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 ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes ☒ 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). (Check one):~~Act.

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

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

The number of Vantage Drilling International ~~ordinary shares~~Ordinary Shares outstanding as of ~~October 20, 2017~~July 28, 2020 is ~~5,000,053~~13,115,026 shares.

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

This Quarterly Report on Form 10-Q (this “Quarterly Report”) contains forward-looking statements within the meaning of Section 27A of the Securities Act ~~of 1933, as amended,~~ and Section 21E of the ~~Securities~~ Exchange ~~Act of 1934, as amended.~~Act. These forward-looking statements are included throughout this Quarterly Report, including under ~~“Item~~“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, 2019, which was filed with the SEC on March 10, 2020, “Item 1A. Risk Factors” of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, which was filed with the SEC on May 12, 2020 and “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Quarterly Report, “Item 1A. Risk Factors” of this Quarterly Report, and the following:

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

In addition, each forward-looking statement speaks only as of the date of the particular statement, and we undertake no obligation to publicly update or revise any forward-looking statements. We may not update these forward-looking statements, even if our situation changes in the future. All forward-looking statements attributable to us are expressly qualified by these cautionary statements. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained from time to time in filings we may make with the ~~Securities and Exchange Commission (the “SEC”),~~SEC, which may be obtained by contacting us or the SEC. These filings are also available through our website at www.vantagedrilling.com or through the SEC’s Electronic Data Gathering and Analysis Retrieval system (EDGAR) at www.sec.gov. The contents of our website are not part of this Quarterly Report.

Unless the context indicates otherwise, all references to the “Company,” “Vantage~~” “VDI,~~ 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.

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

							June 30, 2020			December 31, 2019
	September 30, 2017			December 31, 2016
ASSETS
Current assets
Cash and cash equivalents	$	198,637		$	231,727		$	175,311		$	231,947
Restricted cash								3,667			2,511
Trade receivables		36,103			20,850			53,706			46,504
Inventory		43,675			45,206			50,684			48,368
Prepaid expenses and other current assets		16,158			12,423			13,429			16,507
Total current assets		294,573			310,206			296,797			345,837
Property and equipment
Property and equipment		904,327			902,241			1,003,844			1,002,968
Accumulated depreciation		(123,215	)		(67,713	)		(318,135	)		(281,842	)
Property and equipment, net		781,112			834,528			685,709			721,126
Operating lease ROU assets								4,805			6,706
Other assets		22,384			15,694			16,571			17,068
Total assets	$	1,098,069		$	1,160,428		$	1,003,882		$	1,090,737

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable	$	46,182		$	35,283		$	32,641		$	49,599
Accrued liabilities		20,073			18,448
Current maturities of long-term debt		4,430			1,430
Other current liabilities								21,685			26,936
Total current liabilities		70,685			55,161			54,326			76,535
Long–term debt, net of discount and financing costs of $68,564 and $105,568		904,084			867,372
Long–term debt, net of discount and financing costs of $5,601 and $6,421, respectively								344,399			343,579
Other long-term liabilities		9,899			11,335			15,712			17,532
Commitments and contingencies (Note 8)
Commitments and contingencies (see Note 8)
Shareholders' equity
Ordinary shares, $0.001 par value, 50 million shares authorized; 5,000,053 shares issued and outstanding		5			5
Ordinary shares, $0.001 par value, 50 million shares authorized; 13,115,026 shares issued and outstanding, respectively								13			13
Additional paid-in capital		373,972			373,972			633,594			634,770
Accumulated deficit		(260,576	)		(147,417	)
Total shareholders' equity		113,401			226,560
Total liabilities and shareholders’ equity	$	1,098,069		$	1,160,428
Accumulated earnings (deficit)								(45,420	)		17,064
Controlling interest shareholders' equity								588,187			651,847
Noncontrolling interests								1,258			1,244
Total equity								589,445			653,091
Total liabilities and shareholders' equity							$	1,003,882		$	1,090,737

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

Successor

Predecessor

Three Months Ended September 30,

Nine Months Ended September 30, 2017

Period from February 10, 2016 to September 30, 2016

Period from January 1, 2016 to February 10, 2016

2017

2016

Revenue

Contract drilling services

$
51,831

$
34,755

$
137,672

$
99,715

$
20,891

Management fees

342

993

1,148

3,664

752

Reimbursables

5,523

4,194

14,188

14,860

1,897

Total revenue

57,696

39,942

153,008

118,239

23,540

Operating costs and expenses

Operating costs

49,848

30,983

119,030

93,387

25,213

General and administrative

6,949

10,128

29,929

27,991

2,558

Depreciation

18,538

18,977

55,531

49,434

10,696

Total operating costs and expenses

75,335

60,088

204,490

170,812

38,467

Loss from operations

(17,639
)

(20,146
)

(51,482
)

(52,573
)

(14,927
)

Other income (expense)

Interest income

231

11

587

26

3

Interest expense and other financing charges (contractual interest of $23,219 for the period from January 1, 2016 to February 10, 2016)

(19,258
)

(18,722
)

(57,180
)

(48,144
)

(1,728
)

Other, net

858

669

2,073

987

(69
)

Reorganization items

—

35

—

(606
)

(452,919
)

Bargain purchase gain

—

—

1,910

—

—

Total other expense

(18,169
)

(18,007
)

(52,610
)

(47,737
)

(454,713
)

Loss before income taxes

(35,808
)

(38,153
)

(104,092
)

(100,310
)

(469,640
)

Income tax provision

4,260

3,373

9,067

5,978

2,371

Net loss

(40,068
)

(41,526
)

(113,159
)

(106,288
)

(472,011
)

Net loss attributable to noncontrolling interests

—

—

—

—

(969
)

Net loss attributable to VDI

$
(40,068
)

$
(41,526
)

$
(113,159
)

$
(106,288
)

$
(471,042
)

Net loss per share, basic and diluted

$
(8.01
)

$
(8.31
)

$
(22.63
)

$
(21.26
)

N/A

Weighted average successor ordinary shares outstanding, basic and diluted

5,000

5,000

5,000

5,000

N/A

	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Revenue
Contract drilling services	$	33,151		$	35,765		$	77,470		$	65,745
Contract termination revenue		—			594,029			—			594,029
Reimbursables and other		3,624			6,589			10,761			11,164
Total revenue		36,775			636,383			88,231			670,938
Operating costs and expenses
Operating costs		38,104			38,081			86,659			76,623
General and administrative		4,716			70,702			11,886			79,370
Depreciation		18,401			18,499			36,417			37,032
Total operating costs and expenses		61,221			127,282			134,962			193,025
(Loss) income from operations		(24,446	)		509,101			(46,731	)		477,913
Other (expense) income
Interest income		111			108,305			812			109,369
Interest expense and other financing charges		(8,601	)		(10,435	)		(17,021	)		(26,250	)
Other, net		12			(58	)		2,367			124
Total other (expense) income		(8,478	)		97,812			(13,842	)		83,243
(Loss) income before income taxes		(32,924	)		606,913			(60,573	)		561,156
Income tax (benefit) provision		(1,024	)		16,454			1,897			18,601
Net (loss) income		(31,900	)		590,459			(62,470	)		542,555
Net income (loss) attributable to noncontrolling interests		12			(270	)		14			(284	)
Net (loss) income attributable to shareholders	$	(31,912	)	$	590,729		$	(62,484	)	$	542,839
(Loss) earnings per share
Basic	$	(2.43	)	$	116.96		$	(4.76	)	$	107.60
Diluted	$	(2.43	)	$	116.86		$	(4.76	)	$	107.38

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

	Six-Month Period Ended June 30, 2019
	Ordinary Shares
	Shares		Amount		Additional Paid-in Capital			Accumulated Earnings (Deficit)			Non-Controlling Interests			Total Equity (Deficit)
Balance January 1, 2019		5,000	$	5	$	373,972		$	(438,670	)	$	—		$	(64,693	)
Contributions from holders of noncontrolling interests		—		—		—			—			122			122
Net loss		—		—		—			(47,890	)		(14	)		(47,904	)
Balance March 31, 2019		5,000	$	5	$	373,972		$	(486,560	)	$	108		$	(112,475	)
Contributions from holders of noncontrolling interests		—		—		—			—			1,059			1,059
Net income (loss)		—		—		—			590,729			(270	)		590,459
Balance June 30, 2019		5,000	$	5	$	373,972		$	104,169		$	897		$	479,043


	Six-Month Period Ended June 30, 2020
	Ordinary Shares
	Shares		Amount		Additional Paid-in Capital			Accumulated Earnings (Deficit)			Non-Controlling Interests			Total Equity
Balance January 1, 2020		13,115	$	13	$	634,770		$	17,064		$	1,244		$	653,091
Share-based compensation		—		—		698									698
Share-based compensation - dividend equivalents		—		—		(2,204	)		—			—			(2,204	)
Net (loss) income		—		—		—			(30,572	)		2			(30,570	)
Balance March 31, 2020		13,115	$	13	$	633,264		$	(13,508	)	$	1,246		$	621,015
Share-based compensation		—		—		330			—			—			330
Net (loss) income		—		—		—			(31,912	)		12			(31,900	)
Balance June 30, 2020		13,115	$	13	$	633,594		$	(45,420	)	$	1,258		$	589,445

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


	Successor						Predecessor			Six Months Ended June 30,
	Nine Months Ended September 30, 2017			Period from February 10, 2016 to September 30, 2016			Period from January 1, 2016 to February 10, 2016			2020			2019
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(113,159	)	$	(106,288	)	$	(472,011	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Net (loss) income										$	(62,470	)	$	542,555
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities
Depreciation expense		55,531			49,434			10,696			36,417			37,032
Amortization of debt financing costs		351			310			—			820			807
Amortization of debt discount		36,653			31,075			—			—			5,354
Amortization of contract value		3,095			—			—			—			1,643
PIK interest on the Convertible Notes		5,692			4,822			—			—			3,845
Reorganization items		—			—			430,210
Share-based compensation expense		2,882			76			—			1,028			2,064
Gain on bargain purchase		(1,910	)		—			—
Deferred income tax benefit		(3,489	)		(2,660	)		—
Deferred income tax (benefit) expense											(90	)		497
Loss on disposal of assets		191			634			—			—			109
Changes in operating assets and liabilities, net of businesses acquired:
Restricted cash		—			1,000			(1,000	)
Gain on settlement of restructuring agreement											(2,278	)		—
Changes in operating assets and liabilities:
Trade receivables		(15,253	)		53,405			(3,575	)		(7,202	)		(3,047	)
Inventory		1,531			(1,856	)		223			(1,297	)		(266	)
Prepaid expenses and other current assets		(1,685	)		(47	)		6,893			2,545			(2,274	)
Other assets		5,947			(1,823	)		941			3,410			2,641
Accounts payable		10,899			2,136			(14,890	)		(14,680	)		63,527
Accrued liabilities and other long-term liabilities		(4,688	)		(26,935	)		21,148
Other current liabilities and other long-term liabilities											(8,717	)		8,799
Net cash (used in) provided by operating activities		(17,412	)		3,283			(21,365	)		(52,514	)		663,286
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment		(1,606	)		(10,107	)		116			(2,021	)		(6,606	)
Cash paid for Vantage 260 acquisition		(13,000	)		—			—
Net cash (used in) provided by investing activities		(14,606	)		(10,107	)		116
Net cash used in investing activities											(2,021	)		(6,606	)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of long-term debt		(1,072	)		(1,072	)		(7,000	)
Proceeds from issuance of 10% Second Lien Notes		—			—			75,000
Contributions from holders of noncontrolling interests											—			1,181
Debt issuance costs		—			(51	)		(1,125	)		—			(487	)
Net cash (used in) provided by financing activities		(1,072	)		(1,123	)		66,875
Net (decrease) increase in cash and cash equivalents		(33,090	)		(7,947	)		45,626
Cash and cash equivalents—beginning of period		231,727			249,046			203,420
Cash and cash equivalents—end of period	$	198,637		$	241,099		$	249,046
Net cash provided by financing activities											—			694
Net (decrease) increase in unrestricted and restricted cash and cash equivalents											(54,535	)		657,374
Unrestricted and restricted cash and cash equivalents—beginning of period											242,944			239,387
Unrestricted and restricted cash and cash equivalents—end of period										$	188,409		$	896,761
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for:
Interest	$	12,575		$	10,134		$	1,568		$	16,197		$	14,891
Income taxes (net of refunds)		13,253			15,445			(1,864	)		4,617			4,422
Non-cash investing and financing transactions:
Reallocation of Soehanah jack up rig acquisition value from equipment to inventory supplies											1,019			—
Payment of interest in kind on the Convertible Notes	$	3,780		$	2,911		$	—			—			3,867
Additional notes issued for backstop premium		—			—			1,125

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

Vantage Drilling International, ~~(the “Company” or “VDI”),~~ 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 ~~natural~~ gas wells for our customers. Through our fleet of drilling units, we are a provider of offshore contract drilling services to major, national and independent oil and ~~natural~~ gas companies, focused ~~primarily~~ on international markets. Additionally, for drilling units owned by others, we provide construction supervision services ~~while~~for rigs that are under construction, ~~and~~ preservation management services ~~when stacked.~~for rigs that are stacked and operations and marketing services for operating rigs.

On ~~April 5, 2017, pursuant~~January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency as COVID-19 continued to spread globally beyond its point of origin. In March 2020, WHO classified the COVID-19 outbreak as a ~~purchase~~pandemic based on the rapid increase in exposure globally and ~~sale agreement~~the risks posed to the international community. The global spread of COVID-19 has caused widespread illness and significant loss of life, leading governments across the world to impose severely stringent limitations on movement and human interaction. Such governmental responses to the pandemic have depressed economic activity worldwide, impacting all industries, but with a ~~third party, we completed~~significant adverse effect on the ~~purchase~~oil and gas industry. The response of governments throughout the world to address the spread of COVID-19, including, among other actions, the imposition of travel bans, quarantines and entry restrictions, has notably impacted our operations, particularly challenging the ability to transport personnel and equipment to and from our rigs, and for our customers and their suppliers to be able to seamlessly manage and conduct their respective operations. As a ~~class 154-44C jackup rig and related multi-year~~result of these challenges: (a) one of our customers invoked the “force majeure” clause under its drilling contract ~~for $13.0 million. A down payment of $1.3 million was made in February 2017 upon execution of the agreement~~with us and ~~the remaining $11.7 million was paid at closing. The rig has been renamed the~~ ~~Vantage 260. In August 2017 we substituted the~~ ~~Sapphire Driller, a Baker Marine Pacific Class 375 jack-up rig to fulfill~~subsequently terminated the drilling ~~contract. On October 19, 2017, we entered into a purchase and sale agreement to sell the~~ ~~Vantage 260~~ ~~for $5.1 million. The transaction, which is subject to customary closing conditions, is expected to close in the fourth quarter of 2017.~~

~~Restructuring Agreement and Emergence from Voluntary Reorganization under Chapter 11 Proceeding~~

On December 1, 2015, we and Vantage Drilling Company (“VDC”), our former parent company, entered into a restructuring support agreement (the “Restructuring Agreement”) with a majority of our secured creditors. Pursuant to the terms of the Restructuring Agreement, the Company agreed to pursue a pre-packaged plan of reorganization (the “Reorganization Plan”) under Chapter 11 of Title 11 of the United States Bankruptcy Code and VDC agreed to commence official liquidation proceedings under the laws of the Cayman Islands. On December 2, 2015, pursuant to the Restructuring Agreement, the Company acquired two subsidiaries responsible for the management of the Company from VDC in exchange for a $61.5 million promissory note (the “VDC Note”). As this transaction involved a reorganization of entities under common control, it was reflected in the consolidated financial statements, at carryover basis, on a retrospective basis. Effective with the Company’s emergence from bankruptcy on February 10, 2016 (the “Effective Date”), VDC’s former equity interest in the Company was cancelled. Immediately following that event, the VDC Note was converted into 655,094 new ordinary shares of the reorganized Company (the “New Shares”)contract in accordance with its terms, and there is the potential for others to similarly exercise “force majeure” clauses under their respective drilling contracts; (b) two other customers terminated their drilling contracts prior to the end of their respective terms ~~thereof,~~(both contracts were to expire in ~~satisfaction~~the normal course in the Current Quarter); (c) we reached an agreement to place one rig on a stand-by rate for the majority of the ~~obligation thereunder, which, including accrued interest, totaled approximately $62.6 million~~Current Quarter (such “force majeure” or stand-by rates received by the Company are generally less than the original day rates otherwise payable to the Company); however, this rig has returned to operations as of ~~such date.~~

~~On December 3, 2015 (the “Petition Date”),~~July 2020; (d) we reached agreements with three other customers to delay the ~~Company, certain~~start dates of ~~its subsidiaries~~their new drilling programs and ~~certain VDC subsidiaries who were guarantors of the Company’s pre-bankruptcy secured debt, filed the Reorganization Plan~~we remain in ongoing discussions with another customer regarding our operations and their existing drilling contract and program; (e) we have experienced, and could experience further, delays in the ~~United States Bankruptcy Court for~~collection of certain accounts receivables due to logistical obstacles, such as office closures resulting from the ~~District of Delaware (In re Vantage Drilling International (F/K/A Offshore Group Investment Limited), et al., Case No. 15-12422). On January 15, 2016, the District Court of Delaware confirmed the Company’s pre-packaged Reorganization Plan and the Company emerged from bankruptcy on the Effective Date.~~

Pursuant to the terms of the Reorganization Plan, the pre-bankruptcy term loans and senior notes were retired on the Effective Date by issuing to the debtholders 4,344,959 units in the reorganized Company (the “Units”). Each Unit of securities originally consisted of one New Share and $172.61 of principal of the Company’s 1%/12% Step-Up Senior Secured Third Lien Convertible Notes due 2030 (the “Convertible Notes”), subject to adjustment upon the payment of interest in kind (“PIK interest”) and certain cases of redemption or conversion of the Convertible Notes,COVID-19 outbreak, as well as ~~share splits, share dividends, consolidation or reclassification~~other impacts to our long-term liquidity; and (f) we incurred additional labor costs during the Current Quarter and could continue to incur additional labor costs in the future as a result of ~~the New Shares. The New Shares~~government-imposed quarantine requirements, closures and ~~the Convertible Notes are subject to the terms of an agreement that prohibits the New Shares and Convertible Notes from being traded separately.~~

~~The Convertible Notes are convertible into New Shares~~movement restrictions in certain ~~circumstances, at a conversion price (subject to adjustment~~jurisdictions in ~~accordance with the terms of the Indenture for the Convertible Notes)~~ which was $95.60 as of the issue date. The Indenture for the Convertible Notes includes customary covenants that restrict, among other things, the granting of liens and customary events of default, including among other things, failure to issue securities upon conversion of the Convertible Notes. As of September 30, 2017, taking into account the payment of PIK interest on the Convertible Notes to such date, each such Unit consisted of one New Share and $175.02 of principal of Convertible Notes.

~~Second Amended and Restated Credit Agreement~~. The Company’s pre-petition credit agreement was amended to (i) replace the $32.0 million revolving letter of credit commitment under its pre-petition facility with a new $32.0 million revolving letter of credit facility and (ii) repay the $150 million of outstanding borrowings with (a) $7.0 million of cash and (b) the issuance of $143.0 million initial term loans (the “2016 Term Loan Facility”).

