Summary of VANTAGE DRILLING CO

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion is intended to assist you in understanding our financial position at December 31, 2008, and our results of operations for the years ended December 31, 2008 and 2007. The following discussion should be read in conjunction with the information contained in "Item 1. Business," "Item 1A. Risk Factors" and the audited consolidated financial statements and the notes thereto included under "Item 8. Financial Statements and Supplementary Data" elsewhere in this report on Form 10-K. Certain reclassifications have been made to previously reported amounts to conform to the current period presentation.

Overview

We are a development stage international drilling company focused on developing and operating a fleet of high-specification drilling rigs. We completed our business combination with Vantage Energy and OGIL on June 12, 2008 (the "Acquisition"). The historical financial statements present the historical financial information of Vantage Energy with the financial information of Vantage Drilling and OGIL included as of June 12, 2008. The Acquisition included the construction contracts for four Baker Marine Pacific Class 375 jackup rigs, a contract for the purchase of an ultra-deepwater high-specification drillship, the Platinum Explorer, and the option for a second ultra-deepwater high-specification drillship, the Titanium Explorer, currently under development.

Acquisition of OGIL

The Company purchased, through a structured acquisition, all the issued ordinary shares of OGIL. OGIL's assets consist of the construction and delivery contracts for four Baker Marine Pacific Class 375 ultra-premium jackup drilling rigs, a purchase agreement with Mandarin Drilling Corporation ("Mandarin"), a subsidiary of F3 Capital, a Cayman Islands exempted company that is wholly-owned by Hsin-Chi Su, a director of the Company, for an ultra-deepwater drillship, Platinum Explorer, and an option for the purchase of a second ultra-deepwater drillship, the Titanium Explorer, currently under development from an affiliate of F3 Capital.

We acquired all of the issued ordinary shares of OGIL from F3 Capital for the aggregate consideration of $331.0 million plus Closing Adjustments, consisting of the following:

(i) an aggregate of $275.0 million Company Units (33,333,333 Units), with each Unit consisting of one ordinary share and 0.75 warrants to purchase one ordinary share at an exercise price of $6.00 per share (such warrants are exercisable into an aggregate of 25,000,000 ordinary shares); and

(ii) a promissory note issued by us in the amount of approximately $56.0 million plus Closing Adjustments and which was repaid at closing in the amount of approximately $48.3 million.

As a result of the acquisition, the ordinary shares of Vantage Drilling were owned approximately 56% and 44% by the former shareholders of Vantage Energy and F3 Capital (former parent company of OGIL) respectively. Pursuant to the Purchase Agreement, F3 Capital exercised its right to appoint three directors to the board of directors of the Company.

We accounted for the acquisition in accordance with Statement of Financial Accounting Standards ("SFAS") No. 141, Business Combinations and determined that the acquirer for purposes of accounting for the business combination was Vantage Energy. The total consideration paid for Vantage Drilling and OGIL, including the amounts described above, the shipyard payments due from January 1, 2008 through the acquisition date, and the acquisition costs allocated to the assets acquired was approximately $488.4 million.

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Restructure Agreement

Our initial strategic plan anticipated that we would raise capital to support the development of the Platinum Explorer and Titanium Explorer drillships in the form of additional equity and debt financings. The purchase agreement for the Platinum Explorer was for total consideration of $676.0 million and an option to acquire the Titanium Explorer for $695.0 million. The Platinum Explorer purchase agreement and the Titanium Explorer option required us to make installment payments of $194.8 million in September and $208.5 million in November, respectively. Additionally, the Titanium Explorer option contained a $10.0 million termination fee if we were unable to exercise the option. We pursued both debt and equity financings to fund these payment obligations, however, due to the worsening global financial crisis, we were unable to obtain debt or equity financing on acceptable terms. In September 2008, we made a partial payment of $32.0 million on the Platinum Explorer purchase obligation and began to negotiate a restructuring of the remaining obligations.

