VANTAGE DRILLING INTERNATIONAL LTD. The following discussion is intended to assist you in understanding our financial position as ofSeptember 30, 2021 and our results of operations for the three and nine months endedSeptember 30, 2021 and 2020. The discussion should be read in conjunction with the financial statements and notes thereto included in our Annual Report on Form 10-K for the year endedDecember 31, 2020 , which was filed with theSEC onMarch 18, 2021 . The results of operations for the interim periods are not necessarily indicative of the operating results for the full fiscal year or any future periods.
Overview
We are an international offshore drilling company focused on operating a fleet of modern, high specification drilling units. Our principal business is to contract drilling units, related equipment and work crews, primarily on a dayrate basis to drill oil and gas wells for our customers. Through our fleet of drilling units, we provide offshore contract drilling services to major, national and independent oil and gas companies, focused on international markets. Additionally, for drilling units owned by others, we provide operations and marketing services for operating and stacked rigs, construction supervision services for rigs that are under construction and preservation management services for rigs that are stacked.
The following table sets forth certain current information concerning our
offshore drilling fleet as of
Water Depth Drilling Depth
Name Year Built Rating (feet) Capacity Location Status
(feet)
Jackups
Emerald Driller 2008 375 30,000 Qatar Operating
Sapphire Driller 2009 375 30,000 Equatorial Guinea Operating
Aquamarine Driller 2009 375 30,000 Malaysia Operating
Topaz Driller 2009 375 30,000 Montenegro Operating
Soehanah 2007 375 30,000 Indonesia Operating
Drillships (1)
Platinum Explorer 2010 12,000 40,000 India Operating
Tungsten Explorer 2013 12,000 40,000 Mediterranean Reactivation
(1)
The drillships are designed to drill in up to 12,000 feet of water. The Platinum Explorer and Tungsten Explorer are currently equipped to drill in 10,000 feet of water. Recent Developments
Ongoing Impact of the COVID-19 Pandemic, Including on the Oil and Gas Industry
The global spread of COVID-19, including its highly contagious variants and sub-lineages, continues to pose significant risks and challenges worldwide, and has caused and continues to cause widespread illness and significant loss of life, leading governments across the world to impose and re-impose severely stringent and extensive limitations on movement and human interaction, with certain countries, including those where we maintain significant operations and derive material revenue, being forced to implement multiple and recurrent shelter-in-place and stay-at-home orders. These governmental responses to the COVID-19 pandemic, as well as changes to and extensions of such approaches have led to, and continue to result in, uncertain and volatile economic activity worldwide, including within the oil and gas industry and the regions and countries in which we operate. While the Company has previously managed, and continues to actively manage, the business in an attempt to mitigate any ongoing and material impact from the spread of COVID-19, management anticipates that our industry, and the world at large, will need to continue to operate in, and further adapt, to the current environment for the foreseeable future. The markets have generally exhibited a strong recovery in global oil prices for the first nine months of 2021 (as compared to 2020) and our management remains cautiously optimistic with respect to the potential for the recovery to continue. However, oil and gas prices are expected to continue to be volatile as a result of (i) the ongoing COVID-19 pandemic, including the transmission and presence of highly contagious variants, (ii) changes in oil and gas inventories, (iii) industry demand, and (iv) potential future disagreements among OPEC+ countries regarding the supply of oil, and therefore, we cannot predict how long oil and gas prices will remain stable or further improve, if at all, or whether they could reverse course and decline. While our management is actively monitoring the foregoing events and its associated financial impact our business, it is uncertain at this time as to the full magnitude that volatile and uncertain oil and gas prices will have on our financial condition and future results of operations. Agreements with Aquadrill OnFebruary 9, 2021 ,Vantage Holdings International ("VHI"), a subsidiary of VDI, entered into a