Loss Widens at Vantage

Offshore drilling contractor Vantage Drilling Company (VTG - Snapshot Report) reported weaker-than-expected fourth quarter and full-year 2010 results, hurt by higher interest expenses and operating costs.

The company reported net loss per share of 5 cents in the fourth quarter compared with the loss per share of 2 cents in the prior-year quarter. The result also was wider than Zacks Consensus estimated loss of 2 cents per share.

For full year 2010, net loss, excluding acquisition and refinancing charges, was 8 cents per share against earnings per share of 7 cents in 2009.

Quarterly revenue came in at $84.9 million, up 120.0% from fourth quarter 2009 and 21.3% above our projection. Strong contributions coming from the company’s drilling fleet boosted the performance in the quarter.

Vantage Drilling generated full-year revenue of $278.4 million, higher than the revenue of $111.5 million in 2009.

Total operating expenses were $78.2 million in the fourth quarter (versus $39.5 million in last year period), resulting in operating income of $6.7 million (versus operating loss of $0.9 million in fourth quarter 2009).

Backlog

As of December 31, 2010, Vantage Drilling had total contract backlog of about $1.2 billion, primarily comprising the estimated contract backlog with ONGC for the Platinum Explorer of approximately $1.1 billion.

Financials

At the end of 2010, Vantage Drilling had cash and cash equivalents of $120.4 million, with long-term debt of $1,103.5 million. The company’s debt-to-capitalization ratio stood at 58.9%.

During the quarter, the company issued 11.5% Senior Secured First Lien Notes valued $1.0 billion due 2015. The notes bear a maturity period of five years from the date of issuance and are fully and unconditionally guaranteed by Vantage as well as its subsidiaries. This issue is intended to fund the acquisition of 55% stake of Mandarin Drilling Corporation from F3 Capital for $139.7 million in July 2010.

Our Take

Houston, Texas based Vantage Drilling provides offshore contract drilling services to multinational oil and natural gas companies, government owned oil and natural gas companies, and independent oil and natural gas producers across the globe. The company operates with four Baker Marine Pacific Class 375 ultra-premium jackup drilling rigs, and an ultra deepwater drillship, the Platinum Explorer. Vantage is also offering management services to four other ultra-deepwater drillships.

Vantage Drilling, which faces stiff competition from industry leaders such as Transocean Ltd. (RIG - Analyst Report) and Diamond Offshore Drilling (DO - Analyst Report), currently retains a Zacks #3 Rank (short-term Hold rating).

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