VANTAGE DRILLING INTERNATIONAL LTD. The following discussion is intended to assist you in understanding our financial position as ofJune 30, 2021 and our results of operations for the three and six months endedJune 30, 2021 and 2020. 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 endedDecember 31, 2020 , which was filed with theSEC onMarch 18, 2021 . 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.
Overview
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 gas wells for our customers. Through our fleet of drilling units, we provide offshore contract drilling services to major, national and independent oil and gas companies, focused on international markets. Additionally, for drilling units owned by others, we provide operations and marketing services for operating and stacked rigs, construction supervision services for rigs that are under construction and preservation management services for rigs that are stacked.
The following table sets forth certain current information concerning our
offshore drilling fleet as of
Water Depth Drilling Depth
Name Year Built Rating (feet) Capacity Location Status
(feet)
Jackups
Emerald Driller 2008 375 30,000 Qatar Operating
Sapphire Driller 2009 375 30,000 Equatorial Guinea Operating
Aquamarine Driller 2009 375 30,000 Malaysia Operating
Topaz Driller 2009 375 30,000 Montenegro Operating
Soehanah 2007 375 30,000 Indonesia Operating
Drillships (1)
Platinum Explorer 2010 12,000 40,000 India Operating
Tungsten Explorer 2013 12,000 40,000 Mediterranean Warm stacked
(1)
The drillships are designed to drill in up to 12,000 feet of water. The Platinum Explorer and Tungsten Explorer are currently equipped to drill in 10,000 feet of water. Recent Developments
Ongoing Impact of the COVID-19 Pandemic, Including on the Oil and Gas Industry
The COVID-19 pandemic continues to spread worldwide and has exacerbated since theWorld Health Organization (the "WHO") first classified the COVID-19 outbreak as a pandemic inMarch 2020 . The global spread of COVID-19, including its highly contagious variants and sub-lineages, have caused and continue to cause widespread illness and significant loss of life, leading governments across the world to impose and re-impose severely stringent and extensive limitations on movement and human interaction, with certain countries, including those where we maintain significant operations and derive material revenue, being forced to implement multiple and recurrent shelter-in-place and stay-at-home orders. These governmental responses to the COVID-19 pandemic, as well as changes to and extensions of such approaches have led to, and continue to result in, uncertain and volatile economic activity worldwide, including within the oil and gas industry and the regions and countries in which we operate. We experienced significant challenges in 2020 when the COVID-19 pandemic began such as: (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. The Company actively managed and continues to manage the business in an attempt to mitigate any further impact from the continued presence of the COVID-19 pandemic; however, management anticipates that our industry, and the world at large, will need to continue to operate in and further adapt to the current environment for the foreseeable future. There has been a relatively strong recovery in global oil prices for the first half of 2021 (as compared to 2020) and our management remains cautiously optimistic with respect to the potential for the recovery to continue. However, oil and gas prices are expected to continue to be volatile as a result of (i) the ongoing COVID-19 pandemic, including the transmission and presence of highly contagious variants, (ii) changes in oil and gas inventories, (iii) industry demand, and (iv) potential future disagreements among OPEC+ countries regarding the supply of oil, and therefore, we cannot predict how long oil and gas prices will remain stable or further improve, if at all, or whether they could reverse course and decline. While our management is actively monitoring the foregoing events and its associated financial impact our business, it is uncertain at this time as to the full magnitude that volatile and uncertain oil and gas prices will have on our financial condition and future results of operations.
Agreements with Aquadrill
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On February 9, 2021 , Vantage Holdings International ("VHI"), a subsidiary of
VDI, entered into a Framework Agreement and related Management and Marketing
Agreements, as amended on March 16, 2021 (collectively, the "Operations,
Management and Marketing Agreements") with Aquadrill LLC formerly known as
Seadrill Partners LLC ("Aquadrill") pursuant to which certain subsidiaries of
VHI (the "VHI Entities") will provide operating, management and marketing
services to Aquadrill and its subsidiaries (the "Aquadrill Entities") in respect
of four deepwater floaters owned by the Aquadrill Entities, which include two
drillships, the West Polaris and the West Capella, and two semisubmersibles, the
West Leo and the West Sirius. The Operations, Management and Marketing
Agreements were subject to the approval of, and were approved by, the U.S.
Bankruptcy Court for the Southern District of Texas on March 18, 2021 .