Framework Agreement and related Management and Marketing Agreements, as amended onMarch 16, 2021 (collectively, the "Operations, Management and Marketing Agreements") withAquadrill LLC formerly known asSeadrill Partners LLC ("Aquadrill") pursuant to which certain 23 -------------------------------------------------------------------------------- subsidiaries of VHI (the "VHI Entities") will provide operating, management and marketing services to Aquadrill and its subsidiaries (the "Aquadrill Entities") in respect of four deepwater floaters owned by the Aquadrill Entities, which include two drillships, the West Polaris and the West Capella, and two semisubmersibles, the West Leo and the West Sirius. The Operations, Management and Marketing Agreements were subject to the approval of, and were approved by, theU.S. Bankruptcy Court for the Southern District of Texas onMarch 18, 2021 . In connection with the entry into the Operations, Management and Marketing Agreements, VHI organized a new legal entity,Vantage Financial Management Co. , an entity organized in theCayman Islands ("VFMC"), to provide certain cash management services to the Aquadrill Entities in respect of the management of the vessels subject to, and covered by, the Operations, Management and Marketing Agreements. VFMC was organized as an unrestricted, indirectly owned subsidiary of the Company and is therefore not subject to the restrictions under the First Lien Indenture. In the fourth quarter 2021, one of our subsidiaries and a subsidiary of Aquadrill have reached an agreement to provide the West Capella, a 6th generation drillship outfitted with a managed pressure drilling system, for a two well contract plus two priced optional wells for operations inIndonesia . The drilling campaign is expected to commence in the first quarter of 2022, following the completion of the Capella's current contract after the rig transitions to Vantage management and relocates toIndonesia . Vantage will earn its fees pursuant to its management and marketing agreements with Aquadrill.
Purchase and Sale Agreement to Sell the Titanium Explorer
OnDecember 31, 2020 , we entered into a purchase and sale agreement withBest Oasis Limited (the "Buyer") to sell the Titanium Explorer (the "Purchase and Sale Agreement"), for an aggregate purchase price of$13.8 million and we classified the rig as held for sale on our Consolidated Balance Sheets. The transactions contemplated by the Purchase and Sale Agreement closed onMarch 10, 2021 . Pursuant to the Purchase and Sale Agreement, the Buyer is required to recycle the rig in an environmentally sound manner.
Letter of Award for the Platinum Explorer
OnFebruary 3, 2021 , our ultra-deepwater drillship, the Platinum Explorer, received a letter of award for a two-year contract (the "New ONGC Contract") fromOil and Natural Gas Company ("ONGC"). The Platinum Explorer concluded its prior three-year contract with ONGC inAugust 2021 and, after being briefly out-of-service, is expected to commence the New ONGC Contract during the fourth quarter of 2021. Business Outlook Expectations about future oil and gas prices have historically been a key driver of demand for our services. Against the backdrop of already challenging industry conditions since 2015, the initial onset, and continued global spread of the COVID-19 pandemic and the resulting decline in global economic activity, coupled with the short-lived price war betweenSaudi Arabia andRussia , led to significant reductions and delays in oil and gas exploration and development plans on the part of operators during 2020, largely impeding and unwinding the improvements experienced by the industry in 2019. These reductions and delays led to a substantial drop in oil prices and demand for offshore drilling services globally, including for our services, during, and subsequent to, the second quarter of 2020. As a whole, global oil prices experienced a strong recovery in the first nine months of 2021, with Brent crude oil trading above$84.00 per barrel inOctober 2021 , as compared to the low prices experienced in 2020. This recovery is due to, among other things, the (i) OPEC+ countries' agreement since last year to reduce production by almost 10 million barrels per day, representing approximately 10% of the world's output compared with demand for approximately 96 million barrels a day, and their recent agreement to boost production, but only in measured steps, (ii) development, efficacy, availability and utilization of vaccines for COVID-19, (iii) the reopening of global economies, (iv) injection of substantial