UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2023

OR

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

For the transition period from to

Commission File Number: 333-159299

VANTAGE DRILLING INTERNATIONAL

(Exact name of Registrant as specified in its charter)

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 440

Houston, TX 77056

(Address of principal executive offices and zip code)

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

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol	Name of each exchange on which registered
N/A	N/A	N/A

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 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.

Large accelerated filer		Accelerated filer	
Non-accelerated filer		Smaller reporting company	☐
		Emerging growth company	☐

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 Vantage Drilling International Ordinary Shares outstanding as of August 1, 2023 is 13,229,280 shares.

TABLE OF CONTENTS

		Page
SAFE HARBOR STATEMENT		3
PART I—FINANCIAL INFORMATION
Item 1	Financial Statements (unaudited)	7
	Consolidated Balance Sheets	7
	Consolidated Statement of Operations	8
	Consolidated Statement of Shareholders’ Equity	9
	Consolidated Statement of Cash Flows	10
	Notes to Unaudited Consolidated Financial Statements	11
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
Item 3	Quantitative and Qualitative Disclosures About Market Risk	37
Item 4	Controls and Procedures	37
PART II—OTHER INFORMATION
Item 1	Legal Proceedings	38
Item 6	Exhibits	38
SIGNATURES		41

2

SAFE HARBOR STATEMENT

This Quarterly Report on Form 10-Q (this “Quarterly Report”) contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. These forward-looking statements are included throughout this Quarterly Report, including under “Item 2. 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 Quarterly 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” of our Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the SEC on March 31, 2023, “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Quarterly Report, and the following:

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

•general economic conditions and conditions in the oil and gas industry, including the worldwide supply and demand for oil and gas, and expectations regarding future prices of oil and gas;

•excess supply of drilling units worldwide;

•competition within our industry;

•growing focus on climate change, including regulatory, social and market efforts to address climate change, and its overall impact on the level of investments being directed to fossil fuel exploration and production companies and the associated products or services;

•our current level of indebtedness and the ability to incur additional indebtedness in the near- and long-term;

•epidemics, pandemics, global health crises, or other public health events and concerns, including any future resurgence of COVID-19, and the effectiveness of associated vaccinations and treatments;

•governmental, tax and environmental regulations and related actions and legal matters, including the actions taken by governments in response to any global health events and crises, as well as the results and effects of legal proceedings and governmental audits, assessments, orders and investigations;

•volatility in the price of commodities due to actions taken by members of OPEC, OPEC+ and other, oil-exploring countries, with respect to oil production levels and announcements of potential changes in such levels, including the ability of members of OPEC+ to agree on and comply with announced supply limitations;

•the potential for increased production from U.S. shale producers and non-OPEC countries driven by current oil prices, including the effect of such production rates on the overall global oil and gas supply, demand balance and commodity prices;

•termination or renegotiation of our customer contracts, and the invoking of force majeure clauses;

•termination or renegotiation of our management and marketing agreements, including any terminations arising directly or indirectly from the consummation of the Aquadrill Merger (as defined below);

•losses on impairment of long-lived assets;

•any non-compliance with the U.S. Foreign Corrupt Practices Act, as amended, and any other anti-corruption laws;

•the sufficiency of our internal controls, including exposure arising from the failure to (i) establish and maintain effective internal control over financial reporting in accordance with applicable regulatory requirements, and (ii) fully remediate any material weaknesses identified with respect to such internal controls;

•operating hazards in the offshore drilling industry;

•operations in international markets, including geopolitical, global, regional or local economic and financial market risks and challenges, applicability of foreign laws, including foreign labor and employment laws, foreign tax and customs regimes, and foreign currency exchange rate risk;

3

•political disturbances, geopolitical instability and tensions, or terrorist attacks, and associated changes in global trade policies and economic sanctions, including, but not limited to, Russia’s invasion of Ukraine in February 2022 and the Russo-Ukrainian War;

•adequacy of, or gaps in, insurance coverage upon the occurrence of a catastrophic or other material adverse event;

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

•the occurrence (or recurrence) of cybersecurity incidents, attacks, intrusions or other breaches to our information technology systems;

•our small number of customers, related concentration and/or the loss of any customers;

•consolidation of our competitors and suppliers;

•termination or renegotiation of vendor contracts;

•changes in the status of pending, or the initiation of new litigation, claims or proceedings, including our ability to prevail in the defense of any appeal or counterclaim;

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

•limited mobility of our drilling units between geographic regions;

•the small size of our fleet and associated vulnerabilities in the case of prolonged downtime of any of our drilling rigs;

•levels of operating and maintenance costs;

•our dependence on key personnel;

•availability of workers and the related labor costs;

•increased costs resulting from supply chain constraints, delays and impediments, including, but not limited to, increases in (i) the costs of obtaining supplies, (ii) labor costs, and (iii) freight, transportation and input costs, among others;

•changes in tax laws, treaties or regulations;

•credit risks of our key customers and other third parties we engage commercially;

•compliance with restrictions and covenants in our debt agreements;

•our recent lack of overall profitability and whether we will generate material revenues or profits in the near- and long-term;

•adverse macroeconomic conditions, including (i) inflationary pressures and potential recessionary conditions, as well as actions taken by central banks and regulators across the world in an attempt to reduce, curtail and address such pressures and conditions, and (ii) the effects of adverse developments at financial institutions, including bank failures, that impact general sentiment regarding the stability and liquidity of banks, and the resulting impact on the stability of the global financial markets at large;

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

•compliance with the Economic Substance Act 2021 (as amended) and the Economic Substance Act 2018 (as amended), among other legislation enacted in the Cayman Islands and Bermuda; and

•our ability to identify and complete strategic and/or transformational transactions, including acquisitions, dispositions, joint ventures and mergers, as well as the impact that such transactions may have on our operations and financial condition.

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 SEC, which may be obtained by contacting us or the SEC. These filings

4

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 Quarterly Report.

Unless the context indicates otherwise, all references to the “Company,” “Vantage Drilling International,” “we,” “our” or “us” refer to Vantage Drilling International and its consolidated subsidiaries. References to “VDI” refer to Vantage Drilling International, a Cayman Islands exempted company and the group parent company.

5

GLOSSARY OF TERMS

The following terms used in this Quarterly Report have the following meanings, unless specified elsewhere in this Quarterly Report:

Abbreviation/Acronym	Definition
2016 Amended MIP	The Company's Amended and Restated 2016 Management Incentive Plan
9.25% First Lien Indenture	First Lien Indenture, dated as of November 30, 2018, by and between Vantage Drilling International and U.S. Bank National Association
9.25% First Lien Notes	The Company's 9.25% Senior Secured First Lien Notes due November 15, 2023
9.50% First Lien Indenture	Indenture, dated as of March 1, 2023, by and between VDI, the guarantors party thereto, and U.S. Bank Trust Company, National Association, as trustee and first lien collateral agent
9.50% First Lien Notes	The Company's 9.50% Senior Secured First Lien Notes due February 15, 2028
ADES	ADES International Holding Ltd, an offshore and onshore provider of oil and gas drilling and production services in the Middle East, India and Africa
ADVantage	ADVantage Drilling Services SAE, a joint venture owned 51% by the Company and 49% by ADES
ASC	Accounting Standards Codification
Board of Directors	The Company's board of directors
Comparable Period	The six months ended June 30, 2022
Comparable Quarter	The three months ended June 30, 2022
Convertible Notes	The Company's 1%/12% Step-Up Senior Secured Third Lien Convertible Notes due 2030
COVID-19	Coronavirus disease 2019, a strain of coronavirus caused by SARS-CoV-2
Current Period	The six months ended June 30, 2023
Current Quarter	The three months ended June 30, 2023
DOJ	U.S. Department of Justice
EDC	Emerald Driller Company, which owns the Emerald Driller, Sapphire Driller and Aquamarine Driller
EDC Sale	The sale by VHI of all of the issued and outstanding equity of EDC to ADES Arabia Holding, pursuant to the terms of that certain Share Purchase Agreement, dated as of December 6, 2021, by and between VHI and to sell to ADES Arabia Holding, as amended, which closed on May 27, 2022
Effective Date	February 10, 2016, the date the Company emerged from bankruptcy
EPS	Earnings per share
Exchange Act	Securities Exchange Act of 1934, as amended
IRS	U.S. Internal Revenue Service
OPEC	The Organization of the Petroleum Exporting Countries
OPEC+	The Organization of the Petroleum Exporting Countries plus 10 non-OPEC nations
Ordinary Shares	The Company's ordinary shares, par value $0.001 per share
PBGs	Performance-based restricted stock units
QLE	A qualified liquidity event as defined in the 2016 Amended MIP
ROU	Right-of-use
Russo-Ukrainian War	The ongoing war resulting from Russia's invasion of Ukraine in February 2022
SEC	Securities and Exchange Commission
Securities Act	Securities Act of 1933, as amended
Tax Election	Tax election filed with the IRS on January 22, 2020, to allow VDI to be treated as a partnership, rather than a corporation, for U.S. federal income tax purposes, with an effective date retroactive to December 9, 2019
TBGs	Time-based restricted stock units
TEV	Total enterprise value
U.S.	United States of America
U.S. GAAP	Accounting principles generally accepted in the United States of America
U.S. Holder	A beneficial owner of the Ordinary Shares that is, for U.S. federal income tax purposes, (i) a citizen or individual resident of the United States, (ii) a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) that was organized under the laws of the United States, any state thereof, or the District of Columbia, (iii) an estate, the income of which is subject to U.S. federal income tax regardless of its source or (iv) a trust, if a U.S. court can exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust, or such trust has a valid election in effect under applicable treasury regulations to be treated as a U.S. person for U.S. federal income tax purposes
USD or $	U.S. Dollar
VDC	Vantage Drilling Company, the Company's former parent company
VDI	Vantage Drilling International
VHI	Vantage Holdings International, a subsidiary of VDI
VIE	Variable interest entity

6

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

Vantage Drilling International

Consolidated Balance Sheets

(In thousands, except share and par value information)

(Unaudited)

	June 30, 2023			December 31, 2022
ASSETS
Current assets
Cash and cash equivalents	$	79,650		$	74,026
Restricted cash		455			16,450
Trade receivables, net of allowance for credit losses of $3,850 and $4,962, respectively		83,109			62,776
Materials and supplies		44,759			41,250
Prepaid expenses and other current assets		40,166			25,621
Total current assets		248,139			220,123
Property and equipment
Property and equipment		649,910			647,909
Accumulated depreciation		(330,911	)		(309,453	)
Property and equipment, net		318,999			338,456
Operating lease ROU assets		812			1,648
Other assets		12,659			18,334
Total assets	$	580,609		$	578,561
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable	$	55,570		$	57,775
Other current liabilities		65,770			66,179
Total current liabilities		121,340			123,954
Long–term debt, net of discount and financing costs of $11,080 and $773, respectively		188,920			179,227
Other long-term liabilities		9,678			12,881
Commitments and contingencies (see Note 8)
Shareholders' equity
Ordinary shares, $0.001 par value, 50 million shares authorized; 13,229,280 and 13,115,026 shares issued and outstanding, each period		13			13
Additional paid-in capital		633,605			633,863
Accumulated deficit		(373,971	)		(373,147	)
Controlling interest shareholders' equity		259,647			260,729
Noncontrolling interests		1,024			1,770
Total equity		260,671			262,499
Total liabilities and shareholders' equity	$	580,609		$	578,561

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

7

Vantage Drilling International

Consolidated Statement of Operations

(In thousands, except per share amounts)

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
Revenue
Contract drilling services	$	67,673		$	42,744		$	115,590		$	87,657
Management fees		5,569			2,840			7,689			3,943
Reimbursables and other		34,598			27,654			61,633			39,969
Total revenue		107,840			73,238			184,912			131,569
Operating costs and expenses
Operating costs		74,383			59,405			140,938			103,338
General and administrative		5,161			6,910			9,992			13,492
Depreciation		11,045			11,087			22,094			22,382
(Gain) loss on EDC Sale		—			(60,781	)		3			(60,781	)
Total operating costs and expenses		90,589			16,621			173,027			78,431
Income from operations		17,251			56,617			11,885			53,138
Other (expense) income
Interest income		141			7			190			11
Interest expense and other financing charges		(5,346	)		(8,503	)		(10,904	)		(17,007	)
Other, net		(457	)		(1,011	)		(135	)		(1,786	)
Total other expense		(5,662	)		(9,507	)		(10,849	)		(18,782	)
Income before income taxes		11,589			47,110			1,036			34,356
Income tax provision (benefit)		10,584			(1,221	)		2,606			217
Net income (loss)		1,005			48,331			(1,570	)		34,139
Net (loss) income attributable to noncontrolling interests		(457	)		232			(746	)		938
Net income (loss) attributable to shareholders	$	1,462		$	48,099		$	(824	)	$	33,201
Earnings (loss) per share
Basic	$	0.11		$	3.67		$	(0.06	)	$	2.53
Diluted	$	0.11		$	3.61		$	(0.06	)	$	2.49

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

8

Vantage Drilling International

Consolidated Statement of Shareholders’ Equity

(In thousands)

(Unaudited)

