Vantage Drilling Company's (VTG) on Q4 2015 Results - Earnings Call Transcript

| About: Vantage Drilling (VTG)

Vantage Drilling Company (NYSEMKT:VTG)

Q4 2015 Earnings Conference Call

March 30, 2016, 11:00 ET

Executives

Nicolas Evanoff - General Counsel

Doug Smith - CFO

Analysts

Mark Brown - Seaport Global Securities

Operator

Welcome to the Vantage Drilling Company 2015 Earnings Release and Conference Call. Please note today’s conference is being recorded. At this time I would like to turn the conference over to Nicolas J. Evanoff, General Counsel. Please go ahead, sir.

Nicolas Evanoff

Thank you. Good morning everyone and welcome to the Vantage Drilling International 2015 Annual Results Conference Call. I'm Nicolas Evanoff, the General Counsel for Vantage. With us today on the call, we have Doug Smith, Chief Financial Officer, Doug Halkett, Chief Operating Officer and Bob Tamburrino, Chief Restructuring Officer. Together they make up the office of the Chief Executive as reported on our Form 8-K filed this past Friday.

I will open with a few brief remarks. This morning we released our earnings announcement for the period ended December 31, 2015. This afternoon we intend to file our Form 10-K. The earnings release is available on our website at vantagedrilling.com. Please note that any comments we make today about our expectations of future events and projections are forward looking statements pursuant to the Private Securities Litigation Reform Act. Forward looking statements made in today's call are subject to a number of risks and uncertainties many of which are beyond our control and could cause actual results to differ materially from the projections made in today's conference call. We refer you to our earnings release and SEC filings available our website. Vantage does not undertake the updating of any such statement or risk factor that could cause actual results to differ materially from our expectations.

At the end of our prepared remarks there will be a question and answer session. And with that I'd like to turn things over to Doug Smith.

Doug Smith

Thanks, Nic. Good morning everyone. Thanks for joining our call. As Nic mentioned I'm joined today with our Chief Operating Officer Doug Halkett and Bob Tamburrino our Chief Restructuring Officer. Before we get started as you're aware Paul Bragg, the company's founder who served as our Chairman and Chief Executive Officer since inception in 2006 recently resigned. I and the management team want to thank Paul for his support over the years and the opportunity to work at Vantage. We want to wish Paul all the best in his future endeavors.

A lot has happened at Vantage since our last call in August. For today's call I will first provide an overview of our recently completed reorganization plan, provide some company updates, summarize our financial results and provide a brief comment on the market and then finish up with a question and answer session.

Starting with reorganization. During 2015 in response to the rapid decline in both industry utilization and day rates. We've gotten to evaluate alternatives to address our debt service and overall liquidity position. We were then faced with a wrongful termination of an eight year contract operated titanium explorer for Petrobras. The combination of these factors led to us reaching an agreement with are secured creditors to file a joint three package Chapter 11 plan a reorganization. We were pleased to have completed the reorganization plan and emerge from core protection on February 10, 2016. The key elements of our plan included Vantage drilling international formally known as Offshore Group Investment Limited separated from Vantage Drilling Company, a public holding company. We changed our name from Offshore Group Investment Limited to Vantage Drilling upon emergence from core protection.

As officers of Vantage Drilling International we’re no longer employed Vantage Drilling Company and will not offer further comment on Vantage Drilling Company's operations or status and their liquidation proceedings. The remainder of the comments on this call are restricted to Vantage Drilling International. Our $200 million line of credit has been amended to provide for a $32 million letter of credit facility and a $143 million term loan facility. We raised approximately $73.9 million of new cash by issuing $76.1 million of 10% senior secured term loans pursuant to rights offering and most importantly we exchanged approximately 2.5 billion a prepetition debt for some 150 million senior secured third lien convertible notes an approximately 4.3 million new ordinary shares. These new shares represent approximately 86.9% of the outstanding ordinary shares. Additionally we issued 655,000 new ordinary shares representing approximately 13.1% of the outstanding shares to Vantage Drilling Company to settle the note payable that was issued in connection with the acquisition of certain management subsidiaries. The terms of these transaction and related securities are more fully disclosed in our annual report on Form 10-K which we will file later today. This new structure substantially reduces our debt service and provides the company greater ability to survive a prolonged industry downturn and take advantage of market recovery in the coming years. For a quick update on the Petrobras arbitration, the arbitration panel has recently been seated and we’re now awaiting the scheduling of the initial hearings. As this is an ongoing legal matter we're not going to comment on these proceedings any further in our prepared comments or respond to questions in our Q&A.

