were reported at the amounts expected to be allowed by the Bankruptcy Court, even if they were settled for lesser amounts as a result of the Reorganization Plan.

Upon emergence from bankruptcy on the Effective Date, we adopted fresh-start accounting in accordance with ASC 852, which resulted in the Company becoming a new entity for financial reporting purposes. Upon adoption of fresh-start accounting, our assets and liabilities were recorded at their fair values as of the Effective Date. The Effective Date fair values of our assets and liabilities differed materially from the recorded values of our assets and liabilities as reflected in our historical consolidated balance sheets. The effects of the Reorganization Plan and the application of fresh-start accounting were reflected in our consolidated financial statements as of February 10, 2016 and the related adjustments thereto were recorded in our consolidated statements of operations as reorganization items for the Predecessor Period January 1 to February 10, 2016.

As a result, our consolidated balance sheets and consolidated statement of operations subsequent to the Effective Date are not comparable to our consolidated balance sheets and statements of operations prior to the Effective Date. Our consolidated financial statements and related notes are presented with a black line division which delineates the lack of comparability between amounts presented on or after February 10, 2016 and dates prior. Our financial results for periods following the application of fresh-start accounting are different from historical trends and the differences may be material.

References to “Successor” relate to the Company on and subsequent to the Effective Date. References to “Predecessor” refer to the Company prior to the Effective Date. The consolidated financial statements of the Successor have been prepared assuming that the Company will continue as a going concern and contemplate the realization of assets and the satisfaction of liabilities in the normal course of business.

In addition to the consolidation of our majority owned subsidiaries, we also consolidate VIEs when we are determined to be the primary beneficiary of a VIE. Determination of the primary beneficiary of a VIE is based on whether an entity has (1) the power to direct activities that most significantly impact the economic performance of the VIE and (2) the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. Our determination of the primary beneficiary of a VIE considers all relationships between us and the VIE. Certain subsidiaries of VDC, who were guarantors of our pre-petition debt and part of the Reorganization Plan, became our subsidiaries upon emergence from bankruptcy on the Effective Date. We consolidated these entities in our Predecessor consolidated financial statements because we determined that they were VIEs and that we were the primary beneficiary. The following table summarizes the net effect of consolidating these entities on our Predecessor consolidated statement of operations.

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.

Inventory: Consists of materials, spare parts, consumables and related supplies for our drilling rigs.

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. For the years ended December 31, 2018 and 2017, and for the period from February 10, 2016 to December 31, 2016, we recognized a net gain of $1.3 million and net losses of $335,000 and $652,000, respectively, related to the sale or retirement of assets. We did not recognize a gain or loss on sale or retirement of assets for the period from January 1, 2016 to February 10, 2016.

Interest costs and the amortization of debt financing costs related to the financings of our drilling rigs are capitalized as part of the cost while they are under construction and prior to the commencement of each vessel’s first contract. We did not capitalize any interest for the reported periods.

Intangible assets: In connection with our acquisition of the Vantage 260 and related multi-year drilling contract, the Company recorded an identifiable intangible asset of $12.6 million for the fair value of the acquired favorable drilling contract. The resulting intangible asset is being amortized on a straight-line basis over the two-year term of the drilling contract. We recognized approximately $6.3 million and $4.7 million of amortization expense for intangible assets for the years ended December 31, 2018 and 2017, respectively. We did not recognize any amortization expense for intangible assets for the period from February 10, 2016 to December 31, 2016 or for the period from January 1, 2016 to February 10, 2016.

Expected future intangible asset amortization as of December 31, 2018 is as follows:

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. Debt issuance costs related to a recognized debt liability are presented in the consolidated balance sheet as a direct deduction from the carrying amount of that debt liability.

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 tax 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. We do not establish deferred tax liabilities for certain of our foreign earnings that we intend to indefinitely reinvest to finance foreign activities. 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.

Concentrations 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. 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. Payment terms on customer invoices typically range from 30 to 45 days. 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, 2018 and 2017.

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 revenues and expenses during the reporting period. On an ongoing basis, we evaluate our estimates, including those related to property and equipment, income taxes, insurance, employee benefits and contingent liabilities. Actual results could differ from these estimates.

Functional Currency: We consider the U.S. dollar to be the functional currency for all of our operations since the majority of our revenues and expenditures are denominated in U.S. dollars, which limits our exposure to currency exchange rate fluctuations. We recognize currency exchange rate gains and losses in other, net. For the years ended December 31, 2018 and 2017, and for the periods from February 10, 2016 to December 31, 2016 and from January 1, 2016 to February 10, 2016, we recognized a net loss of $1.5 million, a net gain of $2.8 million, a net gain of $1.1 million and a net loss of $5,000, respectively, related to currency exchange rates.

Fair Value of Financial Instruments: The fair value of our short-term financial assets and liabilities approximates the carrying amounts represented in the balance sheet principally due to the short-term nature or floating rate nature of these instruments. At December 31, 2018, the fair value of the 9.25% First Lien Notes and the Convertible Notes was approximately $340.9 million and $734.5 million, respectively, based on quoted market prices in a less active market, a Level 2 measurement.

We adopted ASU No. 2014-09, Revenue from Contracts with Customers (ASC 606) effective January 1, 2018 using the modified retrospective implementation method. The standard outlines a five-step model whereby revenue is recognized as

performance obligations within a contract are satisfied. The standard also requires new, expanded disclosures regarding revenue recognition. We adopted the new revenue standard using the modified retrospective approach, for which we were not required to make any changes to the prior year presentation. After evaluating all outstanding contracts, we determined there to be no cumulative effect adjustment on retained earnings and no adjustments were made to prior periods. While ASC 606 requires additional disclosure regarding revenues recognized from customer contracts, adoption did not have a material impact on our consolidated financial statements. See “Note 3. Revenue from Contracts with Customers”.

We adopted ASU No. 2016-15, Classification of Certain Cash Receipts and Cash Payments, effective January 1, 2018. The standard addresses the classification and presentation of eight specific cash flow issues that previously resulted in diverse practice. Adoption of the standard had minimal impact on the presentation of cash receipts and cash payments within our consolidated statement of cash flows.

We adopted ASU No. 2016-18, Statement of Cash Flows (ASC 230): Restricted Cash, effective January 1, 2018. The standard requires amounts generally described as restricted cash or restricted cash equivalents to be included with cash and cash equivalents when reconciling the beginning and end of period total amounts presented on the statement of cash flows. The standard also requires details on the nature and amounts of restricted cash. Aside from presenting the restricted cash and restricted cash equivalents as a component of the beginning and ending cash balances on our consolidated statement of cash flows, the changes did not have a material effect on our consolidated financial statements or on the related disclosures.