	Six-Month Period Ended June 30, 2022
	Ordinary Shares
	Shares		Amount		Additional Paid-in Capital			Accumulated Deficit			Non-Controlling Interests			Total Equity
Balance January 1, 2022		13,115	$	13	$	633,847		$	(369,792	)	$	1,783		$	265,851
Share-based compensation		—		—		26			—			—			26
Share-based compensation - dividend equivalents		—		—		(63	)		—			—			(63	)
Net (loss) income		—		—		—			(14,898	)		706			(14,192	)
Balance March 31, 2022		13,115	$	13	$	633,810		$	(384,690	)	$	2,489		$	251,622
Share-based compensation		—		—		18			—			—			18
Net income		—		—		—			48,099			232			48,331
Balance June 30, 2022		13,115	$	13	$	633,828		$	(336,591	)	$	2,721		$	299,971
	Six-Month Period Ended June 30, 2023
	Ordinary Shares
	Shares		Amount		Additional Paid-in Capital			Accumulated Deficit			Non-Controlling Interests			Total Equity
Balance January 1, 2023		13,115	$	13	$	633,863		$	(373,147	)	$	1,770		$	262,499
Share-based compensation issuance of shares		114		—		—			—			—			—
Shares repurchased to settle withholding taxes		—		—		(246	)		—			—			(246	)
Share-based compensation		—		—		11			—			—			11
Share-based compensation - dividend equivalents		—		—		(37	)		—			—			(37	)
Net loss		—		—		—			(2,286	)		(289	)		(2,575	)
Balance March 31, 2023		13,229	$	13	$	633,591		$	(375,433	)	$	1,481		$	259,652
Share-based compensation		—		—		14			—			—			14
Net income (loss)		—		—		—			1,462			(457	)		1,005
Balance June 30, 2023		13,229	$	13	$	633,605		$	(373,971	)	$	1,024		$	260,671

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

9

Vantage Drilling International

Consolidated Statement of Cash Flows

(In thousands)

(Unaudited)

	Six Months Ended June 30,
	2023			2022
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income	$	(1,570	)	$	34,139
Adjustments to reconcile net income (loss) to net cash used in operating activities
Depreciation expense		22,094			22,382
Amortization of debt financing costs		862			820
Share-based compensation expense		25			44
Loss on debt extinguishment		703			—
Deferred income tax expense		733			410
Gain on disposal of assets		—			(1,630	)
Loss (gain) on EDC Sale		3			(60,781	)
Changes in operating assets and liabilities:
Trade receivables, net		(20,333	)		(58,864	)
Materials and supplies		(3,509	)		(1,811	)
Prepaid expenses and other current assets		(5,379	)		3,369
Other assets		5,269			(25,043	)
Accounts payable		(2,205	)		29,564
Other current liabilities and other long-term liabilities		(7,773	)		17,696
Net cash used in operating activities		(11,080	)		(39,705	)
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment		(2,637	)		(7,736	)
Net proceeds from EDC Sale		—			200,000
Net proceeds from sale of assets		—			3,100
Net cash (used in) provided by investing activities		(2,637	)		195,364
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from 9.50% First Lien Notes		194,000			—
Repayment of long-term debt		(180,000	)		—
Shares repurchased for tax withholdings on settlement of RSUs		(246	)		—
Payments of dividend equivalents		(5,278	)		—
Debt issuance costs		(5,645	)		—
Net cash provided by financing activities		2,831			—
Net (decrease) increase in unrestricted and restricted cash and cash equivalents		(10,886	)		155,659
Unrestricted and restricted cash and cash equivalents—beginning of period		93,257			90,608
Unrestricted and restricted cash and cash equivalents—end of period	$	82,371		$	246,267
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for:
Interest	$	5,179			16,229
Income taxes (net of refunds)		6,657			686
Non-cash investing and financing transactions:
Accrued debt issuance costs		227			—
Accrued additions to property and equipment		—			8,908

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

10

VANTAGE DRILLING INTERNATIONAL

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Recent Events

Vantage Drilling International, a Cayman Islands exempted company, together with its consolidated subsidiaries (collectively the “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 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 gas companies, focused on international markets. Additionally, for third party owned drilling units, 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.

Redemption of the 9.25% First Lien Notes

On February 3, 2023, the Company issued a notice of full conditional redemption to the then existing recordholders (the “Notice of Full Conditional Redemption”) of the remaining portion of the 9.25% First Lien Notes then outstanding after the partial redemption consummated in December 2022. The balance of the 9.25% First Lien Notes was redeemed in full on March 6, 2023 with proceeds derived from the issuance of the 9.50% First Lien Notes (as discussed immediately below). See “Note 5. Debt” of these “Notes to Unaudited Consolidated Financial Statements” for further information regarding the Notice of Full Conditional Redemption.

9.50% First Lien Notes Offering

On February 14, 2023, the Company priced an offering of $200.0 million in aggregate principal amount of the 9.50% First Lien Notes and entered into a purchase agreement with several investors pursuant to which the Company agreed to sell the 9.50% First Lien Notes (the “9.50% First Lien Notes Offering”) to the purchasers in reliance on an exemption from registration provided by Section 4(a)(2), Rule 144A and/or Regulation S of the Securities Act. On March 1, 2023, the Company closed on the sale of the 9.50% First Lien Notes. See “Note 5. Debt” of these “Notes to Unaudited Consolidated Financial Statements” for further information regarding the 9.50% First Lien Notes Offering.

The Aquadrill Merger and the Termination of Certain Agreements

VHI previously entered into a framework agreement with Aquadrill LLC (“Aquadrill”) on February 9, 2021 (the “Framework Agreement”), and, certain subsidiaries of VHI (the “VHI Entities”) subsequently entered into a series of related management and marketing agreements (collectively, the “Marketing and Management Agreements” and together with the Framework Agreement, the “Framework, Management and Marketing Agreements”) with certain subsidiaries of Aquadrill (collectively, the “Aquadrill Entities”). Pursuant to the Framework, Management and Marketing agreements, the VHI Entities agreed to provide certain marketing and operational management services with respect to the Capella, Polaris and Aquarius floaters. As of August 8, 2023, the Capella and the Polaris were performing drilling services for clients under their respective drilling contracts, while the Aquarius is currently in Norway and is no longer under the Company’s management.

Pursuant to the terms of the Framework, Management and Marketing Agreements, the Company is eligible to receive the following fees associated with the management and marketing of the Aquadrill rigs: (i) first, the Company is to be paid a fixed management fee of $2,000, $4,000, $6,000 and $10,000 per day to manage a cold stacked rig, warm stacked rig, reactivating rig or operating rig, respectively (provided, that, certain discounts are to be provided on the management fee associated with cold stacked rigs to the extent there are more than one such rigs managed by the Company for Aquadrill); (ii) second, there are certain bonus/malus amounts that are applied to the fixed management fee that are contingent on whether the actual expenditures for a particular rig that is stacked, mobilizing, being reactivated or preparing for a contract exceed or come in under budget; (iii) third, the Company is eligible to receive a marketing fee of 1.5% of the effective day rate of a drilling contract secured for the benefit of Aquadrill; (iv) fourth, the Company is eligible to earn a variable fee equal to 13% of the gross margin associated with managing an operating rig for Aquadrill; and (v) lastly, all costs incurred by the Company are reimbursed by Aquadrill (other than incremental overhead costs incurred by Vantage). In accordance with the terms of the Framework, Marketing and Management Agreements, Aquadrill may also terminate such agreements upon 90 days’ notice (the “Notice Termination Period”), subject to certain conditions set forth in such agreements.

On December 23, 2022, Seadrill Ltd. announced that it had entered into a merger agreement with Aquadrill, pursuant to which Aquadrill would become a wholly owned subsidiary of Seadrill Ltd. (the “Aquadrill Merger”), and on April 3, 2023, Seadrill Ltd. announced that it had closed the Aquadrill Merger. Subsequent to the Aquadrill Merger, Aquadrill was renamed to Seadrill LLC (”Seadrill”). On April 10, 2023, we received a notice of termination (the “Termination Notice”) of the management agreement (the “Aquarius Management Agreement”) and marketing agreement with respect to the Aquarius (the “Aquarius Marketing Agreement,” and together with the Aquarius Management Agreement, the “Aquarius Agreements”), and the marketing agreements with respect to the Capella and Polaris (the “Capella and Polaris Marketing Agreements”), in each case as a result of the Aquadrill Merger. Given that the Notice Termination Period has now lapsed, we are therefore no longer managing or marketing the Aquarius nor eligible to earn management fees under the Aquarius Management Agreement as of July 9, 2023. Notwithstanding the termination of the Aquarius

11

Agreements and the Capella and Polaris Marketing Agreements, certain provisions survived such termination and, therefore, to the extent that a drilling contract(s) is secured and executed in respect of outstanding bids or tenders for the Aquarius, Polaris and/or Capella, we will still be eligible to earn the marketing fee in respect of such secured and executed contracts, as well as in respect of existing drilling contracts. Moreover, as the management agreements with respect to the Capella and Polaris remain in effect as of the date hereof, we continue to manage and operate those rigs for Seadrill Ltd. (and for the oil and gas clients under their respective drilling contracts) and therefore, remain eligible to receive the management and variable fees described immediately above. Nevertheless, there is no guarantee that such arrangements will remain in place in the near- and long-term and any further terminations of such arrangements could have a material impact on our financial condition and future results of operations.

2. Basis of Presentation and Significant Accounting Policies

Basis of Consolidation: The accompanying interim consolidated financial information as of June 30, 2023, and for the three and six months ended June 30, 2023 and 2022, has been prepared without audit, pursuant to the rules and regulations promulgated by the SEC, and includes our accounts and those of our majority owned subsidiaries and VIEs (as discussed below). All significant intercompany transactions and accounts have been eliminated. They reflect all adjustments which are, in the opinion of management, necessary for a fair statement of the financial position and results of operations for the interim periods, on a basis consistent with the annual audited financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC, although we believe that the disclosures made are adequate to provide for fair statement. Our Consolidated Balance Sheet at December 31, 2022 is derived from our audited consolidated financial statements for the year ended December 31, 2022. These interim consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the SEC on March 31, 2023. The results of operations for the interim periods are not necessarily indicative of the operating results for the full fiscal year or any future periods. Certain previously reported amounts have been reclassified to conform to the current period presentation.

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.

ADVantage is a joint venture company formed to operate deepwater drilling rigs in Egypt. We determined that ADVantage met the criteria of a VIE for accounting purposes because its equity at risk was insufficient to permit it to carry on its activities without additional subordinated financial support from us. We also determined that we are the primary beneficiary for accounting purposes since we are entitled to use ADVantage for deepwater drilling contract opportunities rejected by ADES, and have the (a) power to direct the operating activities associated with the deepwater drilling rigs, which are the activities that most significantly impact the entity’s economic performance, and (b) obligation to absorb losses or the right to receive a majority of the benefits that could be potentially significant to the VIE. As a result, we consolidate ADVantage in our consolidated financial statements, we eliminate intercompany transactions and we present the interests that are not owned by us as “Noncontrolling interests” in our Consolidated Balance Sheets. The carrying amount associated with ADVantage was as follows:

	June 30, 2023		December 31, 2022
(unaudited, in thousands)
Current assets	$	4,380	$	11,383
Non-current assets		736		1,590
Current liabilities		983		4,749
Non-current liabilities		2,068		4,637
Net carrying amount	$	2,065	$	3,587

As ADVantage is a majority owned subsidiary of the Company, it serves as a guarantor under the 9.50% First Lien Indenture. The 9.50% First Lien Notes are secured by a first priority lien on all of the assets of ADVantage, subject to certain exceptions. Creditors’ recourse against ADVantage for liabilities of ADVantage is limited to the assets of ADVantage.

See “Note 9. Supplemental Financial Information” of these “Notes to Unaudited Consolidated Financial Statements” for additional information regarding related party transactions associated with this joint venture.

Use of Estimates: The preparation of financial statements in accordance with U.S. GAAP requires our 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.

12

Cash and Cash Equivalents: Includes deposits with financial institutions and compliant financial instruments with maturities of three months or less when purchased.

Materials and Supplies: Consists of materials, spare parts, consumables and related supplies for our drilling rigs. We record these materials and supplies at their average cost.

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 35 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 our Consolidated Balance Sheets and the resulting gain or loss is included in “Operating costs” or “General and administrative” expenses on the Consolidated Statement of Operations, depending on the nature of the asset. For the three and six months ended June 30, 2022, we recognized a net loss of approximately $0.3 million and net gain of approximately $1.6 million, respectively, related to the sale or retirement of assets. The gain/loss related to the sale or retirement of assets for the three and six months ended June 30, 2023 was immaterial.

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 gas exploration, development and production expenditures. Oil and 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 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 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. As of June 30, 2023, no triggering event has occurred to indicate that the carrying value of our drilling rigs may not be recoverable.

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.

Debt Financing Costs: Costs incurred with financing debt are deferred and amortized over the term of the related financing facility on a straight-line basis, which approximates the effective interest method. Debt issuance costs are presented in the Consolidated Balance Sheets as a direct deduction from the carrying amount of that debt liability.

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. These certifications are typically valid for approximately 2.5 to 5 years. The costs associated with these certifications, including drydock costs, are deferred and amortized over the corresponding certification periods.

Revenue Recognition: See “Note 3. Revenue from Contracts with Customers” of these “Notes to Unaudited Consolidated Financial Statements” for further information.

Income Taxes: Income taxes are provided for based upon the tax laws and rates in effect in the countries in which our 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.

13

Four customers accounted for approximately 30%, 22%, 15% and 15% of our consolidated trade receivables, net as of June 30, 2023, and three customers accounted for approximately 34%, 26% and 12% of our consolidated trade receivables, net as of June 30, 2022.

