Vantage Drilling Intentl

Good day and thank you for standing by. Welcome to the Vantage Drilling International third quarter 2025 earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you'll need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised today's conference is being recorded. I would like to turn the conference over to your speaker today. Raphael Blattner, please go ahead.

Thank you. Good morning, everyone, and welcome to the Vantage Drilling International Limited Third Quarter 2025 Earnings Conference Call. On the call with me today is Ehab Thoma, our CEO. This morning, we released our earnings announcement for the quarter ended September 30, 2025. 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. We have based forward-looking statements on management's current expectations and assumptions and not on historical facts. Examples of these statements include, but are not limited to, our expectations regarding future results, including expectations regarding our liquidity position. future costs and expenses related to upgrades and out-of-service work, as well as contract preparation costs and expenses. Forward-looking statements 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 today. Vantage does not undertake to update any such statement or risk factor that could cause actual results to differ materially from our expectations. We refer you to our earnings release and financials available on our website. We have prerecorded our prepared remarks and are participating on the call remotely to manage the question and answer session segment of the call. In the event there are issues with sound quality or of a similar nature, please accept our apologies in advance and thank you for your understanding. Now let me turn the call over to our CEO, Mr. Ehab Thoma.

Thank you, Raphael, and welcome, everyone. I am pleased to report a successful third quarter of 2025 driven by safe and efficient operations. As previously reported, we sold the Tynksten Exploder on August 11th, 2025 for $265 million to the joint venture with Total Energies, in which Total Energies owns 75% interest and Vantage owns 25%. The consideration consisted of $198.75 million in cash and $66.25 million in equity. Vantage will continue to operate the Tungsten Explorer under a management agreement for 10 years with an option to extend for an additional five years. Subsequent to the sale, the Tungsten Explorer completed its scheduled maintenance, certification, and upgrade work scope in Las Palmas and has since mobilized back to Congo and successfully commenced operations on November 5th, 2025. As a result of the sale, Vantage redeemed its outstanding senior notes of approximately $65.1 million on September 10th. In April, we announced a conditional letter of award for the Platinum Explorer for an approximately 260-day campaign. including mobilization and demobilization. Unfortunately, in October, Vantage was required to terminate the contract due to changes in the applicable economic sanctions that made performance of the contract unlawful. Prior to the sanctions being imposed, Vantage was both contractually entitled to and received a payment to cover the preparation costs incurred. Accordingly, we do not expect this termination to have a material financial impact on the company. I would now like to take you through our progress in relation to our three corporate goals of, one, maintaining our stellar safety and operational performance, two, the contracting of our entire fleet, and three, achieving excellent stakeholder returns. I will begin with our first corporate goal and our number one differentiator, our stellar safety and operational performance. Our safety performance remained strong in the third quarter with zero recordable and lost time incidents. Environmental performance remained strong this quarter with no reported incidents, with our focus remaining on sustainable and efficient operations. The company's sustainability initiatives continue to progress, including enhanced GHG emissions tracking and ongoing waste reduction efforts, whilst all corporate certifications remain fully compliant. Now, switching to operations, revenue efficiency for the Tungsten Explorer during the third quarter of 2025 was 99.8%, while our managed fleet achieved 99.4%. I will now walk you through our fleet status, which is directly aligned with our second corporate objective. contracting the entire fleet. Starting with our own fleet for Platinum Explorer, our priority remains to focus on opportunities and adding term backlog. The RIG is participating in a number of active tenders and will participate to the highly anticipated ONGC tender for a three-year plus one-year option campaign. Turning to the Tungsten Explorer, the rig has successfully completed its major out-of-service work scope in Las Palmas and commenced drilling operations in the Republic of Congo for Total Energies under the management agreement. The firm duration for this contract is 160 days with additional options for a further 290 days. For the managed jackups, the Topaz Driller continues operations with CPOC in the joint development area between Malaysia and Thailand. There is currently over 11 months remaining of the firm term and a further three three-month options available to be exercised, with the first option strike date in the first quarter of 2026. The Suhana concluded operations with Medcor Energies in Indonesia in the third quarter and subsequently demobilized to Johor Bahru, where the rig is idle and is being actively marketed for a number of opportunities. At quarter end, our total backlog was $206.6 million. The majority relates to our managed fleet, primarily the Tungsten Explorers 10-year management agreement. The remaining balance reflects the Platinum Explorers backlog as of quarter end, which has now been fully earned and recognized upon contract termination. Turning to market dynamics, we continue to see positive long-term fundamentals in both the shallow water and deep water segments. while we still expect some idle periods across all segments extending through 2026. This outlook is supported by the issuance of several deepwater longer-term tenders and jackups being recalled to operation on long-term contracts after periods of suspension in the Middle East. These signs of renewed contracting activity reinforce our view that utilization will continue to improve gradually, underpinning a resilient offshore market in the years ahead. Moving to our third corporate goal of achieving excellent stakeholder returns. In the third quarter of 2025, we ended with a total cash balance of $197.4 million. This includes $2.4 million of restricted cash and $39.7 million of pre-funded cash by managed services clients. The increased liquidity was driven by the sale of the Tungsten Explorer. partially offset by the redemption of senior notes. The monetization of the Tungsten Explorer highlights Vantage's continued success in its managed services business, setting the company asset-light, debt-free, and well-positioned to return capital to shareholders. In closing, we remain focused on maintaining exceptional safety and operational performance and securing profitable long-term drilling contracts to deliver strong returns for our stakeholders. With that, I would like to turn the call back over to Rafael to take us through the numbers.