We adopted ASU No. 2016-16, Income Taxes (ASC 740): Intra-Entity Transfers of Assets Other Than Inventory, effective January 1, 2018. The standard requires entities to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transaction occurs as opposed to deferring tax consequences and amortizing them into future periods. Adoption of the standard had no impact on our consolidated financial statements and related disclosures.

We adopted ASU No. 2017-01, Business Combinations (ASC 805): Clarifying the Definition of a Business, effective January 1, 2018. The standard clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. Adoption of the standard had no impact on our consolidated financial statements and related disclosures.

In February 2016, the FASB issued ASU No. 2016-02, Leases (ASC 842): Amendments to the FASB ASC. In July 2018, ASC 842 was amended by ASU No. 2018-11, Targeted Improvements. The standard requires lessees to recognize right-of-use assets and lease liabilities on the balance sheet for all leases with a term longer than 12 months and to disclose key information about leasing arrangements.

We adopted ASC 842, as amended, on January 1, 2019 electing to apply the standard prospectively and not restating comparative periods. This transition method allows for the initial recognition of a cumulative catch-up adjustment to the opening balance of retained earnings in the year of adoption; however, based on our analysis of current lease arrangements, we do not expect an adjustment to be required.

The new standard provides a number of optional practical expedients in transition. We expect to elect the “package of practical expedients”, which permits us not to reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs. The new standard also provides practical expedients for an entity’s ongoing accounting. We expect to elect the short-term lease recognition exemption for all leases that qualify. We also expect to elect the practical expedient to not separate lease and non-lease components for all of our leases.

Our drilling contracts contain a lease component related to the underlying drilling equipment, in addition to the service component provided by our crews and our expertise to operate such drilling equipment. We have determined that the non-lease service component of our drilling contracts is the predominant element of the combined component and will account for the combined components as a single performance obligation under Topic 606, Revenue from Contracts with Customers. The bareboat charter contract on the recently acquired Soehanah jackup rig is considered a new lease as of the acquisition date and will be accounted for as an operating lease under the new standard.

Based on the lease arrangements under which we are the lessee as of December 31, 2018, we expect to recognize an aggregate lease liability and a corresponding right-to-use asset of between $9.0 million and $10.0 million based on our currently identified lease portfolio. We will continue to refine this estimate.

The activities that primarily drive the revenue earned in our drilling contracts with customers include (i) providing our drilling rig, work crews, related equipment and services necessary to operate the rig, (ii) delivering the drilling rig by mobilizing to and demobilizing from the drill site, and (iii) performing pre-operating activities, including rig preparation activities and/or equipment modifications required for the contract.

The integrated drilling services that we perform under each drilling contract represents a single performance obligation satisfied over time and comprised of a series of distinct time increments, or service periods.

Mobilization fees received prior to commencement of drilling operations are recorded as a contract liability and amortized on a straight‑line basis over the initial contract period. Demobilization fees expected to be received upon contract completion are estimated at contract inception and recognized on a straight-line basis over the initial contract term with an offset to an accretive contract asset. In many contracts, demobilization fees are contingent upon the occurrence or non-occurrence of a future event and the estimate for such revenue may therefore be constrained. Fees received for the mobilization or demobilization of equipment and personnel are included in contract drilling revenues.

We have elected to exclude from the transaction price measurement all taxes assessed by a governmental authority.

The following tables present our revenue disaggregated by revenue source for the periods indicated:

Accounts receivable are recognized when the right to consideration becomes unconditional based upon contractual billing schedules. Payment terms on customer invoices typically range from 30 to 45 days.

We recognize contract liabilities, recorded in other “Accrued liabilities” and “Long-term liabilities”, for prepayments received from customers and for deferred revenue received for mobilization, contract preparation and capital upgrades.

Certain direct and incremental costs incurred for contract preparation, initial mobilization and modifications of contracted rigs represent contract fulfillment costs as they relate directly to a contract, enhance resources that will be used to satisfy our performance

obligations in the future and are expected to be recovered. These costs are deferred as a current or noncurrent asset depending on the length of the initial contract term and are amortized on a straight-line basis to operating costs as services are rendered over the initial term of the related drilling contract. Costs incurred for capital upgrades are capitalized and depreciated over the useful life of the asset.

Costs incurred for the demobilization of rigs at contract completion are recognized as incurred during the demobilization process. Costs incurred to mobilize a rig without a contract are expensed as incurred.

The following table provides information about contract cost assets and contract revenue liabilities from contracts with customers:

Significant changes in contract cost assets and contract revenue liabilities during the year ended December 31, 2018 are as follows:

We have elected to utilize an optional exemption that permits us to exclude disclosure of the estimated transaction price related to the variable portion of unsatisfied performance obligations at the end of the reporting period, as our transaction price is based on a single performance obligation consisting of a series of distinct hourly increments, the variability of which will be resolved at the time of the future services.

On June 13, 2018, we entered into a share purchase agreement with Ship Finance International Limited to acquire the shares of Rig Finance Limited, an entity that owns the Soehanah jackup rig, a Baker Marine Pacific Class 375 jackup rig, and related bareboat charter to which Rig Finance Limited is a party, for $84.6 million, subject to certain adjustments for working capital and liabilities of the entity not discharged by the acquisition date. We made a down payment of $15.0 million in connection with the execution of the share purchase agreement, and the remaining $69.6 million was paid at closing on December 31, 2018. Pursuant to the bareboat charter currently in place with respect to the rig, the entity to which the rig is chartered has the right to acquire the rig at the end of the term of the bareboat charter for $100.0 million (or more depending on the rig’s valuation).

We accounted for the acquisition as an asset purchase in accordance with accounting guidance considering that substantially all of the fair value of the gross assets acquired was concentrated in the Soehanah jackup rig and in-place lease intangible. Using the cost accumulation model, the cost of the acquisition was allocated to the assets acquired as follows:

Pro forma results of operations related to the acquisition are not material to our consolidated statement of operations.

In April 2017, pursuant to a purchase and sale agreement with a third party, we completed the purchase of a class 154-44C jackup rig and related multi-year drilling contract for $13.0 million. A down payment of $1.3 million was made in February 2017

upon execution of the agreement and the remaining $11.7 million was paid at closing. The rig, renamed the Vantage 260, was classified as held for sale on acquisition and was sold on February 26, 2018. In August 2017 we substituted the Sapphire Driller, a Baker Marine Pacific Class 375 jackup rig, to fulfill the drilling contract. We accounted for the acquisition of the Vantage 260 as a business combination in accordance with accounting guidance which required, among other things, that we allocate the purchase price to the assets acquired and liabilities assumed based on their fair values as of the acquisition date. The following table provides the estimated fair values of the assets acquired and liabilities assumed:

Under accounting guidance, a bargain purchase gain results from an acquisition if the fair value of the purchase consideration paid in connection with such acquisition is less than the net fair value of the assets acquired and liabilities assumed. We recorded a bargain purchase gain of approximately $1.9 million related to the acquisition in the year ended December 31, 2017. We believe that we were able to negotiate a bargain purchase price as a result of our operational presence in West Africa and the seller’s liquidation. The purchase of the Vantage 260 and related two-year drilling contract allowed for the reactivation of the Sapphire Driller and further extended our operational presence in West Africa.