Credit Losses – Accounts Receivable: The allowance for credit losses is based on the Company’s assessment of the collectability of customer accounts. Current estimates of expected credit losses consider factors such as the historical experience and credit quality of our customers. The Company considers historical loss information as the most reasonable basis on which to determine expected credit losses unless current or forecasted future conditions for customers (or customer groups) indicate that risk characteristics have changed. We also considered the impact of oil price and market share volatility, as well as other applicable macroeconomic considerations, on our allowance for credit losses.

The following is a summary of the allowance for credit losses:

	June 30, 2023			December 31, 2022
(unaudited, in thousands)
Beginning balance	$	4,962		$	4,962
Additions charged to expenses		942			—
Write-offs		(2,054	)		—
Ending balance	$	3,850		$	4,962

The allowance for credit loss includes an amount that represents a customer’s decisions not to pay us for days impacted by what we believe were force majeure and other similar events for which we would still be entitled to receive payment under the applicable contracts. We disagree with the customer's decision and are currently evaluating our remedies, if any, under the applicable contracts. The write-offs in the period represent items where the Company has used reasonable collection efforts and are deemed as uncollectible receivables.

Earnings (loss) per Share: We compute basic and diluted EPS in accordance with the two-class method. We include restricted stock units granted to employees and directors that contain non-forfeitable rights to dividends as such grants are considered participating securities. Basic earnings (loss) per share are based on the weighted average number of Ordinary Shares outstanding during the applicable period. Diluted EPS are computed based on the weighted average number of Ordinary Shares and ordinary share equivalents outstanding in the applicable period, as if all potentially dilutive securities were converted into Ordinary Shares (using the treasury stock method).

The following is a reconciliation of the number of shares used for the basic and diluted EPS computations:

	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
	(unaudited, in thousands)
Weighted average Ordinary Shares outstanding for basic EPS		13,229		13,115		13,204		13,115
Restricted share equity awards		91		217		—		215
Adjusted weighted average Ordinary Shares outstanding for diluted EPS		13,320		13,332		13,204		13,330

The following sets forth the number of shares excluded from diluted EPS computations due to their antidilutive effect:

	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
	(unaudited, in thousands)
Restricted share equity awards		—		—		103		—
Future potentially dilutive Ordinary Shares excluded from diluted EPS		—		—		103		—

Functional Currency: We consider USD to be the functional currency for all of our operations since the majority of our revenues and expenditures are denominated in USD, which limits our exposure to currency exchange rate fluctuations. We recognize currency exchange rate gains and losses in “Other, net” in our Consolidated Statement of Operations. For the three and six months ended June 30, 2023, we recognized a net loss of approximately $0.5 million and $0.1 million, respectively, related to currency exchange rates. For the three and six months ended June 30, 2022, we recognized a net loss of approximately $1.0 million and $1.8 million, respectively, related to currency exchange rates.

Fair Value of Financial Instruments: The financial instruments of the Company consist primarily of cash and cash equivalents, accounts receivable and accounts payable. These items are considered Level 1 due to their short-term nature and their market interest rates and are, therefore, considered a reasonable estimate of fair value. The Company classifies short-term investments within Level 1 in the fair value hierarchy because quoted prices for identical assets in active markets are used to determine fair value. As of June 30, 2023, the fair value of the 9.50% First Lien Notes was approximately $196.6 million based on quoted market prices in a less active

14

market, a Level 2 measurement. See “Note 5. Debt” of these “Notes to Unaudited Consolidated Financial Statements” for additional information on the 9.50% First Lien Notes.

Share-based Compensation: TBGs granted under the 2016 Amended MIP vest annually, ratably over four years; however, accelerated vesting is provided for in the event of a QLE. Otherwise, the settlement of any vested TBGs occurs upon the seventh anniversary of the effective date set forth in each individual award letter. PBGs granted under the 2016 Amended MIP 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 vest will be dependent on the achievement of pre-determined TEV targets specified in the grants.

Both the TBGs and PBGs are classified as equity awards. Under the provisions of ASC 718 Compensation – Stock Compensation share-based compensation expense is recognized over the requisite service period from the grant date to the fourth-year vest date for TBGs. For PBGs, expense 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 conversion date of the Convertible Notes will be recognized for the service period completed to the seventh anniversary of the Effective Date for PBGs.

Noncontrolling Interest:

Noncontrolling interests represent the equity investments of the minority owner in ADVantage, a joint venture with ADES that we consolidate in our financial statements.

Recently Adopted Accounting Standards:

No new accounting standards were adopted during the three-month period ended June 30, 2023.

Recently Issued Accounting Standards:

There have been no new accounting pronouncements not yet effective that have significance with respect to our consolidated financial statements.

3. Revenue from Contracts with Customers

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 represent a single performance obligation satisfied over time and comprised of a series of distinct time increments, or service periods. We have elected to exclude from the transaction price measurement all taxes assessed by a governmental authority.

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.

For rigs owned by a third party that we manage or support, the contracts generally provide for a fixed fee based on various factors, including the status of the rig or a specific duration. In addition, we may earn a marketing fee based on a percentage of the effective dayrate of a drilling contract secured on behalf of the third party and a variable management fee of the gross margin associated with managing an operating rig. We are considered the principal or agent with respect to certain contractual arrangements and therefore, we record the associated revenue at the gross or net amounts billed to the customers, respectively.

Amortizable Revenue. In connection with certain contracts, we receive lump-sum fees or similar compensation for (i) the mobilization of equipment and personnel prior to the commencement of drilling services, (ii) the demobilization of equipment and personnel upon contract completion or (iii) postponement fees in consideration for the postponement of a contract until a later date. 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 the 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. In such cases, this may result in cumulative-effect adjustments to demobilization revenues upon changes in our estimates of future events during the contract term. Postponement fees received that are contingent upon the occurrence or non-occurrence of a future event are recognized on a straight-line basis over the contract term. Fees received for the mobilization or demobilization of equipment and personnel are included in “Contract drilling services” in our Consolidated Statement of Operations.

15

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.

Charter Lease Revenue. In relation to certain bareboat charter agreements where we lease our owned rigs to unaffiliated third parties, we receive a fixed fee based on the number of days the rig is drilling. Furthermore, under certain other bareboat charter agreements, we receive a variable fee based on a percentage of gross margin generated on a monthly basis.

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 may be considered a principal or an agent in such transactions and therefore, we recognize reimbursable revenues and the corresponding costs either on a gross or net basis, as applicable, as we provide the requested goods and services.

Disaggregation of Revenue

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

	Three Months Ended June 30, 2023								Three Months Ended June 30, 2022
	Jackups		Deepwater		Managed		Consolidated		Jackups		Deepwater		Managed		Consolidated
(unaudited, in thousands)
Dayrate revenue	$	4,975	$	35,177	$	25,526	$	65,678	$	15,963	$	24,304	$	2,840	$	43,107
Amortized revenue		123		6,103		1,338		7,564		1,439		1,038		—		2,477
Charter lease revenue		3,152		—		—		3,152		—		—		—		—
Reimbursable revenue		3,237		1,445		26,764		31,446		1,944		3,175		22,535		27,654
Total revenue	$	11,487	$	42,725	$	53,628	$	107,840	$	19,346	$	28,517	$	25,375	$	73,238
	Six Months Ended June 30, 2023								Six Months Ended June 30, 2022
	Jackups		Deepwater		Managed		Consolidated		Jackups		Deepwater		Managed		Consolidated
(unaudited, in thousands)
Dayrate revenue	$	10,098	$	54,752	$	47,251	$	112,101	$	31,294	$	50,300	$	3,943	$	85,537
Amortized revenue		236		8,280		2,662		11,178		1,659		4,404		—		6,063
Charter lease revenue		5,302		—		—		5,302		—		—		—		—
Reimbursable revenue		6,455		2,499		47,377		56,331		4,151		6,151		29,667		39,969
Total revenue	$	22,091	$	65,531	$	97,290	$	184,912	$	37,104	$	60,855	$	33,610	$	131,569

Dayrate revenue and amortized revenue for “Jackups” and “Deepwater” are included within “Contract drilling services” in our Consolidated Statement of Operations. Dayrate revenue for “Managed” is included within “Contract drilling services” and “Management fees” within our Consolidated Statement of Operations. All other revenue is included within “Reimbursables and other” in our Consolidated Statement of Operations.

Accounts Receivable, Contract Liabilities and Contract Costs

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 “Other current liabilities” and “Other long-term liabilities” within our Consolidated Balance Sheets, 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.

16

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

		June 30, 2023		December 31, 2022
(unaudited, in thousands)	Classification in the Consolidated Balance Sheets
Current contract cost assets	Prepaid expenses and other current assets	$	7,141	$	7,324
Current contract revenue liabilities	Other current liabilities		35,506		35,085

Significant changes in contract cost assets and contract revenue liabilities during the six months ended June 30, 2023 are as follows:

	Contract Cost Assets			Contract Revenues
(unaudited, in thousands)
Balance as of December 31, 2022	$	7,324		$	35,085
Increase due to contractual changes		9,412			64,458
Decrease due to recognition of revenue		(9,595	)		(64,037	)
Balance as of June 30, 2023 (1)	$	7,141		$	35,506

(1)We expect to recognize contract revenues of approximately $35.5 million during the remaining six months of 2023 related to unsatisfied performance obligations existing as of June 30, 2023, which includes $26.1 million related to customer prefunding of reimbursables.

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 the future services are rendered.

4. Leases

We have operating leases expiring at various dates, principally for office space, onshore storage yards and certain operating equipment. Additionally, we sublease certain office space to third parties. We determine if an arrangement is a lease at inception. Operating leases with an initial term greater than 12 months are included in “Operating lease ROU assets”, “Other current liabilities”, and “Other long-term liabilities” on our Consolidated Balance Sheets. Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future lease payments over the lease term at commencement date. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. The operating lease ROU asset also includes any lease payments made prior to or at the commencement date and is reduced by lease incentives received and initial direct costs incurred. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense is recognized on a straight-line basis over the lease term. We have lease agreements with lease and non-lease components, which are generally not accounted for separately. Certain of our leases include provisions for variable payments. These variable payments are not included in the calculation of lease liability and ROU assets.

The components of lease expense for the periods indicated were as follows:

		Three Months Ended June 30,						Six Months Ended June 30,
(unaudited, in thousands)	Classification in the Consolidated Statement of Operations	2023			2022			2023			2022
Operating lease cost(1)	Operating costs	$	197		$	313		$	414		$	568
Operating lease cost(1)	General and administrative		284			193			568			477
Sublease income	General and administrative		(208	)		(224	)		(423	)		(407	)
Total operating lease cost		$	273		$	282		$	559		$	638

(1) Short-term lease costs were approximately $9.6 million and $19.3 million during each of the three and six months ended June 30, 2023, respectively, which includes bareboat charter expense for a third party owned rig operated by the Company. For the three and six months ended June 30, 2022, short-term lease costs were approximately $0.2 million and $0.3 million, respectively. Operating cash flows used for operating leases approximates lease expense.

(unaudited, in thousands)	Classification in the Consolidated Balance Sheets	June 30, 2023		December 31, 2022
Assets:
Operating lease assets	Operating lease ROU assets	$	812	$	1,648
Total leased assets		$	812	$	1,648
Liabilities:
Current operating	Other current liabilities	$	679	$	1,520
Noncurrent operating	Other long-term liabilities		164		222
Total lease liabilities		$	843	$	1,742

17

As of June 30, 2023, maturities of lease liabilities were as follows:

(unaudited, in thousands)	Operating Leases
Remaining six months of 2023	$	637
2024		139
2025		104
Total future lease payments	$	880
Less imputed interest		(37	)
Present value of lease obligations	$	843

The weighted average discount rate was 9.25% as of each of June 30, 2023 and December 31, 2022. The weighted average remaining lease term for operating leases was 0.99 years and 1.19 years as of June 30, 2023 and December 31, 2022, respectively.

5. Debt

Our debt was composed of the following as of the dates indicated:

	June 30, 2023		December 31, 2022
(unaudited, in thousands)
9.25% First Lien Notes, net of financing costs of $0 and $773, respectively	$	—	$	179,227
9.50% First Lien Notes, net of financing costs of $11,080 and $0, respectively		188,920		—
		188,920		179,227
Less current maturities of long-term debt		—		—
Long-term debt, net	$	188,920	$	179,227

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 a senior secured basis by the Company’s direct and indirect subsidiaries, and were 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 were subject to first payment priority in favor of holders of up to $50.0 million of future super-priority debt and were subject to both mandatory and optional redemption provisions.

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

On November 22, 2022, the Company issued a notice of partial redemption (the “Notice of Partial Redemption”) of the 9.25% First Lien Notes. Pursuant to the Notice of Partial Redemption, the Company gave the existing recordholders of the 9.25% First Lien Notes notice that it intended to redeem $170.0 million of the outstanding 9.25% First Lien Notes on December 22, 2022 (the “Redemption Date”), at a redemption price equal to 100.0% of the aggregate principal amount of the 9.25% First Lien Notes to be redeemed, plus accrued and unpaid interest and Additional Amounts (as defined in the 9.25% First Lien Indenture), if any, but not including, the date fixed for the redemption of the 9.25% First Lien Notes. On the Redemption Date, the Company made a payment of approximately $171.6 million, an amount which included principal and interest.