~~10% Senior Secured Second Lien Notes~~. Holders of the Company’s pre-petition term loans and senior notes claims were eligible to participate in a rights offering conducted by the Company for $75.0 million of the Company’s new 10% Senior Secured Second Lien Notes due 2020 (the “10% Second Lien Notes”). In connection with this rights offering, certain creditors entered into a

“backstop” agreement to purchase 10% Second Lien Notes if the offer was not fully subscribed. The premium paid to such creditors under the backstop agreement was approximately $2.2 million, which was paid $1.1 million in cash and $1.1 million in additional 10% Second Lien Notes, resulting in a total issued amount of $76.1 million of 10% Second Lien Notes and net cash proceeds to the Company of $73.9 million, after deducting the cash portion of the backstop premium.

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

~~Other Events:~~ ~~In July 2015,~~ we ~~became aware that Hamylton Padilha, the Brazilian agent VDC used in the contracting of the~~ ~~Titanium Explorer~~ drillship to Petroleo Brasileiro S.A. (“Petrobras”), had entered into a plea arrangement with the Brazilian authorities in connection with his role in facilitating the payment of bribes to former Petrobras executives. Among other things, Mr. Padilha provided information to the Brazilian authorities of an alleged bribery scheme between former Petrobras executives and Mr. Hsin-Chi Su, who was, at the time of the alleged bribery scheme, a member of the Board of Directors and a significant shareholder of our former parent company, VDC. When we learned of Mr. Padilha’s plea agreement and the allegations, we voluntarily contacted the U.S. Department of Justice (“DOJ”) and the ~~Securities and Exchange Commission (the “SEC”)~~ ~~to advise them of these developments,~~operate, as well as the ~~fact that we had engaged outside counsel~~home countries in which certain of our offshore personnel are located, which in many cases have impeded, and could continue to ~~conduct an internal investigation~~impede for the foreseeable future, the regular transportation of crews to their home countries and result in the ~~allegations. Since disclosing this matter~~payment of compensation to stranded crews working longer than their routine rotation schedule (in addition to the ~~DOJ and SEC, we have cooperated fully~~use of charter flights in ~~their investigation~~the absence of commercial flights).

The short-term impact of these ~~allegations. In connection~~challenges has resulted in (i) lower revenue due to terminations of (or amendments to) our existing drilling contracts and (ii) increased expenses due to higher labor and related costs. We cannot at this time determine with such cooperation, we advised both agencies that in early 2010, we engaged outside counsel to investigate a report of alleged improper payments to customs and immigration officials in Asia. That investigation was concluded in 2011, and we determined at that time that no disclosure was warranted; however, in an abundance of caution, we provided the results of this investigation to the DOJ and SEC in light of the allegations in the Petrobras matter. In August 2017, we received a letter from the DOJ acknowledging our full cooperation in the DOJ’s investigation into the Company concerning the possible violations of the U.S. Foreign Corrupt Practices Act (“FCPA”) in the Petrobras matter and indicating that the DOJ has closed such investigation without any action. Although the DOJ’s investigation into this matter has closed, we cannot predict the outcome of the SEC’s investigation, which remains open, and if the SEC determines that violations of the FCPA have occurred, the Company could be subject to civil and criminal sanctions, including monetary penalties,certainty how long these challenges will persist as well as ~~additional requirements or changes~~the long-term impact that such challenges may have on our operations and growth on a go-forward basis; however, the Company is actively managing the business in an attempt to ~~our business practices~~mitigate the impact of the foregoing matters. In order to decrease the Company’s overall operating expenses, the Company has undertaken significant headcount and ~~compliance programs, any or all~~salary reductions, both onshore and offshore, as well as other cost reduction measures to reflect the lower operating activity.

The COVID-19 pandemic continues to spread worldwide. We can neither predict the duration nor estimate the economic impact of ~~which could~~the COVID-19 pandemic at this time. Therefore, the Company can give no assurances that the spread of COVID-19 will not have a material adverse effect on its financial position or results of operations in 2020 and beyond.

Declines in the Demand for Oil and Gas, and the Resulting Oil Price and Market Share Volatility

The recent collapse in global economic activity resulting from the COVID-19 outbreak has caused demand for global oil and gas to significantly decline. Moreover, members of OPEC and Russia failed to reach an agreement in March 2020 to extend previously agreed upon oil production cuts and make much needed additional oil production cuts. Thereafter, Saudi Arabia announced an immediate significant reduction in its oil export prices and Russia announced that all agreed oil production cuts between Russia and OPEC members would expire on April 1, 2020. The termination of the previous cooperation between Saudi Arabia and Russia had an immediate impact given that it had supported global oil prices in the past. Saudi Arabia’s subsequent decision to dramatically increase its oil production and engage in a price war with Russia led to a massive oversupply of oil, which resulted in the overwhelming of global oil storage capacities.

This price and market share war was later reversed with OPEC, Russia and many of the world’s major oil producers reaching a record production cut agreement on April 12, 2020 and extending such agreement on June 6, 2020. However, the confluence of the spread of COVID-19 and the resulting global oil surplus has significantly and adversely impacted the oil and gas industry, causing (i) an unprecedented drop in oil prices, with Brent crude reaching $19.33 per barrel, its lowest price since 1999, and (ii) ensuing reductions of exploration and production company capital and operating budgets. Though OPEC, Russia and other major oil and gas producing nations agreed to continue making drastic cuts to oil production, the efforts to contain COVID-19 will continue to depress global economic activity in the near-term, and the supply and demand imbalance of oil and gas will likely continue for the foreseeable future, leading to sustained lower prices for the remainder of 2020 and possibly beyond. Moreover, it is unclear if, or how long, any agreement among OPEC, Russia and the other major oil producing countries will remain in effect.

The volatility in global oil and gas prices is also causing oil and gas producers to cancel or delay drilling tenders, which could potentially impact our ~~business and financial condition. Additionally, if we become subject~~future backlog. Material payment delays, modifications or cancellations on the underlying contracts (including, but not limited to, any ~~judgment, decree, order, governmental penalty~~delays, modifications or ~~fine,~~cancellations attributable directly and indirectly to the COVID-19 outbreak) have reduced the amount of backlog previously reported (and could further reduce the amount of backlog currently reported) and consequently, could inhibit the conversion of that backlog into revenues.

The full impact of the decrease in global oil and gas prices continues to evolve as of the date of this ~~may constitute an event~~Quarterly Report. Oil and gas prices are expected to continue to be volatile as a result of ~~default under~~ the ~~terms~~ongoing COVID-19 outbreak and resulting changes in oil and gas inventories and industry demand, and therefore, the Company cannot predict with certainty if and when oil and gas prices will begin to improve and stabilize. While our management is actively monitoring the foregoing events and its associated financial impact, it is uncertain at this time as to the full magnitude that depressed oil and gas prices will have on our financial condition and future results of operations. See “Risk Factors—The global spread of COVID-19, fears relating to the spread of COVID-19, and associated oil market developments could adversely impact our ~~secured debt agreements~~financial condition and ~~following notice~~results of operations” in Part II, Item 1A. of this Quarterly Report.

The Company entered into a settlement agreement with VDC on March 4, 2020 to release each other from claims pertaining to certain intercompany receivables and payables as between the ~~requisite lenders and/or noteholders, as applicable, result in our outstanding debt under~~Company and its subsidiaries, on the ~~2016 Term Loan Facility~~one hand, and ~~10% Second Lien Notes becoming immediately due~~VDC and ~~payable at par,~~its subsidiaries, on the other. See “Note 8. Commitments and ~~our outstanding debt under Convertible Notes becoming immediately due~~Contingencies” of these “Notes to Unaudited Consolidated Financial Statements” for additional details on the Restructuring Agreement and ~~payable at~~ the ~~make-whole amount specified in the indenture governing the Convertible Notes.~~associated settlement agreement.

Basis of Consolidation: The accompanying interim consolidated financial information as of ~~September~~June 30, ~~2017,~~2020 and for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017, for the three months ended September 30, 2016, for the period from February 10, 2016 to September 30, 2016~~2020 and ~~for the period from January 1, 2016 to February 10, 2016~~2019 has been prepared without audit, pursuant to the rules and regulations of the SEC, and includes our accounts and those of our majority owned subsidiaries and ~~variable interest entities (“VIEs”)~~VIEs (as discussed ~~below.~~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 presentation of the financial position and results of operations for the interim periods, on a basis consistent with the annual audited financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with ~~generally accepted accounting principles in the United States of America (“~~U.S. ~~GAAP”)~~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 presentation. The ~~consolidated~~ balance sheet at December 31, ~~2016~~2019 is derived from our December 31, ~~2016~~2019 audited financial statements. These interim financial statements should be read in conjunction with the financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2019, which was filed with the SEC on March 10, 2020. 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 connection with our bankruptcy filing, we were subject to the provisions of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 852~~ ~~Reorganizations~~ (“ASC 852”). All expenses, realized gains and losses and provisions for losses directly associated with the bankruptcy proceedings were classified as “reorganization items” in the consolidated statements of operations. Certain pre-petition liabilities subject to Chapter 11 proceedings were considered as Liabilities Subject To Compromise (“LSTC”) on the Petition Date and just prior to our emergence from bankruptcy on the Effective Date. The LSTC classification distinguished such liabilities from the liabilities that were not expected to be compromised and liabilities incurred post-petition.

ASC 852 requires that subsequent to the Petition Date, expenses, realized gains and losses and provisions for losses that can be directly associated with the reorganization of the business be reported separately as reorganization items in the consolidated statements of operations. We were required to distinguish pre-petition liabilities subject to compromise from those that were not and

post-petition liabilities in our balance sheet. Liabilities that were subject to compromise were reported at the amounts expected to be allowed by the Bankruptcy Court, even if they were settled for lesser amounts as a result of the Reorganization Plan.

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

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

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

In addition to the consolidation of our majority owned subsidiaries, we also consolidate VIEs when we are determined to be the primary beneficiary of a VIE. Determination of the primary beneficiary of a VIE is based on whether an entity has (1) the power to direct activities that most significantly impact the economic performance of the VIE and (2) the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. Our determination of the primary beneficiary of a VIE considers all relationships between us and the VIE. ~~Certain subsidiaries~~

ADVantage is a joint venture company formed to operate deepwater drilling rigs in Egypt. We determined that ADVantage met the criteria of ~~VDC, who were guarantors~~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 International Holding Ltd., a London-listed offshore and onshore provider of ~~our pre-petition debt~~oil and ~~part~~gas drilling and production services in the Middle East and Africa (“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 ~~Reorganization Plan, became our subsidiaries upon emergence from bankruptcy on~~benefits that could be potentially significant to the ~~Effective Date. We consolidated these entities~~VIE. As a result, we consolidate ADVantage in our ~~Predecessor~~ 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 Sheet. The carrying amount associated with ADVantage was as follows:

As ADVantage is a majority owned subsidiary of the Company, it serves as a guarantor under the First Lien Indenture. The 9.25% 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 details regarding related party transactions associated with this joint venture.

Use of Estimates: The preparation of financial statements ~~because~~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 ~~determined that they were VIEs~~evaluate our estimates, including those related to property and ~~that we were the primary beneficiary. The following table summarizes the net effect of consolidating~~equipment, income taxes, insurance, employee benefits and contingent liabilities. Actual results could differ from these ~~entities on our Predecessor consolidated statement of operations.~~

Cash and Cash Equivalents: Includes deposits with financial institutions as well as short-term money market instruments with maturities of three months or less when purchased.

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

Property and Equipment: Consists ~~of the costs~~ of our drilling rigs, furniture and fixtures, computer equipment and capitalized costs for computer software. Drilling rigs are depreciated on a component basis over estimated useful lives ranging from five to ~~thirty-five~~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 the ~~accounts~~balance sheet and athe resulting gain or loss is ~~recognized.~~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, 2020, the gain/loss related to the sale or retirement of assets was immaterial. In each of the three and six months ended June 30, 2019, we recognized a net loss of approximately $0.1 million, respectively, related to the sale or retirement of assets.

We evaluate the realization of property and equipment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss on our property and equipment exists when estimated undiscounted cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount. Any impairment loss recognized would ~~represent~~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. In connection with our adoption of fresh-start accounting upon our emergence from bankruptcy on ~~February 10, 2016,~~the Effective Date, an adjustment of $2.0 billion was recorded to decrease the net book value of our drilling rigs to the then estimated fair value. As a result of ~~September~~the spread of COVID-19 and the oil price and market share volatility, we tested for impairment based on impairment indicators identified in the first quarter of 2020. The recoverability test performed resulted in no impairment loss being recorded as the estimated undiscounted cash flows generated from our drilling rigs exceeded their carrying values. The projections and assumptions used in that analysis have not changed significantly as of June 30, ~~2017,~~2020; accordingly, no triggering event has occurred to indicate that the current carrying value of our drilling rigs may not be recoverable. If we experience sustained unfavorable changes to current market conditions, reactivation costs or dayrates, it is possible that the estimate of undiscounted cash flows for our longer term warm stacked drillship may change, potentially resulting in the need to write down the affected asset.

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

Intangible ~~assets:~~Assets: In April 2017, pursuant to a purchase and sale agreement with a third party, we completed the purchase of the Vantage 260, a class 154-44C jackup rig, and a related multi-year drilling contract for $13.0 million. In connection with our acquisition, ~~of the~~ ~~Vantage 260~~ ~~and related multi-year drilling contract,~~ the Company recorded an identifiable intangible asset of $12.6 million for the fair value of the acquired favorable drilling contract. The resulting intangible asset ~~is being~~was amortized on a straight-line basis over the two-year term of the drilling ~~contract.~~contract, which ended in April 2019. We recognized approximately ~~$1.5 million~~$86,000 and ~~$3.1~~$1.6 million of amortization expense for intangible assets for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2019, respectively.

~~Expected future intangible asset amortization as of September 30, 2017 is as follows:~~

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

~~Revenue:~~ ~~Revenue is recognized as services are performed based on contracted dayrates and the number of operating days during the period.~~

In connection with a customer contract, we may receive lump-sum fees for the mobilization of equipment and personnel or the demobilization of equipment and personnel upon completion. Mobilization fees received and costs incurred to mobilize a rig from one geographic market to another are deferred and recognized on a straight-line basis over the term of such contract, excluding any option periods. Costs incurred to mobilize a rig without a contract are expensed as incurred. Fees or lump-sum payments received for capital improvements to rigs are deferred and amortized to income over the term of the related drilling contract. The costs of such capital improvements are capitalized and depreciated over the useful lives of the assets. Upon completion of drilling contracts, any demobilization fees received are recorded as revenue. We record reimbursements from customers for rebillable costs and expenses as revenue and the related direct costs as operating expenses.

Rig and Equipment Certifications: We are required to obtain regulatory certifications to operate our drilling rigs and certain specified equipment, and must maintain such certifications through periodic inspections and surveys. The costs associated with these certifications, including drydock costs, are deferred and amortized over the corresponding certification periods.

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

Credit Losses – Accounts Receivable: The allowance for doubtful accounts 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 because the customer base and composition of our trade receivables is consistent with customers analyzed in evaluation of historical credit losses. The Company has not historically incurred any material credit losses, the risk characteristics of our customers remain similar and our operational practices have annot changed over time. Due to the unprecedented impact of COVID-19 and the oil price and market share volatility (see “The Global Spread of COVID-19” and “Declines in the Demand for Oil and Gas, and the Resulting Oil Price and Market Share Volatility” each of which are set forth above in “Note 1. Organization and Recent Events” of these “Notes to Unaudited Consolidated Financial Statements”), we are unable to determine at this time reasonable and supportable credit loss forecasts and therefore, have reverted to historical loss information to estimate the allowance for the three and six months ended June 30, 2020. As of June 30, 2020 and December 31, 2019, the allowance for doubtful accounts on our trade receivables ~~as of September 30, 2017 or December 31, 2016.~~was immaterial for both periods.

~~Use of Estimates:~~Earnings (loss) per Share: ~~The preparation of financial statements~~We compute basic and diluted EPS in accordance with ~~U.S. GAAP requires management~~the two-class method. We include restricted stock units granted to ~~make estimates~~employees 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 ~~assumptions that affect~~ordinary share equivalents outstanding in the ~~reported amounts of assets and liabilities and~~applicable period, as if all potentially dilutive securities were converted into Ordinary Shares (using the ~~disclosure of contingent assets and liabilities at the date~~treasury stock method).

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

The following sets forth the ~~reported amounts~~number of shares excluded from diluted EPS computations:

Functional Currency: We consider USD to be the functional currency for all of our operations since the majority of our revenues and ~~expenses during~~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. The foreign exchange gain/loss for the ~~reporting period. On an ongoing basis, we evaluate our estimates, including those~~three months ended June 30, 2020 related to ~~property~~currency exchange rates was immaterial. For the six months ended June 30, 2020, we recognized a net gain of approximately $0.1 million related to currency exchange rates. For the three and ~~equipment, income taxes, insurance, employee benefits~~six months ended June 30, 2019, we recognized a net loss of approximately $0.1 million and ~~contingent liabilities. Actual results could differ from these estimates.~~a net gain of approximately $0.1 million, respectively, related to currency exchange rates.

Fair Value of Financial Instruments: The fair value of our short-term financial assets and liabilities approximates the carrying amounts represented in the ~~consolidated~~ balance sheet principally due to the short-term nature or floating rate nature of these

instruments. At ~~September~~June 30, ~~2017,~~2020, the fair value of the ~~2016 Term Loan Facility, the 10% Second~~9.25% First Lien ~~Notes and the Convertible~~ Notes was approximately ~~$142.3~~$230.1 million ~~$73.1 million and $808.2 million, respectively,~~ based on quoted market prices in a less active market, a Level 2 measurement.

~~Recent Accounting Standards:~~ Share-based Compensation:~~In May 2014,~~ TBGs granted under the ~~FASB~~ ~~issued~~ ~~ASU~~ ~~No. 2014-09,~~ ~~Revenue from Contracts with Customers. ASU No. 2014-09 supersedes most~~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 ~~existing revenue recognition requirements~~Effective Date. 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 actually vest will be dependent on the achievement of pre-determined TEV targets specified in ~~U.S. GAAP, including industry-specific guidance.~~ the grants.

Both the TBGs and PBGs were classified as liabilities consistent with the classification of the underlying securities prior to the Conversion. Following the Conversion, outstanding TBGs and PBGs were subject to modification accounting and were re-classified as equity awards. Under the provisions of ASC 718 ~~The ASU~~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 ~~principle~~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 ~~revenue is recognized when~~we consolidate in our financial statements.

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses.” This ASU, and the related ASUs issued subsequently by the FASB, introduce a new model for recognizing credit losses on financial assets not accounted for at fair value through net income, including loans, debt securities, trade receivables, net investments in leases and available-for-sale debt securities. The new ASU broadens the information that an entity ~~transfers promised goods~~must consider in developing estimates of expected credit losses and ~~services~~requires an entity to ~~customers in~~estimate credit losses over the life of an ~~amount that reflects~~exposure based on historical information, current information and reasonable, supportable forecasts. We adopted the ~~consideration to which the entity expects to be entitled in exchange for those goods or services.~~ ~~The new~~ standard also requires significant additional disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. ASU No. 2014-09 is effective for annual reporting periods beginning after December 15, 2017, and interim periods within those years, ~~using either a full or a modified retrospective application approach. We plan to adopt ASU 2014-09 effective~~on January 1, ~~2018~~2020, using the modified retrospective ~~approach whereby we will record the cumulative effect of applying the new standard to all outstanding contracts as of January 1, 2018 as an adjustment to opening retained earnings.~~

When applying the new standard, we currently plan to account for the integrated services provided within our drilling contracts as a single performance obligation composed of a series of distinct time increments, which will be satisfied over time. We will determine the total transaction price for each individual contract by estimating both fixed and variable consideration expected to be earned over the term of the contract. Consideration that does not relate to a distinct good or service, such as mobilization and demobilization revenue, will be allocated across the single performance obligation and recognized ratably each period over the term of the contract. All other components of consideration within a contract, including the dayrate revenue, will continue to be recognized in the period when the services are performed. We expect our revenue recognition under ASU 2014-09 to differ from our current revenue recognition pattern only as it relates to demobilization revenue. Demobilization revenue, which is currently recognized upon completion of a drilling contract, will be estimated at contract commencement and recognized over the term of the contract under the new guidance. Additionally, we currently expect that the cumulative effect adjustment to opening retained earnings required by the modified retrospective adoption approach will not be significant as it will primarily consist of the impact of the timing difference related to recognition of demobilization revenue for affected contracts. Not all drilling contracts include a demobilization provision. Ourapproach. The adoption of this ASU ~~No, 2014-09,~~ ~~and the ultimate effect~~did not have a material impact on our consolidated financial statements ~~is subject to potential change~~ as weour customers are primarily international oil companies, national oil companies and large independent oil companies that have historically had a very low incidence of bad debt expense. The Company will continue to ~~evaluate application~~actively monitor the impact of the ~~accounting standard.~~COVID-19 pandemic on expected credit losses.

