Vantage Drilling International Ltd. ($VTDRF)

Good day, and thank you for standing by. Welcome to the Vantage Drilling Fourth Quarter and Year-End 2025 Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to Rafael Blattner, Chief Financial Officer. Please go ahead.

Thank you. Good morning, everyone, and welcome to the Vantage Drilling International Limited Fourth Quarter 2025 Earnings Conference Call. On the call with me today is Ihab Toma, our CEO. This morning, we released our earnings announcement for the quarter ended December 31, 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. Ihab Toma.

Thank you, Rafael, and welcome, everyone. Before turning to our three corporate goals, as I usually do, I would like to highlight a few key recent developments. During the fourth quarter, Vantage declared and paid a $5 per share dividend following its successful transition to an asset-light. This underscores the strength of our balance sheet and our continued focus to returning value to shareholders. In addition, during the current quarter, we received a binding notification of award from ONGC for the Platinum Explorer. The award follows ONGC's tender for a deepwater drillship to support a 3-year firm drilling campaign in India with a 1-year option. The firm term is expected to contribute approximately $261 million of backlog, further strengthening our revenue visibility. Now I would 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 #1 differentiator, our stellar safety and operational performance. In addition to maintaining our ISO and ISM certifications compliance, there were several highlights during the year, including our behavioral assessment tool, BAT, receiving the HSE award of the Southeast Asia chapter of the IADC for Best Safety initiative. This is the second IADC award our BAT program has received. Alongside this external recognition, in 2025, the company also achieved the equal best lagging indicator safety rates in its history, reinforcing the effectiveness of our safety initiatives and the commitment of our workforce to maintaining high safety standards. Now switching to operations. Revenue efficiency for the managed fleet during the fourth quarter was 77.9% and the revenue efficiency for the owned and managed fleet for the year was 99.8% and 91.2%, respectively. Lower efficiency in the fourth quarter was attributable to a BOP issue on the Tungsten Explorer following its out of service and recertification scope. The matter has since been resolved and the rig is operating efficiently as expected. I will now walk you through our fleet status, which is directly aligned with our second corporate goal of contracting the entire fleet. Starting with our own fleet, we recently received a binding notification of award from ONGC for the Platinum Explorer. The award is for a 3-year firm campaign plus a 1-year option in India and is expected to contribute approximately $261 million of backlog. We currently expect the rig to commence operations in the early part of the third quarter of 2026, in line with tender and contractual requirements. Turning to our managed fleet and the Tungsten Explorer. The rig successfully completed its major out-of-service work scope in Las Palmas and has since returned to the Republic of Congo, where it commenced drilling operations for TotalEnergies under the management agreement in November 2025. In addition, we have received a conditional letter of award for follow-on work in the region, which is expected to keep the rig contracted into the third quarter of 2026, with further optional work extending into year-end, if exercised. For our managed jack-ups, the Topaz Driller continued operations with CPOC in the Malaysia-Thailand Joint Development Area. The contract is firm through the end of the third quarter of 2026 with up to 9 months of additional optional work. The rig is also being actively marketed for opportunities commencing from the fourth quarter of 2026 into 2027. The Soehanah remains warm stacked in Johor Bahru following the completion of its contract with MedcoEnergi in Indonesia in the third quarter of 2025. The rig is being actively marketed for opportunities both within the region and elsewhere, and we remain optimistic about returning the rig to work in the coming months. As of quarter end, our total backlog stood at $174.9 million, excluding the recent award for the Platinum Explorer and is primarily driven by the long-term management agreement for the Tungsten Explorer. Turning to the market dynamics. Recent developments in Iran and the broader Middle East have brought energy security back to the forefront of global discussion. While the full impact is still evolving, we believe this reinforces a constructive outlook for offshore drilling as energy security and global reserve replacement remain key drivers of sustained investment in offshore oil and gas development. In the jack-up market, notwithstanding the latest development in the Middle East, activity has progressed in line with expectations with a pickup in demand through the first quarter of 2026. We continue to see a solid pipeline of longer-term opportunities particularly in the Middle East and Southeast Asia, despite what is hopefully a temporary pause of some activity in the Middle East. In the deepwater segment, the number of longer-term opportunities being marketed has increased versus expectations at the end of 2025. India is emerging as a key growth market with multiple operators actively seeking deepwater capacity. More broadly, continued program awards are supporting higher utilization and reinforcing a positive outlook for offshore drilling fundamentals. Moving now to our third corporate goal of achieving excellent stakeholder returns. In 2025, we generated total EBITDA of $80.1 million and ended the year with a cash balance of $97 million, including $4 million of restricted cash and $10.8 million of prefunded cash related to our Managed Services business. Following the sale of the Tungsten Explorer, in the fourth quarter of 2025, we returned capital to shareholders through a $5 per share dividend, reflecting the strength of our financial position and our focus on delivering shareholder value while maintaining balanced liquidity to support the deployment of the Platinum Explorer to ONGC, including the contractually required $18 million ONGC contract performance guarantee, which was posted in the first quarter of 2026. 