Pro forma results of operations related to the acquisition have not been presented because they are not material to our consolidated statement of operations. Acquisition-related costs were not material and were expensed as incurred.

Reorganization items represent amounts incurred subsequent to the Petition Date as a direct result of the filing of the Reorganization Plan and are comprised of the following:

For the year ended December 31, 2017, and for the periods from February 10, 2016 to December 31, 2016 and from January 1, 2016 to February 10, 2016, cash payments for reorganization items totaled $208,000, $16.6 million and $7.3 million, respectively.

Aggregate scheduled principal maturities of our debt for the next five years and thereafter are as follows (in thousands):

(1) Excludes original issuance discount of $5.4 million on the Convertible Notes and financing costs of $7.6 million on the 9.25% First Lien Notes.

9.25% First Lien Notes. On November 30, 2018, the Company issued $350.0 million in aggregate principal amount of 9.25% First Lien Notes in a private placement. The 9.25% First Lien notes were issued at par and are fully guaranteed on senior secured basis, by the Company’s direct and indirect subsidiaries and are secured by a first priority lien on substantially all of the assets of the Company and its subsidiaries, in each case subject to certain exceptions. The 9.25% First Lien Notes are subject to first payment priority in favor of holders of up to $50.0 million of future super-priority debt and are subject to both mandatory and optional redemption provisions.

The 9.25% First Lien Notes mature on November 15, 2023 and bear interest from the date of their issuance at the rate of 9.25% per year. Interest is computed on the basis of a 360-day year comprised of twelve 30-day months and is payable semi-annually in arrears, commencing on May 15, 2019.

The Indenture for the 9.25% First Lien Notes includes customary covenants and events of default, including covenants that, among other things, restrict the granting of liens, restrict the making of investments, restrict the incurrence of indebtedness and the conveyance of vessels, limit transactions with affiliates, and require that the Company provide periodic financial reports.

The net proceeds from the issuance were used (i) to repay all obligations under the 2016 Term Loan Facility and to terminate the Credit Agreement, (ii) to redeem all outstanding 10% Second Lien Notes, (iii) to fund the remaining amounts to be paid in connection with the Rig Purchase, (iv) to pay fees and expenses related to the foregoing and to the offering of the 9.25% First Lien Notes and (v) for general corporate purposes.

Concurrently with the issuance of the 9.25% First Lien Notes, we entered into a new letter of credit facility to replace the letter of credit facility existing under the 2016 Term Loan Facility. The new facility has a capacity of $50.0 million, with all outstanding letters of credit being cash collateralized. We have issued $13.7 million in letters of credit under this facility as of December 31, 2018.

Second Amended and Restated Credit Agreement. As part of the Reorganization Plan, the Company entered into the 2016 Term Loan Facility providing for (i) a $32.0 million revolving letter of credit facility to replace the Company’s existing $32.0 million revolving letter of credit commitment under its pre-petition credit facility and (ii) $143.0 million of term loans into which the claims of the lenders under the Company’s pre-petition credit facility were converted. The lenders under the Company’s pre-petition credit facility also received $7.0 million of cash under the Reorganization Plan. The obligations under the 2016 Term Loan Facility were guaranteed by substantially all of the Company’s subsidiaries, subject to limited exceptions, and secured on a first priority basis by

substantially all of the Company’s and the guarantors’ assets, including ship mortgages on all vessels, assignments of related earnings and insurance and pledges of the capital stock of all guarantors, in each case, subject to certain exceptions. In November 2018, all obligations under the 2016 Term Loan Facility were repaid and the 2016 Term Loan Facility and the Credit Agreement were terminated in connection with the issuance of the 9.25% First Lien Notes.

10% Senior Secured Second Lien Notes. The Company engaged in a rights offering for $75.0 million of new 10% Second Lien Notes for certain holders of its pre-petition secured debt claims. In connection with this rights offering, certain creditors entered into a “backstop” agreement to purchase 10% Second Lien Notes if the offer was not fully subscribed. The premium paid to such creditors under the backstop agreement was approximately $2.2 million, which was paid $1.1 million in cash and $1.1 million in additional 10% Second Lien Notes, resulting in a total issued amount of $76.1 million of 10% Second Lien Notes, and in net cash proceeds of approximately $73.9 million after deducting the cash portion of the backstop premium.

The 10% Second Lien Notes were issued at par and were fully and unconditionally guaranteed (except for customary release provisions), on a senior secured basis, by all of the subsidiaries of the Company. The 10% Second Lien Notes were scheduled to mature on December 31, 2020, and bore interest from the date of their issuance at the rate of 10% per year. Interest on outstanding 10% Second Lien Notes was payable semi-annually in arrears, which commenced on June 30, 2016. Interest was computed on the basis of a 360-day year comprised of twelve 30-day months. The 10% Second Lien Notes ranked behind the 2016 Term Loan Facility as to collateral. In November 2018, all of the 10% Second Lien Notes were redeemed in connection with the issuance of the 9.25% First Lien Notes.

1%/12% Step-Up Senior Secured Third Lien Convertible Notes. The Company issued 4,344,959 New Shares and $750.0 million of the Convertible Notes to certain creditors holding approximately $2.5 billion of pre-petition secured debt claims. The New Shares issued to the creditors and the Convertible Notes may only be traded together and not separately. The Convertible Notes mature on December 31, 2030 and are convertible into New Shares, in certain circumstances, at a conversion price (subject to adjustment in accordance with the terms of the Indenture for the Convertible Notes), which was $95.60 as of the issue date. The Indenture for the Convertible Notes includes customary covenants that restrict, among other things, the granting of liens and customary events of default, including among other things, failure to issue securities upon conversion of the Convertible Notes. As of December 31, 2018, taking into account the payment of PIK interest on the Convertible Notes to such date, each such unit of securities was comprised of one New Share and $177.66 of principal of Convertible Notes. As of December 31, 2018, we would be required to issue approximately 8.1 million New Shares if the Convertible Notes were converted.

In connection with the adoption of fresh-start accounting, the Convertible Notes were recorded at an estimated fair value of approximately $603.1 million. The difference between face value and the fair value at date of issuance of the Convertible Notes was recorded as a debt discount and is being amortized to interest expense over the expected life of the Convertible Notes using the effective interest rate method.

Interest on the Convertible Notes is payable semi-annually in arrears commencing June 30, 2016 as a payment in kind, either through an increase in the outstanding principal amount of the Convertible Notes or, if the Company is unable to increase such principal amount, by the issuance of additional Convertible Notes. Interest is computed on the basis of a 360-day year comprised of twelve 30-day months at a rate of 1.0% per annum for the first four years and then increasing to 12.0% per annum until maturity.