In ~~February 2016,~~August 2018, the FASB issued ASU No. ~~2016-02,~~ ~~Leases (Topic 842): Amendments to~~2018-15, "Intangibles - Goodwill and Other - Internal-Use Software." This ASU requires capitalization of certain implementation costs incurred in a cloud computing arrangement that is a service contract. We adopted the ~~FASB Accounting Standards Codification~~, to increase transparency and comparability among organizations by recognizing lease assets and liabilities on the balance sheet and disclosing key information about leasing arrangements. ASU No. 2016-02 is effective for financial statements issued for fiscal years beginning after December 15, 2018, and early adoption is permitted. A modified retrospective approach is required. We expect to adopt ASU 2016-02standard on January 1, 2019. Under the updated accounting standards, we have concluded that our drilling contracts contain a lease component, and our adoption, therefore, will require that we separately recognize revenues associated2020 with ~~the lease of our drilling rigs and the provision of contract drilling services. Our adoption of ASU No. 2016-02, and the ultimate effect on~~no impact to our consolidated financial statements, will be based on an evaluation of the contract-specific facts and circumstances, and such effect could result in differences in the timing of our revenue recognition relative to current accounting standards. With respect to leases whereby we are the lessee we expect to recognize lease liabilities and corresponding “right of use” assets. We are continuing to evaluate the requirements with regard to arrangements under which we are either the lessor or lessee, to determine the effect such requirements may have on our consolidated statements of financial position, operations and cash flows and on the disclosures contained in our notes to consolidated financial statements.

In ~~August 2016,~~December 2019, the FASB issued ~~ASU No. 2016-15,~~ ~~Classification of Certain Cash Receipts and Cash Payments,~~ ~~which addresses the classification and presentation of eight specific cash flow issues that currently result in diverse practice.~~ ASU No. ~~2016-15 is~~2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” This ASU simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and also simplifies and improves consistent application of GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The amendments in this ASU are effective for fiscal years beginning after December 15, ~~2017 utilizing a retrospective transition approach. Early~~2020, and for interim periods therein with early adoption ~~is permitted, provided that all amendments are adopted in the same period.~~ permitted. We are currently evaluating the provisions of ASU ~~2016-15 but do not expect the standard update to have a significant impact on the presentation of cash receipts~~2019-12 and ~~cash payments within our consolidated statements of cash flows.~~

~~In October 2016, the FASB issued ASU No. 2016-16,~~ ~~Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory~~, which requires entities to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transaction occurs as opposed to deferring tax consequences and amortizing them into future periods. This update is effective for annual and interim periods beginning after December 15, 2017, with early adoption permitted. A modified retrospective approach with a cumulative-effect adjustment directly to retained earnings at the beginning of the period of adoption is required. We have not completed an evaluation of ASU No. 2016-16 and have not yet determinedassessing the impact ~~if any,~~it may have on our financial ~~statements~~position and results of operations, if any.

The activities that primarily drive the revenue earned in our drilling contracts with customers include (i) providing our drilling rig, work crews, related ~~disclosures.~~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.

~~In January 2017, the FASB issued ASU No. 2017-01,~~ ~~Business Combinations (Topic 805): Clarifying the Definition~~The integrated drilling services that we perform under each drilling contract represent a single performance obligation satisfied over time and comprised of a ~~Business, which clarifies~~series of distinct time increments, or service periods.

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

Mobilization/Demobilization Revenue. In connection with certain contracts, we receive lump-sum fees or similar compensation for the mobilization of equipment and personnel prior to the commencement of drilling services or the demobilization of equipment and personnel upon contract completion. These activities are not considered to be distinct within the context of the contract and therefore, the associated revenue is allocated to the overall single performance obligation.

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

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.

Contract Termination Revenue. On June 20, 2019, VDEEP and VDDI entered into the Petrobras Agreement with the ~~objective of adding guidance~~Petrobras Parties relating to ~~assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. ASU No. 2017-01 is effective for financial~~

~~statements issued for fiscal years beginning after December 15, 2017 utilizing a prospective basis on or after~~ the ~~effective date. Early adoption is permitted. We~~Petrobras Award. See ~~are currently evaluating the provisions~~“Note 8. Commitments and Contingencies” of ~~ASU~~these “Notes to Consolidated Financial Statements” for additional information regarding the Petrobras Agreement and the Petrobras Award. For the three and six months ended June 30, 2019, we recognized approximately $594.0 million in “Contract termination revenue” and $106.9 million in “Interest income” associated with the Petrobras Payments (as defined in ~~No.~~ “Note 8. Commitments and Contingencies”~~2017-01 but do not expect the standard update~~ of these “Notes to ~~have a significant impact, if any, on~~Consolidated Financial Statements”).

Revenues Related to Reimbursable Expenses. We generally receive reimbursements from our ~~financial statements and related disclosures.~~

~~On April 5, 2017, pursuant to a purchase and sale agreement with a third party, we completed~~customers for the purchase of ~~a class 154-44C jackup rig~~supplies, equipment, personnel services and ~~related multi-year drilling contract for $13.0 million. A down payment of $1.3 million was made in February 2017 upon execution of the agreement and the remaining $11.7 million was paid~~other services provided at ~~closing. The rig has been renamed the~~ ~~Vantage 260. In August 2017 we substituted the~~ ~~Sapphire Driller, a Baker Marine Pacific Class 375 jack-up rig to fulfill the contract. The~~ ~~Vantage 260~~ ~~is currently classified as held for sale. We accounted for the acquisition as a business combination~~their request in accordance with ~~accounting guidance which requires, among~~a drilling contract or other ~~things,~~agreement. We are generally considered a principal in such transactions and therefore, recognize reimbursable revenues and the corresponding costs as we provide the customer‑requested goods and services.

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

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

	Three Months Ended June 30, 2020								Three Months Ended June 30, 2019
	Jackups		Deepwater		Management		Consolidated		Jackups		Deepwater		Management		Consolidated
(unaudited, in thousands)
Dayrate revenue	$	14,722	$	15,047	$	252	$	30,021	$	20,749	$	13,724	$	100	$	34,573
Contract termination revenue		—		—		—		—		—		594,029				594,029
Charter lease revenue		—		—		—		—		972		—		—		972
Amortized revenue		771		2,611		—		3,382		710		582		—		1,292
Reimbursable revenue		949		2,341		82		3,372		2,239		2,948		330		5,517
Total revenue	$	16,442	$	19,999	$	334	$	36,775	$	24,670	$	611,283	$	430	$	636,383

	Six Months Ended June 30, 2020								Six Months Ended June 30, 2019
	Jackups		Deepwater		Management		Consolidated		Jackups		Deepwater		Management		Consolidated
(unaudited, in thousands)
Dayrate revenue	$	38,708	$	34,778	$	798	$	74,284	$	41,117	$	22,502	$	401	$	64,020
Contract termination revenue		—		—		—		—		—		594,029		—		594,029
Charter lease revenue		476		—		—		476		1,885		—		—		1,885
Amortized revenue		867		3,117		—		3,984		969		1,157		—		2,126
Reimbursable revenue		4,174		4,896		417		9,487		4,458		2,909		1,511		8,878
Total revenue	$	44,225	$	42,791	$	1,215	$	88,231	$	48,429	$	620,597	$	1,912	$	670,938

Dayrate revenue and amortized revenue for Jackups and Deepwater are included within “Contract drilling services” in our Consolidated Statement of Operations. All other revenue, excluding “Contract termination revenue”, are included within “Reimbursables and other” in our Consolidated Statement of Operations.

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”, 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 ~~we allocate~~will be used to satisfy our performance obligations in the ~~purchase price~~future and are expected to be recovered. These costs are deferred as a current or noncurrent asset depending on the ~~assets acquired and liabilities assumed based on their fair values as~~length of the ~~acquisition date.~~ initial contract term and are amortized on a straight-line basis to operating costs as services are rendered over the initial term of the related drilling contract. Costs incurred for capital upgrades are capitalized and depreciated over the useful life of the asset.

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

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

Significant changes in contract cost assets and contract revenue liabilities during the six months ended June 30, 2020 are as follows:

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

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 Sheet. Operating lease ROU assets ~~acquired~~ and operating lease liabilities ~~assumed.~~

~~Under accounting guidance, a bargain purchase gain results from an acquisition if~~are recognized based on the ~~fair~~present value of the ~~purchase consideration paid~~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 ~~connection with such acquisition is less than~~determining the ~~net fair~~present value of future payments. The operating lease ROU asset also includes any lease payments made prior to or at the ~~assets acquired~~commencement date and ~~liabilities assumed.~~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 ~~recorded a bargain purchase gain~~have lease agreements with lease and non-lease components, which are generally not accounted for separately. Certain of ~~approximately $1.9 million related to the acquisition~~our leases include provisions for variable payments. These variable payments are not included in the ~~nine months ending September 30, 2017. We believe that we~~calculation of lease liability and ROU assets.

The components of lease expense were ~~able to negotiate a bargain purchase price~~ as ~~a result of our operational presence in West Africa and the seller’s liquidation.~~ follows:

~~Pro forma results of operations related to the acquisition have not been presented because they are not material to our consolidated statement of operations.~~

Successor

Predecessor

Three Months Ended September 30,

Nine Months Ended September 30, 2017

Period from February 10, 2016 to September 30, 2016

Period from January 1, 2016 to February 10, 2016

2017

2016

(unaudited, in thousands)

Professional fees

$
—

$
(35
)

$
—

$
606

$
22,712

Net gain on settlement of LSTC

—

—

—

—

(1,630,025
)
Fresh-start adjustments

—

—

—

—

2,060,232

$
—

$
(35
)

$
—

$
606

$
452,919

(unaudited, in thousands)	Classification in the Consolidated Balance Sheet	June 30, 2020		December 31, 2019
Assets:
Operating lease assets	Operating lease ROU assets	$	4,805	$	6,706
Total leased assets		$	4,805	$	6,706
Liabilities:
Current operating	Other current liabilities	$	2,291	$	3,963
Noncurrent operating	Other long-term liabilities		2,797		3,139
Total lease liabilities		$	5,088	$	7,102

For the nine months ended September 30, 2017, and for the periods from February 10, 2016 to September 30, 2016 and from January 1, 2016 to February 10, 2016, cash payments for reorganization items totaled $208,000, $15.9 million and $7.3 million, respectively.

As of June 30, 2020, the weighted average discount rate and the weighted average remaining lease term for operating leases was 9.25% and 2.54 years, respectively. ROU assets and lease liabilities recorded during the three months ended June 30, 2020 were immaterial.

The bareboat charter contract on the Soehanah jackup rig was accounted for as an operating lease with charter revenue included in “Reimbursables and other” in the Consolidated Statement of Operation for the six months ended June 30, 2019. In May 2019, the parties to the bareboat charter terminated the charterer’s right to acquire the rig at the end of the term of the bareboat charter, which was originally intended to end on December 31, 2019. However, under the terms of the bareboat charter, the lease term continued until the rig was redelivered to the Company, which occurred on February 3, 2020.

~~Second Amended and Restated Credit Agreement.~~ The Company entered into the 2016 Term Loan Facility providing for (i) a $32.0 million revolving letter of credit facility to replace the Company’s existing $32.0 million revolving letter of credit commitment under its pre-petition credit facility and (ii) $143.0 million of term loans into which the claimsfollowing as of the ~~lenders under~~dates indicated:

9.25% First Lien Notes. On November 30, 2018, the Company’s pre-petition credit facility were converted. The lenders under the Company’s pre-petition credit facility also received $7.0 million of cash under the Reorganization Plan. The obligations under the 2016 Term Loan Facility are guaranteed by substantially all of the Company’s subsidiaries, subject to limited exceptions, and secured on a first priority basis by substantially all of the Company’s and the guarantors’ assets, including ship mortgages on all vessels, assignments of related earnings and insurance and pledges of the capital stock of all guarantors, in each case, subject to certain exceptions. We haveCompany issued ~~$19.3~~$350.0 million in ~~letters of credit as of September 30, 2017.~~

~~The maturity date of the term loans and commitments established under the 2016 Term Loan Facility is December 31, 2019. Interest is payable on the unpaid~~aggregate principal amount of each term loan under the 2016 Term Loan Facility at LIBOR plus 6.5%, with a LIBOR floor of 0.5%. The term loans are currently bearing interest at 7.7%. The 2016 Term Loan Facility has quarterly scheduled debt maturities of $357,500 which commenced in March 2016.

~~Fees are payable on the outstanding face amount of letters of credit at a rate per annum equal to 5.5% pursuant to the terms of the 2016 Term Loan Facility.~~

The 2016 Term Loan Facility includes customary representations and warranties, mandatory prepayments, affirmative and negative covenants and events of default, including covenants that, among other things, restrict the granting of liens, the incurrence of indebtedness, the making of investments and capital expenditures, the sale or other conveyance of assets, including vessels, transactions with affiliates, prepayments of certain debt and the operation of vessels. The 2016 Term Loan Facility also requires that the Company maintain $75.0 million of available cash (defined to include unrestricted cash and cash equivalents plus undrawn commitments).

~~10% Senior Secured Second~~9.25% First Lien ~~Notes.~~ ~~The Company engaged~~Notes in a rights offering for $75.0 million of new 10% Second Lien Notes for certain holders of its secured debt claims. In connection with this rights offering, certain creditors entered into a “backstop” agreement to purchase 10% Second Lien Notes if the offer was not fully subscribed.private placement. The premium paid to such creditors under the backstop agreement was approximately $2.2 million, which was paid $1.1 million in cash and $1.1 million in additional 10% Second Lien Notes, resulting in a total issued amount of $76.1 million of 10% Second Lien Notes, and in net cash proceeds of approximately $73.9 million after deducting the cash portion of the backstop premium.

~~The 10% Second~~9.25% First Lien Notes were issued at par and are fully ~~and unconditionally~~ guaranteed ~~(except for customary release provisions),~~ on a senior secured basis by the Company’s direct and indirect subsidiaries and are secured by a first priority lien on substantially all of the ~~subsidiaries~~assets of the ~~Company.~~Company and its subsidiaries, in each case subject to certain exceptions. The ~~10% Second~~9.25% First Lien Notes are subject to first payment priority in favor of holders of up to $50.0 million of future super-priority debt and are subject to both mandatory and optional redemption provisions.

The 9.25% First Lien Notes mature on ~~December 31, 2020,~~November 15, 2023 and bear interest from the date of their issuance at the rate of ~~10%~~9.25% per year. ~~Interest on outstanding 10% Second Lien Notes is payable semi-annually in arrears, which commenced on June 30, 2016.~~ Interest is computed on the basis of a 360-day year comprised of twelve 30-day ~~months. The 10% Second Lien Notes rank behind the 2016 Term Loan Facility as to collateral.~~months and is payable semi-annually in arrears, commencing on May 15, 2019.

The ~~Indenture for the 10% Second~~First Lien ~~Notes~~Indenture includes customary covenants and events of default, including covenants that, among other things, restrict the granting of liens, restrict the making of investments, restrict the incurrence of indebtedness and the conveyance of vessels, limit transactions with affiliates, and require that the Company provide periodic financial reports.

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

Concurrently with the issuance of the 9.25% First Lien Notes, we entered into a new letter of credit facility to replace the letter of credit facility existing under the 2016 Term Loan Facility. The new facility has a capacity of $50.0 million, with all outstanding letters of credit being cash collateralized. We have issued $10.1 million in letters of credit under this facility as of June 30, 2020.

On July 8, 2019, we commenced the Offer to repurchase up to $75.0 million of the 9.25% First Lien Notes at a purchase price equal to 100.0% of the principal of the 9.25% First Lien Notes to be repurchased, plus accrued and unpaid interest and additional amounts, if any, but not including, the date fixed for the purchase of the 9.25% First Lien Notes tendered pursuant to the Offer. The Offer to purchase for cash was made pursuant to the terms of the First Lien Indenture in connection with the receipt by our subsidiaries, VDEEP and VDDI, of approximately $690.8 million and $10.1 million, respectively, on June 21, 2019 on account of the

~~1%/12% Step-Up Senior Secured Third~~Petrobras Award. In accordance with the First Lien Indenture, we were required to offer to purchase at least $75.0 million of the 9.25% First Lien Notes in accordance with the terms thereof. No 9.25% First Lien Notes were tendered for purchase as of the Offer Expiration Date. Accordingly, the Company concluded its obligation under the First Lien Indenture to conduct such offer, and, in accordance with the terms of the First Lien Indenture, the proceeds from the Petrobras Agreement (net of direct costs relating to the recovery thereof) are available for use by the Company without any restrictions under the First Lien Indenture.

Convertible Notes. ~~The~~As part of the Reorganization Plan, the Company issued 4,344,959 New Shares and $750.0 million of the Convertible Notes to certain creditors holding approximately $2.5 billion of pre-petition secured debt claims. The New Shares issued to the creditors and the Convertible Notes ~~may~~could only be traded together and not separately. The Convertible Notes were to mature on December 31, 2030 and ~~are~~were convertible into New Shares, in certain circumstances, at a conversion price (subject to adjustment in accordance with the terms of the Indenture for the Convertible Notes), which was $95.60 as of the issue date. The Indenture for the Convertible Notes ~~includes~~included customary covenants that ~~restrict,~~restricted, among other things, the granting of liens and customary events of default, including among other things, failure to issue securities upon conversion of the Convertible Notes. As

On June 7, 2019, the Company announced that the Board of ~~September 30, 2017, taking into account~~Directors had approved the ~~payment~~conversion of PIK interest on the Convertible Notes to such date, each such unit of securities was comprised of one New Share and $175.02 of principal of Convertible Notes. As of September 30, 2017, we would be required to issue approximately 8.0 million New Shares if the Convertible Notes were converted.

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

Interest on the Convertible Notes is payable semi-annually in arrears commencing June 30, 2016 as a payment in kind, either through an increase in the outstanding principal amount of the Convertible Notes or, if the Company is unable to increase such principal amount, by the issuance of additional Convertible Notes. Interest is computed on the basis of a 360-day year comprised of twelve 30-day months at a rate of 1% per annum for the first four years and then increasing to 12% per annum until maturity.