government monetary and fiscal stimulus and (v) the ongoing energy supply crisis driven by a shortage of fuel within recovering economies and anticipated extreme weather acrossEurope and northeastAsia , along with years of under investment in oil reserve replacement. Notwithstanding the foregoing, the volatility and uncertainty surrounding global oil prices largely remain as the spread of the COVID-19 pandemic and its highly transmissible variants persist and, as a whole, the oil and gas industry continues to be impacted and shaped by external factors which have influenced its overall development and recovery. While OPEC+ countries entered into an agreement inJuly 2021 to gradually phase out certain oil production cuts bySeptember 2022 and subsequently acknowledged that it would continue to observe such agreement to only boost production modestly despite higher oil prices, the long-term commitment of such countries to maintain oil production at or near such levels remains uncertain. As a result of such volatility and uncertainty, it has been difficult, and will generally continue to be difficult, for operators to develop and set their capital budget programs for the near and long-term. In addition to the macroeconomic challenges, including those set forth above, which have led to reduced demand for drilling rigs, the excess supply of delivered and new-build rigs continues to be an overhang on the market. It is unclear when these drilling rigs will actually be delivered, if at all, as many rig deliveries have (i) already been deferred to later dates or (ii) been canceled entirely. In response to an oversupply of drilling rigs, a number of drilling contractors began removing older, less competitive, rigs from their fleets by either cold stacking the drilling rigs, repurposing rigs for use in other industries or taking them permanently out of service. This trend has accelerated since the second quarter of 2020, with a substantial number of rigs removed from the drilling fleet since the 24 --------------------------------------------------------------------------------
oil price decline in 2014. However, we are seeing several instances where cold-stacked rigs are being reactivated for new contracts as the supply of ready-to-go rigs shrinks. This could result in more rigs competing in the market, and in turn cause dayrates to remain under pressure, which may impact the environment in which we compete.
In addition many offshore drillers with significant levels of debt on their balance sheets have recently completed, are currently pursuing, or may elect to pursue in the near-term, debt restructurings. As drillers emerge from these debt restructurings, it is likely that consolidation will occur, reducing the number of industry participants, lowering cost structures. The combination of recycling, restructuring and consolidation will be necessary for the industry to regain firmer footing. As such, we are monitoring the recent trend by some drilling contractors to reactivate cold stacked rigs and the impact on the market. Any industry recovery will also depend significantly on continued and demonstrable improvement in global macroeconomic conditions including the ability to mitigate COVID-19's highly contagious variants and mutations. Since 2015, in response to both market conditions and excessive levels of idle capacity in recent years, there has been intense downward pressure on operating dayrates, as most drilling contractors preferred to maintain rigs in an active state to mitigate the risks and costs of stacking and reactivating rigs and to benefit from the fact that customers had generally favored operating rigs over reactivated cold-stacked rigs. Prior to the COVID-19 pandemic, this downward pressure on pricing was starting to reverse itself, as evidenced by increased demand for our services in 2019 and early 2020, and dayrates were showing signs of general improvement. However, beginning in the second quarter of 2020, with the initial onset, continued spread and resulting impact, of the COVID-19 pandemic, dayrates, rig activity and contract opportunities each came under significant pressure again. With the initial distribution of vaccines in certain jurisdictions in an attempt to inoculate populations against COVID-19 along with significant governmental assistance directed at combatting the challenging economic environment caused by the COVID-19 pandemic, economic activity in certain portions of the world has generally improved during the first nine months of 2021. This improvement has contributed to, among other things, an