Supplemental Financial Information

3 Months Ended

Mar. 31, 2023

Balance Sheet Related Disclosures [Abstract]

9. Supplemental Financial Information

Prepaid Expenses and Other Current Assets

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


	March 31, 2023		December 31, 2022
(unaudited, in thousands)
Sales tax receivable	$	8,264	$	5,407
Down payments to vendors		7,753		6,269
Prepaid fuel		2,216		3,200
Income tax receivable		11,725		1,373
Current deferred contract costs		13,244		7,324
Current deposits		3,557		139
Other		2,101		1,909
	$	48,860	$	25,621

Property and Equipment, Net

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


	March 31, 2023			December 31, 2022
(unaudited, in thousands)
Drilling equipment	$	626,534		$	624,739
Assets under construction		3,123			4,075
Office and technology equipment		18,405			18,405
Leasehold improvements		690			690
		648,752			647,909
Accumulated depreciation		(320,502	)		(309,453	)
Property and equipment, net	$	328,250		$	338,456

Other Assets

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


	March 31, 2023		December 31, 2022
(unaudited, in thousands)
Noncurrent restricted cash	$	2,781	$	2,781
Deferred certification costs		2,938		3,308
Deferred income taxes		1,218		1,897
Noncurrent income tax receivable		1,256		4,766
Other noncurrent assets		4,244		5,582
	$	12,437	$	18,334

Other Current Liabilities

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


	March 31, 2023		December 31, 2022
(unaudited, in thousands)
Interest	$	1,582	$	2,126
Compensation		5,662		8,786
2016 MIP - Dividend equivalent (1)		3,272		5,278
Income taxes payable		2,982		2,662
Current deferred revenue		45,729		35,085
Current portion of operating lease liabilities		1,103		1,520
Current customer prefunding		15,913		10,049
Other		634		673
	$	76,877	$	66,179

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

Other Long-term Liabilities

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


	March 31, 2023		December 31, 2022
(unaudited, in thousands)
Deferred income taxes	$	762	$	730
2016 MIP - Dividend equivalent (1)		285		3,520
Noncurrent operating lease liabilities		194		222
Noncurrent customer prefunding		3,950		3,950
Indirect tax contingencies		4,307		4,339
Other non-current liabilities		126		120
	$	9,624	$	12,881

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

Cash, Cash Equivalents and Restricted Cash

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


	March 31, 2023		December 31, 2022
(unaudited, in thousands)
Cash and cash equivalents	$	69,916	$	74,026
Restricted cash		6,116		16,450
Restricted cash included within Other Assets		2,781		2,781
Total cash, cash equivalents and restricted cash shown in the Consolidated Statements of Cash Flows	$	78,813	$	93,257

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

Related Party Transactions

The Company does not currently have any reportable transactions with entities that meet the definition of related parties as specifically defined by ASC 850 Related Party Disclosures. The Company does have recurring transactions and collaboration agreements in the ordinary course of business with ADES, as described in “Note 1. Organization and Recent Events” and “Note 2. Basis of Presentation and Significant Accounting Policies”, and Aquadrill LLC (“Aquadrill”), as described below.

ADES

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

On December 6, 2021, we entered into the EDC Purchase Agreement to sell to ADES Arabia all of the issued and outstanding equity of EDC, which owns the Emerald Driller, Sapphire Driller and Aquamarine Driller. The transactions contemplated by the EDC Purchase Agreement closed on the EDC Closing Date. Simultaneously with the EDC Sale, certain subsidiaries of the Company and ADES entered into the EDC Support Services Agreements, pursuant to which a subsidiary of the Company agreed to provide, in exchange for customary fees and reimbursements, support services to EDC with respect to the Emerald Driller, Sapphire Driller and Aquamarine Driller for a three-year term. Fees earned as a result of these agreements are included in “Management fees” and “Reimbursable and other” in our Consolidated Statement of Operations within the Managed Services segment as reported in “Note 10. Business Segment and Significant Customer Information.” For additional information regarding the EDC Purchase Agreement and the transactions contemplated thereunder, please see “Share Purchase Agreement to Sell EDC to ADES Arabia Holding” under “Note 1. Organization and Recent Events” of these Notes to Unaudited Financial Statements.

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

For the three ended March 31, 2023, we recognized revenue of $5.6 million from the ADES Group in connection with the ADES Ancillary Agreements.

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

Aquadrill Merger; Framework, Management and Marketing Agreements

VHI previously entered into the Framework, Management and Marketing Agreements, pursuant to which certain subsidiaries of VHI agreed to provide operating, management and marketing services to the Aquadrill Entities. Fees earned in connection with these agreements are included in “Management fees” and “Reimbursable and other” in our Consolidated Statement of Operations within the Managed Services segment as reported below in “Note 10. Business Segment and Significant Customer Information.” For the three months ended March 31, 2023 and 2022, we recognized revenue of $21.8 million and $8.2 million, respectively.

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

VANTAGE DRILLING INTERNATIONAL 10-Q