~~The Company’s obligations under the Convertible Notes are fully and unconditionally guaranteed (except for customary release provisions), on a senior secured basis, by all of the subsidiaries~~into Ordinary Shares of the Company ~~and the obligations of the Company and guarantors are secured by liens~~to take effect on ~~substantially all of their respective assets. The guarantees by the Company’s subsidiaries of the Convertible Notes are joint and several. The Company has no independent assets~~ or operations apart from the assets and operations of its wholly-owned subsidiaries. In addition, there are no significant restrictions on the Company’s or any subsidiary guarantor’s ability to obtain funds from its subsidiaries by dividend or loan. The Indenture for the Convertible Notes includes customary covenants that restrict the granting of liens and customary events of default, including, among other things, failure to issue securities upon conversion of the Convertible Notes. In addition, the Indenture, and the applicable Collateral Agreements, provide that any capital stock and other securities of any of the guarantors will be excluded from the collateralas promptly as practicable after July 1, 2019, subject to the ~~extent the pledge~~satisfaction of ~~such capital stock or other securities to secure the Convertible Notes would cause such guarantor to be~~certain conditions required ~~to file separate financial statements with the SEC pursuant to Rule 3-16 of Regulation S-X (as in effect from time to time).~~

The Convertible Notes will convert only (a) prior to the third anniversary of the issue date (February 10, 2016), (i) upon the instruction of holders of a majority in principal amount of the Convertible Notes or (ii) upon the full and final resolution of all potential Investigation Claims (as defined below), as determined in good faith by the board of directors of the Company (the “Board”) (which determination shall require the affirmative vote of a supermajority of the non-management directors), and (b) from and after February 10, 2019 through their maturity date of December 31, 2030, upon the approval of the Board (which approval shall require the affirmative vote of a supermajority of the non-management directors). For these purposes, (i) “supermajority of the non-management directors” means five affirmative votes of non-management directors assuming six non-management directors eligible to vote and, in all other circumstances, the affirmative vote of at least 75% of the non-management directors eligible to vote and (ii) “Investigation Claim” means any claim held by a United States or Brazilian governmental unit and arising from or related to the procurement of that certain Agreement for the Provision of Drilling Services, dated as of February 4, 2009, by and between Petrobras Venezuela Investments & Services B.V. and Vantage Deepwater Company, as amended, modified, supplemented, or novated from time to time.

In the event of a change in control, the holders of our Convertible Notes have the right to require us to repurchase all or any part of the Convertible Notes at a price equal to 101% of their principal amount. We assessed the prepayment requirements and concluded that this feature met the criteria to be considered an embedded derivative and must be bifurcated and separately valued at fair value due to the discount on the Convertible Notes at issuance. We considered the probabilities of a change of control occurring and determined that the derivative had a de minimis value at February 10, 2016 and December 31, 2016, respectively.

Upon the occurrence of specified change of control events or certain losses of our vessels in the agreements governing our 10% Second Lien Notes, Convertible Notes or 2016 Term Loan Facility, we will be required to offer to repurchase or repay all (or in the case of events of losses of vessels, an amount up to the amount of proceeds received from such event of loss) of such outstanding debt under such debt agreements at the prices and upon the terms set forth in the applicable agreements. In addition, in connection with certain asset sales, we will be required to offer to repurchase or repay such outstanding debt as set forth in the applicable debt agreements. In addition, in connection with their investigation, if the SEC determines that violations of the FCPA have occurred, the Company could be subject to civil and criminal sanctions, including monetary penalties, and if we become subject to any judgment, decree, order, governmental penalty or fine, this may constitute an event of default under the terms of our secured debt agreements and, following notice from the requisite lenders and/or noteholders, as applicable, result in our outstanding debt under the 2016 Term Loan Facility and 10% Second Lien Notes becoming immediately due and payable at par, and our outstanding debt under Convertible Notes becoming immediately due and payable at the make-whole amount specified in the indenture governing the Convertible Notes. The Company then announced on July 18, 2019 that, in light of the Petrobras Agreement between the Petrobras Parties and certain of the Company’s subsidiaries, the Board of Directors had decided to reevaluate whether it was in the best interests of the Company and its shareholders to proceed with the Conversion at that point in time. No action was undertaken by the Company at that time to proceed with the Conversion.

On November 18, 2019, the Company announced that the Board of Directors had authorized the Conversion. On December 4, 2019, the outstanding principal amount of approximately $775.8 million was converted to outstanding Ordinary Shares at a rate of approximately 0.01046, which equates to one ordinary share per $95.60 principal amount of the Convertible Notes.

VDI has 50,000,000 authorized ~~ordinary shares, par value $0.001 per share.~~Ordinary Shares. Upon emergence from bankruptcy weon the Effective Date, VDI issued 5,000,053 ~~ordinary shares~~Ordinary Shares in connection with the settlement of ~~LSTC~~Liabilities Subject to Compromise in accordance with the Reorganization Plan and the VDC Note. On December 4, 2019, VDI issued an additional 8,114,977 Ordinary Shares to convert all of the outstanding Convertible Notes. See “Note 5. Debt” of these “Notes to Unaudited Consolidated Financial Statements” for additional information regarding the Conversion. As of ~~September~~June 30, ~~2017, 5,000,053 ordinary shares~~2020, 13,115,026 Ordinary Shares were issued and outstanding.

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

~~During the nine months ended September 30, 2017, we~~No awards were granted to employees ~~29,008 time-based restricted stock units (“TBGs”)~~or directors during the six months ended June 30, 2020 and ~~67,685 performance-based restricted stock units (“PBGs”) under our 2016 Amended MIP. In March 2017, four directors were~~2019. During the six months ended June 30, 2020, 55,074 of previously granted ~~415~~ TBGs each, or a total of 1,660 TBGs. The TBGs vest annually, ratably over four years; however, accelerated vesting is provided for in the event of a qualified liquidity event as defined in the 2016 Amended MIP (a “QLE”). Otherwise, the settlement of any vested TBGs occurs upon the seventh anniversary of the Effective Date. The PBGs contain vesting eligibility provisions tied to the earlier of a QLE or seven years from the Effective Date. Upon the occurrence of a vesting eligibility event, the number of PBGs that actually vest will be dependent on the achievement of pre-determined Total Enterprise Value (“TEV”) targets specified in the grants.vested.

Both the TBGs and PBGs are classified as ~~liabilities consistent with~~equity awards. For the ~~classification of the underlying securities~~six months ended June 30, 2020 and ~~under the provisions of ASC 718~~ ~~Compensation – Stock Compensation~~ ~~are remeasured at each reporting period until settled. Share based compensation expense is~~2019, we recognized ~~over the requisite service period until settled. We recognized approximately $1.2 million and $76,000 of~~ share-based compensation expense ~~for~~related to the ~~three months ended September 30, 2017 and 2016, respectively. For the nine months ended September 30, 2017 and for the period from February 10, 2016 to September 30, 2016, we recognized $2.9~~TBGs of approximately $1.0 million and ~~$76,000, respectively~~$2.1 million, respectively. As of ~~share-based compensation expense. In the nine months ended September~~June 30, ~~2017, 11,237 of previously granted TBGs vested.~~

Share based compensation expense for PBGs will be recognized when it is probable that the TEV targets will be met. Once it is probable the performance condition will be met, compensation expense based on the fair value of the PBGs at the balance sheet date will be recognized for the service period completed. For the quarter ended September 30, 2017,2020, 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 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 Amended MIP. As a result of a special cash distribution paid to shareholders of record on December 17, 2019, $8.0 million has been recorded in “Other long-term liabilities” in our Consolidated Balance Sheet to be paid upon settlement of the TBGs.

~~We are~~VDI is a Cayman Islands ~~entity.~~company operating in multiple countries through its subsidiaries. The Cayman Islands ~~does~~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. We operate in multiple countries under different legal forms. As a result, we are subject to the jurisdiction of numerous domestic and foreign tax authorities, as well as to tax agreements and treaties among these governments. Tax rates vary between jurisdictions, as does the tax base to which the rates are applied. Taxes may be levied based on net profit before taxes or gross revenues. Determination of taxable income in any jurisdiction requires the interpretation of the related tax laws and regulations and the use of estimates and assumptions regarding significant future events, such as the amount, timing and character of deductions, permissible revenue recognition methods under the tax law and the sources and character of income and tax credits. Our income tax expense may vary substantially from one period to another as a result of changes in tax laws, regulations, agreements and treaties, foreign currency exchange restrictions, rig movements or our level of operations or profitability in each tax jurisdiction. Furthermore, our income taxes are generally dependent upon the results of our operations and when we generate significant revenues in jurisdictions where the income tax liability is based on gross revenues or asset values, there is no correlation ~~between our~~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 March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted, a sweeping stimulus bill intended to bolster the U.S. economy and provide emergency financial assistance to qualifying businesses and individuals. The CARES Act, among other things, modified the net operating losses carryovers and carrybacks rules, and included modifications to Section 163(j) of the Code to increase the allowable business interest deduction. As of June 30, 2020, our analysis of the provisions of the CARES Act revealed no material implications on the income tax provision.

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. VDI’s change in tax status has not had a material impact on our consolidated financial statements.

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 ~~our company~~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 2010 ~~and forward~~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.

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.

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

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

On July ~~2015,~~2, 2018, VDEEP and VDDI filed a petition (the “Petition”) in the U.S. District Court – Texas to confirm the Petrobras Award against the Petrobras Parties. On August 31, 2018, the Petrobras Parties filed with the U.S. District Court – Texas, among other things, a response to the Petition and a motion to vacate the Petrobras Award (the “Response and Motion to Vacate”). On March 8, 2019, the U.S. District Court – Texas heard both the Petition and the Response and Motion to Vacate.

On May 20, 2019, the U.S. District Court – Texas granted the Petition to confirm the Petrobras Award against the Petrobras Parties and denied the Petrobras Parties’ motion to vacate the Petrobras Award. On May 22, 2019, the U.S. District Court – Texas rendered its final judgment in favor of VDEEP and VDDI in the amount of approximately $734.0 million.

Separately, in connection with enforcing the Petrobras Award against the Petrobras Parties, VDEEP and VDDI secured an order from the Amsterdam District Court in the Netherlands on August 22, 2018, which froze certain assets of Petrobras and PVIS in the Netherlands that we ~~became aware~~believe are valued in excess of ~~media reports~~our claim at this time. On November 15, 2018, VDEEP and VDDI filed a petition in the Court of Appeals in The Hague, the Netherlands, to recognize and enforce the Petrobras Award against the Petrobras Parties in the Netherlands (the “Dutch Enforcement Action”). On March 1, 2019, the Petrobras Parties filed their statement of defense with the Court of Appeals. The Court of Appeals heard the petition of VDEEP and VDDI and the Petrobras Parties’ statement of defense on May 14, 2019.

On June 20, 2019, VDEEP and VDDI entered into the Petrobras Agreement with the Petrobras Parties relating to the Petrobras Award. The Petrobras Agreement considered the Petrobras Award amount together with interest calculated through May 22, 2019 and reduced that amount by 4.5%. Pursuant to the Petrobras Agreement, PVIS agreed to pay VDEEP $690,810,875 and PAI agreed to pay VDDI $10,128,565 (collectively, the “Petrobras Payments”), in full satisfaction and payment of the Petrobras Award and the related judgment entered by the U.S. District Court – Texas confirming the Petrobras Award (the “Judgment”). Neither party released any of its claims, except for certain claims in respect of certain pre-judgment attachments made by VDEEP and VDDI on certain assets of PVIS and Petrobras in the Netherlands. VDEEP and VDDI received the Petrobras Payments in full on June 21, 2019. Under the Petrobras Agreement, VDEEP and VDDI were required to take actions in order to release liens on certain Petrobras assets in the United States and the Netherlands. In addition, the parties agreed under the Petrobras Agreement to a stay of the Dutch Enforcement Action until such time as there is a final, non-appealable judgment in the U.S. proceedings or until such time as the Petrobras Parties assert a claim for reimbursement of all or any part of the Petrobras Payments, whichever is earlier.

The Petrobras Parties filed a notice of appeal with the U.S. Court of Appeals for the Fifth Circuit seeking a reversal of the Judgment, which confirmed the Petrobras Award and denied their motion for vacatur. The U.S. Court of Appeals for the Fifth Circuit held oral arguments among the parties on June 10, 2020 and on July 16, 2020, the court affirmed the Judgment and the Petrobras Award in our favor and denied the Petrobras Parties’ motion for vacatur. Additional appeals, including the ability to seek a rehearing from the U.S. Court of Appeals for the Fifth Circuit, are still available to the Petrobras Parties on this matter.

In light of the retention by the Petrobras Parties of their rights, including the right to appeal the Judgment, the Petrobras Parties may assert a claim for the return of all or a portion of the Petrobras Payments made to satisfy the Petrobras Award in the event the U.S. judgment is overturned on appeal. The Company can provide no assurances as to the ultimate outcome of any such appeals. Furthermore, while the Company has obtained judgment preservation insurance to insure against the contingency of being required to return the Petrobras Payment, to the extent the Petrobras Parties were to ultimately succeed in their appeal of the Petrobras Award, the Company’s consolidated financial position and results of operations could be materially adversely affected. In addition, the Petrobras Payments received by VDEEP and VDDI are subject to reductions due to currently owed and future legal fees (including, among others, a contingency fee equal to 10% of the Petrobras Payments) and any applicable taxes. Accordingly, no assurances can be given as to the amount of the Petrobras Payments to be ultimately realized by the Company. At this time, we believe the likelihood that we would incur a loss related to this matter as remote. As of June 30, 2020, no amounts have been accrued.

On April 27, 2018, the Company was added as an additional defendant in a legal proceeding initiated by the Brazilian Federal Prosecutor against certain individuals, including an executive of Petrobras and two political lobbyists, in connection with the contracting of the Titanium Explorer drillship to Petrobras under the Drilling Contract, with the Brazilian Government and Petrobras as plaintiffs. Vantage is alleged to have been involved in and benefitted from the purported bribery scheme at Petrobras through Hamylton Padilha, the Brazilian agent our former parent company, VDC, used in the contracting of the Titanium Explorer drillship to Petrobras, ~~had entered into~~and Mr. Hsin-Chi Su, a ~~plea arrangement with the Brazilian authorities in connection with his role in facilitating the payment of bribes to~~ former Petrobras executives. Among other things, Mr. Padilha provided information to the Brazilian authorities of an alleged bribery scheme between former Petrobras executives and Nobu Su, who was, at the time of the alleged bribery scheme, a member of ~~the Board~~VDC’s board of ~~Directors~~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 filed our ~~former parent company, VDC. When~~preliminary statement of defense with the 11^th Federal court of the Judicial Branch of Curitiba, State of Parana, Brazil (the “Brazilian Federal Court”). We understand that the legal proceeding, which is called an improbity action, is a civil action and is part of the Brazilian Federal Prosecutor’s larger “Car Wash” investigation into money laundering and corruption allegations at Petrobras.

The damages claimed in the proceeding are in the amount of BRL 102.8 million (approximately $31.0 million), together with a civil fine equal to three times that amount. We understand that the Brazilian Federal Court issued an order authorizing the seizure and freezing of the assets of the Company and the other three defendants in the legal proceeding, as a precautionary measure, in the amount of approximately $124.0 million. We and the other three defendants are jointly and severally liable for this amount. The seizure order has not had an effect on our assets or operations, as we do not own any assets in Brazil, and do 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 U.S. DOJ pursuant to the United Nations Convention against Corruption of ~~Mr. Padilha’s plea agreement~~2003 to obtain a freezing order

against our U.S. assets in the amount of $124.0 million. We believe this request is not supported by applicable law and intend to vigorously oppose and defend against any attempts to seize our assets.

On April 12, 2019, we filed an interlocutory appeal with the 4^th 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, to stay the seizure and freezing order of the Brazilian Federal Court.

On May 20, 2019, the Company announced that the Brazilian Appellate Court ruled in favor of the Company’s appeal to stay the seizure and freezing order of the Brazilian Federal Court. The foregoing ruling is still subject to confirmation by a three-judge panel, and is subject to appeal, and the ~~allegations, we voluntarily contacted~~Company can offer no assurances that the ~~DOJ and~~stay will be confirmed or as to the ~~SEC to advise them~~outcome of ~~these developments, as well as~~any appeal thereof. The Company has communicated the ~~fact that we had engaged outside counsel to conduct an internal investigation of the allegations. Since disclosing this matter~~Brazilian Appellate Court’s ruling to the DOJ, and ~~SEC, we have cooperated fully in their investigation of these allegations. In connection with such cooperation, we advised both agencies that in early 2010, we engaged outside counsel~~has asked the Brazilian Federal Court to investigate a report of alleged improper payments to customs and immigration officials in Asia. That investigation was concluded in 2011, and we determined at that time that no disclosure was warranted; however, in an abundance of caution, we provideddo the ~~results of this investigation to the DOJ and SEC in light of the allegations in the Petrobras matter.~~same. ~~In August 2017, we received a letter from the DOJ acknowledging our full cooperation in the DOJ’s investigation into~~On July 18, 2019, the Company ~~concerning~~announced that the ~~possible violations of~~Brazilian Government made a filing with the ~~U.S. Foreign Corrupt Practices Act (“FCPA”) in the Petrobras matter and indicating~~Brazilian Federal Court reporting that the DOJ has ~~closed such investigation without any action. Although~~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 ~~investigation into this~~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 ~~has closed, we cannot predict~~concluded.

The Company intends to vigorously defend against the ~~outcome of the SEC’s investigation, which remains open, and if the SEC determines that violations of the FCPA~~ have occurred, the Company could be subject to civil and criminal sanctions, including monetary penalties, as well as additional requirements or changes to our business practices and compliance programs, any or all of which could have a material adverse effect on our business and financial condition. Additionally, if we become subject to any judgment, decree, order, governmental penalty or fine, this may constitute an event of default under the terms of our secured debt agreements and, following notice from the requisite lenders and/or noteholders, as applicable, result in our outstanding debt under the 2016 Term Loan Facility and 10% Second Lien Notes becoming immediately due and payable at par, and our outstanding debt under Convertible Notes becoming immediately due and payable at the make-whole amount specifiedallegations made in the ~~indenture governing the Convertible Notes.~~

In connection with our bankruptcy cases, two appeals were filed relating to the confirmation of the Reorganization Plan. Specifically, on January 29, 2016, Hsin Chi Su and F3 Capital filed two appeals before the United States District Court for the District of Delaware seeking a reversal of (i) the Court’s determination that Hsin Chi Su and F3 Capital did not have standing to appear and be heard in the bankruptcy cases, which was made on the record at a hearing held on January 14, 2016, and (ii) the Court’s Findings of Fact, Conclusions of Law, and Order (I) Approving the Debtors’ (A) Disclosure Statement Pursuant to Sections 1125 and 1126(b) of the Bankruptcy Code, (B) Solicitation of Votes and Voting Procedures, and (C) Forms of Ballots, and (II) Confirming the Amended Joint Prepackaged Chapter 11 Plan of Offshore Group Investment Limited and its Affiliated Debtors [Docket No. 188], which was entered on January 15, 2016. The appeals were consolidated on June 14, 2016. We cannotunderlying improbity action. However, we can neither predict ~~with certainty~~ the ultimate outcome of this matter nor that there will not be further developments in the “Car Wash” investigation or in any ~~such appeals. An adverse outcome~~other ongoing investigation or related proceeding that could ~~negatively~~adversely affect ~~our business, results~~us. At this time, we are not yet able to determine the likelihood of ~~operations and financial condition.~~loss, if any, arising from this matter.

~~On August 31, 2015, VDC received notice from Petrobras America, Inc. (“PAI”) and Petrobras Venezuela Investments & Services B.V. (“PVIS”) stating that PAI and PVIS were terminating the~~Restructuring Agreement for the Provision of Drilling Services dated February 4, 2009 (the “Drilling Contract”). The Drilling Contract was initially entered into between PVIS and Vantage Deepwater Company, one of our wholly-owned indirect subsidiaries, and was later novated by PVIS to PAI and by Vantage Deepwater Company to Vantage Deepwater Drilling, Inc., another of our wholly-owned indirect subsidiaries. The notice stated that PAI and PVIS were terminating the Drilling Contract because Vantage had allegedly breached its obligations under the agreement. Under the terms of the Drilling Contract we initiated arbitration proceedings before the American Arbitration Association on August 31, 2015, challenging PVIS and PAI’s wrongful attempt to terminate the Drilling Contract. Vantage has maintained that it complied with all of its obligations under the Drilling Contract and that PVIS and PAI’s attempt to terminate the agreement is both improper and a breach of the Drilling Contract.