increase in the demand for oil and gas. Since dropping to multi-year lows in the second quarter of 2020, Brent crude oil prices as a whole reached healthier levels in 2021 as compared to 2020. As a result, the jackup segment has already experienced visible recovery in 2021 and the deepwater segment has started to exhibit signs of near- to -medium term recovery. This recovery timing bifurcation may be partly due to the fact that a significant amount of time transpires between the date a final investment decision is taken with regard to a deepwater project and the date on which the program actually commences and any uncertainty regarding the direction of oil prices and rate of recovery could weigh significantly on these decisions. However, to the extent that global economic activity continues to improve or is, at a minimum, sustained at its current levels, operators could begin to sanction new activity, which could lead to more rigs going back into service and potentially higher day rates. Notwithstanding the foregoing, any recovery experienced could be short lived especially given the quickly changing and ever-evolving dynamics of the COVID-19 pandemic and its highly transmittable variants and sub-lineages. Though with the COVID-19 pandemic unlikely to subside in the near term, the possibility exists that the world learns to operate in and further adapt to the current environment for the foreseeable future. Volatility in global oil and gas prices and how our industry manages the logistical challenges stemming from the COVID-19 pandemic will continue to play a significant role in determining the outlook for the industry. Backlog
The following table reflects a summary of our contract drilling backlog coverage
of days contracted and related revenue as of
Revenues Contracted (1)
Percentage of Days Contracted (in thousands)
2021 2022 Beyond 2021 2022 Beyond
Jackups 89% 61% 94 % $ 29,912 $ 90,532 $ 115,134
Drillships 58% 62% 40 % $ 17,916 $ 69,738 $ 42,310
(1)
Includes contract(s) with operating day rates that may vary based on a variable
oil price index rate mechanism calculated utilizing the then applicable average
price of Brent crude. For purposes of calculating the backlog with contracts
that contain a variable oil price indexed rate mechanism we utilize the
applicable oil price as of quarter end multiplied by the number of days
remaining in the firm contract period. The average dayrate over the term of the
contract could be lower or higher depending upon the average price of Brent
crude for such measurable period and such adjustments are not estimated in the
backlog dayrate. As certain of our drilling contracts are denominated in
currencies other than the USD, backlog could also vary due to movements in the
applicable exchange rates.
25
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Results of Operations
Operating results for our contract drilling services are dependent on three primary metrics: available days, rig utilization and dayrates. The following table sets forth this selected operational information for the periods indicated:
Three Months Ended September 30 ,
Nine Months Ended
2021 2020 2021 2020
Jackups
Rigs available (at
end of period) 5 5 5 5
Available days (1) 460 460 1,365 1,335
Utilization (2) 98.7 % 40.0 % 56.9 % 62.2 %
Average daily
revenues (3) $ 82,975 $ 61,159 $ 89,250 $ 61,186
Deepwater
Rigs available 2 3 2 3
Available days (1) 184 276 546 822
Utilization (2) 28.5 % 28.2 % 42.4 % 45.1 %
Average daily
revenues (3) $ 101,128 $ 87,650 $ 99,907 $ 120,521
(1)
Available days are the total number of rig calendar days in the period. Rigs are
excluded while under bareboat charter contracts and removed upon classification
as held for sale and no longer eligible to earn revenue.
(2)
Utilization is calculated as a percentage of the actual number of revenue
earning days divided by the available days in the period. A revenue earning day
is defined as a day for which a rig earns dayrate after commencement of
operations.
(3)
Average daily revenues are based on contract drilling revenues divided by
revenue earning days. Average daily revenue will differ from average contract
dayrate due to billing adjustments for any non-productive time, mobilization
fees and demobilization fees.
For the Three Months Ended
Net loss attributable to shareholders for theCurrent Quarter was$21.7 million , or$1.66 per basic share, on operating revenues of$52.9 million , compared to net loss attributable to shareholders for theComparable Quarter of$169.3 million , or$12.91 per basic share, on operating revenues of$20.2 million .