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 good day, everyone. I will now provide an overview of our financial performance for the quarter ended December 31, 2025. All comparisons are year-over-year comparing the fourth quarter and full year of 2025 to the same periods in 2024. We ended the year with approximately $97 million of cash compared to $89.6 million at year-end 2024. Excluding prefunded cash from our managed services customers, our cash balance was $86.2 million, up from $61.4 million in the prior year. This increase primarily reflects the sale of the Tungsten Explorer, partially offset by capital returns to shareholders and the repayment of our senior notes, in line with our transition to an asset-light structure. On a net basis, cash increased by $24.8 million during the year, excluding managed services prefunding. Cash inflows were driven by $203.5 million of proceeds from the Tungsten Explorer transaction and other asset disposals as well as $4 million related to the purchase price adjustment on the Soehanah sale to ADES. These inflows were offset by $68.1 million of dividends and dividend equivalents and $65.1 million used to redeem our senior notes, together with operating and investment outflows, including $11.8 million from operations, $15.4 million invested in the joint venture for maintenance and recertifications and $14.9 million of capital expenditures. Additional outflows included $5.2 million of cash interest and $2.2 million of share repurchases. Turning to working capital. At December 31, 2025, it was $96.3 million compared to $115.3 million at year-end 2024. The decrease was primarily driven by a $29.4 million reduction in inventory following the sale of the Tungsten Explorer as well as changes related to our managed services activity, including a $17.5 million reduction in prefunded cash and a $36.1 million increase in associated accounts payable. These were partially offset by several factors, including a $24.8 million increase in cash, as previously discussed, a $20 million increase in other assets, primarily driven by managed services receivables and prepaid fuel for the Platinum Explorer, a $7.1 million purchase price adjustment related to the sale of the Tungsten Explorer, a $6.2 million increase in accounts receivable, mainly reflecting managed services revenue. The reclassification of $4.9 million of deposits from long term to short term and a $1 million decrease in interest payable following the redemption of the senior notes. Given the growing contribution of our managed services business, it is also helpful to view working capital net of managed services. On this basis, working capital decreased primarily due to the $29.4 million reduction in inventory and a $24.7 million decrease in accounts receivable, net of managed services, primarily due to sale of the Tungsten Explorer as well as an $800,000 increase in accounts payable. This was partially offset by the $24.8 million increase in cash, a $7.1 million purchase price adjustment related to the Tungsten Explorer and $4 million of prepaid fuel for the Platinum Explorer. Turning now to our income statement. For the fourth quarter and full year of 2025, we reported revenues of $48.6 million and $138.2 million, respectively, compared to $64.4 million and $239.3 million in the same period last year. The year-over-year decline reflects the impact of asset sales, including the Tungsten Explorer and the jackups as well as the completion of the Capella, Polaris and EDC management agreements. These were partially offset by $20 million of revenue recognized in connection with the terminated Platinum Explorer contract in the Black Sea, increased managed drilling activity and higher reimbursable revenue and management fees, primarily related to the Tungsten Explorer. As mentioned by Ihab in his prepared remarks, revenue efficiency for the managed fleet was 77.9% in the fourth quarter. For the full year, revenue efficiency was 99.8% for the owned fleet and 91.2% for the managed fleet. Operating costs for the fourth quarter and full year of 2025 were $35.7 million and $137.4 million, respectively, compared to $52.2 million and $182.5 million in the same period last year. The decrease reflects the same underlying drivers impacting revenue, namely the sale of the Tungsten Explorer and the jackups as well as the conclusion of the Polaris, Capella and EDC management agreements. These reductions were partially offset by operating costs associated with the Platinum Explorer contract in the Black Sea, the write-off of deferred costs related to the Tungsten Explorer sale, early termination warranty expenses for the Soehanah and higher reimbursable costs. I would like to highlight that on a cash basis, we did not incur any losses related to the termination of the Platinum Explorer Black Sea contract and the revenues received were sufficient to reassemble the Derrick and return the rig to its precontract condition. General and administrative expenses for the fourth quarter decreased by $2.1 million, primarily due to lower professional fees compared to the prior year, which included costs related to the Tungsten Explorer joint venture setup and the sale of the jackups. For the full year, general and administrative expenses increased by $400,000, primarily due to accelerated vesting of share-based compensation. This was largely offset by lower professional fees as 2024 included costs related to the Tungsten Explorer joint venture setup, the sale of the jack-ups, the Bermuda redomiciliation and the Oslo listing. Moving to other income and expenses. Equity losses from unconsolidated affiliates were $1.7 million for the fourth quarter and $4.1 million for the full year, primarily reflecting our share of joint venture expenses related to maintenance, certification and upgrade work on the Tungsten Explorer. Gain on sale of assets was $7 million and $109.3 million for the fourth quarter and full year, respectively, primarily related to the sale of the Tungsten Explorer, including the purchase price adjustment recognized in the quarter. Interest income increased by $1.4 million in the fourth quarter and $2.7 million for the full year, reflecting higher average cash balances following the Tungsten Explorer transaction and interest earned on the joint venture. Interest expense decreased by $14 million in the fourth quarter and $26.4 million for the full year, reflecting the redemption of $184.9 million of senior notes in November 2024 and the remaining $65.1 million in September 2025. Net income attributable to shareholders was $8.1 million for the fourth quarter and $40.3 million for the full year. We will post our quarterly report as of December 31, 2025, on our website later today. With that, I will now turn the call back over to the operator for Q&A.