On February 3, 2023, the Company issued a notice of full conditional redemption (the “Notice of Full Conditional Redemption”) pursuant to the 9.25% First Lien Indenture. Pursuant to the Notice of Full Conditional Redemption, the Company gave existing recordholders of the 9.25% First Lien Notes notice that, upon the satisfaction of the Condition Precedent (as defined below), it intended to redeem all $180.0 million of its outstanding 9.25% First Lien Notes at a redemption price equal to 100.0% of the aggregate principal amount of the 9.25% First Lien Notes to be redeemed, plus accrued and unpaid interest and Additional Amounts (as defined in the 9.25% First Lien Indenture), if any, to, but not including, the date of redemption. The redemption of the 9.25% First Lien Notes was conditioned upon the receipt by the Company of proceeds from a completed debt financing in an amount sufficient, in the Company’s opinion, to fund the Redemption Price on the date of redemption pursuant to the terms of the Indenture (the “Condition Precedent”). The 9.25% First Lien Notes were redeemed in full on March 6, 2023 for approximately $185.1 million including principal and interest, using proceeds derived from the issuance of the 9.50% First Lien Notes (as discussed immediately below). Due to the Company’s intention and ability to replace the 9.25% First Lien Notes with the 9.50% First Lien Notes, which mature in February 2028, the 9.25% First Lien Notes have been presented as long-term liabilities on our Consolidated Balance Sheets as of December 31, 2022.

9.50% First Lien Notes. On February 14, 2023, the Company priced an offering of $200.0 million in aggregate principal amount of 9.50% First Lien Notes at an issue price of 97% and entered into a purchase agreement with several investors pursuant to which the Company agreed to sell the 9.50% First Lien Notes (the “9.50% First Lien Notes Offering”) to the purchasers in reliance on an exemption from registration provided by Section 4(a)(2), Rule 144A and/or Regulation S of the Securities Act. On March 1, 2023, the Company closed the sale of the 9.50% First Lien Notes. The proceeds derived from the 9.50% First Lien Notes Offering were used (i) to redeem all outstanding 9.25% First Lien Notes for approximately $185.1 million, including principal and interest (as discussed immediately above), (ii) to pay fees and expenses related to the 9.50% First Lien Notes Offering and (iii) for general corporate purposes.

18

The 9.50% First Lien Notes will mature on February 15, 2028. The Company will pay interest on the 9.50% First Lien Notes on February 15 and August 15 of each year, commencing on August 15, 2023. Interest on the 9.50% First Lien Notes will accrue from March 1, 2023, at a rate of 9.50% per annum, and be payable in cash. The 9.50% First Lien Notes will be guaranteed on a joint and several basis by the Company’s current and future direct and indirect subsidiaries, subject to certain exceptions (including Vantage Financial Management Co.) and will be secured by a first priority lien on substantially all of the assets of the Company and such subsidiaries, in each case subject to certain exceptions. In connection with the issuance of the 9.50% First Lien Notes, we are permitted to maintain up to $25.0 million in letters of credit outstanding to support our operations.

The 9.50% First Lien Notes are subject to mandatory redemptions upon the occurrence of certain events, including (i) an annual excess cash flow sweep of 50% of excess cash flow and (ii) upon the receipt of net proceeds from specified asset sales, in each case as further described in the 9.50% First Lien Indenture.

The 9.50% First Lien Notes are subject to redemption at the option of the Company, including upon certain change of control events occurring on or after February 15, 2025, and in certain cases upon the occurrence of certain events, as further described in the 9.50% First Lien Indenture. The 9.50% First Lien Indenture contains customary covenants that will limit the Company’s ability and, in certain instances, the ability of the Company’s subsidiaries, to borrow money, create liens on assets, make distributions and pay dividends on or redeem or repurchase stock, make certain types of investments, enter into agreements that restrict dividends or other payments from subsidiaries, enter into transactions with affiliates, issue guarantees of debt, and sell assets or merge with other companies. These limitations are subject to a number of important exceptions and qualifications which are described in greater detail in the 9.50% First Lien Indenture.

Events of default under the 9.50% First Lien Indenture include, among other events, the following with respect to the 9.50% First Lien Notes: default for 30 days in the payment when due of interest on the 9.50% First Lien Notes; default in payment when due of the principal of, or premium, if any, on the 9.50% First Lien Notes; failure to comply with certain covenants in the 9.50% First Lien Indenture for 30 days (or 60 days in respect of the reporting covenant contained therein) after the receipt of notice from the trustee or holders of 25.0% in aggregate principal amount of the 9.50% First Lien Notes; acceleration or payment default of debt of the Company or a restricted subsidiary in excess of $30.0 million (subject to a cure right within 60 days); certain judgments in excess of $50.0 million subject to certain exceptions; and certain events of bankruptcy or insolvency. In the case of an event of default arising from certain events of bankruptcy or insolvency, all 9.50% First Lien Notes then outstanding will become due and payable immediately without further action or notice. If any other event of default occurs with respect to the 9.50% First Lien Notes, the trustee or holders of 25.0% in aggregate principal amount of the 9.50% First Lien Notes may declare all the 9.50% First Lien Notes to be due and payable immediately.

Letters of credit to support our bank guarantee and similar needs are provided to us on demand by JPMorgan Chase Bank N.A. As of June 30, 2023, we maintained letters of credit outstanding in the aggregate amount of $7.4 million.

6. Shareholders’ Equity

Stock Issuance

VDI has 50,000,000 authorized Ordinary Shares. As of June 30, 2023, 13,229,280 Ordinary Shares were issued and outstanding.

Share-based Compensation

On August 9, 2016, the Company adopted the 2016 Amended MIP to align the interests of participants with those of the Company’s 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 six months ended June 30, 2023, 14,286 TBGs were granted to certain directors of the Company. No awards were granted to employees or directors during the six months ended June 30, 2022. During the six months ended June 30, 2023, 919 of previously granted TBGs vested and 131,844 previously vested TBGs were issued to current or former employees or directors of the Company, of which 17,590 Ordinary Shares were repurchased to settle withholding taxes. During the six months ended June 30, 2022, 1,564 previously-granted TBGs vested and none were issued.

Both the TBGs and PBGs are classified as equity awards. For the six months ended June 30, 2023, share-based compensation expense related to the TBGs was immaterial. As of June 30, 2023, 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. Pursuant to the terms of the award agreements, all the PBGs granted were forfeited and cancelled for no consideration as they had not met the TEV performance condition as of the seventh anniversary of the Effective Date.

Pursuant to the 2016 Amended MIP and the terms of the applicable unit awards, participants holding restricted stock units are contractually entitled to receive all dividends or other distributions that are paid to VDI’s stockholders, provided that any such dividends will be subject to the same vesting requirements of the underlying units. Dividend payments accrue to outstanding awards (both vested and unvested) in the form of “Dividend Equivalents” equal to the dividend per share underlying the applicable award under the 2016

19

Amended MIP. As a result of a special cash distribution paid to shareholders of record on December 17, 2019, $3.3 million has been recorded in “Other current liabilities” and $0.3 million has been recorded in “Other long-term liabilities” in our Consolidated Balance Sheets at June 30, 2023 to be paid upon settlement of the TBGs. During the six months ended June 30, 2023, $5.3 million was paid to current or former employees or directors as a result of the settlement of the TBGs (as discussed immediately above).

7. Income Taxes

VDI is a Cayman Islands company operating in multiple countries through its subsidiaries. The Cayman Islands do not impose corporate income taxes. 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. 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 net operating results and the income tax expense. Furthermore, in some jurisdictions we do not pay taxes, pay taxes at lower rates 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.

On January 22, 2020, VDI filed the Tax Election with the IRS to be treated as a partnership, rather than a corporation, for U.S. federal income tax purposes, with an effective date retroactive to December 9, 2019. As a result, U.S. Holders are required to take into account their allocable share of items of income, gain, loss deduction and credit of VDI for each taxable year of VDI ending with or within the U.S. Holder’s taxable year, regardless of whether any distribution has been or will be received from VDI. Each item generally will have the same character and source (either U.S. or foreign) as though the U.S. Holder had realized the item directly.

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 tax losses 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.

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 or administrative practices, our business operations and other factors affecting the 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 from 2013 onward remain open to examination in many of our jurisdictions and we are currently involved in several tax examinations in jurisdictions where we are operating or have previously operated. As information becomes available during the course of these examinations, we may increase or decrease our estimates of tax assessments and accruals.

8. Commitments and Contingencies

We are subject to litigation, claims and disputes in the ordinary course of business, some of which may not be covered by insurance. There is an inherent risk in any litigation or dispute and no assurance can be given as to the outcome of any claims.

Brazil Improbity Action

On April 27, 2018, the Company was added as an additional defendant in a legal proceeding (the “Improbity Action”), 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 Government Agreement for the Provision of Drilling Services for the Titanium Explorer, dated February 4, 2009, by and between Petrobras Venezuela Investments & Services, BV and Vantage Deepwater Company (and subsequently novated to Petrobras America, Inc. and Vantage Deepwater Drilling, Inc.), with the Brazilian government and Petrobras as plaintiffs. Vantage is alleged to have been involved in and benefited from the purported bribery scheme at Petrobras through Hamylton Padilha, the Brazilian agent our former parent company, VDC, used in the contracting of the Titanium Explorer drillship to Petrobras, and Mr. Hsin-Chi Su, a former member of VDC’s 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. On March 22, 2019, we were formally served in the United States and on April 12, 2019, we subsequently filed our preliminary statement of defense with the 11th Federal court of the Judicial Branch of Curitiba, State of Parana, Brazil (the “Brazilian Federal Court”). On August 20, 2020, the Brazilian Federal Court dismissed our preliminary statement of defense. On October 5, 2020, we subsequently filed a motion to clarify with the Brazilian Federal Court requesting the reconsideration of certain aspects of the decision dismissing our preliminary statement of defense. Our motion to clarify was denied on December 14, 2020, and on February 10, 2021 we filed an interlocutory

20

appeal with the 4th Circuit of the Federal Court of Appeals in Porto Alegre, State of Rio Grande do Sul, Brazil (the “Brazilian Appellate Court”), the appellate court hearing appeals in the “Car Wash” cases, seeking to reverse the Brazilian Federal Court’s denial of our preliminary defense. On April 15, 2021, the Brazilian authorities served us indirectly through the U.S. Department of Justice agreeing to formally send us documents related to the Improbity Action. On May 13, 2021, the Brazilian Appellate Court’s reporting judge for our matter granted our request for preliminary relief and ordered an immediate stay of the Improbity Action (as it applies to the Company). A proceeding with regard to the interlocutory appeal commenced on August 30, 2022 (the “August 2022 Proceeding”) and on December 6, 2022, the Brazilian Appellate Court ruled in our favor, revoking the asset freeze order, which had already been stayed pending a decision from the court, and immediately dismissed the Improbity Action as to the Company (the “Improbity Decision”). The Improbity Decision is still subject to clarification and appeal by the Brazilian government and Petrobras, and on January 30, 2023 and February 1, 2023, Petrobras and the Brazilian federal government filed respective motions to clarify the Improbity Decision. On March 31, 2023, the Company filed its response to the motions to clarify the Improbity Decision. The Company will be notified as to the timing of the hearing of the motions to clarify the Improbity Decision.

The Company understands that the 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 in Brazil. Separately, Federal Law no. 14,230/2021 (the “New Administrative Improbity Law”) was enacted on October 26, 2021, which substantially amended the existing Brazilian improbity legal framework. While the Company believes that the developments arising from the enactment of the New Administrative Improbity Law render the case against it moot, the Company cannot predict the ultimate outcome of the August 2022 Proceeding and the Company will be obligated to file a statement of defense in the matter if the Improbity Decision is later reversed.

The damages claimed in the proceeding are in the amount of BRL 102.8 million (approximately $21.8 million, changes in the USD amounts result from foreign exchange rate fluctuations), together with a civil fine equal to three times that amount. The Company understands that the Brazilian Federal Court previously 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 $87.3 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 February 13, 2019, we learned that the Brazilian Federal Prosecutor had previously requested mutual legal assistance from the DOJ 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 approximately $87.3 million.

On April 12, 2019, the Company filed an interlocutory appeal with the Brazilian Appellate Court to stay the seizure and freezing order of the Brazilian Federal Court.

On May 20, 2019, the Company announced that the Brazilian Appellate Court's reporting judge ruled in favor of the Company’s appeal to stay the seizure and freezing order of the Brazilian Federal Court. As noted above, the Brazilian Appellate Court ruled in favor of the Company in the Improbity Decision, which, among other things, revoked the asset freeze order. The Improbity Decision is still subject to clarification and appeal by the Brazilian government and Petrobras, and on January 30, 2023 and February 1, 2023, Petrobras and the Brazilian federal government filed respective motions to clarify the Improbity Decision. On March 31, 2023, the Company filed its responses to the motions to clarify the Improbity Decision. The Company will be notified by the Brazilian Appellate Court as to the timing of the hearing of the Brazilian Appellate Court to adjudicate the motions to clarify the Improbity Decision.

The Company previously communicated the Brazilian Appellate Court’s ruling to the DOJ and has asked the Brazilian Federal Court to do the same. On July 18, 2019, the Company announced that the Brazilian Government made a filing with the Brazilian Federal Court reporting that the DOJ has advised the Brazilian Ministry of Justice that it would not be possible for the DOJ to comply with the mutual assistance request in respect of the asset freeze order. The Company also announced that it learned from the Brazilian Ministry of Justice that the DOJ’s response to the request for mutual assistance stated that no legal grounds existed for implementing the requested asset freeze, and that the DOJ was returning the request without taking action and considers the matter concluded.

The Company has defended, and intends to continue to vigorously defend, against the allegations made in the Improbity Action and oppose and defend against any attempts to reverse the Improbity Decision and/or seize the Company's assets. 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 are not able to determine the likelihood of loss, if any, arising from this matter as of the date of this Quarterly Report.