In connection with the entry into the Operations, Management and Marketing
Agreements, VHI organized a new legal entity, Vantage Financial Management Co. ,
an entity organized in the Cayman Islands ("VFMC"), to provide certain cash
management services to the Aquadrill Entities in respect of the management of
the vessels subject to, and covered by, the Operations, Management and Marketing
Agreements. VFMC was organized as an unrestricted, indirectly owned subsidiary
of the Company and is therefore not subject to the restrictions under the First
Lien Indenture.
Purchase and Sale Agreement to Sell the Titanium Explorer
OnDecember 31, 2020 , we entered into a purchase and sale agreement withBest Oasis Limited (the "Buyer") to sell the Titanium Explorer (the "Purchase and Sale Agreement"), for an aggregate purchase price of$13.8 million and we classified the rig as held for sale on our Consolidated Balance Sheet. The transactions contemplated by the Purchase and Sale Agreement closed onMarch 10, 2021 . Pursuant to the Purchase and Sale Agreement, the Buyer is required to recycle the rig in an environmentally sound manner.
Letter of Award for the Platinum Explorer
OnFebruary 3, 2021 , our ultra-deepwater drillship, the Platinum Explorer, received a letter of award for a two-year contract fromOil and Natural Gas Company ("ONGC"). The Platinum Explorer is currently performing under an existing three-year contract with ONGC, which is expected to close in the third quarter of 2021, and it will experience some brief out-of-service time for planned maintenance after the existing contract concludes. The new contract with ONGC is expected to commence shortly thereafter.
Business Outlook
Expectations about future oil and gas prices have historically been a key driver of demand for our services. Against the backdrop of already challenging industry conditions since 2015, the initial onset, and continued global spread of the COVID-19 pandemic and the resulting collapse in global economic activity, coupled with the short-lived price war betweenSaudi Arabia andRussia , led to significant reductions and delays in oil and gas exploration and development plans on the part of operators during 2020, largely impeding and unwinding the improvements experienced by the industry in 2019. These reductions and delays led to a substantial drop in oil prices and demand for offshore drilling services globally, including for our services, during, and subsequent to, the second quarter of 2020. Global oil prices have experienced a relatively stronger recovery in the first half of 2021 as compared to the low prices experienced in 2020 due to, among other things, the (i) OPEC+ countries' agreement since last year to reduce production by almost 10 million barrels per day, representing approximately 10% of the world's output compared with demand for approximately 96 million barrels a day, followed by gradual increases in production since that time to address increases in demand, (ii) development, efficacy, availability and utilization of vaccines for COVID-19, (iii) growing confidence in, and the perception of, the reopening of global economies, and (iv) injection of substantial government monetary and fiscal stimulus. The volatility and uncertainty surrounding global oil prices largely remain as the spread of the COVID-19 pandemic and its highly transmissible variants persist. While OPEC+ countries entered into an agreement inJuly 2021 to gradually phase out certain oil production cuts bySeptember 2022 , the long-term commitment of such countries to continue oil production cuts remains uncertain. As a result of such volatility and uncertainty, it has been difficult, and will generally continue to be difficult, for operators to develop and set their capital budget programs for the near and long-term. In addition to the macroeconomic challenges, including those set forth above, which have led to reduced demand for drilling rigs, the excess supply of delivered and new-build rigs continues to be an overhang on the market. According to industry reports, there are currently 50 jackups and 24 deepwater/harsh environment floaters on order at shipyards. It is unclear when these drilling rigs will actually be delivered, if at all, as many rig deliveries have (i) already been deferred to later dates or (ii) been canceled entirely. In response to an oversupply of drilling rigs, a number of our competitors began removing older, less competitive, rigs from their fleets by either cold stacking the drilling rigs or taking them permanently out of service. According to industry reports, this trend accelerated since the second quarter of 2020, as 67 rigs (in the aggregate) were removed from the drilling fleet in 2020 and 2021, and a total of 326 rigs have been removed from the drilling fleet since the oil price decline in 2014. We expect further rig recycling to occur with warm stacked rigs (and potentially recently operated rigs) joining cold-stacked rigs as candidates for recycling. While this emphasis on recycling of rigs is expected to narrow the gap somewhat between rig supply and demand, we do not, however, anticipate that the reduction in the supply of offshore drilling rigs alone will be sufficient to materially improve, and ultimately offset the impact of, existing market conditions. 