In November 2008, our wholly owned subsidiary, Vantage Deepwater Company ("Deepwater") entered into a Share Sale and Purchase Agreement (the "Restructure Agreement") restructuring the outstanding obligations for the Platinum Explorer and Titanium Explorer. Pursuant to the Restructure Agreement, we will acquire forty-five percent (45%) of Mandarin Drilling Corporation ("Mandarin"), the owner of the Platinum Explorer for cash consideration of $189.8 million ($149.8 million after deducting the $32.0 million partial payment made in September 2008 and $8.0 million paid in June 2008) and issue ten year warrants to purchase 1.98 million of our ordinary shares at $2.50 per share. In order for us to fund the cash consideration, the owner of Mandarin, F3 Capital agreed to exercise 25 million outstanding warrants which it received as partial consideration for our acquisition of OGIL. Additionally, it was agreed that F3 Capital would accept in the form of ordinary shares at the current market price the $10.0 million termination fee (7,299,270 ordinary shares) for the termination of the Titanium Explorer purchase option.

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In connection with the Restructure Agreement, we have executed a shareholders' agreement with F3 Capital which shall become effective once we own 45% of the outstanding shares of Mandarin (the "Shareholders Agreement"). Pursuant to the Shareholders Agreement, we agreed to jointly promote and develop the business of Mandarin, such business being the ownership, construction, operation and management of the Platinum Explorer currently under construction at DSME. The Shareholders Agreement provides for a five member board of directors for Mandarin, two of whom are to be designated by us and three of whom are to be designated by F3 Capital. The Shareholders Agreement further provides we will jointly seek financing necessary to fund the final shipyard installment payment for the Platinum Explorer. In connection with this financing, F3 Capital and the Company will provide credit support in relation to their respective ownership percentage in the form of guarantees or additional funds. F3 Capital is responsible solely for funding the remaining pre-delivery shipyard payments for the Platinum Explorer.

In connection with the Restructure Agreement, we entered into construction oversight agreements and management agreements with Mandarin, Valencia Drilling Company, owner of Titanium Explorer, and North Pole Drilling Company, owner of drillship Hull 3608. Valencia Drilling Company and North Pole Drilling Company are each affiliates of F3 Capital. Pursuant to the construction oversight agreements, we will oversee and manage the construction of the Platinum Explorer, Titanium Explorer and Hull 3608for an annual fee per drillship for each year, subject to proration based on the number of months that a drillship is under construction during any year. For 2009, we anticipate such fees will aggregate approximately $15.0 million. For the Mandarin construction oversight agreement, we were also able to invoice an initial fee of $1.5 million plus costs incurred for the work performed during 2008; in the financial statements, we have recognized $825,000 of the initial fee representing the portion of the fee for Mandarin that we do not anticipate owning. In addition to our annual fee, we will be reimbursed for all direct costs incurred in the performance of construction oversight services. The construction oversight agreements may be terminated by either party upon 60 days written notice.

Under the terms of the management agreements, we will be responsible for marketing and operating the Platinum Explorer, Titanium Explorer and Hull 3608. We will be paid fixed management fees, and variable fees based on the financial performance of the rigs. The management agreements may be terminated upon 60 days written notice under certain circumstances, provided that the Company does not have any outstanding commitments or contracts to operate the drillships for customers.

Recent Contracts

In August 2008, we entered into a two year contract for the Emerald Driller jackup to work in Southeast Asia. The rig began operations in early February 2009, following the completion of its construction and commissioning activities in Singapore. The contract is expected to generate approximately $128.3 million in revenue, excluding revenues for cost escalations and client reimbursables, over the initial term. The contract contains operational requirements customary to the drilling industry.

In December 2008, we received a letter of award for a five year contract for the Platinum Explorer drillship to work in India, subject to certain conditions which were satisfied in January 2009. The rig is anticipated to begin operations late 2010, following the completion of its construction and commissioning activities in Korea. Pursuant to the terms of our management agreement with Mandarin, our 45% owned joint ownership company for the Platinum Explorer, we will lease the drillship from Mandarin. Under the terms of the of the management agreement, the lease payments for the Platinum Explorerwill be calculated as the gross revenue from the customer less all operating expenses and our marketing and management fees. The contract is expected to generate approximately $1.1 billion in revenue, excluding revenues for mobilization and client reimbursables over the term of the contract. The contract contains operational requirements customary to the drilling industry.