The Company’s obligations under the Convertible Notes are fully and unconditionally guaranteed (except for customary release provisions), on a senior secured basis, by all of the subsidiaries of the Company, and the obligations of the Company and guarantors are secured by liens on substantially all of their respective assets. The guarantees by the Company’s subsidiaries of the Convertible Notes are joint and several. The Company has no independent assets or operations apart from the assets and operations of its wholly-owned subsidiaries. In addition, there are no significant restrictions on the Company’s or any subsidiary guarantor’s ability to obtain funds from its subsidiaries by dividend or loan. The Indenture for the Convertible Notes includes customary covenants that restrict the granting of liens and customary events of default, including, among other things, failure to issue securities upon conversion of the Convertible Notes. In addition, the Indenture, and the applicable Collateral Agreements, provide that any capital stock and other securities of any of the guarantors will be excluded from the collateral to the extent the pledge of such capital stock or other securities to secure the Convertible Notes would cause such guarantor to be required to file separate financial statements with the SEC pursuant to Rule 3-16 of Regulation S-X (as in effect from time to time).

The Convertible Notes will convert only (a) prior to the third anniversary of the issue date (February 10, 2016), (i) upon the instruction of holders of a majority in principal amount of the Convertible Notes or (ii) upon the full and final resolution of all potential Investigation Claims (as defined below), as determined in good faith by the board of directors of the Company (the “Board”) (which determination shall require the affirmative vote of a supermajority of the non-management directors), and (b) from and after February 10, 2019 through their maturity date of December 31, 2030, upon the approval of the Board (which approval shall require the affirmative vote of a supermajority of the non-management directors). For these purposes, (i) “supermajority of the non-management directors” means five affirmative votes of non-management directors assuming six non-management directors eligible to vote and, in all other circumstances, the affirmative vote of at least 75% of the non-management directors eligible to vote and (ii) “Investigation Claim” means any claim held by a United States or Brazilian governmental unit and arising from or related to the procurement of the Drilling Contract, as amended, modified, supplemented, or novated from time to time.

In the event of a change in control, the holders of the Convertible Notes have the right to require us to repurchase all or any part of the Convertible Notes at a price equal to 101.0% of their principal amount. We assessed the prepayment requirements and concluded that this feature met the criteria to be considered an embedded derivative and must be bifurcated and separately valued at fair value due to the discount on the Convertible Notes at issuance. We considered the probabilities of a change of control occurring and determined that the derivative had a de minimis value at December 31, 2017 and December 31, 2018, respectively.

We have 50,000,000 authorized ordinary shares, par value $0.001 per share. Upon emergence from bankruptcy, we issued 5,000,053 ordinary shares in connection with the settlement of LSTC and the VDC Note. As of December 31, 2018, 5,000,053 ordinary shares were issued and outstanding.

On August 9, 2016, the Company adopted the Amended and Restated 2016 Management Incentive Plan (the “2016 Amended MIP”) to align the interests of participants with those of the shareholders by providing incentive compensation opportunities tied to the performance of the Company’s equity securities. Pursuant to the 2016 Amended MIP, the Compensation Committee may grant to employees, directors and consultants stock options, restricted stock, restricted stock units or other awards.

During the year ended December 31, 2018, we granted to an employee 1,030 time-based restricted stock units (“TBGs”) and 2,403 performance-based restricted stock units (“PBGs”) under our 2016 Amended MIP. During the same period, four of our directors were granted 300 TBGs each, for a total of 1,200 TBGs. TBGs issued under our 2016 Amended MIP vest annually, ratably over four years; however, accelerated vesting is provided for in the event of a qualified liquidity event as defined in the 2016 Amended MIP (a “QLE”). Otherwise, the settlement of any vested TBGs occurs upon the seventh anniversary of the Effective Date. The PBGs contain vesting eligibility provisions tied to the earlier of a QLE or seven years from the Effective Date. Upon the occurrence of a vesting eligibility event, the number of PBGs that actually vest will be dependent on the achievement of pre-determined Total Enterprise Value (“TEV”) targets specified in the grants.

Both the TBGs and PBGs are classified as liabilities consistent with the classification of the underlying securities and under the provisions of ASC 718 Compensation – Stock Compensation are remeasured at each reporting period until settled. Share-based compensation expense is recognized over the requisite service period from the grant date to the fourth year vest date for TBGs and the seventh anniversary of the Effective Date for PBGs. For the years ended December 31, 2018, 2017 and 2016, we recognized share-based compensation related to the TBG’s of approximately $7.2 million, $4.0 million and $402,000, respectively. As of December 31, 2018, there was approximately $8.5 million of total unrecognized share-based compensation expense related to TBGs which is expected to be recognized over the remaining weighted average vesting period of approximately 1.7 years. The total award date value of time vested restricted shares that vested during the year ended December 31, 2018 was approximately $2.3 million.

Share-based compensation expense for PBGs will be recognized when it is probable that the TEV targets will be met. Once it is probable the performance condition will be met, compensation expense based on the fair value of the PBGs at the balance sheet date will be recognized for the service period completed. As of December 31, 2018, we concluded that it was not probable that the TEV performance condition would be met and therefore, no share-based compensation expense was recognized for PBGs.

A summary of the restricted unit awards for the year ended December 31, 2018 is as follows:

A summary of the status of non-vested restricted units at December 31, 2018 and changes during the year ended December 31, 2018 is as follows:

We are a Cayman Islands entity. The Cayman Islands do not impose corporate income taxes. We do not have any domestic earnings; all of our earnings are foreign. Consequently, we have calculated income taxes based on the laws and tax rates in effect in the countries in which operations are conducted, or in which we and 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 or gross revenues or as withholding taxes on revenue. Determination of income tax expense 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 the tax laws, regulations, agreements and treaties, foreign currency exchange restrictions and fluctuations, rig movements or our level of operations or profitability in each tax jurisdiction. Furthermore, our income taxes are generally dependent upon the results of our operations and when we generate significant revenues in jurisdictions where the income tax liability is based on gross revenues or asset values, there is no correlation to the operating results and the income tax expense. Furthermore, in some jurisdictions we do not pay taxes or receive benefits for certain income and expense items, including interest expense, loss on extinguishment of debt, gains or losses on disposal or transfer of assets, reorganization expenses and write-off of development costs.