The following table is an analysis of our operating results for the three months
ended
Three Months Ended September 30, Change
2021 2020 $ %
(unaudited, in thousands)
Revenues
Contract drilling services $ 42,982 $ 18,069 $ 24,913 138 %
Reimbursables and other 9,869 2,142 7,727 361 %
Total revenues 52,851 20,211 32,640 161 %
Operating costs and expenses
Operating costs 45,369 27,231 18,138 67 %
General and administrative 4,593 3,829 764 20 %
Depreciation 14,137 18,230 (4,093 ) -22 %
Loss on impairment - 128,876 (128,876 ) -100 %
Total operating costs and
expenses 64,099 178,166 (114,067 ) -64 %
Loss from operations (11,248 ) (157,955 ) 146,707 -93 %
Other (expense) income
Interest income 8 41 (33 ) -80 %
Interest expense and financing
charges (8,508 ) (8,510 ) 2 0 %
Other, net (1,108 ) (46 ) (1,062 ) 2309 %
Total other expense (9,608 ) (8,515 ) (1,093 ) 13 %
Loss before income taxes (20,856 ) (166,470 ) 145,614 -87 %
Income tax provision 881 2,855 (1,974 ) -69 %
Net loss (21,737 ) (169,325 ) 147,588 -87 %
Net income (loss) attributable
to noncontrolling interests (10 ) 2 (12 ) -600 %
Net loss attributable to
shareholders $ (21,727 ) $ (169,327 ) $ 147,600 -87 %
Revenue: Total revenue increased
26
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Contract drilling revenue increased $24.9 million for the Current Quarter as
compared to the Comparable Quarter . The increase in our contract drilling
revenue for the Current Quarter as compared to the Comparable Quarter was
primarily the result of the number of rigs that were operational, with six in
the Current Quarter as compared to three in the Comparable Quarter due to the
fact that: (i) three of our drilling contracts were terminated in the second
quarter of 2020 as a result of the volatility in oil prices and the challenges
presented by the COVID-19 pandemic; (ii) another drilling contract expired in
the second quarter of 2020 in accordance with its terms; and (iii) another
drilling contract was amended to reduce the applicable dayrate in the Comparable
Quarter .
Reimbursables and other revenue for the Current Quarter increased 361% as
compared to the Comparable Quarter primarily as a result of the number of our
rigs which were operational as discussed immediately above and other revenue
related to the management of the Aquadrill rigs we began managing during the
first quarter of 2021.
Operating costs: Operating costs for the
General and administrative expenses: Increases in general and administrative expenses for theCurrent Quarter as compared to theComparable Quarter were primarily due to higher professional fees, contract labor costs and insurance. General and administrative expenses for theComparable Quarter included approximately$0.2 million for non-cash share-based compensation expense. Non-cash share-based compensation expense for theCurrent Quarter was immaterial. Depreciation expense: Depreciation expense for theCurrent Quarter decreased 22% as compared to theComparable Quarter , due primarily to a$3.8 million decrease in depreciation expense on the Titanium Explorer, which was classified as held for sale onDecember 31, 2020 and subsequently sold onMarch 10, 2021 . Loss on impairment: During theComparable Quarter , we evaluated our deepwater drilling rigs that had indicators of impairment and determined that the carrying value of our longer-term warm stacked drillship, the Titanium Explorer, was impaired. As a result, we recognized a non-cash loss on impairment of$128.9 million during the Comparable Period.
Interest income: Decreases in interest income for the
Interest expense and financing charges: Interest expense and financing charges includes non-cash deferred financing costs totaling approximately$0.4 million for theCurrent Quarter and for theComparable Quarter , respectively. Our functional currency is USD; however, a portion of the revenues earned and expenses incurred by certain of our subsidiaries are denominated in currencies other than USD. These transactions are re-measured in USD based on a combination of both current and historical exchange rates. Net foreign currency exchange loss of approximately$1.1 million was included in "other, net," for theCurrent Quarter . The foreign currency exchange gain/loss for theComparable Quarter was immaterial. Income tax provision: Our annualized effective tax rate for theCurrent Quarter is negative 8.01% based on estimated annualized loss before income taxes excluding income tax discrete items. Our annualized effective tax rate for theComparable Quarter was negative 2.46%, based on estimated annualized loss before income taxes excluding income tax discrete items. Our income taxes are generally dependent upon the results of our operations and the local income taxes in the jurisdictions in which we operate. In some jurisdictions, we do not pay taxes or receive benefits for certain income and expense items, including interest expense and disposal gains or losses. In other jurisdictions, we recognize income taxes on a net income basis or a deemed profit basis.