~~In the ongoing arbitration proceeding, the hearing on the merits has concluded~~ and the parties have exchanged post-hearing briefs. Vantage has asserted claims against PAI and PVIS for declaratory relief and monetary damages based on breach of contract. Vantage has also asserted a claim against Petroleo Brasileiro S.A. (“PBP”) to enforce a guaranty provided by PBP. The Petrobras entities (PVIS, PAI and PBP) have asserted that the Drilling Contract is void as illegally procured, that PVIS and PBP are not proper parties to the arbitration, and that PAI and PVIS properly terminated the contract. PAI has further counterclaimed for attorneys’ fees and costs alleging that Vantage failed to negotiate in good faith before commencing arbitration proceedings and is seeking disgorgement damages of approximately $102 million. We are vigorously pursuing our claims in the arbitration and deny that any of the claims or defenses asserted by the Petrobras entities have merit.Associated Settlement Agreement

Pursuant to the terms of the Restructuring Agreement among VDC and a majority of our secured creditors, the Company agreed to the Reorganization Plan and VDC agreed to commence official liquidation proceedings under the laws of the Cayman Islands. On December 2, 2015, pursuant to the Restructuring Agreement, the Company acquired two subsidiaries responsible for the management of the Company from VDC in exchange for the VDC Note. In connection with our separation from ~~our former parent company,~~VDC, we and the Joint Official Liquidators, appointed to oversee the liquidation of VDC, ~~are in~~entered into discussions regarding the settlement of certain intercompany receivables and payables as between the Company and its subsidiaries, on the one hand, and VDC and its subsidiaries, on the other. ~~While~~On March 4, 2020, we, ~~continue~~and our subsidiaries on the one hand, and VDC and their subsidiaries, on the other, entered into a settlement agreement pursuant to ~~believe that our position regarding~~which the parties to the settlement agreement agreed to release each other from certain claims in exchange for Vantage paying VDC $15.0 million, subject to the approval of ~~such amounts is correct, we cannot predict~~ the ~~ultimate outcome~~Court of ~~this matter should legal proceedings between~~Grand Cayman. On March 16, 2020, the ~~parties transpire.~~Court of Grand Cayman approved the settlement agreement. On March 25, 2020, the Company paid $15.0 million in accordance with the settlement agreement, fully resolving the matter. We recorded a gain of $2.3 million related to the settlement agreement included in “Other Income” in the Consolidated Statement of Operations during the six months ended June 30, 2020.

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

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

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

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

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

(1)Dividend Equivalents on vested TBGs are payable on settlement of the applicable award.

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

Restricted cash as of June 30, 2020 and December 31, 2019 represents cash held by banks as certificates of deposit collateralizing letters of credit.

~~The Company's Consolidated Statement of Operations included the following transactions with VDC for the periods indicated:~~

The following table summarizes the balances payable to VDC included in the Company's Consolidated Balance Sheet as of the ~~periods~~dates indicated:

See “Note 8. Commitments and Contingencies” of these “Notes to Unaudited Consolidated Financial Statements” for additional information regarding the balances payable to VDC.

In association with the establishment of ADVantage, the Company and ADES contributed cash to ADVantage in excess of the issued capital of the joint venture, with the understanding that such amounts are to be considered shareholder loans. As of June 30, 2020, the total outstanding amount due to ADES for such excess cash contributions was approximately $701,000, which is included in “Other current liabilities” on the Consolidated Balance Sheet.

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, will provide various services to ADES and ADES will in turn provide various services to ADVantage. As of June 30, 2020, accounts receivable from ADES totaled approximately $7.3 million and accounts payable to ADES totaled approximately $9.8 million, included in “Trade receivables” and “Accounts payable,” respectively, on the Consolidated Balance Sheet.

Mr. Thomas R. Bates, Jr, the Company’s current chairman and a member of the Board of Directors, served as chairman of Weatherford International (“Weatherford”), a provider of equipment and services to the Company, from December 2019 until June 30, 2020. The Company has engaged in various transactions in the ordinary course of business with Weatherford for the purchase of certain equipment and services, which totaled $0.3 million for the six months ended June 30, 2020. As of June 30, 2020, the Company had a payable to Weatherford in the amount of $39,942.

Except for the foregoing, we did not have any related party transactions that were not conducted in the ordinary course of business as of June 30, 2020.

We aggregate our contract drilling operations into one reportable segment even though we provide contract drilling services with different types of rigs, including jackup rigs and drillships, and in different geographic regions. Our operations are dependent on the global oil and gas industry and our rigs are relocated based on demand for our services and customer requirements. Our customers consist primarily of large international oil and gas companies, national or government-controlled oil and gas companies, and other international exploration and production companies. The Soehanah jackup rig operated under a bareboat charter contract in place as of acquisition.

Additionally, for drilling units owned by others, we provide construction supervision services while under construction, ~~and~~ preservation management services when ~~stacked. In September 2013, we signed an agreement to supervise~~stacked and ~~manage the construction of two ultra-deepwater drillships~~operations and marketing services for ~~a third party. In January 2017, we signed an agreement to manage the preservation of two ultra-deepwater drillships for a third party.~~operating rigs. Our management business

(excluding reimbursable revenue) represented ~~approximately 0.6%, 0.8%, 2.5%, 3.1% , 3.2%,~~less than 1% of our total revenue for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017, for the three months ended September 30, 2016,~~

~~for the period from February 10, 2016 to September 30, 2016~~2020 and ~~for the period from January 1, 2016 to February 10, 2016,~~2019, respectively.

For the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016, all~~2019, a substantial amount of our revenue was derived from countries outside of the United States. Consequently, we are exposed to the risk of changes in economic, political and social conditions inherent in foreign operations. Four customers accounted for approximately ~~47%~~29%, ~~22%~~25%, ~~11%~~16% and ~~10%~~13% of consolidated revenue for the three months ended ~~September~~June 30, ~~2017. For the nine months ended September 30, 2017, four~~2020. Five customers accounted for approximately ~~53%~~21%, 19%, 14%, ~~14%~~10% and 11% of consolidated revenue. For the three months ended September 30, 2016, two customers accounted for approximately 66% and 19% of consolidated revenue. Three customers accounted for approximately 56%, 19% and 15%10% of consolidated revenue for the ~~period~~six months ended June 30, 2020. Contract termination revenue from ~~February 10, 2016 to September~~the Petrobras Parties accounted for approximately 93% and 89% of the consolidated revenue for the three and six months ended June 30, ~~2016. Three~~2019, respectively. Excluding the contract termination revenue received from the Petrobras Parties, six customers accounted for approximately ~~58%~~22%, 18%, 18%, 14%, 13% and ~~14%~~11% of consolidated revenue for the ~~period from January 1, 2016 to February 10, 2016.~~three months ended June 30, 2019, and six customers accounted for approximately 25%, 20%, 16%, 14%, 12% and 10% of the consolidated revenue for the six months ended June 30, 2019.

Our revenue by country was as ~~follows:~~follows for the periods indicated (periods representing revenues of less than 10% are included in “Other countries”):

	Successor								Predecessor
	Three Months Ended September 30,				Nine Months Ended September 30, 2017		Period from February 10, 2016 to September 30, 2016		Period from January 1, 2016 to February 10, 2016		Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		Nine Months Ended September 30, 2017		Period from February 10, 2016 to September 30, 2016		Period from January 1, 2016 to February 10, 2016		2020		2019		2020		2019
(unaudited, in thousands)
Cayman											$	—	$	561,528	$	—	$	561,528
India												9,203		—		18,884		—
Lebanon												10,816		—		17,121		—
Congo	$	39,830	$	26,385	$	102,517	$	65,664	$	13,769		4,852		—		12,433		—
Malaysia		6,460		7,783		20,965		22,743		3,319
Gabon												—		—		9,133		—
Qatar												—		—		8,975		—
Indonesia		—		—		—		18,062		4,214		5,834		—		—		—
Qatar		5,882		—		17,574		—		—
Other countries (a)		5,524		5,774		11,952		11,770		2,238
Other countries ⁽¹⁾												6,070		74,855		21,685		109,410
Total revenues	$	57,696	$	39,942	$	153,008	$	118,239	$	23,540	$	36,775	$	636,383	$	88,231	$	670,938

Our property and equipment, net by country, was as ~~follows:~~follows as of the dates indicated (as of dates representing property and equipment of less than 10% are included in “Other countries”):

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

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

The following discussion is intended to assist you in understanding our financial position at ~~September~~June 30, ~~2017~~2020 and our results of operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017, for the three months ended September 30, 2016~~2020 and for the periods from February 10, 2016 to September 30, 2016 (the “Successor Period”) and from January 1, 2016 to February 10, 2016 (the “Predecessor Period”). The Successor Period and the Predecessor Period referred to in the results of operations are two distinct reporting periods as a result of our emergence from bankruptcy on February 10, 2016.2019. 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, ~~2016.~~2019, which was filed with the SEC on March 10, 2020. The results of operations for the interim periods are not necessarily indicative of the operating results for the full fiscal year or any future periods. ~~Certain previously reported amounts have been reclassified to conform to the current year presentation.~~

We are an international offshore drilling company focused on operating a fleet of modern, high specification drilling units. Our principal business is to contract drilling units, related equipment and work crews, primarily on a dayrate basis to drill oil and ~~natural~~ gas wells for our customers. Through our fleet of drilling units, we ~~are a provider of~~provide offshore contract drilling services to major, national and independent oil and ~~natural~~ gas companies, focused ~~primarily~~ on international markets. Additionally, for drilling units owned by others, we provide construction supervision services ~~while~~for rigs that are under construction, preservation management services ~~when~~for rigs that are stacked and operations and marketing services for operating rigs.

The following table sets forth certain current information concerning our offshore drilling fleet as of ~~October 20, 2017.~~ July 28, 2020.

Name		Year Built		Water Depth Rating (feet)		Drilling Depth Capacity (feet)		Status		Year Built	Water Depth Rating (feet)		Drilling Depth Capacity (feet)		Location	Status
Jackups	Jackups
Emerald Driller	Emerald Driller		2008		375		30,000	Operating		2008		375		30,000	Qatar	Operating
Sapphire Driller	Sapphire Driller		2009		375		30,000	Operating		2009		375		30,000	Congo	Warm stacked
Aquamarine Driller	Aquamarine Driller		2009		375		30,000	Operating		2009		375		30,000	Malaysia	Warm stacked
Topaz Driller	Topaz Driller		2009		375		30,000	Operating		2009		375		30,000	Gabon	Warm stacked
Vantage 260 (1)			1979		250		20,000	Held for sale
Soehanah										2007		375		30,000	Indonesia	Operating
Drillships ~~(2)~~(1)	Drillships ~~(2)~~(1)								Drillships ~~(2)~~(1)
Platinum Explorer	Platinum Explorer		2010		12,000		40,000	Mobilizing		2010		12,000		40,000	India	Operating
Titanium Explorer	Titanium Explorer		2012		12,000		40,000	Warm Stacked		2012		12,000		40,000	South Africa	Warm stacked
Tungsten Explorer	Tungsten Explorer		2013		12,000		40,000	Operating		2013		12,000		40,000	Mediterranean	Warm stacked

On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency as COVID-19 continued to spread globally beyond its point of origin. In March 2020, WHO classified the COVID-19 outbreak as a pandemic based on the rapid increase in exposure globally and the risks posed to the international community. The global spread of COVID-19 has caused widespread illness and significant loss of life, leading governments across the world to impose severely stringent limitations on movement and human interaction. Such governmental responses to the pandemic have depressed economic activity worldwide, impacting all industries, but with a significant adverse effect on the oil and gas industry. The response of governments throughout the world to address the spread of COVID-19, including, among other actions, the imposition of travel bans, quarantines and entry restrictions, has notably impacted our operations, particularly challenging the ability to transport personnel and equipment to and from our rigs, and for our customers and their suppliers to be able to seamlessly manage and conduct their respective operations. As a result of these challenges: (a) one of our customers invoked the “force majeure” clause under its drilling contract with us and subsequently terminated the drilling contract in accordance with its terms, and there is ~~designed~~the potential for ~~250 feet water depths but is currently outfitted for 150 feet water depth.~~

~~(2) The drillships are designed~~others to ~~drill in up~~similarly exercise “force majeure” clauses under their respective drilling contracts; (b) two other customers terminated their drilling contracts prior to ~~12,000 feet~~the end of ~~water and are currently equipped~~their respective terms (both contracts were to ~~drill in 10,000 feet of water.~~

~~On the Petition Date, we filed a reorganization plan~~expire in the ~~United States Bankruptcy Court~~normal course in the Current Quarter); (c) we reached an agreement to place one rig on a stand-by rate for the ~~District~~majority of ~~Delaware (In re Vantage Drilling International (F/K/A Offshore Group Investment Limited), et al., Case No. 15-12422). On January 15, 2016,~~ the ~~District Court~~Current Quarter (such “force majeure” rates or stand-by rates received by the Company are generally less than the original day rates otherwise payable to the Company); however, this rig has returned to operations in July 2020; (d) we reached agreements with three other customers to delay the start dates of ~~Delaware confirmed the Company’s pre-packaged reorganization plan~~their new drilling programs and we ~~emerged from bankruptcy effective on the Effective Date.~~

~~Pursuant to the terms of the Reorganization Plan, the pre-bankruptcy term loans~~remain in ongoing discussions with another customer regarding our operations and ~~senior notes were retired on the Effective Date by issuing to the debtholders 4,344,959 Units~~their existing drilling contract and program; (e) we have experienced, and could experience further, delays in the ~~reorganized Company. Each Unit~~collection of ~~securities originally consisted of one New Share and $172.61 of principal of~~certain accounts receivables due to logistical obstacles, such as office closures resulting from the ~~Convertible Notes, subject to adjustment upon the payment of PIK interest and certain cases of redemption or conversion of the Convertible Notes,~~COVID-19 outbreak, as well as ~~share splits, share dividends, consolidation or reclassification~~other impacts to our long-term liquidity; and (f) we incurred additional labor costs during the Current Quarter and could continue to incur additional labor costs in the future as a result of government-imposed quarantine requirements, closures and movement restrictions in certain jurisdictions in which we operate, as well as the home countries in which certain of our offshore personnel are located, which in many cases have impeded, and could continue to impede for the foreseeable future, the regular transportation of crews to their home countries and result in the payment of

compensation to stranded crews working longer than their routine rotation schedule (in addition to the use of charter flights in the absence of commercial flights).

The short-term impact of these challenges has resulted in (i) lower revenue due to terminations of (or amendments to) our existing drilling contracts and (ii) increased expenses due to higher labor and related costs. We cannot at this time determine with certainty how long these challenges will persist as well as the long-term impact that such challenges may have on our operations and growth on a go-forward basis; however, the Company is actively managing the business in an attempt to mitigate the impact of these matters on the Company’s operations. In order to decrease the Company’s overall operating expenses, the Company has undertaken significant headcount and salary reductions, both onshore and offshore, as well as other cost reduction measures to reflect the lower operating activity. For more information regarding the impact of the ~~New Shares~~. current economic environment on the status of certain of our existing contracts, please refer to our Current Report on Form 8-K, which was filed with the SEC on April 6, 2020, as further supplemented by our Current Reports on Form 8-K, which were filed with the SEC on May 12, 2020, June 2, 2020 and July 1, 2020, respectively.

The ~~New Shares~~COVID-19 pandemic continues to spread worldwide. We can neither predict the duration nor estimate the economic impact of the COVID-19 pandemic at this time. Therefore, we can give no assurances that the spread of COVID-19 will not have a material adverse effect on its financial position or results of operations in 2020 and beyond.

Declines in the Demand for Oil and Gas, and the ~~Convertible Notes are subject~~Resulting Oil Price and Market Share Volatility

The recent collapse in global economic activity resulting from the COVID-19 outbreak has caused demand for global oil and gas to ~~the terms~~significantly decline. Moreover, members of OPEC and Russia failed to reach an agreement in March 2020 to extend previously agreed upon oil production cuts and make much needed additional oil production cuts. Thereafter, Saudi Arabia announced an immediate significant reduction in its oil export prices and Russia announced that ~~prohibits the New Shares~~all agreed oil production cuts between Russia and ~~Convertible Notes from being traded separately.~~

OPEC members would expire on April 1, 2020. The ~~Convertible Notes are convertible into New Shares in certain circumstances, at a conversion price (subject to adjustment in accordance with the terms~~termination of the ~~Indenture for~~previous cooperation between Saudi Arabia and Russia had an immediate impact given that it had supported global oil prices in the ~~Convertible Notes) which was $95.60 as of the issue date. The Indenture for the Convertible Notes includes customary covenants that restrict, among other things, the granting of liens~~past. Saudi Arabia’s subsequent decision to dramatically increase its oil production and customary events of default, including among other things, failure to issue securities upon conversion of the Convertible Notes. As of September 30, 2017, taking into account the payment of PIK interest on the Convertible Notes to such date, each such Unit consisted of one New Share and $175.02 of principal of Convertible Notes.

~~facility and (ii) repay the $150 million of outstanding borrowings under its pre-petition facility with (a) $7.0 million of cash and (b) the issuance of $143.0 million initial term loans.~~

~~10% Senior Secured Second Lien Notes.~~ ~~Holders of the Company’s pre-petition secured debt claims were eligible to participate~~engage in a ~~rights offering conducted by the Company for $75.0 million~~price war with Russia led to a massive oversupply of the Company’s 10% Second Lien Notes. In connection with this rights offering, certain creditors entered into a “backstop” agreement to purchase 10% Second Lien Notes if the offer was not fully subscribed. The premium paid to such creditors under the backstop agreement was approximately $2.2 million, paid $1.1 million in cash and $1.1 million in additional 10% Second Lien Notes, resulting in a total issued amount of $76.1 million of 10% Second Lien Notes, and in net cash proceeds of $73.9 million, after deducting the cash portion of the backstop premium.

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

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

~~Upon emergence from bankruptcy on the Effective Date, we adopted fresh-start accounting in accordance with ASC 852,~~oil, which resulted in the ~~Company becoming~~overwhelming of global oil storage capacities.

This price and market share volatility was later reversed with OPEC, Russia and many of the world’s major oil producers reaching a ~~new entity~~record production cut agreement on April 12, 2020 and extending such agreement on June 6, 2020. However, the confluence of the spread of COVID-19 and the resulting global oil surplus has significantly impacted the oil and gas industry, causing (i) an unprecedented drop in oil prices, with Brent crude reaching $19.33 per barrel, its lowest price since 1999, and (ii) ensuing reductions of exploration and production company capital and operating budgets. Though OPEC, Russia and other major oil and gas producing nations agreed to continue making drastic cuts to oil production, the efforts to contain COVID-19 will continue to depress global economic activity in the near-term, and the supply and demand imbalance of oil and gas will likely continue for ~~financial reporting purposes. Upon adoption~~the foreseeable future, leading to sustained lower prices for the remainder of ~~fresh-start accounting,~~2020 and possibly beyond. Moreover, it is unclear if, or how long, any agreement among OPEC, Russia and the other major oil producing countries will remain in effect.

The volatility in global oil and gas prices is also causing oil and gas producers to cancel or delay drilling tenders, which could potentially and negatively impact our ~~assets~~future backlog. Material payment delays, modifications or cancellations on our underlying contracts (including, but not limited to, delays, modifications or cancellations directly or indirectly attributable to COVID-19) have reduced the amount of backlog previously reported (and could further reduce the amount of backlog currently reported) and ~~liabilities were recorded at their fair values~~consequently, could inhibit the conversion of that backlog into revenues.