Thank you, Ihab, and welcome, everyone. I will now provide an overview of our financial performance for the quarter ending September 30th, 2025. The company ended the third quarter with approximately $197.4 million in cash, up from $89.6 million at year end 2024. Excluding cash pre-funded by our managed services customers, VDI's cash balance was $157.7 million compared to $61.4 million at year end. This meaningful improvement reflects the sale of the Tungsten Explorer to the joint venture and demonstrates the continued execution of our asset light strategy, delivering accretive transactions and strengthening value for our stakeholders. The increase in cash during the quarter of $96.3 million net of managed services pre-funding was driven primarily by $198.8 million of proceeds from the sale of the Tungsten Explorer and $4 million received from the purchase price adjustment on the Sohana sale to Addis. These inflows were partially offset by $65.1 million used to redeem the senior notes, $12.5 million used in operations, $11.6 million invested in the joint venture for scheduled out-of-service maintenance and equipment certification, $9.6 million of capital expenditures, $5.2 million of cash interest, and $2.5 million in repurchase shares and dividend equivalents. Working capital at September 30, 2025, increased to $154.5 million from $115.3 million at year end. The increase was driven mainly by higher cash and a rise in accounts receivable, including $20 million from the now-terminated Platinum Explorer contract, which we collected in the fourth quarter. These increases were partly offset by a $29.6 million reduction in inventory after the sale of the Tungsten Explorer and a $20 million increase in performance obligations for the Platinum Explorer which are now fully recognized following the contract termination. Accounts payable also increased by $14.7 million, reflecting out-of-service and mobilization costs for the Platinum Explorer, out-of-service projects for the Tungsten Explorer, and ongoing operations. For the third quarter and year to date of 2025, we reported revenues of $23.3 million and $89.7 million, respectively, compared to $49 million and $174.9 million in the same periods last year. The decline in revenue reflects our strategic shift to an asset-light model, which resulted in fewer operating days for the Tungsten Explorer following its sale, the sale of the Topaz Driller and Sohana, and the completion of the Capella, Polaris, and EDC management agreements. These impacts were partially offset by higher management fees. Revenue efficiency in the third quarter of 2025 was 99.8% and 99.4% for the Tungsten Explorer and the managed fleet, respectively. Year-to-date, revenue efficiency was 99.8% and 98.5%, respectively. Operating costs for the third quarter were $40.4 million. compared to $38 million in the same quarter of 2024, an increase of $2.4 million. The increase was driven mainly by the $12.9 million write-off of deferred costs related to the sale of the Tungsten Explorer, the early contract termination warranty for the Sohana of $2.4 million, and higher reimbursable costs. These increases were partially offset by the completion of the Capella and and EDC management agreements, the sale of the jackups, and lower Platinum Explorer costs due to completion of the out-of-service work scope. Year-to-date operating costs for 2025 were $101.7 million, compared to $130.3 million in the same period of 2024, a decrease of $28.6 million. The reduction reflects our strategic shift to an asset-light model, driven by the sale of our jackups and the Tungsten Explorer, the conclusion of the Polaris, Capella, and EDC management agreements, and lower Platinum Explorer costs due to reduced activity. The decreases were partially offset by the write-off of deferred costs related to the Tungsten Explorer's sale, the early contract termination warranty expense for the Sohana, and increased reimbursable costs. General and administrative expenses for the third quarter and year to date were higher by $900,000 and $2.5 million, respectively. The increase was mainly due to accelerated vesting of share-based compensation of $2.5 million and $5.7 million, respectively, partially offset by lower professional fees related to the Tungsten Explorer transaction, the Bermuda domiciliation, and the Oslo listings. Equity investment loss from unconsolidated affiliates totaled $1.8 million for the third quarter and $2.4 million year-to-date in 2025. These losses primarily reflect our share of joint venture expenses associated with the Tungsten Explorers major maintenance, certification activities, and upgrade work performed ahead of and during its out-of-service period. For the third quarter of 2025, Gain on sale of assets was $102.1 million associated with the sale of Tungsten Explorer to the joint venture. The year to date gain on sale of assets was $102.4 million due to the sale of Tungsten Explorer and purchase price adjustment from the sale of the Sohana to Addus of $300,000. Interest income was higher by $1.4 million for the third quarter and $1.3 million for year-to-date due to higher cash balance after the sale of the Tungsten Explorer. Interest expense decreased by $4.6 million in the third quarter and by $12.4 million year-to-date, reflecting the redemption of $184.9 million of senior notes in November 2024 and $65.1 million in September 2025. The net result attributed to shareholders for the third quarter and year to date was $67.2 million and $32.2 million, respectively. Please note, we will post our September 30, 2025 quarterly report to our website later today. And with that, I will now turn the call back over to the operator to begin the Q&A.