Cyber Matters

In 2022, we experienced additional e-mail related cybersecurity intrusions (the “2022 Cyber Matters”). We became aware of the 2022 Cyber Matters in the fourth quarter of 2022 that resulted in (i) two unauthorized transfers of cash from a Company-controlled bank account to an outside bank account, (ii) one attempted transfer that was stopped and reversed by a financial institution and (iii) one attempted transfer that was stopped by the Company’s internal controls. We have since taken, and continue to take, measures designed to detect, remediate and prevent similar cybersecurity intrusions and threats from recurring. Because the 2022 Cyber Matters are still under investigation, we can neither predict the ultimate outcome of this matter nor whether there will be further developments in the 2022 Cyber Matters investigation that could adversely affect us. Our investigation to date has not revealed any information that suggests

21

the 2022 Cyber Matters will result in a material loss to the Company. However, we are not able to determine the likelihood of loss, if any, arising from the 2022 Cyber Matters as of the date of this Quarterly Report. Furthermore, we cannot provide assurance that we will not in the future experience any other actual or attempted breaches of our cybersecurity, or that our security efforts and remedial measures will prevent future security threats from materializing, if at all.
 

9. Supplemental Financial Information

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following as of the dates indicated:

	June 30, 2023		December 31, 2022
(unaudited, in thousands)
Sales tax receivable	$	7,096	$	5,407
Down payments to vendors		7,555		6,269
Prepaid fuel		2,216		3,200
Income tax receivable		10,186		1,373
Current deferred contract costs		7,141		7,324
Current deposits		3,548		139
Other		2,424		1,909
	$	40,166	$	25,621

Property and Equipment, Net

Property and equipment, net, consisted of the following as of the dates indicated:

	June 30, 2023			December 31, 2022
(unaudited, in thousands)
Drilling equipment	$	625,986		$	624,739
Assets under construction		4,829			4,075
Office and technology equipment		18,405			18,405
Leasehold improvements		690			690
		649,910			647,909
Accumulated depreciation		(330,911	)		(309,453	)
Property and equipment, net	$	318,999		$	338,456

Other Assets

Other assets consisted of the following as of the dates indicated:

	June 30, 2023		December 31, 2022
(unaudited, in thousands)
Noncurrent restricted cash	$	2,266	$	2,781
Deferred certification costs		3,259		3,308
Deferred income taxes		1,169		1,897
Noncurrent tax receivable		1,681		4,766
Other noncurrent assets		4,284		5,582
	$	12,659	$	18,334

22

Other Current Liabilities

Other current liabilities consisted of the following as of the dates indicated:

	June 30, 2023		December 31, 2022
(unaudited, in thousands)
Interest	$	6,332	$	2,126
Compensation		6,381		8,786
2016 MIP - Dividend equivalent (1)		3,272		5,278
Income taxes payable		6,630		2,662
Current deferred revenue		35,506		35,085
Current portion of operating lease liabilities		679		1,520
Current customer prefunding		6,285		10,049
Other		685		673
	$	65,770	$	66,179

(1) “Dividend equivalents” on vested TBGs are payable upon settlement of the applicable award.

Other Long-term Liabilities

Other Long-term liabilities consisted of the following as of the dates indicated:

	June 30, 2023		December 31, 2022
(unaudited, in thousands)
Deferred income taxes	$	734	$	730
2016 MIP - Dividend equivalent (1)		285		3,520
Noncurrent operating lease liabilities		164		222
Noncurrent customer prefunding		4,093		3,950
Indirect tax contingencies		4,323		4,339
Other non-current liabilities		79		120
	$	9,678	$	12,881

(1) “Dividend equivalents” on vested TBGs are payable upon settlement of the applicable award.

Cash, Cash Equivalents and Restricted Cash

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

	June 30, 2023		December 31, 2022
(unaudited, in thousands)
Cash and cash equivalents	$	79,650	$	74,026
Restricted cash		455		16,450
Restricted cash included within Other Assets		2,266		2,781
Total cash, cash equivalents and restricted cash shown in the Consolidated Statements of Cash Flows	$	82,371	$	93,257

Restricted cash represents cash held by banks as collateralizing letters of credit.

Other Transactions

ADES

In conjunction with the establishment of ADVantage, the Company entered into a series of agreements with ADES, including: (i) a Secondment Agreement; (ii) a Manpower Agreement; and (iii) a Supply Services Agreement. Pursuant to these agreements, the Company, largely through its seconded employees, has agreed to provide various services to ADES and ADES has agreed in turn to provide various services to ADVantage.

On December 6, 2021, we entered into the EDC Purchase Agreement to sell to ADES Arabia all of the issued and outstanding equity of EDC, which owns the Emerald Driller, Sapphire Driller and Aquamarine Driller. The transactions contemplated by the EDC Purchase Agreement closed on the EDC Closing Date. Simultaneously with the EDC Sale, certain subsidiaries of the Company and ADES entered into the EDC Support Services Agreements, pursuant to which a subsidiary of the Company agreed to provide, in exchange for customary fees and reimbursements, support services to EDC with respect to the Emerald Driller, Sapphire Driller and Aquamarine Driller for a three-year term. Fees earned as a result of these agreements are included in “Management fees” and

23

“Reimbursable and other” in our Consolidated Statement of Operations within the Managed Services segment as reported in “Note 10. Business Segment and Significant Customer Information.”

On September 22, 2022, three wholly owned subsidiaries of VHI entered into several related agreements with Advanced Energy Services, S.A.E., a subsidiary of ADES (“ADES SAE” and together with ADES Arabia, the “ADES Group”), including a: (i) secondment agreement; (ii) services agreement; and (iii) bareboat charter agreement, in each case to support a drilling campaign that will utilize the Topaz Driller jackup (collectively, the “ADES Ancillary Agreements”). These contracts generally provide for: (a) reimbursement of loaned employee personnel costs plus a service fee; (b) a fixed fee based on days the rig is drilling; (c) a variable fee based on a percentage of gross margin generated on a monthly basis; and (d) reimbursement for purchases of supplies, equipment and personnel services, and other services provided at the request of ADES SAE. Fees earned as a result of these agreements are included in “Reimbursable and other” in our Consolidated Statement of Operations within the Drilling Services segment as reported in “Note 10. Business Segment and Significant Customer Information.”

For the three and six months ended June 30, 2023, we recognized revenue of $6.7 million and $12.3 million, respectively, from the ADES Group in connection with the ADES Ancillary Agreements.

The Company and ADES also entered into an agreement on December 6, 2021 (the “Collaboration Agreement”) to pursue a global strategic alliance in order to leverage both the EDC Support Services Agreements and ADVantage, the parties’ existing joint venture in Egypt. Pursuant to the Collaboration Agreement, the parties agreed to collaborate on exploring future commercial and operational opportunities.

Aquadrill Merger; Framework, Management and Marketing Agreements

VHI previously entered into the Framework, Management and Marketing Agreements, pursuant to which certain subsidiaries of VHI agreed to provide operating, management and marketing services to the Aquadrill Entities. Fees earned in connection with these agreements are included in “Management fees” and “Reimbursable and other” in our Consolidated Statement of Operations within the Managed Services segment as reported below in “Note 10. Business Segment and Significant Customer Information.” For the three and six months ended June 30, 2023, we recognized revenue of $21.8 million and $43.6 million, respectively, and, for the three and six months ended June 30, 2022, we recognized revenue of $22.2 million and $30.4 million, respectively.

On December 23, 2022, Seadrill Ltd. announced that it had agreed to consummate the Aquadrill Merger and on April 3, 2023, the Aquadrill Merger closed. On April 10, 2023, we received the Termination Notice from Aquadrill and, given that the Notice Termination Period has lapsed, we are therefore no longer (i) managing or marketing the Aquarius nor (ii) marketing the Capella and Polaris. However, as the management agreements are still in effect with respect to the Capella and Polaris, we continue to manage and operate those rigs for Seadrill Ltd. (and for the oil and gas clients under their respective drilling contracts). See “Note 1. Organization and Recent Events” of these Notes to Unaudited Financial Statements for further information with respect to the termination of the Aquarius Agreements and the Capella and Polaris Marketing Agreements.

10. Business Segment and Significant Customer Information

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. As the result of an increase in activity related to operating, management and marketing services for rigs owned by third parties, the Company has two reportable segments: (1) “Drilling Services,” which includes activities related to owned jackup rigs and drillships; and (2) “Managed Services,” which consists of activities related to rigs owned by third parties that we manage or support. The chief operating decision maker evaluates the performance of our reportable segments using adjusted operating income (loss), which is a segment performance measure, because this financial measure reflects our ongoing profitability and performance. Adjusted operating income (loss) is defined as segment income (loss) from operations plus depreciation. General and administrative expenses, other (expense) income, and income taxes are not allocated to the operating segments for purposes of measuring segment income (loss) from operations and are included in “Unallocated” in the table below. There are no intersegment revenues. Our segment results for the periods indicated were as follows:

24

	Three Months Ended June 30, 2023
	Drilling Services		Managed Services		Unallocated			Consolidated
(unaudited, in thousands)
Revenue
Contract drilling services	$	46,378	$	21,295	$	—		$	67,673
Management fees		—		5,569		—			5,569
Reimbursables and other		7,834		26,764		—			34,598
Total revenue		54,212		53,628		—			107,840
Operating costs and expenses
Operating costs		33,163		41,220		—			74,383
General and administrative		—		—		5,161			5,161
Depreciation		10,601		—		444			11,045
Gain on EDC Sale		—		—		—			—
Total operating costs and expenses		43,764		41,220		5,605			90,589
(Loss) income from operations		10,448		12,408		(5,605	)		17,251
Other (expense) income
Interest income		—		—		141			141
Interest expense and financing charges		—		—		(5,346	)		(5,346	)
Other, net		—		—		(457	)		(457	)
Total other expense		—		—		(5,662	)		(5,662	)
Income before income taxes	$	10,448	$	12,408	$	(11,267	)	$	11,589
Reconciliation of income from operations to segment adjusted operating income:	Drilling Services		Managed Services
Income from operations	$	10,448	$	12,408
Depreciation		10,601		—
Segment adjusted operating income	$	21,049	$	12,408

	Three Months Ended June 30, 2022
(unaudited, in thousands)	Drilling Services		Managed Services		Unallocated			Consolidated
Revenue
Contract drilling services	$	42,744	$	—	$	—		$	42,744
Management fees		—		2,840		—			2,840
Reimbursables and other		5,119		22,535		—			27,654
Total revenue		47,863		25,375		—			73,238
Operating costs and expenses
Operating costs		36,164		23,241		—			59,405
General and administrative		—		—		6,910			6,910
Depreciation		10,695		—		392			11,087
Gain on EDC Sale		—		—		(60,781	)		(60,781	)
Total operating costs and expenses		46,859		23,241		(53,479	)		16,621
Income from operations		1,004		2,134		53,479			56,617
Other (expense) income
Interest income		—		—		7			7
Interest expense and financing charges		—		—		(8,503	)		(8,503	)
Other, net		—		—		(1,011	)		(1,011	)
Total other expense		—		—		(9,507	)		(9,507	)
Income before income taxes	$	1,004	$	2,134	$	43,972		$	47,110
Reconciliation of income from operations to segment adjusted operating income:	Drilling Services		Managed Services
Income from operations	$	1,004	$	2,134
Depreciation		10,695		—
Segment adjusted operating income	$	11,699	$	2,134

25

	Six Months Ended June 30, 2023
	Drilling Services		Managed Services		Unallocated			Consolidated
(unaudited, in thousands)
Revenue
Contract drilling services	$	73,366	$	42,224	$	—		$	115,590
Management fees		—		7,689		—			7,689
Reimbursables and other		14,256		47,377		—			61,633
Total revenue		87,622		97,290		—			184,912
Operating costs and expenses
Operating costs		60,885		80,053		—			140,938
General and administrative		—		—		9,992			9,992
Depreciation		21,240		—		854			22,094
Loss on EDC Sale		—		—		3			3
Total operating costs and expenses		82,125		80,053		10,849			173,027
(Loss) income from operations		5,497		17,237		(10,849	)		11,885
Other (expense) income
Interest income		—		—		190			190
Interest expense and financing charges		—		—		(10,904	)		(10,904	)
Other, net		—		—		(135	)		(135	)
Total other expense		—		—		(10,849	)		(10,849	)
(Loss) income before income taxes	$	5,497	$	17,237	$	(21,698	)	$	1,036
Reconciliation of income from operations to segment adjusted operating income:	Drilling Services		Managed Services
Income from operations	$	5,497	$	17,237
Depreciation		21,240		—
Segment adjusted operating income	$	26,737	$	17,237

	Six Months Ended June 30, 2022
	Drilling Services		Managed Services		Unallocated			Consolidated
(unaudited, in thousands)
Revenue
Contract drilling services	$	87,657	$	—	$	—		$	87,657
Management fees		—		3,943		—			3,943
Reimbursables and other		10,302		29,667		—			39,969
Total revenue		97,959		33,610		—			131,569
Operating costs and expenses
Operating costs		72,602		30,736		—			103,338
General and administrative		—		—		13,492			13,492
Depreciation		21,551		—		831			22,382
Gain on EDC Sale		—		—		(60,781	)		(60,781	)
Total operating costs and expenses		94,153		30,736		(46,458	)		78,431
Income from operations		3,806		2,874		46,458			53,138
Other (expense) income
Interest income		—		—		11			11
Interest expense and financing charges		—		—		(17,007	)		(17,007	)
Other, net		—		—		(1,786	)		(1,786	)
Total other expense		—		—		(18,782	)		(18,782	)
Income before income taxes	$	3,806	$	2,874	$	27,676		$	34,356
Reconciliation of income from operations to segment adjusted operating income:	Drilling Services		Managed Services
Income from operations	$	3,806	$	2,874
Depreciation		21,551		—
Segment adjusted operating income	$	25,357	$	2,874

26

For the three and six months ended June 30, 2023 and 2022, a substantial amount of our revenue was derived from countries outside of the United States. Our revenue by country and segment was as follows for the periods indicated (revenue of less than 10% is included in “Other countries”):

		Three months ended June 30,				Six months ended June 30,
Country	Segment	2023		2022		2023		2022
(unaudited, in thousands)
India	Drilling Services and Managed Services	$	34,683	$	13,230	$	68,822	$	26,518
UAE	Drilling Services and Managed Services		20,267		19,778		42,911		27,966
Indonesia	Drilling Services and Managed Services		12,832		5,827		22,378		8,805
Namibia	Drilling Services		29,385		—		38,378		—
Egypt	Drilling Services		—		9,738		—		26,859
Qatar	Drilling Services		—		6,934		—		14,319
Other countries (1)	Drilling Services and Managed Services		10,673		17,731		12,423		27,102
Total revenues		$	107,840	$	73,238	$	184,912	$	131,569

(1) “Other countries” represent countries in which we operate that individually had operating revenues representing less than 10% of total revenues earned.