The full impact of the decrease in global oil and gas prices continues to evolve as of the ~~Effective Date.~~ date of this Quarterly Report. Oil and gas prices are expected to continue to be volatile as a result of the ongoing COVID-19 outbreaks, changes in oil and gas inventories and industry demand, and therefore, the Company cannot predict if and when oil and gas prices will improve and stabilize. While our management is actively monitoring the foregoing events and its associated financial impact on us, it is uncertain at this time as to the full magnitude that depressed oil and gas prices will have on our financial condition and future results of operations. See “Risk Factors—The ~~Effective Date fair values~~global spread of COVID-19, fears relating to the spread of COVID-19, and associated oil market developments could adversely impact our financial condition and results of operations” in Part II, Item 1A. of this Quarterly Report. While there is continued uncertainty surrounding the extensiveness and duration of this industry downturn, we do believe that the confluence of these significant, unforeseen events are not necessarily indicative of future events and as such, our historical statements may not be indicative of future performance.

The Company is focused on mitigating the impact of the foregoing events on its business. In the Current Quarter, we commenced a plan to reduce our costs and preserve our cash. For example, we reduced the salaries of our ~~assets~~workforce by approximately 15 to 20% depending on the position, secured material price reductions from our vendors and, ~~liabilities differed materially~~in June 2020, initiated significant reductions in both our onshore and offshore personnel to reflect the lower levels of operating activity. We continue to actively seek measures to reduce our operating costs and preserve our cash during these unprecedented times. See our Current Report on Form 8-K, which was filed with the SEC on July 1, 2020, for further information regarding reductions in the salaries of our

executive officers in an attempt to reduce the Company’s operating and corporate costs in light of the global economic decline and the public health crisis resulting from the ~~recorded values~~spread of ~~our assets~~COVID-19.

We entered into a settlement agreement with VDC on March 4, 2020 to release each other from claims pertaining to certain intercompany receivables and payables as ~~reflected in our historical consolidated balance sheets. The effects~~between the Company and its subsidiaries, on the one hand, and VDC and its subsidiaries, on the other. See “Note 8. Commitments and Contingencies” of the ~~Reorganization Plan~~“Notes to Unaudited Consolidated Financial Statements” in Part I, Item 1 of this Quarterly report for additional details on the Restructuring Agreement and the ~~application of fresh-start accounting are reflected~~associated settlement agreement. The information discussed therein is incorporated by reference in ~~our consolidated balance sheet as of December 31, 2016 and the related adjustments thereto were recorded in our consolidated statements of operations as reorganization items.~~its entirety into this Part I, Item 2.

Expectations about future oil and ~~natural~~ gas prices have historically been a key driver of demand for our services. ~~The~~In its July 2020 Oil Market Report, the International Energy Agency ~~(the “Agency”), in their October 2017 Oil Market Report, estimates~~stated that ~~average~~it expects demand ~~will increase~~to fall by ~~approximately 1.6~~7.9 million barrels per day ~~or 1.6%~~ in ~~2017 from 96.6~~2020 before recovering by 5.3 million barrels per day in 2021. The global spread of COVID-19 and the resulting collapse in global economic activity, coupled with the short-lived price war between Saudi Arabia and Russia, have led to ~~98.2 million barrels per day. The Agency forecasts a slightly lower growth~~significant reductions and delays in ~~demand~~oil and gas exploration and development plans on the part of ~~1.4 million barrels per day for 2018, when global demand is estimated~~operators. Though OPEC, Russia and other major oil and gas producing nations recently reached an agreement to ~~reach 99.6 million barrels per day. While this represents favorable growth in demand, it has not been enough~~drastically cut oil production, the efforts to ~~fully offset surplus production and high inventories remain, which~~contain COVID-19 will continue to depress ~~oil prices. Continuing uncertainty around the viability and length of reductions in production agreed to by the Organization of Petroleum Exporting Countries (“OPEC”)~~global economic activity and the ~~incremental production capacity in non-OPEC countries, including growing production from~~supply and demand imbalance of oil will likely continue, leading to a volatile oil market for the ~~U.S. shale activity, continue to contribute to an uncertain oil price environment.~~

remainder of 2020 and possibly beyond. As a result of this decline in demand for the ~~persistence of reduced oil prices since 2014, exploration and development companies~~foreseeable future, operators have ~~significantly reduced~~drastically cut their capital ~~expenditures during this period and historically low levels of~~ spending ~~are expected for 2017 and 2018. Recent analyst surveys of exploration and production spending indicate that oil and gas companies continue to reduce capital expenditures and we expect that~~in the offshore drilling programs of operators will remain curtailed until higher, sustainable crude oil prices are achieved. Accordingly, we anticipate that our industry will experience depressed market conditions through 2017 and 2018.space.

In addition to the ~~reduction in~~macroeconomic challenges which have led to reduced demand for drilling rigs, the additional supply of ~~newbuild~~new-build rigs is further depressing the market. ~~There~~According to Bassoe, there are currently 9744 jackups and ~~31 deepwater~~26 deepwater/harsh environment floaters on order at ~~shipyards per Bassoe Offshore A.S. with scheduled deliveries extending out to April 2021. While 25 jackups and 12 deepwater floaters are scheduled for delivery through December 31, 2017, it~~shipyards. It is unclear when these drilling rigs will actually be delivered as many rig deliveries have already been deferred to later dates and some rig orders have been canceled. In response to the oversupply of drilling rigs, a number of competitors are removing older, less efficient rigs from their fleets by either cold stacking the drilling rigs or taking them permanently out of service.

~~Since June 2014, 101 rigs, with an average age of approximately 36 years, have been announced for recycling~~Furthermore, according to Bassoe, ~~Offshore AS.~~253 rigs have been removed from the drilling fleet since the oil price decline in 2014. Of these ~~101~~253 rigs, 69136 are ~~semisubmersibles, 15~~floaters (semisubmersibles and drillships) and 117 are ~~drillships and 17 are~~ jackups. ~~We expect drilling rig cold stacking, scrapping and conversion to non-drilling use to continue during 2017 and 2018.~~ While we believe ~~this is~~rig recycling to be an important element in bringing the supply of drilling rigs back into ~~balance~~alignment with demand, we do not anticipate that it will be sufficient to materially improve market conditions in ~~2017~~ 2020.

In response to both market conditions and excessive levels of idle capacity in recent years, there has been intense downward pressure on operating dayrates as drilling contractors generally preferred to maintain rigs in an active state and customers have generally favored operating rigs over reactivated cold-stacked rigs. Prior to the COVID-19 outbreak, this downward pressure on pricing was starting to reverse itself as opportunities for our services had increased over the past year and dayrates were showing signs of general improvement. However, we expect that the ongoing spread of COVID-19 and the resulting collapse of global economic activity will continue to present significant challenges to our industry in 2020 and beyond, which could result in companies in our industry, including our direct competitors, pursuing, among other actions, debt restructuring, bankruptcy protection and/or liquidations, some of which have already commenced.

The oil and gas industry generally, as well as the global economy at large, has been significantly impacted by the spread of COVID-19, and we are unable to predict at this time when market conditions may improve or estimate the ultimate impact that current market conditions may have on our financial condition and results of operations (see “Risk Factors—The global spread of COVID-19, fears relating to the spread of COVID-19, and associated oil market developments could adversely impact our financial condition and results of operations” and “—The ultimate impact and effects of the spread of COVID-19 and the resulting pandemic are highly uncertain and cannot be predicted at this time” in ~~2018.~~Part II, Item 1A. of this Quarterly Report).

The following table reflects a summary of our contract drilling backlog coverage of days contracted and related revenue as of ~~September~~June 30, ~~2017 forward~~2020 and thereafter (based on information available at that time). For more information regarding the impact of the current economic environment on the status of certain of our existing contracts, please refer to “Recent Developments” in this Part I, Item 2 as well as our Current Report on Form 8-K, which was filed with the SEC on April 6, 2020, and further supplemented by our Current Reports on Form 8-K, which were filed with the SEC on May 12, 2020, June 2, 2020 and July 1, 2020, respectively.

~~In June 2017, our ultra-deepwater drillship, the~~ ~~Platinum Explorer, received a letter of award for a three year contract from Oil and Natural Gas Company. The~~ ~~Platinum Explorer~~ ~~is currently mobilizing to India for planned commencement of operations in the fourth quarter of 2017.~~

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.~~indicated:

	Successor												Predecessor
	Three Months Ended September 30,						Nine Months Ended September 30, 2017			Period from February 10, 2016 to September 30, 2016			Period from January 1, 2016 to February 10, 2016			Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			Nine Months Ended September 30, 2017			Period from February 10, 2016 to September 30, 2016			Period from January 1, 2016 to February 10, 2016			2020			2019			2020			2019
Jackups
Rigs available (at end of period)		4			4			4			4			4			5			5			5			5
Available days (1)		439			368			1,250			936			160			455			364			875			724
Utilization (2)		93.8	%		25.6	%		76.4	%		43.4	%		53.6	%		60.0	%		93.7	%		73.9	%		96.0	%
Average daily revenues (3)	$	63,263		$	112,205		$	64,269		$	94,794		$	88,347		$	56,710		$	62,941		$	61,194		$	60,531
Deepwater
Rigs available		3			3			3			3			3			3			3			3			3
Available days (1)		276			276			819			702			120			273			273			546			543
Utilization (2)		33.3	%		33.1	%		33.2	%		33.2	%		33.3	%		45.6	%		49.2	%		53.7	%		40.9	%
Average daily revenues (3)	$	280,191		$	265,000		$	281,040		$	262,271		$	332,715		$	141,900		$	106,430		$	129,255		$	106,538

Net loss attributable to shareholders for the ~~three months ended September 30, 2017 (the “Current Quarter”)~~Current Quarter was ~~$40.1~~$31.9 million, or ~~$8.01~~$2.43 per basic ~~and diluted~~ share, on operating revenues of ~~$57.7~~$36.8 million, compared to net ~~loss~~income attributable to shareholders for the ~~three months ended September 30, 2016 (the “Comparable Quarter”)~~Comparable Quarter of ~~$41.5~~$590.7 million, or ~~$8.31~~$116.96 per basic ~~and diluted~~ share, on operating revenues of ~~$39.9~~$636.4 million.

The following table is an analysis of our operating results for the three months ended ~~September~~June 30, ~~2017~~2020 and ~~2016.~~2019:

Three Months Ended September 30,

Change

2017

2016

$

%
(unaudited, in thousands)

Revenues

Contract drilling services

$
51,831

$
34,755

$
17,076

49
%

Management fees

342

993

(651
)

-66
%

Reimbursables

5,523

4,194

1,329

32
%

Total revenues

57,696

39,942

17,754

44
%

Operating costs and expenses

Operating costs

49,848

30,983

18,865

61
%

General and administrative

6,949

10,128

(3,179
)

-31
%

Depreciation

18,538

18,977

(439
)

-2
%

Total operating costs and expenses

75,335

60,088

15,247

25
%

Loss from operations

(17,639
)

(20,146
)

2,507

-12
%

Other income (expense)

Interest income

231

11

220

**

Interest expense and financing charges

(19,258
)

(18,722
)

(536
)

3
%

Other, net

858

669

189

28
%

Reorganization items

-

35

(35
)

-100
%

Total other expense

(18,169
)

(18,007
)

(162
)

1
%

Loss before income taxes

(35,808
)

(38,153
)

2,345

-6
%

Income tax provision

4,260

3,373

887

26
%

Net loss

$
(40,068
)

$
(41,526
)

$
1,458

-4
%

** Not a meaningful percentage.

	Three Months Ended June 30,						Change
	2020			2019			$			%
(unaudited, in thousands)
Revenues
Contract drilling services	$	33,151		$	35,765		$	(2,614	)		-7	%
Contract termination revenue		—			594,029			(594,029	)		-100	%
Reimbursables and other		3,624			6,589			(2,965	)		-45	%
Total revenues		36,775			636,383			(599,608	)		-94	%
Operating costs and expenses
Operating costs		38,104			38,081			23			0	%
General and administrative		4,716			70,702			(65,986	)		-93	%
Depreciation		18,401			18,499			(98	)		-1	%
Total operating costs and expenses		61,221			127,282			(66,061	)		-52	%
(Loss) Income from operations		(24,446	)		509,101			(533,547	)		-105	%
Other (expense) income
Interest income		111			108,305			(108,194	)		-100	%
Interest expense and financing charges		(8,601	)		(10,435	)		1,834			-18	%
Other, net		12			(58	)		70			-121	%
Total other (expense) income		(8,478	)		97,812			(106,290	)		-109	%
(Loss) income before income taxes		(32,924	)		606,913			(639,837	)		-105	%
Income tax (benefit) provision		(1,024	)		16,454			(17,478	)		-106	%
Net (loss) income		(31,900	)		590,459			(622,359	)		-105	%
Net income (loss) attributable to noncontrolling interests		12			(270	)		282			-104	%
Net (loss) income attributable to shareholders	$	(31,912	)	$	590,729		$	(622,641	)		-105	%

Revenue: Total revenue ~~increased 44%~~decreased $599.6 million due primarily to the impact of the Titanium Explorer contract termination revenue received from the Petrobras Parties during the Comparable Quarter. See “Note 8. Commitments and ~~contract~~Contingencies” of the “Notes to Unaudited Consolidated Financial Statements” in Part I, Item 1 of this Quarterly Report for further information on payments received from the Petrobras Parties. The information discussed therein is incorporated by reference in its entirety into this Part I, Item 2.

Contract drilling revenue ~~increased 49%~~decreased 7% for the Current Quarter as compared to the Comparable Quarter. ~~The increase in contract drilling revenue in~~During the Current Quarter, (i) three of our drilling contracts were terminated as a result of the volatility in oil prices and the challenges presented by the spread of COVID-19, (ii) another drilling contract expired in accordance with its terms and (iii) another drilling contract was ~~primarily due~~amended to ~~improved utilization~~place a rig on ~~our jackup fleet, with an aggregate of 317 incremental revenue-earning days, including 71 additional days attributable~~stand-by rate (such “force-majeure” or stand-by rates received by the Company are generally less than the original day rates otherwise payable to the ~~addition of the~~ ~~Vantage 260, contributing $5.5 million~~Company). The decrease in ~~increased revenue. Increased average dayrates and revenue efficiencies on the~~ ~~Tungsten Explorer~~ ~~contributed an incremental $1.6 million~~our contract drilling ~~revenue in the Current Quarter.~~

~~Management fees and reimbursable~~ revenue for the Current Quarter ~~were $0.3 million and $5.5 million, respectively,~~ as compared to ~~$1.0 million and $4.2 million, respectively, in~~ the Comparable ~~Quarter. The decrease in management fees was primarily due to the completion of the construction of a managed drillship in 2016. The increase in reimbursable revenue~~Quarter was primarily a result of these contract changes.

Reimbursables and other revenue for the ~~increases~~Current Quarter decreased $3.0 million as compared to the Comparable Quarter as a result of the changes in drilling contracts discussed immediately above as well as the termination of the bareboat charter lease on the Soehanahjackup ~~utilization.~~rig, which was redelivered to the Company in February 2020.

Operating costs: Operating costs for the Current Quarter increased ~~61%~~nominally as compared to the Comparable Quarter. ~~Jackup utilization changes~~The increase in operating costs was largely due to the increase in labor costs resulting from government-mandated closures and movement restrictions in certain countries in which we operate as well as within the home countries of certain of our offshore personnel, which prevented in many cases the transportation of crews to their home countries and resulted in ~~an incremental $11.6 million, including $1.6 million for non-cash amortization~~the payment of compensation to stranded crews in addition to the ~~contract value acquired with the~~ ~~Vantage 260. Deepwater operating costs increased $7.3 million due primarily to incremental costs for the reactivation of the~~ ~~Platinum Explorer~~ ~~for an upcoming contract in India.~~crews on our rigs.

General and administrative expenses: Decreases in general and administrative expenses for the Current Quarter as compared to the Comparable Quarter were primarily due to a ~~$1.4~~$65.4 million decrease in legal expenses associated with ~~our internal FCPA investigation and~~non-routine legal matters, including the collection of the Petrobras ~~arbitration. Additionally,~~Award. General and administrative expenses for the Current Quarter and for the Comparable Quarter included ~~accrued severance costs~~approximately $0.2 million and $0.7 million, respectively, for non-cash share-based compensation expense. The decrease in ~~connection with~~non-cash share-based compensation expense was offset by an increase in cash compensation expense in the ~~resignations~~Current Quarter of ~~former executives.~~$0.9 million for cash awards granted to certain key employees of the Company pursuant to underlying award agreements and issued under the 2016 Amended MIP.

Depreciation expense: Depreciation expense for the Current Quarter ~~was consistent with~~decreased 1% as compared to the Comparable Quarter, due primarily to certain assets becoming fully depreciated.

Interest income: Interest income for the Current Quarter decreased $108.2 million as compared to the Comparable Quarter, due primarily to interest related to the Petrobras Payments received during the Comparable Quarter. See “Note 8. Commitments and Contingencies” of the “Notes to Unaudited Consolidated Financial Statements” in Part I, Item 1 of this Quarterly Report for additional details on payments received from the Petrobras Parties. The information discussed therein is incorporated by reference in its entirety into this Part I, Item 2.

Interest expense and ~~other~~ financing charges: Interest expense for the Current Quarter ~~was consistent with~~decreased 18% as compared to the Comparable ~~Quarter.~~Quarter due to lower outstanding debt after the Conversion of the Convertible Notes in December 2019. Interest expense includes non-cash discount accretion, ~~payment-in-kind~~PIK interest and deferred financing costs totaling approximately ~~$14.3~~$0.4 million and ~~$14.1~~$2.3 million for the Current Quarter and for the Comparable Quarter, respectively.

~~Other, net:~~ Our functional currency is ~~the U.S. dollar;~~USD; however, a portion of the revenues earned and expenses incurred by certain of our subsidiaries are denominated in currencies other than ~~the U.S. dollar.~~USD. These transactions are ~~remeasured~~re-measured in ~~U.S. dollars~~

USD based on a combination of both current and historical exchange rates. ~~Net~~The foreign currency exchange ~~gains~~gain/loss for the Current Quarter was immaterial. A net foreign currency exchange loss of ~~$0.9~~$0.1 million ~~and $0.7 million were~~was included in other, net, for the ~~Current Quarter and the~~ Comparable ~~Quarter, respectively.~~Quarter.

Income tax ~~expense:~~provision: Income tax expense ~~increased~~decreased in the Current Quarter as compared to the Comparable Quarter, due primarily to ~~an increase~~the Titanium Explorer contract termination revenue received from the Petrobras Parties during the Comparable Period and a decline in revenue due to termination of certain drilling contracts in the Current ~~Quarter~~Quarter. See “Note 8. Commitments and ~~the impact~~Contingencies” of the ~~annualized effective tax rate.~~

~~For the Nine months ended September 30, 2017 and the Successor and Predecessor Periods~~

~~Net loss~~“Notes to Unaudited Consolidated Financial Statements” in Part I, Item 1 of this Quarterly Report for ~~the nine months ended September 30, 2017 (the “Current Period”) was $113.2 million, or $22.63 per basic and diluted share,~~additional details on operating revenues of $153.0 million and net loss for the Successor Period was $106.3 million, or $21.26 per basic and diluted share, on operating revenues of $118.2 million. Net loss attributable to VDI for the Predecessor Period was $471.0 million, on operating revenues of $23.5 million.