The income tax expense (benefit), all of which relates to foreign income taxes, consisted of the following (in thousands):

On December 22, 2017, Public Law 115-97, commonly known as the Tax Cuts and Jobs Act of 2017 (the “Act”) was enacted. The Act, among other things, made significant changes to the U.S. corporate income tax system, including reducing the federal corporate income tax rate from 35% to 21%; changed certain business-related deductions, including modifying the rules regarding limitations on certain deductions for executive compensation, introducing a capital investment deduction in certain circumstances, placing certain limitations on the interest deduction, modifying the rules regarding the usability of certain net operating losses; and transitioned U.S. international taxation from a worldwide tax system to a modified territorial tax system. We completed the evaluation of the impact of the Act on our financial statements under the guidance as of December 2018, and have concluded that no further adjustments are required beyond the re-measurement of the deferred taxes recorded in 2017.

Deferred income tax assets and liabilities are recorded 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 loss and 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. We do not establish deferred tax liabilities for certain of our foreign earnings that we intend to indefinitely reinvest to finance foreign activities.

At December 31, 2018, we had foreign tax loss carry forwards of approximately $19.3 million which will begin to expire in 2019.

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 approximately $3,000 is included in 2018 income tax expense and total interest and penalties of approximately $1.5 million are accrued as of December 31, 2018.

A reconciliation of our unrecognized tax benefits amount is as follows (in thousands):

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 2010 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.

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.

In connection with our bankruptcy cases, two appeals were filed relating to the confirmation of the Reorganization Plan. Specifically, on January 29, 2016, Mr. Hsin-Chi Su and F3 Capital filed two appeals before the United States District Court for the District of Delaware seeking a reversal of (i) the Court’s determination that Mr. Hsin-Chi Su and F3 Capital did not have standing to appear and be heard in the bankruptcy cases, which was made on the record at a hearing held on January 14, 2016, and (ii) the Court’s

Findings of Fact, Conclusions of Law, and Order (I) Approving the Debtors’ (A) Disclosure Statement Pursuant to Sections 1125 and 1126(b) of the Bankruptcy Code, (B) Solicitation of Votes and Voting Procedures, and (C) Forms of Ballots, and (II) Confirming the Amended Joint Prepackaged Chapter 11 Plan of Offshore Group Investment Limited and its Affiliated Debtors [Docket No. 188], which was entered on January 15, 2016. The appeals were consolidated on June 14, 2016. We cannot predict with certainty the ultimate outcome of any such appeals. An adverse outcome could negatively affect our business, results of operations and financial condition.

On August 31, 2015, PAI and PVIS, both subsidiaries of Petrobras, notified the Company of the termination of the Drilling Contract between PVIS and Vantage Deepwater Company and which had been novated to PAI and Vantage Deepwater Drilling, Inc., claiming the Company had breached its obligations under the Drilling Contract. Vantage Deepwater Company and Vantage Deepwater Drilling, Inc. are both wholly-owned subsidiaries of the Company. We immediately filed an international arbitration claim against PAI, PVIS, and Petrobras, claiming wrongful termination of the Drilling Contract.

On July 2, 2018, an international arbitration tribunal issued an award in favor of Vantage Deepwater Company and Vantage Deepwater Drilling, Inc. The tribunal found that PAI and PVIS breached the Drilling Contract, and awarded Vantage Deepwater Company and Vantage Deepwater Drilling, Inc. damages in the aggregate amount of $622.0 million against PAI, PVIS, and Petrobras and dismissed the Petrobras parties’ counterclaims against the Company with prejudice. The tribunal also awarded the Company interest on the foregoing award amount at an annual rate of 15.2%, compounded monthly, to accrue from (i) April 1, 2018, with respect to $615.6 million thereof, (ii) October 20, 2015, with respect to $5.2 million thereof, and (iii) November 19, 2015, with respect to $1.2 million thereof, in each case, until final payment of the awarded sums. In accordance with the terms of the award, each of the Company and Petrobras will bear its own legal fees, and the fees and expenses of the tribunal, including the compensation of the arbitrators, aggregating approximately $1.5 million, will be borne equally by both sides.

The Company’s ability to fully recover the award against the Petrobras parties is subject to legal, procedural, solvency and other risks associated with enforcing arbitration awards in these circumstances. In addition, any award ultimately recovered will be subject to reduction in respect of legal fees owed (including, among others, fees contingent on the size of the award, less amounts previously paid) and any applicable taxes. Accordingly, no assurances can be given as to whether or to what extent such award will ultimately be recovered, if at all.

On April 27, 2018, the Company was added as an additional defendant in a legal proceeding initiated by the Brazilian Federal Prosecutor against certain individuals, including an executive of Petrobras and two political lobbyists, in connection with the contracting of the Titanium Explorer drillship to Petrobras under the Drilling Contract, with the Brazilian Government and Petrobras as plaintiffs. The Company is alleged to have been involved in and benefitted from the purported bribery scheme at Petrobras through Messrs. Padilha and Mr. Hsin -Chi Su. We first became aware of the legal proceeding on July 19, 2018 as it was previously under seal. The Company has not been formally served nor advised by any Brazilian authorities of any particular charges. The Company understands that the legal proceeding, which is called an improbity action, is a civil action and is part of the Brazilian Federal Prosecutor’s larger “Car Wash” investigation into money laundering and corruption allegations at Petrobras.

The damages claimed in the proceeding are in the amount of BRL 102.8 million (approximately $31.0 million), together with a civil fine equal to three times that amount. The Company understands that the Brazilian court hearing the proceeding has issued an order authorizing the seizure and freezing of the assets of the Company and the other three defendants in the legal proceeding, as a precautionary measure, in the amount of approximately $124.0 million. The Company and the other three defendants are jointly and severally liable for this amount. The seizure order has not had an effect on the Company’s assets or operations, as the Company does not own any assets in Brazil, and does not currently intend to relocate any assets to Brazil.

Pursuant to the terms of the Restructuring Agreement, the Company agreed to the Reorganization Plan and VDC agreed to commence official liquidation proceedings under the laws of the Cayman Islands. On December 2, 2015, pursuant to the Restructuring Agreement, the Company acquired two subsidiaries responsible for the management of the Company from VDC in exchange for the VDC Note. In connection with our separation from our former parent company, we and the Joint Official Liquidators, appointed to oversee the liquidation of VDC, are in ongoing discussions regarding the settlement of certain intercompany receivables and payables as between the Company and its subsidiaries, on the one hand, and VDC and its subsidiaries on the other. While we continue to believe that our position regarding the settlement of such amounts is correct, we cannot predict the ultimate outcome of this matter should legal proceedings between the parties transpire.

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, 2018, 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 $3.3 million, $2.7 million, $0.6 million, $0.6 million and $0.3 million for each of the years ending December 31, 2019, 2020, 2021, 2022 and 2023, respectively, net of sublease proceeds. We have no rental commitments for the years 2024 and thereafter. Rental expenses for the years ended December 31, 2018 and 2017, and for the periods from February 10, 2016 to December 31, 2016 and from January 1, 2016 to February 10, 2016 were approximately $6.0 million, $4.3 million, $4.1 million and $678,000, respectively.