24 -------------------------------------------------------------------------------- In addition to the expected increase in recycling, many offshore drillers with significant levels of debt on their balance sheets have recently completed, are currently pursuing, or may elect to pursue in the near-term, debt restructurings. These debt restructurings may result in lower cost structures, and additional pressure and incentive to recycle rigs. As drillers emerge from these debt restructurings, it is likely that consolidation will occur, reducing the number of industry participants and potentially increasing the market share of certain of our competitors. The combination of recycling, restructuring and consolidation will be necessary for the industry to regain firmer footing. Any industry recovery will also depend significantly on continued and demonstrable improvement in global macroeconomic conditions. Since 2015, 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 most drilling contractors preferred to maintain rigs in an active state to mitigate the risks and costs of stacking and reactivating rigs and to benefit from the fact that customers had generally favored operating rigs over reactivated cold-stacked rigs. Prior to the COVID-19 pandemic, this downward pressure on pricing was starting to reverse itself, as evidenced by increased demand for our services in 2019 and early 2020, and dayrates were showing signs of general improvement. However, beginning in the second quarter of 2020, with the initial onset, continued spread and resulting impact, of the COVID-19 pandemic, dayrates, rig activity and contract opportunities each came under significant pressure again. With the initial distribution of vaccines in certain jurisdictions in an attempt to inoculate populations against COVID-19 along with significant governmental assistance directed at combatting the challenging economic environment caused by the COVID-19 pandemic, economic activity in certain portions of the world has improved during the first half of 2021. This improvement has contributed to, among other things, an increase in the demand for oil and gas. Since dropping to multi-year lows in the second quarter of 2020, Brent crude oil prices reached relatively healthier levels in 2021. As a result, the jackup segment has experienced greater recovery as compared to the deepwater segment, where such recovery has generally lagged as compared to the shallow water segment. This recovery timing bifurcation may be partly due to the fact that a significant amount of time transpires between the date a final investment decision is taken with regard to a deepwater project and the date on which the program actually commences and any uncertainty regarding the direction of oil prices and rate of recovery could weigh significantly on these decisions. However, to the extent that global economic activity continues to improve or is, at a minimum, sustained at its current levels, operators could begin to sanction new activity, which could lead to more rigs going back into service and potentially higher day rates. Notwithstanding the foregoing, any recovery experienced could be short lived especially given the quickly changing and ever-evolving dynamics of the COVID-19 pandemic and its highly transmittable variants and sub-lineages. Though with the COVID-19 pandemic unlikely to subside in the near term, the possibility exists that the world learns to operate in and further adapt to the current environment for the foreseeable future. Volatility in global oil and gas prices and how our industry manages the logistical challenges stemming from the pandemic will continue to play a significant role in determining the outlook for the industry. Backlog The following table reflects a summary of our contract drilling backlog coverage of days contracted and related revenue as ofJune 30, 2021 based on information available as of that date: Revenues Contracted (1) Percentage of Days Contracted (in thousands) 2021 2022 Beyond 2021 2022 Beyond Jackups 73% 25% 7 %$ 53,930 $ 29,200 $ 8,379 Drillships 48% 62% 42 %$ 25,717 $ 67,188 $ 45,091 (1) Includes contract(s) with operating day rates that may vary based on a variable oil price index rate mechanism calculated utilizing the then applicable average price of Brent crude. For purposes of calculating the backlog with contracts that contain a variable oil price indexed rate mechanism we utilize the applicable oil price as of quarter end multiplied by the number of days remaining in the firm contract period. The average dayrate over the term of the contract could be lower or higher depending upon the average price of Brent crude for such measurable period and such adjustments are not estimated in the backlog dayrate. As certain of our drilling contracts are denominated in currencies other than the USD, backlog could also vary due to movements in the applicable exchange rates. 25
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Results of Operations
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:
Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
Jackups
Rigs available (at end of period) 5 5 5 5 Available days (1) 455 455 905 875 Utilization (2) 39.9 % 60.0 % 35.3 % 73.9 % Average daily revenues (3)$ 124,857 $ 56,710 $ 98,775 $ 61,194 Deepwater Rigs available 2 3 2 3 Available days (1) 182 273 362 546 Utilization (2) 49.7 % 45.6 % 49.4 % 53.7 % Average daily revenues (3)$ 99,194 $ 141,900 $ 99,549 $ 129,255 (1) Available days are the total number of rig calendar days in the period. Rigs are excluded while under bareboat charter contracts and removed upon classification as held for sale and no longer eligible to earn revenue. (2) Utilization is calculated as a percentage of the actual number of revenue earning days divided by the available days in the period. A revenue earning day is defined as a day for which a rig earns dayrate after commencement of operations. (3) Average daily revenues are based on contract drilling revenues divided by revenue earning days. Average daily revenue will differ from average contract dayrate due to billing adjustments for any non-productive time, mobilization fees and demobilization fees.