[Operator Instructions] We have a question from the line of Fredrik Stene with Clarksons Securities.

Hopefully, you can hear me all right. I have 2 questions actually, and I wanted to start with the Platinum Explorer now that you have gotten this award from ONGC. First, congratulations on that. Good to see the rig being employed once again. But I was hoping that you could potentially give some more detail around start-up CapEx, cost and other economics that would impact that contract since it's kind of obviously important on how one should view financial performance in the years ahead. That's the first one.

Thanks, Fredrik, and good seeing you last week. I'll take the first part of your question on start time. We are targeting to start in Q3. Hopefully, in the early part, we are allowed 180 days from award to start the work. But of course, we would like to start earlier. And the gating item there is the MPD readiness because it is one of the conditions for the rig acceptance is that the MPD piping and so on is ready. So that is what will be the gating item as well as also ONGC readiness to take us. They have an active bundled services, integrated services tender right now. And depending on the outcome of this, the readiness of ONGC with the bundled services provider will also be a determining factor. But all this said, we are targeting early part of Q3. Then your question about what is required to start the job or the CapEx required, that's particularly limited to the piping of the MPD. So I'll pass this to Rafael to answer you on that part.

All right. Thanks, Fredrik. To answer your question, so the rig over the past couple of years have underwent 10-year maintenance, SBS and we have the rig ready to go. And the rig other than the MPD does not require any contract preparation to go back to ONGC, which clients that rig has been working for its entire life. We don't usually guide, but I'll give you guys some high-level figures to use between the MPD and a couple of other items that are going to be front-loaded, use approximately $10 million. And the rest of the mobilization since we are somewhat in the region in Labuan, it's just a matter of crewing the rig and going to the job. So you're going to have your usual mobilization cost from a place that's close in proximity. And that's all I can tell you at this point.

All right. But that's altogether very, very useful. Then I wanted to ask also more broad-based question. There's been some consolidation recently. Transocean has made a move to acquire Valaris and that will, at least in my view, likely go through and complete later this year. You guys have a platform under which you can manage quite a meaningful chunk of rigs. So in this landscape where consolidation seems to be happening from time to time, have you -- do you have any views on how your platform itself is usable either for new managed rigs or how you best can kind of otherwise capitalize on the platform? I appreciate any high level or detailed thoughts you might have on the matter.

Definitely not detailed, Fredrik. But high level, I always said consolidation is very good for the industry. Vantage is motivated to be part of any of the consolidation conversations. But we are doing well with -- especially with the rig now going back to work. As you said, the go-to platform when someone has a rig that can fit into an opportunity but doesn't have an operating platform. So we do like our asset-light structure that allows us to take other people's rigs and put them to work and get a management fee. So we are good. We can just continue like that happily, very happily making happy shareholders and generating good shareholder returns. But definitely, from the emergence of the company in 2016, we have been open to any of the M&A conversations, and that did not change since then and will continue to be the case.

All right. I'm happy with that even though I had hope for details, of course, as always, but I totally understand that's not possible. Wish you a good day.

Thank you, Fredrik.

Thank you. That will conclude today's question-and-answer session. This concludes today's conference call. Thank you for participating. You may now disconnect.