Similarly with respect to our previously disclosed SCPA investigation related to the contract for the Titanium Explorer, the independent investigators continue their internal investigation of these allegations. We continue to cooperate with the authorities due to the nature of the investigation. We are not going to provide any additional comment or prepared remarks or answer questions in the Q&A session.

Turning to the financial results for our fourth quarter we achieved revenues of approximately 128.4 million as compared to 210.1 million in the prior quarter and 219.4 million in the fourth quarter of 2014. The sequential and year over year decline it was primarily driven by cancellation of the Titanium Explorer contract with Petrobras in the Gulf of Mexico. Income from operations for the fourth quarter was 13.4 million this compares to 79 million in the prior quarter to 70.3 million achieved in the fourth quarter of the prior year. The jackup operations for the fourth quarter had revenue of 28.3 million including 2.5 million of reimbursable revenue which is comparable to the 33.3 million in the prior quarter including 1.7 million of reimbursable revenue.

Utilization for the quarter was approximately 64% as compared to the utilization of 72% during the prior quarter. The average contract revenue excluding the reimbursable revenues for our jackup rigs was approximately $110,000 per day for the fourth quarter as compared to $119,000 per day in the prior quarter. Fourth quarter operating cost less reimbursable items for the jackup operations was approximately 15 million as compared to 20 million in the prior quarter. We continue to work to reduce operating cost for our jackup in response to the current market conditions. The deepwater operations for the fourth quarter had revenues of 95.3 million including approximately 2.4 million of reimbursable revenue as compared to 171.2 million in the prior quarter including approximately 5.6 million of reimbursable revenue.

Direct operating expenses excluding the reimbursable was 47.5 million for the fourth quarter as compared to 60.1 million in the prior quarter. Deepwater utilization for the fourth quarter was 53.4% as compared to 87.1% in the prior quarter. The utilization reflects determination of Titanium Explorer contract at the end of August and [indiscernible] for successfully completing its initial five year contract at the end of November. Our management business had revenue for the quarter of 4.8 million consisting of 1.8 million in management fees and 3 million of reimbursable cost. Fourth quarter revenues compared to the prior poor revenue of 5.6 million which consisted of 1.9 million of management fees and 3.7 million of revenue for reimbursable cost. The cost of our operation support was an approximately 7.1 million for the quarter as compared to 6 million in the prior quarter.

G&A was 7.6 million for the fourth quarter as compared to 5.1 million in the prior quarter. The increase in operation support and G&A cost for the quarter reflects Vantage Drilling International as a standalone company as we are no longer sharing costs with the other Vantage Drilling company projects. Additionally during the fourth quarter we reported approximately 39.4 million of charges associated with reorganization items. This consisted primarily a write off of debt discounts and deferred operating costs and some professional fees. Depreciation for the quarter was 32.2 million which is consistent with the 31.8 million in the prior quarter. EBITDA for the quarter was 5.9 million as compared to 111.1 million in the prior quarter.

Adjusted EBITDA for the quarter excluding the reorganization items and other income was approximately 45.2 million. We had interest expense of 35.4 million, a tax spend of 55.7 million for the quarter, we had income attributable to non-controlling interest of 4.7 which resulted in a net loss to our shareholder of approximately 8.8 million.

Looking at our annual results, we had revenue of approximately 772.3 million in 2015 as compared to 882.9 million in 2014. Income from operations was 260 million as compared to 325.2 million in 2014. Net income attributable to shareholder was approximately 17.2 million and 92.9 million for 2015 and 2014 respectively.

The 2015 net income attributable to shareholder included the 39.9 million of reorganization items and 10.8 million gain on debt extinguishment as compared to 2014 which included approximately 4.4 million of gain on debt extinguishment.