For the Three Months Ended
Net loss attributable to shareholders for theCurrent Quarter was$29.0 million , or$2.21 per basic share, on operating revenues of$35.6 million , compared to net loss attributable to shareholders for theComparable Quarter of$31.9 million , or$2.43 per basic share, on operating revenues of$36.8 million . The following table is an analysis of our operating results for the three months endedJune 30, 2021 and 2020: Three Months Ended June 30, Change 2021 2020 $ % (unaudited, in thousands) Revenues Contract drilling services$ 31,655 $ 33,151 $ (1,496 ) -5 % Reimbursables and other 3,946 3,624 322 9 % Total revenues 35,601 36,775 (1,174 ) -3 % Operating costs and expenses Operating costs 36,056 38,104 (2,048 ) -5 % General and administrative 4,967 4,716 251 5 % Depreciation 14,161 18,401 (4,240 ) -23 % Total operating costs and expenses 55,184 61,221 (6,037 ) -10 % Loss from operations (19,583 ) (24,446 ) 4,863 -20 % Other (expense) income Interest income 10 111 (101 ) -91 % Interest expense and financing charges (8,511 ) (8,601 ) 90 -1 % Other, net (179 ) 12 (191 ) -1592 % Total other expense (8,680 ) (8,478 ) (202 ) 2 % Loss before income taxes (28,263 ) (32,924 ) 4,661 -14 % Income tax (benefit) provision 720 (1,024 ) 1,744 -170 % Net loss (28,983 ) (31,900 ) 2,917 -9 % Net income (loss) attributable to noncontrolling interests (18 ) 12 (30 ) -250 % Net loss attributable to shareholders$ (28,965 ) $ (31,912 ) $ 2,947 -9 %
Revenue: Total revenue decreased
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Contract drilling revenue decreased $1.5 million for the Current Quarter as
compared to the Comparable Quarter . The decrease in our contract drilling
revenue for the Current Quarter as compared to the Comparable Quarter was
primarily the result of the number of rigs that were operational, with four in
the Current Quarter as compared to seven in the Comparable Quarter due to the
fact that: (i) three of our drilling contracts were terminated in the second
quarter of 2020 as a result of the volatility in oil prices and the challenges
presented by the COVID-19 pandemic; and (ii) another drilling contract expired
in the second quarter of 2020 in accordance with its term These decreases were
offset by contract amendments which resulted in higher dayrates in the Current
Quarter as compared to lower dayrates in the Comparable Quarter .
Reimbursables and other revenue for the Current Quarter increased 9% as compared
to the Comparable Quarter as a result of higher reimbursable revenue on the
Emerald Driller and Topaz Driller as well as reimbursables and other revenue
related to the management of the Aquadrill rigs we began managing during the
first quarter of 2021.
Operating costs: Operating costs for the Current Quarter decreased $2.0 million
as compared to the Comparable Quarter . The decrease in Operating costs was
primarily the result of changes to our drilling contracts, which resulted in
four of our rigs being operational during in the Current Quarter , with lower
costs incurred on warm stacked rigs. Decreases in Operating costs in the Current
Quarter were further impacted by the sale of the Titanium Explorer on March 10,
2021 .
General and administrative expenses: Increases in general and administrative
expenses for the Current Quarter as compared to the Comparable Quarter were
primarily due to higher professional fees and insurance. General and
administrative expenses for the Comparable Quarter included approximately $0.2
million for non-cash share-based compensation expense. Non-cash share-based
compensation expense for the Current Quarter was immaterial.
Depreciation expense: Depreciation expense for the Current Quarter decreased 23%
as compared to the Comparable Quarter , due primarily to a $3.8 million decrease
in depreciation expense on the Titanium Explorer, which was classified as held
for sale on December 31, 2020 .
Interest income: Interest income for the Current Quarter decreased $0.1 million
as compared to the Comparable Quarter , due primarily to lower interest rates
earned on lower cash investments during the Current Quarter .
Interest expense and financing charges: Interest expense for the Current Quarter
decreased 1% as compared to the Comparable Quarter . Interest expense includes
non-cash deferred financing costs totaling approximately $0.4 million for the
Current Quarter and for the Comparable Quarter , respectively.
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
loss of approximately $0.2 million was included in "other, net," for the Current
Quarter . The foreign currency exchange gain/loss for the Comparable Quarter was
immaterial.