Revenue with customers that contributed 10% or more of revenue for the periods indicated were as follows:

		Three months ended June 30,						Six months ended June 30,
(unaudited)	Segment	2023			2022			2023			2022
Customer 1	Drilling Services and Managed Services		32	%		18	%		37	%		20	%
Customer 2	Managed Services		20	%		30	%		24	%		23	%
Customer 3	Drilling Services		27	%		0	%		21	%		0	%
Customer 4	Drilling Services		0	%		13	%		0	%		20	%
Customer 5	Drilling Services		0	%		0	%		0	%		10	%

Information related to the Company’s “Total Assets” as reported on the Consolidated Balance Sheets is not available by reportable segment; however, a substantial portion of our assets are mobile drilling units included in the Drilling Services segment. 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. Our property and equipment, net by country, was as follows as of the dates indicated (property and equipment of less than 10% are included in “Other countries”):

	June 30, 2023		December 31, 2022
(unaudited, in thousands)
Namibia	$	151,060	$	—
India		74,614		81,309
Indonesia		56,165		58,663
International Waters		—		158,785
Other countries (1)		37,160		39,699
Total property and equipment	$	318,999	$	338,456

(1) “Other countries” represent countries in which we individually had property and equipment, net, representing less than 10% of total property and equipment, net.

27

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion is intended to assist you in understanding our financial position as of June 30, 2023, and our results of operations for the three and six months ended June 30, 2023 and 2022. 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 ended December 31, 2022, which was filed with the SEC on March 31, 2023. 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 third party owned drilling units, 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 August 1, 2023:

Name	Year Built	Water Depth Rating (feet)		Drilling Depth Capacity (feet)		Location	Status
Owned Rigs:
Jackups
Topaz Driller	2009		375		30,000	High Seas	Mobilizing
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	Namibia	Operating
Third Party Owned Rigs:
Drillships
Polaris	2008		10,000		37,500	India	Operating
Capella	2008		10,000		37,500	Indonesia	Operating
Jackups
Emerald Driller	2008		375		30,000	Qatar	Operating
Sapphire Driller	2009		375		30,000	Qatar	Operating
Aquamarine Driller	2009		375		30,000	Qatar	Operating

(1)The drillships are designed to drill in up to 12,000 feet of water. The Platinum Explorer is currently equipped to drill in 10,000 feet of water and the Tungsten Explorer is currently equipped to drill in 11,000 feet of water.

Recent Developments

Redemption of the 9.25% First Lien Notes

On February 3, 2023, the Company issued a notice of full conditional redemption to the then existing recordholders (the “Notice of Full Conditional Redemption”) of the remaining portion of the 9.25% First Lien Notes then outstanding after the partial redemption consummated in December 2022. The balance of the 9.25% First Lien Notes was redeemed in full on March 6, 2023 with proceeds derived from the issuance of the 9.50% First Lien Notes (as discussed below). See “Note 5. Debt” of the “Notes to Unaudited Consolidated Financial Statements” in Part I, Item 1 of this Quarterly Report for further information regarding the Notice of Full Conditional Redemption. The information discussed therein is incorporated by reference in its entirety into this Part I, Item 2 of this Quarterly Report.

9.50% First Lien Notes Offering

On February 14, 2023, the Company priced an offering of $200.0 million in aggregate principal amount of the 9.50% First Lien Notes and entered into a purchase agreement with several investors pursuant to which the Company agreed to sell the 9.50% First Lien Notes (the “9.50% First Lien Notes Offering”) to the purchasers in reliance on an exemption from registration provided by Section 4(a)(2), Rule 144A and/or Regulation S of the Securities Act. On March 1, 2023, the Company closed the sale of the 9.50% First Lien Notes. See “Note 5. Debt” of the “Notes to Unaudited Consolidated Financial Statements” in Part I, Item 1 of this Quarterly Report for further information regarding the 9.50% First Lien Notes Offering. The information discussed therein is incorporated by reference in its entirety into this Part I, Item 2 of this Quarterly Report.

28

Geopolitical and Market Instability Caused by the Ongoing Russo-Ukrainian War, Inflationary Pressures and Other Macroeconomic Conditions

Over the past 18 months, global oil prices have experienced a robust recovery resulting in the strongest annual performance (on a price-per-barrel basis) since 2012. During the calendar year 2022, specifically, Brent crude reached a high of approximately $125.00 per barrel in March 2022, although Brent crude ultimately settled at approximately $85.00 per barrel on the last day of trading in December 2022. However, Brent crude prices have continued to fluctuate through the first six months of 2023, specifically, (i) during the first quarter of 2023, Brent crude reached a high of approximately $88.00 per barrel and settled at approximately $80.00 per barrel on the last date of trading in March 2023, and (ii) during the second quarter of 2023, Brent crude reached a high of approximately $87.00 per barrel and settled at approximately $75.00 per barrel on the last date of trading in June 2023. While our management anticipates that oil and gas prices will remain elevated in the near-term as compared to prices exhibited during the last five years, price volatility is still expected to continue as a result of, among other factors, (i) adverse macroeconomic conditions, including inflationary pressures, potential recessionary conditions, and supply chain impediments and constraints, (ii) changes in oil and gas inventories, (iii) global market demand, (iv) geopolitical instability, armed conflict and social unrest, including the Russo-Ukrainian War, the associated response undertaken by western nations, such as the implementation, expansion and renewal of broad sanctions, the potential for retaliatory actions on the part of Russia and the overall impact on OPEC+ countries' ability to achieve production targets in the near- and long-term, (v) potential future disagreements among OPEC+ countries regarding the supply of oil, (vi) the potential for increased production and activity from U.S. shale producers and non-OPEC countries driven by the current oil prices, and (vii) any resurgence of COVID-19, and therefore, the Company cannot predict how long oil and gas prices will remain stable or further increase, if at all, or whether they could reverse course and decline.

The Russo-Ukrainian War, in particular, has led to, and will likely continue to lead to, geopolitical instability, disruption and volatility in the markets in which we operate. It is not possible at this time to predict or determine the ultimate consequences of the Russo-Ukrainian War, which could include, among other things, additional sanctions, greater regional instability, embargoes, geopolitical shifts and other material and adverse effects on macroeconomic conditions. However, such macroeconomic conditions, including inflationary pressures and potential recessionary conditions (and actions taken or being contemplated by central banks and regulators in an attempt to reduce, curtail and address such pressures and conditions), changes in energy policy, supply chain constraints and limitations, unpredictable financial markets and currency exchange rates, and hydrocarbon price volatility, are likely to continue for the foreseeable future. To the extent the Russo-Ukrainian War and other adverse macroeconomic conditions, including those set forth above, continue (or exacerbate), it could have a lasting impact in the near- and long-term on the (i) operations and financial condition of our business and the businesses of our critical counterparties and (ii) global economy.

While our management is actively monitoring the foregoing events and its associated financial impact on 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. Likewise, in May 2023 the World Health Organization declared that COVID-19 was no longer a global health emergency; however, the Company continues to monitor for lingering impacts of COVID-19 on the Company’s personnel, business operations and industry at large, and any resurgence of COVID-19 could pose significant risks and challenges worldwide.

The Aquadrill Merger and the Termination of Certain Agreements

VHI previously entered into a framework agreement with Aquadrill LLC (“Aquadrill”) on February 9, 2021 (the “Framework Agreement”), and, certain subsidiaries of VHI (the “VHI Entities”) subsequently entered into a series of related management and marketing agreements (collectively, the “Marketing and Management Agreements” and together with the Framework Agreement, the “Framework, Management and Marketing Agreements”) with certain subsidiaries of Aquadrill (collectively, the “Aquadrill Entities”). Pursuant to the Framework, Management and Marketing agreements, the VHI Entities agreed to provide certain marketing and operational management services with respect to the Capella, Polaris and Aquarius floaters. As of August 8, 2023, the Capella and the Polaris were performing drilling services for clients under their respective drilling contracts, while the Aquarius is currently in Norway and is no longer under the Company’s management.

Pursuant to the terms of the Framework, Management and Marketing Agreements, the Company is eligible to receive the following fees associated with the management and marketing of the Aquadrill rigs: (i) first, the Company is to be paid a fixed management fee of $2,000, $4,000, $6,000 and $10,000 per day to manage a cold stacked rig, warm stacked rig, reactivating rig or operating rig, respectively (provided, that, certain discounts are to be provided on the management fee associated with cold stacked rigs to the extent there are more than one such rigs managed by the Company for Aquadrill); (ii) second, there are certain bonus/malus amounts that are applied to the fixed management fee that are contingent on whether the actual expenditures for a particular rig that is stacked, mobilizing, being reactivated or preparing for a contract exceed or come in under budget; (iii) third, the Company is eligible to receive a marketing fee of 1.5% of the effective day rate of a drilling contract secured for the benefit of Aquadrill; (iv) fourth, the Company is eligible to earn a variable fee equal to 13% of the gross margin associated with managing an operating rig for Aquadrill; and (v) lastly, all costs incurred by the Company are reimbursed by Aquadrill (other than incremental overhead costs incurred by Vantage). In accordance with the terms of the Framework, Marketing and Management Agreements, Aquadrill may also terminate such agreements upon 90 days’ notice (the “Notice Termination Period”), subject to certain conditions set forth in such agreements.

29

On December 23, 2022, Seadrill Ltd. announced that it had entered into a merger agreement with Aquadrill, pursuant to which Aquadrill would become a wholly owned subsidiary of Seadrill Ltd. (the “Aquadrill Merger”), and on April 3, 2023, Seadrill Ltd. announced that it had closed the Aquadrill Merger. Subsequent to the Aquadrill Merger, Aquadrill was renamed to Seadrill LLC (”Seadrill”). On April 10, 2023, we received a notice of termination (the “Termination Notice”) of the management agreement (the “Aquarius Management Agreement”) and marketing agreement with respect to the Aquarius (the “Aquarius Marketing Agreement,” and together with the Aquarius Management Agreement, the “Aquarius Agreements”), and the marketing agreements with respect to the Capella and Polaris (the “Capella and Polaris Marketing Agreements”), in each case as a result of the Aquadrill Merger. Given that the Notice Termination Period has now lapsed, we are therefore no longer managing or marketing the Aquarius nor eligible to earn management fees under the Aquarius Management Agreement as of July 9, 2023. Notwithstanding the termination of the Aquarius Agreements and the Capella and Polaris Marketing Agreements, certain provisions survived such termination and, therefore, to the extent that a drilling contract(s) is secured and executed in respect of outstanding bids or tenders for the Aquarius, Polaris and/or Capella, we will still be eligible to earn the marketing fee in respect of such secured and executed contracts, as well as in respect of existing drilling contracts. Moreover, as the management agreements with respect to the Capella and Polaris remain in effect as of the date hereof, we continue to manage and operate those rigs for Seadrill Ltd. (and for the oil and gas clients under their respective drilling contracts) and therefore, remain eligible to receive the management and variable fees described immediately above. Nevertheless, there is no guarantee that such arrangements will remain in place in the near- and long-term and any further terminations of such arrangements could have a material impact on our financial condition and future results of operations.

Business Outlook

Expectations about future oil and gas prices have historically been a key driver of demand for our services. Global oil prices have experienced a robust recovery since the COVID-19 pandemic resulting in prices that are supportive of investment in shallow-water and deepwater exploration and development projects.

While industry sentiment is positive, the industry is a highly cyclical and competitive business. Market volatility and uncertainty in regards to Brent oil prices largely remain as prices fell to a low of approximately $72.00 barrel in June 2023 (as compared to a high of approximately $125.00 per barrel in March 2022). In addition, the oil and gas industry continues to be materially impacted and shaped by external factors which have influenced its overall development and recovery, including global macroeconomic challenges resulting from inflationary pressures and potential recessionary conditions, as well as geopolitical and market instability caused by the Russo-Ukrainian War. Further, OPEC+ has actively sought to manage production during this time to reduce supply and stabilize crude price. Additionally, geopolitical developments could occur, including a possible agreement relating to Iran’s nuclear deal and the subsequent suspension of U.S. sanctions in Iran (which could result in, among other things, the influx of Iranian crude oil into the global markets), any of which could significantly impact our business and operations. With higher crude oil prices there is the potential for increased production from U.S. shale producers and non-OPEC countries, which could lead to significant increases in the overall global oil and gas supply, and result in reduced commodity prices.