For the Nine Months Ended
Net loss attributable to shareholders for the Current Period was$86.7 million , or$6.61 per basic share, on operating revenues of$108.6 million , compared to net loss attributable to shareholders for the Comparable Period of$231.8 million , or$17.68 per basic share, on operating revenues of$108.4 million . 27 --------------------------------------------------------------------------------
The following table is an analysis of our operating results for the nine months
ended
Nine Months Ended September 30, Change
2021 2020 $ %
(unaudited, in thousands)
Revenues
Contract drilling services $ 92,362 $ 95,539 $ (3,177 ) -3 %
Reimbursables and other 16,256 12,903 3,353 26 %
Total revenues 108,618 108,442 176 0 %
Operating costs and expenses
Operating costs 106,782 113,890 (7,108 ) -6 %
General and administrative 15,055 15,715 (660 ) -4 %
Depreciation 42,423 54,647 (12,224 ) -22 %
Loss on impairment - 128,876 (128,876 ) -100 %
Total operating costs and
expenses 164,260 313,128 (148,868 ) -48 %
Loss from operations (55,642 ) (204,686 ) 149,044 -73 %
Other (expense) income
Interest income 118 853 (735 ) -86 %
Interest expense and financing
charges (25,529 ) (25,531 ) 2 0 %
Other, net (1,901 ) 2,321 (4,222 ) -182 %
Total other expense (27,312 ) (22,357 ) (4,955 ) 22 %
Loss before income taxes (82,954 ) (227,043 ) 144,089 -63 %
Income tax provision 3,763 4,752 (989 ) -21 %
Net loss (86,717 ) (231,795 ) 145,078 -63 %
Net income (loss) attributable
to noncontrolling interests (41 ) 16 (57 ) -356 %
Net loss attributable to
shareholders $ (86,676 ) $ (231,811 ) $ 145,135 -63 %
Revenue: Total revenue increased
Contract drilling revenue decreased 3% for the Current Period as compared to the Comparable Period. The decrease in our contract drilling revenue for the Current Period as compared to the Comparable Period was primarily a result of the number of rigs that were operational (with six rigs operational in the Current Period as compared to seven rigs in the Comparable Period) due to the fact that: (i) three of our drilling contracts were terminated in the second quarter of 2020 as a result of the volatility in oil prices and the challenges presented by the COVID-19 pandemic; (ii) another drilling contract expired in the second quarter of 2020 in accordance with its terms and (iii) lower utilization on the Soehanah jackup rig in the Current Period as compared to the Comparable Period. These decreases were offset by higher utilization of the Topaz Driller and contract amendments on the Emerald Driller which resulted in higher dayrates during the Current Period as compared to the Comparable Period. Reimbursables and other revenue for the Current Period increased$3.4 million as compared to the Comparable Period primarily as a result of reimbursables and other revenue derived from the management of the Aquadrill rigs (which we began managing during the first quarter of 2021), and higher reimbursable revenue on the Emerald Driller and Topaz Driller in the Current Period as compared to the Comparable Period. These increases were offset by decreased reimbursable revenue on the Tungsten Explorer as a result of lower utilization in the Current Period as compared to the Comparable Period. Operating costs: Operating costs for the Current Period decreased 6% as compared to the Comparable Period. The decrease in operating costs was primarily the result of (i) lower costs incurred on warm stacked rigs and the sale of the Titanium Explorer onMarch 10, 2021 and (ii) the recognition of a net gain of$2.8 million related to the sale of the asset. General and administrative expenses: Decreases in general and administrative expenses for the Current Period as compared to the Comparable Period were primarily due to cost cutting initiatives implemented during 2020 to reflect the lower levels of operating activity in the Comparable Period. General and administrative expenses for the Current Period and for the Comparable Period include approximately$0.3 million and$0.9 million , respectively, for non-cash share-based compensation expense. Depreciation expense: Depreciation expense for the Current Period decreased 22% as compared to the Comparable Period, due primarily to a$11.3 million decrease in depreciation expense on the Titanium Explorer, which was classified as held for sale as ofDecember 31, 2020 and subsequently sold onMarch 10, 2021 . Loss on impairment: During the Comparable Period, we evaluated our deepwater drilling rigs that had indicators of impairment and determined that the carrying value of our longer-term warm stacked drillship, the Titanium Explorer, was impaired. As a result, we recognized a non-cash loss on impairment of$128.9 million during the Comparable Period. 28 --------------------------------------------------------------------------------
Interest income: Interest income for the Current Period decreased