Thank you. Ladies and gentlemen, if you have a question or a comment at this time, please press star 1 and 1 on your telephone. If your question has been answered and you wish to move yourself from the queue, please press star one and one again. We'll pause for a moment while we compile our Q&A roster.

One moment for our first question. Our first question comes from Frederick Stenney with Clarkson Securities.

Your line is open.

Hey, Eva and Rafael. Hope you're both. and thank you for taking my questions. I wanted to group this a bit thematically, touching first on the Platinum Explorer, then a bit on the tungsten, and then talking kind of high level about shareholder returns in the end. So let's start with the Platinum Explorer. Just one clarification. Did you say, Rafael, that you had received $20 million in the fourth quarter?

Or did I hear... Yes, you're talking about the Platinum Explorer, correct? The Platinum Explorer, yeah. Yes, we did receive $20 million during the fourth quarter. Your understanding is correct.

Yeah, okay. Thank you for clarifying. And... Those 20 million, if you kind of net that, this was also my understanding from the prior remarks, if you net that against the work that you have been doing on the rig in relation to that contract prep, you will be effectively net zero around that. And second, what should we think about kind of optics-wise for the Platinum Explorer until it gets new work? Thanks.

All right. So your understanding is it's correct on both the revenue question and on Vantage being somewhat indifferent in terms of inflows, net of outflows. Regarding the platinum, while it is warm stacked or waiting on a contract, for modeling sake, I would use approximately $50,000 a day as a proxy for its idle cost.

All right, great. I guess you're still going to be targeting the ONGC tender as the main potential long-term work for this rig. Beyond what you said in the prepared remarks, are there any other latest and greatest news around ONGC and the tender that we should be aware of?

Fredrik, first of all, thank you for You know, being the first on the line for questions, you were in the queue before we even started the meeting, so that's good. So, yeah, no, ONGC is scheduled to issue, to receive the bids on Thursday. As I'm sure you have followed, there has been, every week there has been a delay for one week, an extension for one week, so we hope that this time we will be submitting on Thursday, but that's the only news at the moment.

All right, thanks. And then my last one. Regarding the tungsten explorer, obviously, that's going to be some nice asset-light cash flow going forward. But can you just elaborate a bit on the dynamic? What would happen with your management fee if the rig itself doesn't have a contractor, doesn't get an extension. That was going to average around 47, 48K per day over the 10-year period. But how would that dynamic be governed in the short term if there were gaps on the rig?

I'll take that question, Frederick. The JV, number one, there is a joint venture for the ownership of the asset. And the ownership split is going to be, or it is, 75% total energies and 25% vintage. In the event that there is no work for the Platinum Explorer, the JV is kept whole. Once it comes to the management fee side, if there is no work, there is a reduced fee to the manager. And then whenever the rig is ramping up to go back to work, the fee increases, and then you would get back to the $47,500 on average once the rig is mobilizing, demobilizing, or operational. That's how the deal was structured. So no exposure on the ownership side and on the management side. there are reduced fees in the event that there are no wells to be drilled by Total Energies or third-party operators. As a reminder, this deal can operate for third-party operators, and that's worth noting.

Thanks. Thank you. And actually, one last one. I'm sorry about hijacking all the questions here, but I think in the end there, you said something about being well positioned to return cash to shareholders. And I apologize if that's not the exact quote. But I wondered, now that you have received all this cash, Have anything changed in the way you view that? Do you think still that having a contract on the Platinum Explorer will be a prerequisite to paying out any dividends, or do you feel comfortable that you could potentially do that sooner rather than later?

Frederik, there is no decision that has been taken on that. We do have a board meeting early December, and it's an agenda item, as you can imagine. But for now, there has been no decision taken. All right, thank you so much for all the answers, and apologies for all the questions. Have a good day. Thank you for all the questions, Frederick.

Thank you, Frederick.

Again, ladies and gentlemen, if you have a question or a comment at this time, please press star 1-1 on your telephone.

Again, ladies and gentlemen, if you have a question or a comment at this time, please press star 11 on your telephone.

And I'm not showing any further questions at this time.

And as such, this does conclude today's presentation. We thank you for your participation. You may now disconnect and have a wonderful day.