The opening of economies, supply chain constraints and limitations occurring throughout the world and across various industries, and the injection of significant levels of governmental monetary and fiscal stimulus to avoid a recession during the peak of the COVID-19 pandemic, collectively contributed to the highest level of inflation in decades across the U.S., the United Kingdom, Europe and the global community at large. As a result, central banks and regulators across the world have raised, and could continue to raise, interest rates in an attempt to gain further control over and reduce inflation in their respective jurisdictions. While we anticipate gradual rate reductions in the future, our operations may face significant adverse effects from industry-specific inflation. This industry-specific inflation could be attributed to the growing rig supply, leading to heightened demand for qualified labor and equipment, which might become scarce at certain times. As a consequence, we may experience higher personnel costs and increased prices for goods and services essential for rig operations. Given that we predominantly enter into fixed dayrate contracts that have contractual terms with minimal adjustments to account for rising inflation, the majority (if not all) of these costs would be borne by us.

While we are currently unable to estimate the ultimate impact of inflation, including the associated impact on the prices of goods and services, our costs could rise in the near-term and materially impact our profitability and overall financial condition. In addition, the efforts being undertaken by central banks and regulators to rein in inflation could tip the global economy into a recession, which could materially and adversely impact demand for oil and gas and, in the process, demand for our services. As a result of such volatility, disruption, instability and uncertainty, operators have faced, and may continue to face, challenges when attempting to definitively plan their capital budget programs for the near- and long- term.

30

Backlog

The following table summarizes our contract backlog coverage of days contracted and related revenue as of June 30, 2023 based on information available as of such date:

	Percentage of Days Contracted			Revenues Contracted (in thousands)
	2023	2024	Beyond	2023		2024		Beyond
Backlog
Jackups	77%	56%	41%	$	52,240	$	49,383	$	36,210
Drillships	89%	4%	0%	$	84,191	$	6,580	$	—
Third party owned rigs (1)	75%	60%	24%	$	35,203	$	5,206	$	219

(1)These amounts include: (i) a fixed management fee paid to us pursuant to the applicable management agreement; (ii) a marketing fee paid to us pursuant to the applicable marketing agreement; (iii) a fixed management fee paid to us pursuant to the applicable EDC Support Services Agreements; and (iv) contract backlog attributable to rigs owned by third parties for which we enter into contracts directly with customers and lease the rigs through bareboat charters from the rig owners. However, these amounts exclude any variable fee payable to us pursuant to the applicable management agreement. The terms of the bareboat charters are consistent with the management agreements, resulting in the same financial impact to us had the rigs remained under the management agreements.

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 June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
Jackups
Rigs available		2			2			2			2
Available days (1)		91			182			181			362
Utilization (2)		94.4	%		98.8	%		97.2	%		79.6	%
Average daily revenues (3)	$	59,355		$	60,694		$	58,755		$	65,807
Deepwater
Rigs available		2			2			2			2
Available days (1)		182			182			362			362
Utilization (2)		95.2	%		99.7	%		79.1	%		99.2	%
Average daily revenues (3)	$	238,234		$	139,628		$	220,182		$	152,261
Sold Rigs/Held for Sale (4)
Rigs available		—			3			—			3
Available days (1)		—			168			—			654
Utilization (2)	N/A				47.0	%	N/A				62.3	%
Average daily revenues (3)	N/A			$	82,127		N/A			$	34,339

(1)Available days are the total number of rig calendar days in the period, excluding rigs under bareboat charter contracts to third parties.

(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.

(4)Each of these rigs were classified as held for sale on our Consolidated Balance Sheet at December 31, 2022, up to the date of the EDC Sale.

For the Three Months Ended June 30, 2023 and 2022

Net income attributable to shareholders for the Current Quarter was $1.5 million, or $0.11 per basic share, on operating revenues of $107.8 million, compared to net income attributable to shareholders for the Comparable Quarter of $48.1 million, or $3.67 per basic share, on operating revenues of $73.2 million.

31

The following table sets forth our operating results for the three months ended June 30, 2023 and 2022:

	Three Months Ended June 30,						Change
	2023			2022			$			%
(unaudited, in thousands)
Consolidated:
Revenues
Contract drilling services	$	67,673		$	42,744		$	24,929			58	%
Management fees		5,569			2,840			2,729			96	%
Reimbursables and other		34,598			27,654			6,944			25	%
Total revenues		107,840			73,238			34,602			47	%
Operating costs and expenses:
Operating costs		74,383			59,405			14,978			25	%
General and administrative		5,161			6,910			(1,749	)		-25	%
Depreciation		11,045			11,087			(42	)		0	%
Gain on EDC Sale		—			(60,781	)		60,781			-100	%
Total operating costs and expenses		90,589			16,621			73,968			445	%
Income from operations		17,251			56,617			(39,366	)		-70	%
Other (expense) income
Interest income		141			7			134		n/m
Interest expense and financing charges		(5,346	)		(8,503	)		3,157			-37	%
Other, net		(457	)		(1,011	)		554			-55	%
Total other expense		(5,662	)		(9,507	)		3,845			-40	%
Income before income taxes		11,589			47,110			(35,521	)		-75	%
Income tax provision (benefit)		10,584			(1,221	)		11,805			-967	%
Net income		1,005			48,331			(47,326	)		-98	%
Net (loss) income attributable to noncontrolling interests		(457	)		232			(689	)		-297	%
Net income attributable to shareholders	$	1,462		$	48,099		$	(46,637	)		-97	%
Drilling Services:
Revenue
Contract drilling services	$	46,378		$	42,744		$	3,634			9	%
Management fees		—			—			—		n/m
Reimbursables and other		7,834			5,119			2,715			53	%
Total revenue		54,212			47,863			6,349			13	%
Operating costs and expenses:
Operating costs		33,163			36,164			(3,001	)		-8	%
General and administrative		—			—			—		n/m
Depreciation		10,601			10,695			(94	)		-1	%
Gain on EDC sale		—			—			—		n/m
Total operating costs and expenses		43,764			46,859			(3,095	)		-7	%
Income from operations		10,448			1,004			9,444			941	%
Managed Services:
Revenue
Contract drilling services	$	21,295		$	—		$	21,295		n/m
Management fees		5,569			2,840			2,729			96	%
Reimbursables and other		26,764			22,535			4,229			19	%
Total revenue		53,628			25,375			28,253			111	%
Operating costs and expenses:
Operating costs		41,220			23,241			17,979			77	%
General and administrative		—			—			—		n/m
Depreciation		—			—			—		n/m
Gain on EDC sale		—			—			—		n/m
Total operating costs and expenses		41,220			23,241			17,979			77	%
Income from operations		12,408			2,134			10,274			481	%
n/m = not meaningful

32

Consolidated Revenue: Total revenue increased $34.6 million due primarily to an increase in operating activities in the Current Quarter, as discussed below.

Drilling Services Revenue: Contract drilling revenue increased $3.6 million for the Current Quarter as compared to the Comparable Quarter. The increase in our contract drilling revenue was primarily the result of the (i) Tungsten Explorer on contract at a higher dayrate in the Current Quarter as compared to the Comparable Quarter, which was offset by lower contract drilling revenue as we operated three less jackup rigs (each of which were included in the EDC Sale), and (ii) Topaz Driller as the rig is operating under a bareboat charter in the Current Quarter as compared to operating under a drilling contact in the Comparable Quarter. Reimbursables and other revenue increased 53% in the Current Quarter as compared to the Comparable Quarter primarily as a result of the changes in drilling contracts (as discussed immediately above).

Managed Services Revenue: Contract drilling revenue increased $21.3 million in the Current Quarter due to the Polaris, which is currently operated by the Company. Management fees increased 96% in the Current Quarter as compared to the Comparable Quarter primarily due to the management of the rigs included in the EDC Sale as well as deepwater floaters owned by Seadrill. Reimbursables and other revenue increased $4.2 million in the Current Quarter as compared to the Comparable Quarter is primarily as a result of the management of the deepwater floaters owned by Seadrill and the rigs included in the EDC Sale.

Consolidated Operating Costs: Total operating costs increased 25% due primarily to an increase in operating activities in the Current Quarter as discussed below.

Drilling Services Operating Costs: Drilling Services operating costs decreased 8% in the Current Quarter as compared to the Comparable Quarter primarily as a result of the Topaz Driller as the rig is operating under a bareboat charter in the Current Quarter as compared to operating under a drilling contract in the Comparable Quarter (as discussed in “Drilling Services Revenue” above).

Managed Services Operating Costs: The increase in Managed Services operating costs in the Current Quarter as compared to the Comparable Quarter is the result of the management of certain deepwater floaters (as discussed in “Managed Services Revenue” above).

General and Administrative Expenses: Decreases in general and administrative expenses for the Current Quarter as compared to the Comparable Quarter were primarily due to lower compensation expense as a result of bonuses paid in the comparable quarter that did not recur in the current quarter and professional fees. Non-cash share-based compensation expense included in “General and administrative expenses” was immaterial for each of the Current Quarter and Comparable Quarter.

Depreciation Expense: Depreciation expense is primarily related to rigs owned by us which are included in our Drilling Services segment. The Managed Services segment does not currently own any depreciable assets. Depreciation expense for the Current Quarter is generally consistent with the Comparable Quarter.

Interest Income: Increases in interest income for the Current Quarter as compared to the Comparable Quarter were due primarily to higher cash balances during the Current Quarter.

Interest Expense and Financing Charges: Decreases in interest expense and financing charges for the Current Quarter as compared to the Comparable Quarter were primarily due to lower outstanding debt as a result of the pay down of the 9.25% Notes in Q4 2022 offset by higher interest rates due to the refinancing of the remaining balance with the 9.50% Notes during Q1 2023. Non-cash deferred financing costs included in “Interest expense and financing charges” was approximately $0.6 million and $0.4 million for each of the Current Quarter and Comparable Quarter, respectively.

Other, Net: 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 $0.5 million and $1.0 million was included in “other, net,” for the Current Quarter and Comparable Quarter, respectively.

Income Tax Provision: Our annualized effective tax rate for the Current Quarter is 163.61% based on estimated annualized ordinary profit before income taxes excluding income tax discrete items. Our annualized effective tax rate for the Comparable Quarter was negative 15.40%, 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 Six Months Ended June 30, 2023 and 2022

Net loss attributable to shareholders for the Current Period was $0.8 million, or $0.06 per basic share, on operating revenues of $184.9 million, compared to net income attributable to shareholders for the Comparable Period of $33.2 million, or $2.53 per basic share, on operating revenues of $131.6 million.

33

The following table sets forth our operating results for the six months ended June 30, 2023 and 2022:

	Six Months Ended June 30,						Change
	2023			2022			$			%
(unaudited, in thousands)
Consolidated:
Revenues
Contract drilling services	$	115,590		$	87,657		$	27,933			32	%
Management fees		7,689			3,943			3,746			95	%
Reimbursables and other		61,633			39,969			21,664			54	%
Total revenues		184,912			131,569			53,343			41	%
Operating costs and expenses:
Operating costs		140,938			103,338			37,600			36	%
General and administrative		9,992			13,492			(3,500	)		-26	%
Depreciation		22,094			22,382			(288	)		-1	%
Loss on EDC Sale		3			(60,781	)		60,784			-100	%
Total operating costs and expenses		173,027			78,431			94,596			121	%
Income from operations		11,885			53,138			(41,253	)		-78	%
Other (expense) income
Interest income		190			11			179		n/m
Interest expense and financing charges		(10,904	)		(17,007	)		6,103			-36	%
Other, net		(135	)		(1,786	)		1,651			-92	%
Total other expense		(10,849	)		(18,782	)		7,933			-42	%
Income before income taxes		1,036			34,356			(33,320	)		-97	%
Income tax provision		2,606			217			2,389		n/m
Net (loss) income		(1,570	)		34,139			(35,709	)		-105	%
Net (loss) income attributable to noncontrolling interests		(746	)		938			(1,684	)		-180	%
Net (loss) income attributable to shareholders	$	(824	)	$	33,201		$	(34,025	)		-102	%
Drilling Services:
Revenue
Contract drilling services	$	73,366		$	87,657		$	(14,291	)		-16	%
Management fees		—			—			—		n/m
Reimbursables and other		14,256			10,302			3,954			38	%
Total revenue		87,622			97,959			(10,337	)		-11	%
Operating costs and expenses:
Operating costs		60,885			72,602			(11,717	)		-16	%
General and administrative		—			—			—		n/m
Depreciation		21,240			21,551			(311	)		-1	%
Total operating costs and expenses		82,125			94,153			(12,028	)		-13	%
Income from operations		5,497			3,806			1,691			44	%
Managed Services:
Revenue
Contract drilling services	$	42,224		$	—		$	42,224		n/m
Management fees		7,689			3,943			3,746			95	%
Reimbursables and other		47,377			29,667			17,710			60	%
Total revenue		97,290			33,610			63,680			189	%
Operating costs and expenses:
Operating costs		80,053			30,736			49,317			160	%
General and administrative		—			—			—		n/m
Depreciation		—			—			—		n/m
Total operating costs and expenses		80,053			30,736			49,317			160	%
Income from operations		17,237			2,874			14,363			500	%
n/m = not meaningful

Consolidated Revenue: Total revenue increased $53.3 million due primarily to an increase in operating activities in the Current Period, as discussed below.