Interest expense and financing charges: Interest expense and financing charges includes non-cash deferred financing costs totaling approximately$1.2 million for each of the Current Period and the Comparable Period. Other, net: We recorded a gain of$2.3 million during the Comparable Period related to the settlement agreement between the Company and its subsidiaries, on the one hand, and VDC and its subsidiaries, on the other. See " Note 8. Commitments and Contingencies " of the "Notes to Unaudited Consolidated Financial Statements" in Part I, Item 1 of this Quarterly Report for additional detail on the settlement agreement. Our functional currency is USD; however, a portion of the revenues earned and expenses incurred by certain of our subsidiaries are denominated in currencies other than USD. These transactions are re-measured in USD based on a combination of both current and historical exchange rates. Net foreign currency exchange loss of approximately$1.9 million was included in "Other, net", for the Current Period. Net foreign currency exchange for the Comparable Period was immaterial. Income tax provision: Our annualized effective tax rate for the Current Period is negative 8.01% based on estimated annualized loss before income taxes excluding income tax discrete items. Our estimated annualized effective tax rate for the Comparable Period was negative 2.46% based on estimated annualized loss before income taxes excluding income tax discrete items. Our income taxes are generally dependent upon the results of our operations and the local income taxes in the jurisdictions in which we operate. In some jurisdictions, we do not pay taxes or receive benefits for certain income and expense items, including interest expense and disposal gains or losses. In other jurisdictions, we recognize income taxes on a net income basis or a deemed profit basis.
Liquidity and Capital Resources
The prolonged low price environment caused by the spread of COVID-19, the resulting decline in global economic activity and the oil price and market share volatility began to reduce our liquidity and capital resources in the second quarter of 2020, a trend which extended into 2021 and could extend into 2022 and beyond, depending on, among other factors, how long COVID-19 remains a significant public health crisis and global economic activity remains challenged. Such events have had significant adverse consequences for general financial, business and economic conditions, as well as for the financial, business and economic position of our business and the business of our customers and suppliers, and may adversely impact our ability to derive cash flows from our operations and access capital funding from third parties in the future. We experienced, and could experience further, delays in the collection of certain accounts receivables due to logistical obstacles resulting from the COVID-19 pandemic, such as office closures, as well as other impacts to our long-term liquidity. (see "Ongoing Impact of the COVID-19 Pandemic, Including on the Oil and Gas Industry" of this Part I, Item 2 for further information pertaining to the ongoing impact of the COVID-19 pandemic, including the spread of its highly transmittable variants and sub-lineages, on our operations and financial condition). Governmental measures, such as widespread lock downs, nightly curfews , territorial entry restrictions and mandates, could impact our ability to operate in locations where such restrictions and requirements are in place, including those locations where we maintain significant operations and derive material revenue. During these uncertain times, we have sought, and continue to seek, measures to reduce our operating costs and preserve cash. We could implement further cost reduction measures (in addition to those previously put in place in 2020 and maintained through the Current Period) and alter our general financial strategy in the near- and long-term. As ofSeptember 30, 2021 , we have adequate cash reserves and are continuously managing our actual cash flow and cash forecasts. As a result of these factors, management believes that we have adequate liquidity to fund our operations for the twelve months following the date our consolidated financial statements are issued and therefore, have been prepared under the going concern assumption. As ofSeptember 30, 2021 , we had working capital of approximately$149.0 million , including approximately$105.5 million of cash available for general corporate purposes. Scheduled debt service consists of interest payments throughSeptember 30, 2022 of approximately$32.4 million . We anticipate capital expenditures throughSeptember 30, 2022 to be between approximately$18.2 million and$22.3 million , for sustaining capital and capital spares as a result of upgrades required for upcoming