At December 31, 2018, we had purchase commitments of $19.1 million. Our purchase commitments consist of obligations outstanding to external vendors primarily related to capital upgrades, materials, spare parts, consumables and related supplies for our drilling rigs.

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Consolidated Balance Sheet that sum to the total of the same amounts shown in the Consolidated Statement of Cash Flows as of the dates indicated:

Restricted cash as of December 31, 2018 represents cash held by banks as certificates of deposit collateralizing letters of credit.

Our consolidated statement of operations includes the following transactions with VDC for the periods indicated:

The following table summarizes the balances payable to VDC included in our consolidated balance sheet as of the dates indicated:

Pursuant to the terms of the Restructuring Agreement, the Company agreed to the Reorganization Plan and VDC agreed to commence official liquidation proceedings under the laws of the Cayman Islands. On December 2, 2015, pursuant to the Restructuring Agreement, the Company acquired two subsidiaries responsible for the management of the Company from VDC in exchange for the VDC Note. In connection with our separation from our former parent company, we and the Joint Official Liquidators, appointed to oversee the liquidation of VDC, are in discussions regarding the settlement of certain intercompany receivables and payables as between the Company and its subsidiaries, on the one hand, and VDC and its subsidiaries on the other. While we continue to believe that our position regarding the settlement of such amounts is correct, we cannot predict the ultimate outcome of this matter should legal proceedings between the parties transpire.

As of December 31, 2018, we did not have any material related party transactions that were not in the ordinary course of business.

We aggregate our contract drilling operations into one reportable segment even though we provide contract drilling services with different types of rigs, including jackup rigs and drillships, and in different geographic regions. Our operations are dependent on the global oil and gas industry and our rigs 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.

Additionally, for drilling units owned by others, we provide construction supervision services while under construction, preservation management services when stacked and operations and marketing services for operating rigs. 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 for each drillship. Our management business represented less than 4% of our total revenue for each of the years ended December 31, 2018 and 2017 and for the periods from February 10, 2016 to December 31, 2016 and from January 1, 2016 to February 10, 2016, respectively.

For the years ended December 31, 2018, 2017 and 2016, 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. Three customers accounted for approximately 40%, 15% and 14% of consolidated revenue for the year ended December 31, 2018. Four customers accounted for approximately 51%, 15%, 13% and 11% of consolidated revenue for the year ended December 31, 2017. Three customers accounted for approximately 58%, 19% and 11% of consolidated revenue for the period from February 10, 2016 to December 31, 2016. Three customers accounted for approximately 58%, 18% and 14% of consolidated revenue for the period from January 1, 2016 to February 10, 2016.

A substantial portion of our assets are mobile drilling units. Asset locations at the end of the period are not necessarily indicative of the geographic distribution of the revenues generated by such assets during the periods.

The following table reflects a summary of the unaudited interim results of operations for the years ended December 31, 2018, 2017 and 2016 (in thousands except per share amounts).

	Successor
	Quarter Ended
	March 31			June 30			September 30			December 31

2017
Revenues	$	42,049		$	53,263		$	57,696		$	59,838
Loss from operations (1)		(16,855	)		(17,167	)		(17,674	)		(13,005	)
Other expense		(18,218	)		(16,044	)		(18,134	)		(18,520	)
Net loss		(36,499	)		(36,592	)		(40,068	)		(36,626	)
Loss per share
Basic and diluted	$	(7.30	)	$	(7.32	)	$	(8.01	)	$	(7.33	)

2018
Revenues	$	57,663		$	60,461		$	64,556		$	43,067
Loss from operations		(8,544	)		(8,178	)		(5,692	)		(22,871	)
Other expense		(19,620	)		(19,706	)		(18,853	)		(21,478	)
Net loss		(32,137	)		(31,094	)		(26,060	)		(52,177	)
Loss per share
Basic and diluted	$	(6.43	)	$	(6.22	)	$	(5.21	)	$	(10.44	)

Loss per share is computed independently for each of the periods presented. Therefore, the sum of the periods’ earnings (loss) per share may not agree to the total computed for the year.

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 to the SEC is recorded, processed, summarized, and reported, within the time periods required by our debt agreements.

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 to the SEC 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 Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of December 31, 2018 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 time periods required by our debt agreements.

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, 2018. 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, 2018.

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, 2018 that materially affected, or are reasonably likely to materially affect, internal control over financial reporting.

The information required by this item will be filed by amendment to this Annual Report on Form 10-K to be filed with the SEC not later than 120 days after the close of our fiscal year ended December 31, 2018.

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.

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.

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.

Cayman Islands		98-1372204
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

c/o Vantage Energy Services, Inc. 777 Post Oak Boulevard, Suite 800, Houston, Texas		77056
(Address of Principal Executive Offices)		(Zip Code)

SAFE HARBOR STATEMENT		1
PART I
Item 1.	Business	3
Item 1A.	Risk Factors	12
Item 1B.	Unresolved Staff Comments	25
Item 2.	Properties	25
Item 3.	Legal Proceedings	25
Item 4.	Mine Safety Disclosures	26
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	27
Item 6.	Selected Financial Data	28
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	41
Item 8.	Financial Statements and Supplementary Data	41
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	68
Item 9A.	Controls and Procedures	68
Item 9B.	Other Information	68
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	69
Item 11.	Executive Compensation	69
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	69
Item 13.	Certain Relationships and Related Transactions, and Director Independence	69
Item 14.	Principal Accounting Fees and Services	69
PART IV
Item 15.	Exhibits, Financial Statement Schedules	70
Item 16.	Form 10-K Summary	71
SIGNATURES		72

Name	Region	Contract End Date	Customer
Emerald Driller	Middle East	Q2 2020	Total E&P Qatar
Sapphire Driller	West Africa	Q2 2020	ENI Congo SA
Aquamarine Driller	Southeast Asia	Q3 2019	CPOC through Olio Energy Sdn Bhd
Topaz Driller	West Africa	Q2 2019	Total Gabon
Soehanah	Southeast Asia	Q2 2019 ⁽¹⁾	P.T. Apexindo Pratama Duta Tbk ⁽²⁾
Platinum Explorer	India	Q4 2020	Oil & Natural Gas Corporation

	Percentage of Days Contracted				Revenues Contracted (in thousands)
	2019		2020		2019		2020		Beyond
Jackups		81%		16%	$	71,956	$	14,827	$	—
Drillships		33%		30%	$	36,896	$	33,055	$	—

	Total		2019		2020-2021		2022-2023		After 5 Years
	(in thousands)
Principal payments on 9.25% First Lien Notes	$	350,000	$	—	$	—	$	350,000	$	—
Principal payments on Convertible Notes⁽¹⁾		2,775,628		—		—		—		2,775,628
Interest payments ⁽²⁾		160,616		31,116		64,750		64,750		—
Operating lease payments ⁽³⁾		7,589		3,331		3,341		917		-
Purchase obligations ⁽⁴⁾		19,096		19,096		—		—		-
Total as of December 31, 2018	$	3,312,929	$	53,543	$	68,091	$	415,667	$	2,775,628