Looking at the balance sheet, as of December 31, we had approximately 203.4 million of cash on hand as compared to 75.8 million of cash on hand at December 31, 2014. We have approximately 2.7 million of liabilities subject to compromise at December 31 consisting of our prepetition secured indebtedness.

Additionally year-end we had approximately 61.5 million of debt outstanding to Vantage Drilling Company relating to the purchase of certain subsidiaries. This balance was paid off as I previously mentioned with issuance of 13.1% of the outstanding shares of Vantage Drilling International. Looking forward, as we previously announced we negotiated a two year extension for the Tungsten Explorer which will keep the rig operating until October 2018. As consideration for the extension we reduced the current day rate on the contract effective January 1, 2016. Our two other drill ships [indiscernible] Explorer and Titanium Explorer will be idle for the entire first quarter.

Additionally the Emerald Driller finishes contract in Thailand the first week of January and it's now a warm start. I believe our market outlook is consistent with the overall market consensus. We believe that the market will remain weak for at least the remainder of 2016. For both the jackup market and the deepwater float [ph] market we're seeing a very limited number of tenders and each of the tenders is been highly contested among the contractors. For response to these market conditions we have continued to rationalize our operating expenses and personnel. We’re currently undergoing a further study of our operating costs and plans. We will be filing our 10-K later today.

With that I'd like to turn it over for questions and answers.

Question-and-Answer Session

Operator

[Operator Instructions]. And we will take our first question from Mark Brown with Seaport Global Securities.

Mark Brown

I just wanted to check if you could repeat what would your share count be at this time?

Doug Smith

The share count at December 31, was one, we’re still a subsidiary of Vantage Drilling Company on December 31. We emerged from bankruptcy and the new shares were issued on February 10, so subsequent to February 10 we had 5 million shares outstanding.

Mark Brown

And I just wanted to make sure I was hearing correctly. The total debt consists of the 750 million of notes and the roughly 75 million senior secured term loan. Is that full debt that you have at this time?

Doug Smith

There's also the addition of 143 million of first lien debt that was the term loans issued as the modification to the previous $200 million revolving credit facility. So all of that is what is outstanding post-February 10, 2016.

Mark Brown

And just any key covenants to monitor going forward that you have associated with that?

Doug Smith

No, all the covenants are standard. Their general covenants, the only financial covenant we have is to maintain 75 million of liquidity.

Mark Brown

Okay. And just finally did you say the Topaz Driller was now warm stacked and other than Tungsten Explorer, are there any rigs that are contracted at this time?

Doug Smith

It wasn’t, the Topaz Drillers are still working in Indonesia, it's the Emerald Drilled that’s currently warm stacked. The other two jackups are currently operating. The Aquamarine has an 18 month contract and the joint developments zone in Malaysia and the Sapphire Driller is currently working on a short term contract in West Africa.

Mark Brown

Okay. And then just one more just Tungsten Explorer did you disclose roughly what that day rate is that you negotiated?

Doug Smith

The day rate for 2016 was on our fleet status. It will be 265,000 for this year and then it escalates on January 1 of each subsequent year.

Operator

[Operator Instructions]. And we will take our next question from [indiscernible].

Unidentified Analyst

Can you tell us what the current cash balances and then how much the escalation is on January of each year?

Doug Smith

Reverse order, the terms of the contract with Total we’re keeping those as confidential based on our agreement with Total. And so we're not putting the escalators out at this point. With respect to our cash balance our current cash balance which could be a subsequent event because we had 200 million at 12/31, we raised the additional proceeds, we have in excess of 260 million as we speak today but that fluctuates on a month to month basis as we clock revenues.

Operator

[Operator Instructions]. And it appears that we have no other questions at this time. I would now like to turn the conference back over to Mr. Doug Smith for any additional or closing remarks.

Doug Smith

Thank you. I just like to thank everybody for participating on the call today on behalf of myself and Bob and Doug Halkett here joining me in the office of CEO. We appreciate everybody's attention this morning and look forward to talking to you again in our next call.

Operator

Ladies and gentlemen this does conclude today's conference. We thank you for your participation.

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