Income tax provision: Our annualized effective tax rate for the Current Quarter
is negative 7.06% based on estimated annualized loss before income taxes
excluding income tax discrete items. Our annualized effective tax rate for the
Comparable Quarter was negative 4.58%, based on estimated annualized loss 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.
For the Six Months Ended
Net loss attributable to shareholders for the Current Period was$64.9 million , or$4.95 per basic share, on operating revenues of$55.8 million , compared to net loss attributable to shareholders for the Comparable Period of$62.5 million , or$4.76 per basic share, on operating revenues of$88.2 million .
The following table is an analysis of our operating results for the six months
ended
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Six Months Ended June 30, Change
2021 2020 $ %
(unaudited, in thousands)
Revenues
Contract drilling services $ 49,380 $ 77,470 $ (28,090 ) -36 %
Reimbursables and other 6,387 10,761 (4,374 ) -41 %
Total revenues 55,767 88,231 (32,464 ) -37 %
Operating costs and expenses
Operating costs 61,413 86,659 (25,246 ) -29 %
General and administrative 10,462 11,886 (1,424 ) -12 %
Depreciation 28,286 36,417 (8,131 ) -22 %
Total operating costs and expenses 100,161 134,962 (34,801 ) -26 %
Loss from operations (44,394 ) (46,731 ) 2,337 -5 %
Other (expense) income
Interest income 110 812 (702 ) -86 %
Interest expense and financing
charges (17,021 ) (17,021 ) - 0 %
Other, net (793 ) 2,367 (3,160 ) -134 %
Total other expense (17,704 ) (13,842 ) (3,862 ) 28 %
Loss before income taxes (62,098 ) (60,573 ) (1,525 ) 3 %
Income tax provision 2,882 1,897 985 52 %
Net loss (64,980 ) (62,470 ) (2,510 ) 4 %
Net income (loss) attributable to
noncontrolling interests (31 ) 14 (45 ) -321 %
Net loss attributable to
shareholders $ (64,949 ) $ (62,484 ) $ (2,465 ) 4 %
Revenue: Total revenue decreased
Contract drilling revenue decreased 36% for the Current Period as compared to the Comparable Period. The decrease in our contract drilling revenue for the Current Period as compared to the Comparable Period was primarily a result of the number of rigs that were operational (with four rigs operational in the Current Period as compared to seven rigs in the Comparable Period) due to the fact that: (i) three of our drilling contracts were terminated in the second quarter of 2020 as a result of the volatility in oil prices and the challenges presented by the COVID-19 pandemic; and (ii) another drilling contract expired in the second quarter of 2020 in accordance with its terms. These decreases were offset by contract amendments which resulted in higher dayrates in the Current Period as compared to lower dayrates in the Comparable Period. Reimbursables and other revenue for the Current Period decreased$4.4 million as compared to the Comparable Period as a result of (i) the changes in our drilling contracts (discussed immediately above) and (ii) the Tungsten Explorer, which was not operational in the Current Period. Operating costs: Operating costs for the Current Period decreased 29% as compared to the Comparable Period. The decrease in operating costs was primarily the result of changes to our drilling contracts which resulted in only four of our rigs operating in the Current Period, with lower costs incurred on warm stacked rigs, and a$1.0 million decrease in operational support costs in the Current Period (as compared to the Comparable Period) as a result of reductions in personnel headcount and salaries paid to personnel. Decreases in Operating costs in the Current Period were further reduced by the sale of the Titanium Explorer onMarch 10, 2021 and the recognition of a net gain of$2.8 million related to the sale of the asset. General and administrative expenses: Decreases in general and administrative expenses for the Current Period as compared to the Comparable Period were primarily due to cost cutting initiatives to reflect the lower levels of operating activity in the Current Period. General and administrative expenses for the Current Period and for the Comparable Period include approximately$0.2 million and$0.7 million , respectively, for non-cash share-based compensation expense. Depreciation expense: Depreciation expense for the Current Period decreased 22% as compared to the Comparable Period, due primarily to a$7.6 million decrease in depreciation expense on the Titanium Explorer, which was classified as held for sale as ofDecember 31, 2020 .