Large accelerated filer	☐	Accelerated filer	☐

Non-accelerated filer	☒	Smaller reporting company	☐
		Emerging growth company	☐

Name	Year Built	Water Depth Rating (feet)	Drilling Depth Capacity (feet)		Location	Status
Jackups
Emerald Driller	2008	375		30,000	Qatar	Operating
Sapphire Driller	2009	375		30,000	Congo	Operating
Aquamarine Driller	2009	375		30,000	Malaysia	Operating
Topaz Driller	2009	375		30,000	Gabon	Operating
Soehanah	2007	375		30,000	Indonesia	Operating⁽¹⁾
Drillships ⁽²⁾
Platinum Explorer	2010	12000		40,000	India	Operating
Titanium Explorer	2012	12000		40,000	South Africa	Warm stacked
Tungsten Explorer	2013	12000		40,000	Canary Islands	Shipyard upgrades

Noncontrolling interests		—			—			—		N/A				15,255			10,717
Total liabilities and shareholders’ equity	$	1,129,562		$	1,083,122		$	1,160,428		N/A			$	3,332,180		$	3,425,132
Cash Flow Data
Net cash provided by (used in) operating activities	$	12,794		$	(19,873	)	$	(4,874	)	$	(20,365	)	$	92,587		$	239,724
Net cash provided by (used in) investing activities		(94,613	)		(14,969	)		(11,964	)		116			(46,490	)		(35,693	)
Net cash provided by (used in) financing activities		125,751			(1,430	)		(1,481	)		66,875			81,522			(178,556	)

	Year Ended December 31, 2018								Year Ended December 31, 2017
	Jackups		Deepwater		Management		Consolidated		Jackups		Deepwater		Management		Consolidated
(in thousands)
Dayrate revenue	$	84,777	$	115,406	$	1,220	$	201,403	$	84,834	$	105,269	$	1,456	$	191,559
Amortized revenue		1,049		2,333		—		3,382		207		243		—		450
Reimbursable revenue		10,229		6,115		4,618		20,962		9,442		6,506		4,889		20,837
Total revenue	$	96,055	$	123,854	$	5,838	$	225,747	$	94,483	$	112,018	$	6,345	$	212,846

	December 31, 2018		December 31, 2017
(in thousands)
Current contract cost assets	$	774	$	217
Noncurrent contract cost assets		3,999		6,216
Current contract revenue liabilities		2,309		510
Noncurrent contract revenue liabilities		4,424		6,757

	Contract Costs			Contract Revenues
(in thousands)
Balance as of December 31, 2017	$	6,433		$	7,267
Increase due to contractual additions		6,089			2,445
Increase due to Soehanah acquisition		—			913
Decrease due to recognition		(7,749	)		(3,892	)
Balance as of December 31, 2018⁽¹⁾	$	4,773		$	6,733

(in thousands)
Total cash consideration ⁽¹⁾	$	85,000

Purchase price allocation:
Soehanah rig and equipment		81,850
Inventory supplies and spare parts		3,150
Cash		913
Charterer deposit		(913	)
Net assets acquired	$	85,000

(in thousands)
Total cash consideration	$	13,000

Purchase price allocation:
Drilling contract value		12,640
Rig equipment to be sold (net of disposal costs)		2,050
Drillpipe assets		700
Severance liabilities assumed		(480	)
Net assets acquired		14,910

Bargain purchase gain	$	1,910

	December 31,
	2018		2017
(in thousands)
9.25% First Lien Notes, net of financing costs of $7,560	$	342,439	$	—
2016 Term Loan Facility		—		140,140
10% Second Lien Notes, net of financing costs of $1,404		—		74,721
Convertible Notes, net of discount of $5,354 and $54,770		766,572		709,508
		1,109,011		924,369
Less current maturities of long-term debt		—		4,430
Long-term debt, net	$	1,109,011	$	919,939

2019	$	—
2020		—
2021		—
2022		—
2023		350,000
Thereafter		2,775,628
Total debt⁽¹⁾		3,125,628
Less:
Current maturities of long-term debt		-
Future amortization of note discounts		(5,354	)
Future amortization of financing costs		(7,561	)
Future PIK interest		(2,003,702	)
Long-term debt	$	1,109,011

	Year Ended December 31, 2018
Time vested restricted units
Units awarded		2,230
Weighted-average unit price at award date	$	241.52
Weighted average vesting period (years)		4.0
Units vested		20,414
Units forfeited		618

Performance vested restricted units
Units awarded		2,403
Weighted-average unit price at award date		220
Weighted average vesting period (years)		7
Units vested		—
Units forfeited		1,923

	Time Vested Restricted Units Outstanding			Weighted Average Award Date Unit Price		Performance Vested Restricted Units Outstanding			Weighted Average Award Date Unit Price
Nonvested restricted units at December 31, 2017		64,377		$	118.11		165,435		$	112.73
Awarded		2,230			241.52		2,403			220.00
Vested		(20,414	)		117.45		—			—
Forfeited		(618	)		160.00		(1,923	)		160.00
Nonvested restricted units at December 31, 2018		45,575		$	123.88		165,915		$	113.74

Gross balance at January 1, 2018	$	3,040
Additions based on tax positions related to the current year		-
Additions for tax positions of prior years		26
Reductions for tax positions of prior years		(45	)
Expiration of statues		(306	)
Tax settlements		-
Gross balance at December 31, 2018		2,715
Related tax benefits		-
Net reserve at December 31, 2018	$	2,715