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

Successor

Predecessor

Nine Months Ended September 30, 2017

Period from February 10, 2016 to September 30, 2016

Period from January 1, 2016 to February 10, 2016

(unaudited, in thousands)

Revenues

Contract drilling services

$
137,672

$
99,715

$
20,891

Management fees

1,148

3,664

752

Reimbursables

14,188

14,860

1,897

Total revenues

153,008

118,239

23,540

Operating costs and expenses

Operating costs

119,030

93,387

25,213

General and administrative

29,929

27,991

2,558

Depreciation

55,531

49,434

10,696

Total operating costs and expenses

204,490

170,812

38,467

Loss from operations

(51,482
)

(52,573
)

(14,927
)

Other income (expense)

Interest income

587

26

3

Interest expense and financing charges

(57,180
)

(48,144
)

(1,728
)

Other, net

2,073

987

(69
)

Reorganization items

-

(606
)

(452,919
)

Bargain purchase gain

1,910

-

-

Total other expense

(52,610
)

(47,737
)

(454,713
)

Loss before income taxes

(104,092
)

(100,310
)

(469,640
)

Income tax provision

9,067

5,978

2,371

Net loss

(113,159
)

(106,288
)

(472,011
)

Net loss attributable to noncontrolling interests

-

-

(969
)

Net loss attributable to VDI

$
(113,159
)

$
(106,288
)

$
(471,042
)

~~Revenue:~~ ~~During the Current Period jackup utilization averaged 76% with both the~~ ~~Emerald Driller~~ ~~and the~~ ~~Aquamarine Driller~~ working throughout and the remaining three jackups working a combined additional 410 days generating a combined average daily revenue of $64,268 across the jackup fleet. During the Successor Period, only the ~~Aquamarine Driller~~ worked the entire period with the remaining three jackups working a combined additional 175 days at a combined average daily revenue of $94,794. In the Predecessor period of January 1, 2016 to February 10, 2016, our jackups had an aggregate 86 revenue earning days at average daily revenue of approximately $88,347.

~~Deepwater utilization for the Current Period, for the Successor Period and for the Predecessor Period averaged 33% as only the~~ ~~Tungsten Explorer~~ ~~worked throughout all periods. Neither of our other two ultra-deepwater drillships worked during the reported periods as the~~ ~~Platinum Explorer~~ ~~completed its initial 5-year contract during the fourth quarter of 2015 and the~~ ~~Titanium Explorer~~ ~~drilling contract was cancelled by the operator in August 2015.~~

Management fees for the Current Period, the Successor Period and the Predecessor Period averaged approximately $4,206 per day, $15,658 per day and $18,810 per day, respectively. Reimbursable revenue for the Current Period and the Successor Period was $14.2 million and $14.9 million, respectively, with six rigs working part of the Current Period and four working for part of the Successor Period.~~Reimbursable revenue for the Predecessor Period was $1.9 million when three rigs worked for the entire period.~~

~~Operating costs:~~ Operating costs for the Current Period were approximately $119.0 million, including $8.2 million of reimbursable costs. Operating costs for the Successor Period were approximately $93.4 million, including $11.9 million of reimbursable costs. ~~For the Predecessor Period, operating costs were $25.2 million, including $1.4 million of reimbursable costs. Operating costs in the respective periods were dependent on the operational status of the~~ ~~rigs.~~

~~General and administrative expenses:~~ General and administrative expenses for the Current Period and the Successor Period were $29.9 million and $28.0 million, respectively, including $10.9 million and $6.8 million, respectively, in legal expenses associated with our internal FCPA investigation andpayments received from the Petrobras ~~arbitration. Similar charges incurred~~Parties. The information discussed therein is incorporated by reference in ~~the Predecessor Period totaled $531,000.~~

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

~~Interest expense and other financing charges:~~ Interest expense for the Current Period and for the Successor Period is calculated on the debt that was issued in connection with our emergence from bankruptcy on February 10, 2016. Interest expense for the Predecessor Period was calculated on the old credit agreement as provided for in the Reorganization Plan and on the VDC Note issued in connection with the Reorganization Plan. Interest expense for the Current Period and for the Successor Period includes approximately $42.7 million and $36.2 million of non-cash payment in kind interest and deferred financing costs, respectively.

~~Reorganization items:~~ In the Predecessor Period, we incurred $22.7 million of post-petition professional fees associated with the bankruptcy cases. Additionally, we incurred non-cash charges of $2.06 billion in fresh-start accounting adjustments, offset by a $1.63 billion non-cash gain on settlement of LSTC. During the Successor Period we incurred $606,000 in professional fee expenses in connection with our bankruptcy cases.

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

~~Other, net:~~ Net foreign currency exchange gains included in other, net for the Current Period and the Successor Period were $2.3 million and $1.0 million, respectively. Foreign currency exchange gains or losses included in other, net in the Predecessor Period were insignificant.

~~Income tax expense:~~ its entirety into this Part I, Item 2. Our ~~estimated~~ annualized effective tax rate for the Current ~~Period was~~Quarter is negative ~~8.8%~~4.58% based on estimated annualized loss before income taxes excluding income tax discrete items. Our estimated annualized effective tax ~~rates~~rate for the ~~Successor Period and the Predecessor Period were negative 9.4%~~Comparable Quarter was 3.44% based on estimated annualized ~~loss or~~ profit before income taxes, ~~in the respective periods,~~ excluding income tax discrete items. ~~For all periods, we had a loss before income taxes resulting in negative tax rates.~~

Our income taxes are generally dependent upon the results of our operations and the local income taxes in the jurisdictions in which we operate. In some jurisdictions, we do not pay taxes or receive benefits for certain income and expense items, including interest expense ~~loss~~and disposal gains or losses. In other jurisdictions, we recognize income taxes on ~~extinguishment of debt~~a net income basis or a deemed profit basis.

Net loss attributable to shareholders for the Current Period was $62.5 million, or $4.76 per basic share, on operating revenues of $88.2 million, compared to net income attributable to shareholders for the Comparable Period of $542.8 million, or $107.60 per basic share, on operating revenues of $670.9 million.

The following table is an analysis of our operating results for the six months ended June 30, 2020 and 2019:

	Six Months Ended June 30,						Change
	2020			2019			$			%
(unaudited, in thousands)
Revenues
Contract drilling services	$	77,470		$	65,745		$	11,725			18	%
Contract termination revenue		—			594,029			(594,029	)		-100	%
Reimbursables and other		10,761			11,164			(403	)		-4	%
Total revenues		88,231			670,938			(582,707	)		-87	%
Operating costs and expenses
Operating costs		86,659			76,623			10,036			13	%
General and administrative		11,886			79,370			(67,484	)		-85	%
Depreciation		36,417			37,032			(615	)		-2	%
Total operating costs and expenses		134,962			193,025			(58,063	)		-30	%
(Loss) income from operations		(46,731	)		477,913			(524,644	)		-110	%
Other (expense) income
Interest income		812			109,369			(108,557	)		-99	%
Interest expense and financing charges		(17,021	)		(26,250	)		9,229			-35	%
Other, net		2,367			124			2,243			1809	%
Total other (expense) income		(13,842	)		83,243			(97,085	)		-117	%
(Loss) income before income taxes		(60,573	)		561,156			(621,729	)		-111	%
Income tax provision		1,897			18,601			(16,704	)		-90	%
Net (loss) income		(62,470	)		542,555			(605,025	)		-112	%
Net income (loss) attributable to noncontrolling interests		14			(284	)		298			-105	%
Net (loss) income attributable to shareholders	$	(62,484	)	$	542,839		$	(605,323	)		-112	%

Revenue: Total revenue decreased $582.7 million due primarily to the impact of the Titanium Explorer contract termination revenue received from the Petrobras Parties during the Comparable Quarter. See “Note 8. Commitments and Contingencies” of the “Notes to Unaudited Consolidated Financial Statements” in Part I, Item 1 of this Quarterly Report for additional details on payments received from the Petrobras Parties. The information discussed therein is incorporated by reference in its entirety into this Part I, Item 2.

Contract drilling revenue increased 18% for the Current Period as compared to the Comparable Period. The increase was primarily due to higher utilization of the Tungsten Explorer during the Current Period as compared to the Comparable Period, which resulted in an increase of $14.3 million in contract drilling revenue and the commencement of operations on the Soehanah jackup rig, which contributed an additional $6.4 million in contract drilling revenue during the Current Period. These increases were offset by lower utilization on three jackup rigs due to the drilling contracts being terminated as a result of the volatility in oil prices and the challenges presented by the spread of COVID-19 as well as the amendment of another drilling contract to place a rig on stand-by rate (such “force-majeure” or stand-by rates received by the Company are generally less than the original day rates otherwise payable to the Company).

Operating costs: Operating costs for the Current Period increased 13% as compared to the Comparable Period. Deepwater operating costs for the Current Period increased $6.2 million as compared to the Comparable Period due primarily to higher costs on the Tungsten Explorer, which operated for 73 more days in the Current Period. Jackup operating costs increased $5.2 million for the Current Period as compared to the Comparable Period, due primarily to costs associated with the drilling operations of the Soehanah jackup rig, including higher inspection, repair and maintenance costs on redelivery following the conclusion of its bareboat charter early in the Current Period.

General and administrative expenses: Decreases in general and administrative expenses for the Current Period as compared to the Comparable Period were primarily due to a $67.8 million decrease in legal expenses associated with non-routine matters, including among others, a $62.6 million contingency fee related to the collection of the Petrobras Award. General and administrative expenses for the Current Period and for the Comparable Period include approximately $0.7 million and $1.4 million, respectively, for non-cash share-based compensation expense. The decrease in non-cash share-based compensation expense was offset by an increase in cash

compensation expense of $1.9 million for cash awards granted to certain key employees of the Company pursuant to underlying award agreements and issued under the 2016 Amended MIP.

Depreciation expense: Depreciation expense for the Current Period decreased 2% as compared to the Comparable Period, due primarily to certain assets becoming fully depreciated.

Interest income: Interest income for the Current Period decreased $108.6 million as compared to the Comparable Period, due primarily to interest related to the Petrobras Payments received during the Comparable Period. See “Note 8. Commitments and Contingencies” of the “Notes to Unaudited Consolidated Financial Statements” in Part I, Item 1 of this Quarterly Report for additional details on the Petrobras Payments. The information discussed therein is incorporated by reference in its entirety into this Part I, Item 2.

Interest expense and financing charges: Interest expense for the Current Period decreased 35% as compared to the Comparable Period due to lower outstanding debt after the Conversion of the Convertible Notes in December 2019. Interest expense includes non-cash discount accretion, PIK interest and deferred financing costs totaling approximately $0.8 million and $10.0 million for the Current Period and the Comparable Period, respectively.

Other, net: We recorded a gain of $2.3 million during the Current Period related to the settlement agreement between the Company and its subsidiaries, on the one hand, and VDC and its subsidiaries, on the other. See “Note 8. Commitments and Contingencies” of the “Notes to Unaudited Consolidated Financial Statements” in Part I, Item 1 of this Quarterly Report for additional detail on the settlement agreement.

Our functional currency is USD; however, a portion of the revenues earned and expenses incurred by certain of our subsidiaries are denominated in currencies other than USD. These transactions are re-measured in USD based on a combination of both current and historical exchange rates. Net foreign currency exchange gain of $0.1 million was included in other, net, for the Current Period and the Comparable Period, respectively.

Income tax provision: Income tax expense decreased in the Current Period as compared to the Comparable Period, due primarily to the Titanium Explorer contract termination revenue received from the Petrobras Parties during the Comparable Period and a decline in revenue due to termination of certain drilling contracts in the Current Period. See “Note 8. Commitments and Contingencies” of the “Notes to Unaudited Consolidated Financial Statements” in Part I, Item 1 of this Quarterly Report for additional details on the payments received from the Petrobras Parties. The information discussed therein is incorporated by reference in its entirety into this Part I, Item 2. Our annualized effective tax rate for the Current Period is negative 4.58% based on estimated annualized loss before income taxes excluding income tax discrete items. Our estimated annualized effective tax rate for the Comparable Period was 3.44% based on estimated annualized profit 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.

The prolonged low price environment caused by the spread of COVID-19, the resulting decline in global economic activity and the oil price and market share volatility has begun to reduce our liquidity and capital resources in the Current Quarter, a trend which could extend into subsequent quarters and beyond, depending on how long global economic activity remains depressed. Such events have had significant adverse consequences for general financial, business and economic conditions, as well as for the financial, business and economic position of our business and the business of our customers and suppliers, and may adversely impact our ability to derive cash flows from our operations and access capital funding from third parties in the future.

We have experienced, and could experience further, delays in the collection of certain accounts receivables due to logistical obstacles, such as office closures resulting from the COVID-19 outbreak, as well as other impacts to our long-term liquidity. We are actively seeking measures to reduce our operating costs and preserve cash during these challenging times. For example, effective during the Current Quarter we (i) reduced the salaries of our workforce by approximately 15 to 20% depending on the position and (ii) reduced the annual compensation payable to our independent members of the Board of Directors by 20%. In addition, we secured material price reductions from our vendors and, in June 2020, initiated significant reductions in both our onshore and offshore personnel to reflect the lower levels of operating activity. On July 1, 2020, salaries and annual compensation to our workforce and independent directors, respectively, reverted to levels in effect prior to April 1, 2020. We immediately reduced the forgoing salaries and annual compensation by 10% to be in effect for the foreseeable future. We remain committed to actively seeking measures to reduce our operating costs and preserve our cash during these unprecedented times. The effects of the decline in global economic activity and other oil price and market share volatility may cause us to implement additional cost reduction measures and alter our general financial strategy.

As of ~~September~~June 30, ~~2017,~~2020, we have adequate cash reserves and are continuously managing our actual cash flow and cash forecasts. As a result of these factors, management believes that we have adequate liquidity to fund our operations for the next 12 months and therefore, our financial statements have been prepared under the going concern assumption.

As of June 30, 2020, we had working capital of approximately ~~$233.9~~$242.5 million, including approximately ~~$198.6~~$175.3 million of cash available for general corporate purposes. Scheduled ~~principal~~ debt ~~maturities and~~service consists of interest payments through ~~December 31, 2018 are~~June 30, 2021 of approximately ~~$31.1~~$32.4 million. We anticipate capital expenditures through ~~December 31, 2018~~June 30, 2021 to be between approximately $5.3 million and $6.4 million, for sustaining capital ~~expenditures on our rig fleet,~~and capital ~~spares, information technology and other general corporate projects to be approximately $3.1 million to $3.8 million.~~spares. As our rigs obtain new contracts, we could incur reactivation and mobilization costs for these rigs, as well as customer requested equipment upgrades. These costs could be significant and may not be fully recoverable from the customer. Additionally, we anticipate ~~expenditures for maintenance and repairs and equipment certifications on our rigs in preparation for future contracts. Through December 31, 2018, we anticipate~~ incremental expenditures through June 30, 2021 for ~~fleet reactivation,~~ special periodic surveys, ~~and~~ major repair and maintenance expenditures and equipment recertifications to be between approximately ~~$15.8~~$19.5 million ~~to $19.4~~and $23.8 million. As of ~~September~~June 30, ~~2017~~2020, we had ~~$12.7~~$39.9 million available for the issuance of letters of credit under our ~~revolving~~cash collateralized letter of credit facility.

~~In February 2017, we executed a purchase and sale agreement with a third party to acquire the~~ ~~Vantage 260~~ jackup rig and related multi-year drilling contract for $13.0 million. A down payment of $1.3 million was made upon execution of the agreement and the remaining $11.7 million was paid upon closing on April 5, 2017.

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

Changes in cash flows from operating activities are driven by changes in net income during the periods (see the discussion of changes in net income above in “Results of Operations” ~~above) during~~of this Part I, Item 2) and include $15.0 million paid in accordance with a settlement reached with Vantage Drilling Company, the ~~periods. Changes in cash~~Company's former parent company.

Cash flows ~~used in~~from investing activities in the Comparable Quarter are ~~dependent upon our level of~~primarily for capital expenditures ~~which varies based~~ on ~~the timing of projects. Cash used for the acquisition of the~~ ~~Vantage 260~~ totaled $13.0 million in the nine months ended September 30, 2017. In the Predecessor Period from January 1, 2016 to February 10, 2016, we received proceeds of $73.9 million, net of debt issuance costs of $2.3 million, from the issuance of the 10% Second Lien Notes. Additionally, we made a ~~$7.0 million payment on our pre-petition credit agreement.~~managed pressure drilling system.

The significant elements of ~~our post-petition debt~~the 9.25% First Lien Notes are described in “Note 5. ~~Debt”~~Debt” of the “Notes to ~~our consolidated financial statements included elsewhere~~Unaudited Consolidated Financial Statements” in Part I, Item 1 of this ~~report.~~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.

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”~~Contingencies” of the “Notes to ~~our consolidated financial statements included elsewhere~~Unaudited Consolidated Financial Statements” in Part I, Item 1 of this ~~report.~~ Quarterly Report. The information discussed therein is incorporated by reference in its entirety into this Part I, Item 2.

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

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 the Unaudited Consolidated Financial Statements” in Part I, Item 1 of this Quarterly Report. These policies, along with our underlying judgments and assumptions made in their application, have a significant impact on our consolidated financial statements. While management believes current estimates are appropriate and reasonable, actual results could materially differ from those estimates. ~~We have identified the~~

Our critical accounting policies ~~below as critical~~are those related to ~~our business operations and the understanding of our financial operations.~~

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

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

~~Property and Equipment:~~ Our long-lived assets, primarily consisting of the values of our drilling rigs, are the most significant amount of our total assets. We make judgments with regard to the carrying value of these assets, including amounts capitalized, componentization, depreciation and amortization methods, salvage values and estimated useful lives. Drilling rigs are depreciated on a component basis over estimated useful lives on a straight-line basis as of the date placed in service. Other assets are depreciated upon placement in service over estimated useful lives on a straight-line basis.

~~We evaluate the realization of~~ property and equipment, ~~whenever events or changes in circumstances indicate that the carrying amount~~impairment of ~~an asset may not be recoverable. An impairment loss on our property~~long-lived assets and ~~equipment exists when estimated undiscounted cash flows expected to result from the use~~income taxes. For a discussion of the ~~asset~~critical accounting policies and ~~its eventual disposition are less than its carrying amount. Any impairment loss recognized would be computed as~~estimates that we use in 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~~preparation of our ~~future revenues~~consolidated financial statements, see “Item 7. Management's Discussion and ~~operating costs~~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, 2019, which was filed with ~~regard~~the SEC on March 10, 2020. During the Current Quarter, there were no material changes to the ~~assets subject to review. Our business, including the utilization rates and dayrates we receive for~~judgments, assumptions or policies upon which our drilling rigs, depends on the level of our customers’ expenditures for oil and natural gas exploration, development and production expenditures. Oil and natural gas prices and customers’ expectations of potential changes in these prices, the general outlook for worldwide economic growth, political and social stability in the major oil and natural gas producing basins of the world, availability of credit and changes in governmental laws and regulations, among many other factors, significantly affect our customers’ levels of expenditures. Sustained declines in or persistent depressed levels of oil and natural gas prices, worldwide rig counts and utilization, reduced access to credit markets, reduced or depressed sale prices of comparably equipped jackups and drillships and any other significant adverse economic news could require us to evaluate the realization of our drilling rigs. In connection with our adoption of fresh-startcritical accounting upon our emergence from bankruptcy on February 10, 2016, an adjustment of $2.0 billion was recorded to decrease the net book value of our drilling rigs to estimated fair value. As of September 30, 2017, no triggering event has occurred to indicate that the current carrying value of our drilling rigs may not be recoverable.