contracts. As our rigs obtain new contracts, we could incur reactivation and mobilization costs for these rigs, as well as additional customer requested equipment upgrades. These costs could be significant and may not be fully recoverable from the customer. Based on our expected levels of activity, incremental expenditures throughSeptember 30, 2022 for special periodic surveys, major repair and maintenance expenditures and equipment recertifications to be between approximately$37.1 million and$45.3 million primarily as a result of anticipated maintenance that will need to be completed prior to commencement of upcoming contracts. As ofSeptember 30, 2021 , we had$41.2 million available for the issuance of letters of credit under our cash collateralized letter of credit facility. 29 --------------------------------------------------------------------------------
The following table includes a summary of our cash flow information for the periods indicated:
Nine Months Ended September 30,
(unaudited, in thousands) 2021 2020
Cash flows (used in) provided by:
Operating activities $ (44,479 ) $ (61,076 )
Investing activities 10,325 (2,634 )
Financing activities - -
Changes in cash flows from operating activities are driven by changes in net
loss during the relevant periods (see the discussion of changes in net loss
above in "Results of Operations" of this Part I, Item 2) and includes $15.0
million in the Comparable Period paid in accordance with a settlement agreement
entered into with Vantage Drilling Company, the Company's former parent company.
Cash flows from investing activities in the Current Period include net proceeds
of
The significant elements of the 9.25% First Lien Notes are described in " Note 5. Debt " of the "Notes to Unaudited Consolidated Financial Statements" in Part I, Item 1 of this Quarterly Report. The information discussed therein is incorporated by reference in its entirety into this Part I, Item 2.
We enter into operating leases in the normal course of business for office space, housing, vehicles and specified operating equipment. Some of these leases contain options that would cause our future cash payments to change if we exercised those options.
Commitments and Contingencies
We are subject to litigation, claims and disputes in the ordinary course of business, some of which may not be covered by insurance. Information regarding our legal proceedings is set forth in " Note 8. Commitments and Contingencies " of the "Notes to Unaudited Consolidated Financial Statements" in Part I, Item 1 of this Quarterly Report. The information discussed therein is incorporated by reference in its entirety into this Part I, Item 2. There is an inherent risk in any litigation or dispute and no assurance can be given as to the outcome of any claims. We do not believe the ultimate resolution of any existing litigation, claims or disputes will have a material adverse effect on our financial position, results of operations or cash flows.
Critical Accounting Policies and Accounting Estimates
The preparation of unaudited financial statements and related disclosures in accordance withU.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Our significant accounting policies are included in " Note 2. Basis of Presentation and Significant Accounting Policies " of the "Notes to the Unaudited Consolidated Financial Statements" in Part I, Item 1 of this Quarterly Report. These policies, along with our underlying judgments and assumptions made in their application, have a significant impact on our consolidated financial statements. While management believes current estimates are appropriate and reasonable, actual results could materially differ from those estimates. We have discussed the development, selection and disclosure of such policies and estimates with the audit committee of the Board of Directors. Our critical accounting policies are those related to property and equipment, impairment of long-lived assets and income taxes. For a discussion of the critical accounting policies and estimates that we use in the preparation of our consolidated financial statements, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Estimates" in Part II of our Annual Report on Form 10-K for the year endedDecember 31, 2020 , which was filed with theSEC onMarch 18, 2021 . During theCurrent Quarter , there were no material changes to the judgments, assumptions or policies upon which our critical accounting estimates are based. Recent Accounting Pronouncements: See " Note 2. Basis of Presentation and Significant Accounting Policies " of the "Notes to Unaudited Consolidated Financial Statements" in Part I, Item 1 of this Quarterly Report for further information. The information discussed therein is incorporated by reference in its entirety into this Part I, Item 2.
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