Exhibit No.		Description
2.1		Joint Prepackaged Chapter 11 Plan of Offshore Group Investment Limited and its Affiliated Debtors, dated December 1, 2015, which is Exhibit A to the Disclosure Statement (Incorporated by reference to Exhibit 99.T3E.1 of the Form T-3 filed by Offshore Group Investment Limited with the SEC on December 2, 2015).
3.1		Fourth Amended and Restated Memorandum and Articles of Incorporation of the Company effective as of March 4, 2018 (Incorporated by reference by Exhibit 3.01 of the Company’s current report on Form 8-K filed with the SEC on March 8, 2018)
4.1		First Lien Indenture by and between Vantage Drilling International, the subsidiary guarantors party thereto and U.S. Bank National Association, as trustee and first lien collateral agent, dated as of November 30, 2018 (Incorporated by reference to Exhibit 4.1 of the Company’s current report on Form 8-K filed with the SEC on December 4, 2018)
4.2		Third Lien Indenture by and between Offshore Group Investment Limited, the guarantors from time to time party thereto (including certain of the Assignors, as defined therein) and U.S. Bank National Association, as trustee and noteholder collateral agent, dated as of February 10, 2016 (Incorporated by reference to Exhibit 4.3 of the Company’s current report on Form 8-K filed with the SEC on February 17, 2016)
4.3		Supplemental Indenture, dated as of June 8, 2016, among Vantage Drilling International (f/k/a Offshore Group Investment Limited), the guarantors party thereto, and U.S. Bank National Association, as trustee and noteholder collateral agent, to the Third Lien Indenture dated as of February 10, 2016 (Incorporated by reference to Exhibit 4.4 of the Company’s Form S-1 filed with the SEC on June 16, 2016)
10.1		Shareholders Agreement by and among Offshore Group Investment Limited and the Shareholders (as defined therein) dated as of February 10, 2016 (Incorporated by reference to Exhibit 10.1 of the Company’s current report on Form 8-K filed with the SEC on February 17, 2016)
10.2		Registration Rights Agreement by and among Offshore Group Investment Limited and each of the Holders (as defined therein) party thereto dated as of February 10, 2016 (Incorporated by reference to Exhibit 10.2 of the Company’s current report on Form 8-K filed with the SEC on February 17, 2016)
10.3		Amendment No. 1 to the Registration Rights Agreement dated as of May 9, 2016, by and among Vantage Drilling International (f/k/a Offshore Group Investment Limited) and each of the Holders (as defined therein) party thereto (Incorporated by reference to Exhibit 10.3 of the Form 10-Q filed with the SEC on May 13, 2016)
10.4		Vantage Drilling International Amended and Restated 2016 Management Incentive Plan (Incorporated by reference to Exhibit 10.4 of the Amendment No. 3 to Form S-1 filed with the SEC on November 3, 2016)
10.5		Form of Restricted Stock Unit Award Agreement (Performance-Based) under the Vantage Drilling International Amended and Restated 2016 Management Incentive Plan (Incorporated by reference to Exhibit 10.5 of the Amendment No. 3 to Form S-1 filed with the SEC on November 3, 2016)
10.6		Form of Restricted Stock Unit Award Agreement (Time-Based) under the Vantage Drilling International Amended and Restated 2016 Management Incentive Plan (Incorporated by reference to Exhibit 10.6 of the Amendment No. 3 to Form S-1 filed with the SEC on November 3, 2016)
10.7		Offshore Group Investment Limited 2016 Management Incentive Plan by and between Offshore Group Investment Limited, its executive officers and certain other employees dated as of February 10, 2016 (Incorporated by reference to Exhibit 10.3 of the Company’s current report on Form 8-K filed with the SEC on February 17, 2016)
10.8		Form of Restricted Stock Unit Award Agreement (Performance-Based) between Offshore Group Investment Limited and each Participant (as defined therein) dated as of February 10, 2016 (Incorporated by reference to Exhibit 10.4 of the Company’s current report on Form 8-K filed with the SEC on February 17, 2016)
10.9		Form of Restricted Stock Unit Award Agreement (Time-Based) between Offshore Group Investment Limited and each Participant (as defined therein) dated as of February 10, 2016 (Incorporated by reference to Exhibit 10.5 of the Company’s current report on Form 8-K filed with the SEC on February 17, 2016)
10.10		Form of Petrobras Litigation Award Agreement (Incorporated by reference to Exhibit 10.6 of the Company’s current report on Form 8-K filed with the SEC on February 17, 2016)
10.11		Form of Petrobras Litigation Letter (Incorporated by reference to Exhibit 10.7 of the Company’s current report on Form 8-K filed with the SEC on February 17, 2016)
10.12		Third Amended and Restated Employment and Non-Competition Agreement between Offshore Group Investment Limited and Douglas W. Halkett, dated February 10, 2016 (Incorporated by reference to Exhibit 10.10 of the Company’s current report on Form 8-K filed with the SEC on February 17, 2016)

Exhibit No.		Description
10.13		Third Amended and Restated Employment and Non-Competition Agreement between Offshore Group Investment Limited and William L. Thomson, dated February 10, 2016 (Incorporated by reference to Exhibit 10.11 of the Company’s current report on Form 8-K filed with the SEC on February 17, 2016)
10.14		Employment Agreement between Vantage Drilling International and Douglas E. Stewart, dated May 10, 2016 (Incorporated by reference to Exhibit 10.1 of the Company’s current report on Form 8-K filed with the SEC on May 17, 2016)
10.15		Employment Agreement between Vantage Drilling International and Ihab Toma, dated August 9, 2016 (Incorporated by reference to Exhibit 10.13 of the Amendment No. 1 to Form S-1 filed with the SEC on August 25, 2016)
10.16		Employment Agreement Between Vantage Drilling International and Thomas J. Cimino, dated September 22, 2016 (Incorporated by reference to Exhibit 10.14 of the Amendment No. 1 to Form S-1 filed with the SEC on October 11, 2016)
10.17		Registration Rights Agreement among Vantage Drilling International, Vantage Drilling Company and the joint official liquidators of Vantage Drilling Company, dated as of April 26, 2017 (Incorporated by reference to Exhibit 10.1 of the Form 10-K/A filed with the SEC on May 1, 2017)
10.18		Amendment to the Shareholders Agreement of Vantage Drilling International dated March 4, 2019 (Incorporated by reference to Exhibit 10.1 of the Form 8-K filed with the SEC on March 8, 2019)
12.1		Statement re Computation of Earnings to Fixed Charges (Filed herewith)
21.1		Subsidiaries of Vantage Drilling International (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)

VANTAGE DRILLING INTERNATIONAL

By:		/s/ THOMAS J. CIMINO
Name:		Thomas J. Cimino
Title:		Chief Financial Officer
Date:		March 14, 2019

Name	Position	Date

/s/ Ihab Toma	Chief Executive Officer (Principal Executive Officer)	March 14, 2019
Ihab Toma	Chief Executive Officer (Principal Executive Officer)

/s/ Thomas J. Cimino	Chief Financial Officer (Principal Financial and Accounting Officer)	March 14, 2019
Thomas J. Cimino		March 14, 2019

/s/ Thomas R. Bates, Jr.	Chairman and Director	March 14, 2019
Thomas R. Bates, Jr.	Chairman and Director	March 14, 2019

/s/ Nils E. Larsen	Director	March 14, 2019
Nils E. Larsen	Director	March 14, 2019

/s/ L. Spencer Wells	Director	March 14, 2019
L. Spencer Wells	Director	March 14, 2019

/s/ Scott McCarty	Director	March 14, 2019
Scott McCarty	Director	March 14, 2019

/s/ Matthew Bonanno	Director	March 14, 2019
Matthew Bonanno	Director	March 14, 2019

/s/ Paul A. Gordon	Director	March 14, 2019
Paul A. Gordon

/s/ Stephen Lehner	Director	March 14, 2019
Stephen Lehner	Director	March 14, 2019