~~Revenue:~~ ~~Revenue is recognized as services~~estimates are ~~performed based on contracted dayrates and the number of operating days during the period.~~

In connection with a customer contract, we may receive lump-sum fees for the mobilization of equipment and personnel. Mobilization fees and costs incurred to mobilize a rig from one geographic market to another are deferred and recognized on a straight-line basis over the term of such contract, excluding any option periods. Costs incurred to mobilize a rig without a contract are expensed as incurred. Fees or lump-sum payments received for capital improvements to rigs are deferred and amortized to income over the term of the related drilling contract. The costs of such capital improvements are capitalized and depreciated over the useful lives of the assets. We had no deferred revenues under drilling contracts at September 30, 2017 or December 31, 2016.

~~Rig and Equipment Certifications:~~ We are required to obtain regulatory certifications to operate our drilling rigs and certain specified equipment and must maintain such certifications through periodic inspections and surveys. The costs associated with these certifications, including drydock costs, are deferred and amortized over the corresponding certification periods.

~~Income Taxes:~~ Income taxes have been provided based upon the tax laws and rates in effect in the countries in which operations are conducted and income is earned. Deferred income tax assets and liabilities are computed for differences between the financial statement basis and tax basis of assets and liabilities that will result in future taxable or deductible amounts and are based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred income tax assets to the amount expected to be realized. We recognize interest and penalties related to income taxes as a component of income tax expense.

~~Recent Accounting Standards:~~ based. See “Note 2. Basis of Presentation and Significant Accounting ~~Policies”~~Policies” of the “Notes to Unaudited Consolidated Financial Statements” in Part I, Item 1 of this Quarterly Report for a discussion of our impairment analysis of our drilling rigs performed in the first quarter of 2020.

Recent Accounting Pronouncements: See “Note 2. Basis of Presentation and Significant Accounting Policies” of the “Notes to ~~our consolidated financial statements included elsewhere~~Unaudited Consolidated Financial Statements” in Part I, Item 1 of this ~~report.~~Quarterly Report for further information. The information discussed therein is incorporated by reference in its entirety into this Part I, Item 2.

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 ~~has~~since 2014, the continual spread of COVID-19 and its designation as a pandemic, and the ongoing oil price and market share volatility 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.~~Operations”of this Quarterly Report.

Interest Rate Risk: As of ~~September~~June 30, ~~2017,~~2020, we had ~~approximately $140.5 million face amount of~~no variable rate debt outstanding under the 2016 Term Loan Facility. Under the 2016 Term Loan Facility, interest is payable on the unpaid principal amount of each term loan at LIBOR plus 6.5%, with a LIBOR floor of 0.5%. As of September 30, 2017, the 1-month LIBOR rate was 1.24% and the current interest rate on the 2016 Term Loan Facility is 7.74%. Increases in the LIBOR rate would impact the amount of interest that we are required to pay on these borrowings. For every 1% increase in LIBOR (above the LIBOR floor) we would be subject to an increase in interest expense of $1.4 million per annum based on September 30, 2017 outstanding principal amounts. We have not entered into any interest rate hedges or swaps with regard to the 2016 Term Loan Facility.outstanding.

Foreign Currency Exchange Rate ~~Risk.~~Risk: Our functional currency is the ~~U.S. Dollar,~~USD, which is consistent with the oil and gas industry. However, outside the ~~United States,~~U.S., a portion of our expenses are incurred in local currencies. Therefore, when the ~~U.S. Dollar~~USD weakens (strengthens) in relation to the currencies of the countries in which we operate, our expenses reported in ~~U.S. Dollars~~USD will increase (decrease). A substantial majority of our revenues are received in ~~U.S. dollars,~~USD, our functional currency; however, in certain countries in which we operate, local laws or contracts may require us to receive some payment in the local currency. We are exposed to foreign currency exchange risk to the extent the amount of our monetary assets denominated in the foreign currency differs

from our obligations in that foreign currency. In order to mitigate the effect of exchange rate risk, we attempt to limit foreign currency holdings to the extent they are needed to pay liabilities in the local currency. To further manage our exposure to fluctuations in currency exchange rates, foreign exchange derivative instruments, specifically foreign exchange forward contracts, or spot purchases, may be used. A foreign exchange forward contract obligates us to exchange predetermined amounts of specified foreign currencies at specified exchange rates on specified dates or to make an equivalent ~~U.S. dollar~~USD payment equal to the value of such exchange. We do not enter into derivative transactions for speculative purposes. As of ~~September~~June 30, ~~2017,~~2020, we did not have any open foreign exchange derivative contracts or material foreign currency exposure risk.

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.

We carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this ~~report.~~Quarterly Report. Based on that evaluation, such officers have concluded that the design and operation of these disclosure controls and procedures were effective as of ~~September~~June 30, ~~2017~~2020 to provide reasonable assurance that information required to be disclosed on our reports filed or submitted under the ~~Securities~~ Exchange Act ~~of 1934, as amended (the “Exchange Act”)~~ was (1) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure and (2) recorded, summarized and reported within the time periods specified in the SEC’s rules and forms.

There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act) during the most recent fiscal quarter that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

While the majority of our office and management personnel are working remotely due to the spread of COVID-19 and the resulting pandemic, we have not as of the date of this Quarterly Report experienced any material impact on our internal controls over financial reporting. Our management continues to monitor and assess the current situation as it relates to our internal controls over financial reporting in order to minimize the impact, if any, to their design and operating effectiveness.

Information regarding the Company’s legal proceedings is set forth in “Note 8. Commitments and Contingencies” ~~located in~~of the ~~Notes~~“Notes to Unaudited Consolidated Financial ~~Statements included~~Statements” in Part I, Item 1 of this Quarterly Report. The information discussed therein is incorporated by reference into this Part II, Item 1.

The following risk factors are in addition to the risks and uncertainties described under “Item 1A. Risk Factors” of our Annual Report on Form ~~10-Q~~10-K for the year ended December 31, 2019, which was filed with the SEC on March 10, 2020. The effects of the

events and ~~is incorporated herein by reference.~~circumstances described in the following risk factors may, directly or indirectly, heighten, exacerbate or otherwise bring to fruition many of the risks and uncertainties contained in our annual, quarterly and periodic reports filed with the SEC.

The global spread of COVID-19, fears relating to the spread of COVID-19, and associated oil market developments could adversely impact our financial condition and results of operations.

On January 30, 2020, WHO announced a global health emergency as COVID-19, continued to spread globally beyond its point of origin. In March 2020, WHO classified the COVID-19 outbreak as a pandemic based on the rapid increase in exposure globally and the risks posed to the international community. During this time, the market experienced a rapid decline in oil prices in response to oil demand concerns due to the economic impacts of COVID-19 and anticipated increases in supply from Russia and OPEC, particularly Saudi Arabia. These actions have led to (i) significant weaknesses in oil prices and (ii) ensuing reductions of oil and gas company capital and operating budgets. It is not possible at this time to predict the effect of the continued spread, or fear of continued spread, of COVID-19 globally. Should COVID-19 continue to spread throughout the world or if the response to contain the COVID-19 pandemic is unsuccessful, our business, financial condition and results of operations could be materially and adversely impacted.

Moreover, the COVID-19 pandemic has generally affected our customers, suppliers, vendors, and other business partners, but we are not able to assess the full extent of the current impact nor predict the ultimate consequences that will result therefrom. If our customers or suppliers experience material and adverse business consequences due to the spread of COVID-19, demand for our services could also be adversely affected, and existing counterparties could seek to invoke “force majeure” clauses under their contracts with us and/or terminate such contracts. For example, as of the date of this Quarterly Report, and as a result of these challenges: (a) one of our customers invoked the “force majeure” clause under its drilling contract with us and subsequently terminated the drilling contract in accordance with its terms, and there is the potential for others to similarly exercise “force majeure” clauses under their respective drilling contracts; (b) two other customers terminated their drilling contracts prior to the end of their respective terms (both contracts were to expire in the normal course in the Current Quarter); (c) we reached an agreement to place one rig on a stand-by rate for the majority of the Current Quarter (such “force majeure” rates or stand-by rates received by the Company are generally less than the original day rates otherwise payable to the Company); however, this rig has returned to operations as of July 2020; (d) we reached agreements with three other clients to delay the start dates of their new drilling programs and we continue to be in discussions with another customer regarding our operations and their existing drilling contract and program; (e) we have experienced, and could experience further, delays in the collection of certain accounts receivables due to logistical obstacles, such as office closures resulting from the COVID-19 outbreak, as well as other impacts to our long-term liquidity; and (f) we incurred additional labor costs during the Current Quarter and could continue to incur additional labor costs in the future as a result of government-imposed quarantine requirements, closures and movement restrictions in certain jurisdictions in which we operate, as well as the home countries in which certain of our offshore crews are located, which in many cases have impeded, and could continue to impede the foreseeable future, the regular transportation of crews to their home countries and result in the payment of compensation to stranded crews working longer than their routine rotation schedule (in addition to the use of charter flights in the absence of commercial flights).

The short-term impact of these challenges has resulted in (i) lower revenue due to terminations of (or amendments to) our existing drilling contracts and (ii) increased expenses due to higher labor and related costs. We cannot at this time determine with certainty how long these challenges will persist as well as the long-term impact that such challenges may have on our operations and growth on a go-forward basis; however, the Company is actively managing the business in an attempt to mitigate the impact of the foregoing events. In the case of additional expenses incurred as a result of the foregoing matters, the Company has undertaken significant cost-saving measures, including reductions in salaries and workforce, both onshore and offshore, to reflect the lower operating activity. The extent to which COVID-19 may impact the counterparties in which we engage in business will depend on future developments, which are highly uncertain and cannot be predicted at this time.

The ultimate impact and effects of the spread of COVID-19 and the resulting pandemic are highly uncertain and cannot be predicted at this time.

While the spread of COVID-19 and the resulting pandemic did not materially affect our financial results and business operations in the Current Quarter, we are continuously monitoring our own operations and have taken, and intend to continue to take, appropriate actions to mitigate the risks arising from the COVID-19 pandemic to the best of our abilities. Nevertheless, there can be no assurances that we will be successful in doing so. The ultimate magnitude and effect of the continued spread of COVID-19 globally, and the resulting social, economic and labor instability attributable to COVID-19, cannot be predicted or estimated at this time.

The ability of our offshore and onshore employees to work and conduct our business has been, and may continue to be, significantly impacted by COVID-19.

Like the global economy at large, both our offshore and onshore employees are being significantly impacted by the spread of COVID-19. Our operations in all of the jurisdictions in which we operate have been impacted by varying levels of government responses to the spread of COVID-19, including government-enforced quarantines, “stay-at-home” orders and restrictions on travel.

The impact of such governmental actions have been particularly felt by our personnel working offshore on our rigs. In some cases, our offshore personnel have had to remain onboard the rig on which they serve beyond the usual length of time due to general restrictions on transporting persons onto (and off of) the rig and other offshore personnel have not been able to travel to the applicable offshore locations at all. Even if our offshore personnel are able to successfully travel to the countries where we operate, they may nevertheless be required to self-quarantine for a minimum number of days before continuing on toward the rig. Furthermore, other of our offshore personnel may be able to depart the rig, but are then required to remain in the same country for an extended period of time until (i) the government-imposed quarantine expires, (ii) the country from which they are traveling permits departure and/or (iii) the country to which they intend to travel permits entry. In addition, our office and management personnel are working remotely and are subject to varying governmental restrictions depending on the level of actions taken by governments of countries in which such onshore personnel are located. As the health of our workforce is paramount, we have implemented, and will continue to implement for the foreseeable future, precautionary measures to help minimize the risk of our employees being potentially exposed to, or contracting, COVID-19. Our management team remains focused on mitigating the adverse effects of the spread of COVID-19, which has required, and will continue to require, a large investment of time and resources across the entire Company, thereby diverting time, energy and resources from other priorities that existed prior to the spread of COVID-19. If these conditions exacerbate, or last for an extended period of time, our ability to manage our business may be negatively impacted, and preexisting operational and other business risks that we (and our industry) face may be heightened, including, but not limited to, cybersecurity risks. If either our systems or the systems of our service or equipment providers used for protecting against cyber incidents or attacks prove to be insufficient and incidents were to occur as a result of working remotely, it could have a material adverse effect on our business, reputation, financial condition, results of operations or cash flows.

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

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

12.1

Statement re Computation of Earnings to Fixed Charges

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

31.1

Certification of Principal Executive Officer Pursuant to Section 302

31.2

Certification of Principal Financial and Accounting Officer Pursuant to Section 302

32.1**

Certification of Principal Executive Officer Pursuant to Section 906

32.2**

Certification of Principal Financial and Accounting Officer Pursuant to Section 906

101.INS

— XBRL Instance Document

101.SCH

— XBRL Schema Document

101.CAL

— XBRL Calculation Document

101.DEF

— XBRL Definition Linkbase Document

101.LAB

— XBRL Label Linkbase Document

101.PRE

— XBRL Presentation Linkbase Document

** 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.

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.

Large accelerated filer	☐	Accelerated filer	☐

Non-accelerated filer	☒ ~~(Do not check if a smaller reporting company)~~	Smaller reporting company	☐
		Emerging growth company	☐

		Page
SAFE HARBOR STATEMENT		3
PART I—FINANCIAL INFORMATION
Item 1	Financial Statements ~~Statements~~	57
	Consolidated Balance Sheet	57
	Consolidated Statement of Operations	68
	Consolidated Statement of Shareholders’ Equity (Deficit)	9
	Consolidated Statement of Cash Flows	710
	Notes to Unaudited Consolidated Financial Statements	811
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2127
Item 3	Quantitative and Qualitative Disclosures About Market Risk	2836
Item 4	Controls and Procedures	2936
PART II—OTHER INFORMATION
Item 1	Legal Proceedings	2936
Item 1A	Risk Factors	36
Item 6	Exhibits	3038
SIGNATURES		3240

	June 30, 2020		December 31, 2019
(unaudited, in thousands)
Current assets	$	15,435	$	14,589
Non-current assets		5,009		3,643
Current liabilities		11,384		11,560
Non-current liabilities		6,519		4,159
Net carrying amount	$	2,541	$	2,513

(in thousands)
Fiscal year:
Remaining 2017	$	1,591
2018		6,311
2019		1,643
Thereafter		-
Total	$	9,545

	June 30, 2020		December 31, 2019
(unaudited, in thousands)
Current contract cost assets	$	185	$	132
Noncurrent contract cost assets		708		1,598
Current contract revenue liabilities		3,736		2,912
Noncurrent contract revenue liabilities		927		2,090




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

Abbreviation/Acronym		Definition
10% Second Lien Notes		The Company's 10% Senior Secured Second Lien Notes due 2020
2016 Amended MIP		The Company's Amended and Restated 2016 Management Incentive Plan
2016 Term Loan Facility		The Company's initial term loans in place in connection with the Reorganization Plan
9.25% First Lien Notes		The Company's 9.25% Senior Secured First Lien Notes due November 15, 2023
ADVantage		ADVantage Drilling Services SAE, a joint venture owned 51% by the Company and 49% by ADES
ASC		Accounting Standards Codification
ASU		Accounting Standards Update
Bassoe		Bassoe Offshore A.S.
Board of Directors		The Company's board of directors
Comparable Quarter		The three months ended June 30, 2019
Comparable Period		The six months ended June 30, 2019
Conversion		The conversion of all of the Convertible Notes into Ordinary Shares
Convertible Notes		The Company's 1%/12% Step-Up Senior Secured Third Lien Convertible Notes due 2030
COVID-19		Coronavirus disease 2019, a new strain of coronavirus caused by SARS-CoV-2
Current Quarter		The three months ended June 30, 2020
Current Period		The six months ended June 30, 2020
DOJ		U.S. Department of Justice
Drilling Contract		The Agreement for the Provision of Drilling Services for the Titanium Explorer, dated February 4, 2009, between PVIS and VDEEP (and subsequently novated to PAI and VDDI)
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
FASB		Financial Accounting Standards Board
First Lien Indenture		First Lien Indenture, dated as of November 30, 2018, by and between Vantage Drilling International and U.S. Bank National Association
IRS		U.S. Internal Revenue Service
New Shares		Shares issued by the reorganized Company
Offer		An offer by the Company to repurchase up to $75.0 million of the 9.25% First Lien Notes
Offer Expiration Date		11:59 pm (New York City time) on August 2, 2019
OPEC		The Organization of the Petroleum Exporting Countries
Ordinary Shares		The Company's ordinary shares, par value $0.001 per share
PAI		Petrobras America, Inc.
PBGs		Performance-based restricted stock units
Petrobras		Petroleo Brasileiro S.A.
Petrobras Agreement		The agreement among VDEEP and VDDI, on the one hand, and the Petrobras Parties, on the other, relating to the Petrobras Award issued in favor of VDEEP and VDDI
Petrobras Award		The award issued by an international arbitration tribunal to VDEEP and VDDI with respect to the Petrobras Parties' breach of the Drilling Contract
Petrobras Parties		Collectively, Petrobras, PAI and PVIS
PIK		Payment-in-kind
PVIS		Petrobras Venezuela Investments & Services, BV
QLE		A qualified liquidity event as defined in the 2016 Amended MIP
Reorganization Plan		The Company's pre-packaged plan of reorganization under Chapter 11 of Title 11 of the U.S. Bankruptcy Code
Restructuring Agreement		The restructuring support agreement among VDC and a majority of the Company's secured creditors
ROU		Right-of-use
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. District Court – Texas		U.S. District Court for the Southern District of Texas
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
VDC Note		A $61.5 million promissory note issued by the Company in favor of VDC
VDDI		Vantage Deepwater Drilling, Inc.
VDI		Vantage Drilling International
VDEEP		Vantage Deepwater Company
VIE		Variable interest entity

	Contract Costs			Contract Revenues
(unaudited, in thousands)
Balance as of December 31, 2019	$	1,730		$	5,002
Increase (decrease) due to contractual changes		923			7,295
Decrease due to recognition of revenue		(1,760	)		(7,111	)
Decrease due to transfer to payable during the period		—			(523	)
Balance as of June 30, 2020⁽¹⁾	$	893		$	4,663

(in thousands)
Total cash consideration	$	13,000

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

Bargain purchase gain	$	1,910

(unaudited, in thousands)	Operating Leases
Remaining six months of 2020	$	1,685
2021		1,728
2022		1,343
2023		949
2024		—
Thereafter		—
Total future lease payments	$	5,705
Less imputed interest		(617	)
Present value of lease obligations	$	5,088

	September 30, 2017		December 31, 2016
(unaudited, in thousands)
2016 Term Loan Facility	$	140,497	$	141,570
10% Second Lien Notes, net of financing costs of $1,522 and $1,873		74,604		74,252
Convertible Notes, net of discount of $67,042 and $103,695		693,413		652,980
		908,514		868,802
Less current maturities of long-term debt		4,430		1,430
Long-term debt, net	$	904,084	$	867,372

	Percentage of Days Contracted				Revenues Contracted (in thousands)						Percentage of Days Contracted		Revenues Contracted ⁽¹⁾ (in thousands)
	2017		2018		2017		2018		Beyond		2020	2021	2020		2021		Beyond
Jackups		100%		40%	$	22,944	$	40,146	$	7,727	40%	17%	$	25,109	$	31,717	$	—
Drillships		55%		61%	$	38,825	$	124,186	$	67,727	26%	11%	$	14,657	$	18,542	$	—

	VANTAGE DRILLING INTERNATIONAL

Date: ~~November 7, 2017~~August 6, 2020	By:	/s/ ~~THOMAS J. CIMINO~~DOUGLAS E. STEWART
		~~Thomas J. Cimino~~Douglas E. Stewart
		Chief Financial Officer, General Counsel and Corporate Secretary
		(Principal Financial and Accounting Officer)