34

Drilling Services Revenue: Contract drilling revenue decreased $14.3 million for the Current Period as compared to the Comparable Period. The decrease in our contract drilling revenue was primarily the result of lower contract drilling revenue as we operated three less jackup rigs (each of which were included in the EDC Sale), and the Topaz Driller as the rig is operating under a bareboat charter in the Current Period as compared to operating under a drilling contact in the Comparable Period. Reimbursables and other revenue increased 38% in the Current Period as compared to the Comparable Period primarily as a result of bareboat charter fees earned on the Topaz Driller, offset by lower reimbursable revenue as a result of the changes in drilling contracts (as discussed immediately above).

Managed Services Revenue: Contract drilling revenue increased $42.2 million in the Current Period due to the Polaris, which is currently operated by the Company. Management fees increased $3.7 million in the Current Period as compared to the Comparable Period primarily due to the management of the rigs included in the EDC Sale as well as deepwater floaters owned by Seadrill. Reimbursables and other revenue increased $17.7 million in the Current Period as compared to the Comparable Period, primarily as a result of the management of the deepwater floaters owned by Seadrill and the rigs included in the EDC Sale.

Consolidated Operating Costs: Total operating costs increased 36% due primarily to an increase in operating activities in the Current Period as discussed below.

Drilling Services Operating Costs: Drilling Services operating costs decreased 16% in the Current Period as compared to the Comparable Period primarily as a result of the Company operating three less jackup rigs (each of which were included in the EDC Sale) and the Topaz Driller operating under a bareboat charter in the Current Period as compared to operating under a drilling contract in the Comparable Period (as discussed in “Drilling Services Revenue” above). The Comparable Period includes a net gain of approximately $1.9 million related to the sale of various assets.

Managed Services Operating Costs: The increase in Managed Services operating costs in the Current Period as compared to the Comparable Period is the result of the management of certain deepwater floaters (as discussed in “Managed Services Revenue” above).

General and Administrative Expenses: Decreases in general and administrative expenses for the Current Period as compared to the Comparable Period were primarily due to lower compensation expense as a result of bonuses paid in the comparable period that did not recur in the current period. Non-cash share-based compensation expense included in “General and administrative expenses” was immaterial for each of the Current Period and Comparable Period.

Depreciation Expense: Depreciation expense is primarily related to rigs owned by us which are included in our Drilling Services segment. The Managed Services segment does not currently own any depreciable assets. Depreciation expense for the Current Period is generally consistent with the Comparable Period.

Interest Income: Increases in interest income for the Current Period as compared to the Comparable Period were due primarily to higher cash balances during the Current Period.

Interest Expense and Financing Charges: Decreases in interest expense and financing charges in the Current Period as compared to the Comparable Period were primarily due to lower outstanding debt as a result of the pay down of the 9.25% Notes in Q4 2022 offset by higher interest rates due to the refinancing of the remaining balance with the 9.50% Notes during Q1 2023. Non-cash deferred financing costs included in “Interest expense and financing charges” was approximately $0.9 million and $0.8 million for each of the Current Period and Comparable Period, respectively.

Other, Net: 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 $0.1 million and $1.8 million was included in “other, net,” for the Current Period and Comparable Period, respectively.

Income Tax Provision: Our annualized effective tax rate for the Current Period is 163.61% based on estimated annualized ordinary profit before income taxes excluding income tax discrete items. Our annualized effective tax rate for the Comparable Period was negative 15.40%, 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

Sources and Uses of Liquidity

Our anticipated cash flow needs, both in the short- and long-term, may include, among others: (i) normal recurring operating expenses; (ii) planned and discretionary capital expenditures; (iii) repayments of interest; and (iv) certain contractual cash obligations and commitments. We may, from time to time, redeem, repurchase or otherwise acquire our outstanding 9.50% First Lien Notes through open market purchases, tender offers or pursuant to the terms of such securities.

35

We currently expect to fund our cash flow needs with cash generated by our operations, cash on hand or proceeds from sales of assets. As of June 30, 2023, we believe we maintain adequate cash reserves and are continuously managing our actual cash flow and cash forecasts. Accordingly, 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 of June 30, 2023, we had working capital of approximately $126.8 million, including approximately $79.7 million of cash available for general corporate purposes. Scheduled debt service consists of interest payments through June 30, 2024 of approximately $18.3 million. We anticipate capital expenditures through June 30, 2024 to be between approximately $13.7 million and $16.8 million. As our rigs obtain new contracts, we could incur reactivation and mobilization costs for these rigs, as well as additional customer requested equipment upgrades, some (or all) of which could be significant and may not be fully recoverable from the customer. Based on our anticipated levels of activity, incremental expenditures through June 30, 2024 for special periodic surveys, major repair and maintenance expenditures and equipment re-certifications are anticipated to be between approximately $19.2 million and $23.4 million. As of June 30, 2023, we maintained letters of credit outstanding in the aggregate amount of $7.4 million.

The following table summarizes our cash flow information for the periods indicated:

		Six Months Ended June 30,
(unaudited, in thousands)		2023			2022
Cash flows (used in) provided by:
	Operating activities	$	(11,080	)	$	(39,705	)
	Investing activities		(2,637	)		195,364
	Financing activities		2,831			—

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).

Cash flows from investing activities in the Comparable Period include (i) net proceeds of $200.0 million derived from the EDC Sale and (ii) $3.1 million derived from the sale of various assets.

Cash flows from financing activities in the Current Period include (i) net proceeds of $188.4 million derived from the issuance of the 9.50% First Lien Notes, as described in “Note 5. Debt” of the “Notes to Unaudited Consolidated Financial Statements” in Part I, Item 1 of this Quarterly Report, (ii) the redemption of the principal balance of the 9.25% First Lien Notes for $180.0 million as described in “Note 5. Debt” of the “Notes to Unaudited Consolidated Financial Statements” in Part I, Item 1 of this Quarterly Report, and (iii) the $5.3 million payment of dividend equivalents as described in “Note 6. Shareholders’ Equity” in the “Notes to Unaudited Consolidated Financial Statements” in Part I, Item 1 of this Quarterly Report.

The significant elements of the 9.50% 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, claim or dispute and therefore no assurance can be given as to the outcome of any such litigation, claim or dispute. 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 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. Our significant accounting policies are included in “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. 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

36

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 ended December 31, 2022, which was filed with the SEC on March 31, 2023. During the Current 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.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Our rigs operate in various international locations and thus are sometimes subject to foreign exchange risk. We may from time to time also be exposed to certain commodity price risk, equity price risk and risks related to other market driven rates or prices. 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, the continual spread and exacerbation of the COVID-19 pandemic, including as a result of its highly transmittable variants and sub-lineages, geopolitical instability caused by the Russo-Ukrainian War, the ongoing oil price and market share volatility, and rising inflationary pressures and potential recessionary conditions have each negatively impacted the offshore contract drilling business at large (as discussed in “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Quarterly Report).

Interest Rate Risk: As of June 30, 2023, we had no variable rate debt outstanding.

Foreign Currency Exchange Rate Risk: Our functional currency is the USD, which is consistent with the oil and gas industry. However, outside the U.S., a portion of our expenses are incurred in local currencies. Therefore, when the USD weakens (strengthens) in relation to the currencies of the countries in which we operate, our expenses reported in USD will increase (decrease). A substantial majority of our revenues are received in USD, our functional currency; however, in certain countries in which we operate, local laws or contracts may require us to receive some portion (or the entirety) of the 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 USD payment equal to the value of such exchange. We do not enter into derivative transactions for speculative purposes. As of June 30, 2023, we did not have any open foreign exchange derivative contracts or material foreign currency exposure risk.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

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 voluntarily 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 Exchange Act) as of June 30, 2023. Based upon this evaluation, and due to the material weakness in the Company’s internal controls over financial reporting (as described below in Management’s Report on Internal Control over Financial Reporting), the Chief Executive Officer and Chief Financial Officer have concluded that these controls and procedures were not effective.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as that term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Our internal control over financial reporting is a process designed to

37

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. Moreover, projections of any evaluation of effectiveness to future periods are subject to the inherent risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management carried out an evaluation based on the Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our internal control over financial reporting as of the end of the period covered by this Quarterly Report. Based on that evaluation, such officers have concluded that the design and operation of these internal control over financial reporting were not effective as of June 30, 2023 (as described below).

As previously reported in our Annual Report on Form 10-K for the year ended December 31, 2022, management identified a material weakness in internal control over financial reporting related to the prevention of unauthorized cash disbursements, which continues to exist as of June 30, 2023. Management has implemented new controls and continues its remediation efforts through designing and implementing additional effective controls and training of employees; however, there can be no assurance that additional material weaknesses will not arise in the future and any failure to remediate the material weakness, or the development of new material weaknesses in our internal control over financial reporting, could result in material misstatements in our financial statements and cause us to fail to meet our reporting and financial obligations in the future.

Changes in Internal Control over Financial Reporting

Except for the foregoing, there were no changes in our internal control over financial reporting during the quarter ended June 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

Information regarding the Company’s 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 into this Part II, Item 1.

Item 5. Other Information

During the three-month period covered by this Quarterly Report, none of the Company’s directors or executive officers adopted or terminated any contract, instruction or written plan for the purchase or sale of Company securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement” (as such term is defined in Item 408(a) of Regulation S-K).

Item 6. Exhibits

			Incorporated by Reference
Exhibit Number	Exhibit Description	Filed Herewith	Form	File Number	Exhibit	Filing Date
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		T-3	022-29012	99.T3E.1	12/02/15
2.2	Share Purchase Agreement, dated December 6, 2021, by and between Vantage Holdings International and ADES Arabia Holding		10-K	333-159299-15	2.2	03/30/22
3.1A	Certificate of Incorporation of the Company		S-4	333-170841	3.3	11/24/10
3.1B	Fourth Amended and Restated Memorandum and Articles of Incorporation of the Company		8-K	333-159299-15	3.1	03/08/19
4.1	First Lien Indenture, dated as of November 30, 2018, by and between Vantage Drilling International, the subsidiary guarantors party thereto and U.S. Bank National Association, as trustee and first lien collateral agent		8-K	333-159299-15	4.1	12/04/18

38

4.2	First Supplemental 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 January 24, 2019	10-K	333-159299-15	4.4	03/10/20
4.3	Second Supplemental 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 February 13, 2019	10-K	333-159299-15	4.5	03/10/20
4.4	Shareholders Agreement dated as of February 10, 2016, by and among Offshore Group Investment Limited and the Shareholders (as defined therein)	8-K	333-159299-15	10.1	02/17/16
4.5	Amendment No. 1 to the Shareholders Agreement, dated as of February 10, 2016, by and among Offshore Group Investment Limited and the Shareholders (as defined therein)	8-K	333-159299-15	10.1	03/08/19
4.6	Registration Rights Agreement, dated as of February 10, 2016, by and among Offshore Group Investment Limited and each of the Holders (as defined therein) party thereto	8-K	333-159299-15	10.2	02/17/16
4.7	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 party thereto	10-Q	333-159299-15	10.3	5/13/16
4.8	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	10-K/A	333-212081	10.1	05/01/17
4.9	Indenture, dated as of March 1, 2023, among Vantage Drilling International, the guarantors party thereto, and U.S. Bank Trust Company, National Association, as trustee and first lien collateral agent	8-K	333-159299-15	4.1	03/07/23
10.1	Agreement, dated June 20, 2019, among Vantage Deepwater Company, Vantage Deepwater Drilling, Inc., Petroleo Brasileiro S.A., Petrobras America, Inc. and Petrobras Venezuela Investments & Services, BV.	8-K	333-159299-15	10.1	06/24/19
10.2	Second Amended and Restated Employment and Non-Competition Agreement between Offshore Group Investment Limited and Linda J. Ibrahim, dated February 10, 2016	10-Q	333-159299-15	10.2	08/12/21
10.3	Form of Third Amendment to Employment Agreement between Vantage Drilling International and each Executive (as defined therein)	10-Q	333-159299-15	10.3	08/12/22
10.4	Form of Support Service Agreement, dated May 27, 2022 by and between Vantage Driller III Co, Vantage Drilling International and Emerald Driller Company	10-Q	333-159299-15	10.4	08/12/22
10.5	Employment Agreement between Vantage Drilling International and Derek Massie, dated January 1, 2018	10-K/A	333-159299-15	10.16	04/28/23

39

10.6	Fourth Amendment to Employment Agreement between Vantage Drilling International and Ihab Toma, dated March 1, 2023		10-Q	333-159299-15	10.6	05/12/2023
10.7	Fourth Amendment to Employment Agreement between Vantage Drilling International and Derek Massie, dated March 1, 2023		10-Q	333-159299-15	10.7	05/12/2023
31.1	Certification of Principal Executive Officer Pursuant to Section 302	X
31.2	Certification of Principal Financial and Accounting Officer Pursuant to Section 302	X
32.1**	Certification of Principal Executive Officer Pursuant to Section 906
32.2**	Certification of Principal Financial and Accounting Officer Pursuant to Section 906
101.INS	Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document	X
101.SCH	Inline XBRL Taxonomy Extension Schema	X
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase	X
101.DEF	Inline XBRL Taxonomy Extension Definition Inline Linkbase	X
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase	X
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase	X
104	Cover Page Interactive Data File (the cover page XBRL tags are embedded in the Inline XBRL document)	X
** These exhibits are furnished herewith and shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act.

40

SIGNATURES

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

	VANTAGE DRILLING INTERNATIONAL
Date: August 10, 2023	By:	/s/ RAFAEL BLATTNER
		Rafael Blattner
		Chief Financial Officer
		(Principal Financial Officer)

41