Interest income: Interest income for the Current Period decreased
Interest expense and financing charges: Interest expense for the Current Period decreased 0% as compared to the Comparable Period. Interest expense includes non-cash deferred financing costs totaling approximately$0.8 million for each of the Current Period and the Comparable Period. 28 -------------------------------------------------------------------------------- Other, net: We recorded a gain of$2.3 million during the Comparable 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 loss of approximately$0.8 million and gain of approximately$0.1 million was included in "Other, net", for the Current Period and the Comparable Period, respectively. Income tax provision: Our annualized effective tax rate for the Current Period is negative 7.06% based on estimated annualized loss before income taxes excluding income tax discrete items. Our estimated annualized effective tax rate for the Comparable Period was negative 4.58% based on estimated annualized loss 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.
Liquidity and Capital Resources
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 began to reduce our liquidity and capital resources in the second quarter of 2020, a trend which could extend into subsequent quarters in 2021 and beyond, depending on, among other factors, how long COVID-19 remains a significant public health crisis and 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 pandemic, as well as other impacts to our long-term liquidity. (see "Ongoing Impact of the COVID-19 Pandemic, Including on the Oil and Gas Industry" of this Part I, Item 2 for further information pertaining to the ongoing impact of the COVID-19 pandemic, including the spread of its highly transmittable variants and sub-lineages, on our operations and financial condition). Governmental measures, such as widespread lock downs, nightly curfews and territorial entry restrictions could impact our ability to operate in locations where such restrictions are in place, including those locations where we maintain significant operations and derive material revenue. With this uncertainty, we have sought, and continue to seek, measures to reduce our operating costs and preserve cash during these challenging times. The effects of the decline in global economic activity and other oil price and market share volatility may cause us to implement further cost reduction measures (in addition to those put in place in 2020 and maintained through the Current Period) and alter our general financial strategy. As ofJune 30, 2021 , 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 twelve months following the date our consolidated financial statements are issued and therefore, have been prepared under the going concern assumption. As ofJune 30, 2021 , we had working capital of approximately$161.2 million , including approximately$111.4 million of cash available for general corporate purposes. Scheduled debt service consists of interest payments throughJune 30, 2022 of approximately$32.4 million . We anticipate capital expenditures throughJune 30, 2022 to be between approximately$23.4 million and$28.6 million , for sustaining capital and capital spares as a result of upgrades required for upcoming contracts. As our rigs obtain new contracts, we could incur reactivation and mobilization costs for these rigs, as well as additional customer requested equipment upgrades. These costs could be significant and may not be fully recoverable from the customer. Based on our expected levels of activity, incremental expenditures throughJune 30, 2022 for special periodic surveys, major repair and maintenance expenditures and equipment recertifications to be between approximately$29.7 million and$36.3 million primarily to due to timing of anticipated maintenance that will need to be completed prior to commencement of upcoming contracts. As ofJune 30, 2021 , we had$39.0 million available for the issuance of letters of credit under our cash collateralized letter of credit facility.
The following table includes a summary of our cash flow information for the periods indicated:
Six Months Ended June 30,
(unaudited, in thousands) 2021 2020
Cash flows (used in) provided by:
Operating activities $ (40,944 ) $ (52,514 )
Investing activities 10,846 (2,021 )
Financing activities - -
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Changes in cash flows from operating activities are driven by changes in net loss during the periods (see the discussion of changes in net loss above in "Results of Operations" of this Part I, Item 2).
Cash flows from investing activities in the Current Period include net proceeds
of
The significant elements of the 9.25% First Lien Notes are described in " Note 5. Debt " of the "Notes to Unaudited Consolidated Financial Statements" in Part I, Item 1 of this 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.
Commitments and Contingencies
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 " of the "Notes to Unaudited Consolidated Financial Statements" in Part I, Item 1 of this 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.
Critical Accounting Policies and Accounting Estimates
The preparation of unaudited financial statements and related disclosures in accordance withU.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 discussed the development, selection and disclosure of such policies and estimates with the audit committee of the Board of Directors. Our critical accounting policies are those related to property and equipment, impairment of long-lived assets and income taxes. For a discussion of the critical accounting policies and estimates that we use in the preparation of our consolidated financial statements, see "Item 7. Management's Discussion and 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 endedDecember 31, 2020 , which was filed with theSEC onMarch 18, 2021 . During theCurrent Quarter , there were no material changes to the judgments, assumptions or policies upon which our critical accounting estimates are based. Recent Accounting Pronouncements: See " Note 2. Basis of Presentation and Significant Accounting Policies " of the "Notes to Unaudited Consolidated Financial Statements" in Part I, Item 1 of this Quarterly Report for further information. The information discussed therein is incorporated by reference in its entirety into this Part I, Item 2.
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