In February 2009, we received an eight year contract for the Titanium Explorer drillship to work in the Gulf of Mexico, although the customer has the right to work the drillship on a worldwide basis. The rig is anticipated to begin operations in the second half of 2011, following the completion of its construction and commissioning activities in Korea. Pursuant to the terms of our management agreement with Valencia Drilling Company, the owner of the Titanium Explorer, we will lease the drillship from

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Valencia Drilling Company. Under the terms of the of the management agreement, the lease payments for the Titanium Explorer will be calculated as the gross revenue from the customer less all operating expenses and our marketing and management fees. The contract is expected to generate approximately $1.6 billion in revenue, excluding revenues for costs escalation, mobilization and client reimbursables over the term of the contract. The contract contains operational requirements customary to the drilling industry.

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In February 2009, we entered into a management agreement with Sea Dragon Offshore Limited ("Sea Dragon") for one of its two deepwater semisubmersible drilling rigs. Sea Dragon has the option to extend the agreement to include its second semisubmersible drilling rig which we anticipate they will exercise. The rigs are capable of drilling in water depths up to 10,000 ft. with a maximum drilling depth of 40,000 ft. Pursuant to the management agreement, we will receive from Sea Dragon management fees on a cost plus fee basis during the construction phase of the project plus performance based completion incentives. During the operations phase, we will receive fixed and variable daily fees which will based on the financial performance of the semisubmersible drilling rig.

Business Outlook

Expectations about future oil and natural gas prices have historically been a key driver for drilling demand; however, the availability of quality drilling prospects, exploration success, availability of qualified rigs and operating personnel, relative production costs, availability and lead time requirements for drilling and production equipment, the stage of reservoir development and political and regulatory environments also affect our customers' drilling programs. The global financial crisis and decline in global economic activity has resulted in declining demand for oil and natural gas. Benchmark crude prices peaked at over $140 per barrel in July 2008 and then declined dramatically to approximately $45 per barrel at yearend. During 2009, the benchmark for crude prices has fluctuated between the mid $30's per barrel and mid $40's per barrel.

The global financial crisis has significantly reduced the availability of credit to businesses in the near-term, and the longer term implications for our industry are uncertain at present. The current financial crisis significantly limits the credit market access of some our potential customers which combined with lower prevailing oil and natural gas commodity prices, has lead potential customers to delay or cancel drilling programs. As the global financial crisis limits the access to credit markets, it could result in a protracted decline in global economic growth, which would reduce the demand for oil and gas commodities. Such a decrease in demand for oil and gas commodities could cause our potential customers to adjust exploration and production spending to lower levels. A reduction in drilling activity may adversely affect the award of new drilling contracts and cause a reduction in dayrates.

Worldwide demand for jackups in recent years has exceeded supply which has resulted in record dayrates and near full utilization of the worldwide jackup fleet. The deterioration of the global economy, tightening credit markets and significant declines in oil and natural gas prices led to an abrupt reduction in demand for jackup rigs during the last months of 2008 and the demand has continued to decline in 2009. Dayrates have softened as contractors attempted to lock-in drilling programs and maintain their existing contract backlog amid growing concerns over financing, declining oil and natural gas prices and pressure from operators to reduce day rates. Additionally, there are approximately 75 jackups currently under construction for delivery through the end of 2011, which includes our jackups currently under construction. We believe these market conditions, while adversely impacting the dayrates for premium jackups, will result in older less capable drilling jackups being cold stacked, retired or otherwise removed from the marketed jackup fleet.

The outlook for our uncontracted jackups, as they approach their initial delivery dates in 2009 will be impacted by several factors, including the increased supply of premium jackups, the geographic concentration of the newbuild jackups in Southeast Asia, other newbuild operators' desire to obtain long-term work to secure future cash flows, customers' desire to take advantage of current market conditions to upgrade the quality of the rig fleet they contract, the timing and number of jackups removed from the worldwide marketed fleet and ultimately by the level of commitment by exploration and development companies to continue drilling.

Despite the global financial crisis and the decline in oil and natural gas prices, demand for deepwater (>4,000 ft) and ultra-deepwater (>7,500 ft.) drillships and semisubmersible rigs remained high throughout 2008 on a worldwide basis. Given that deepwater projects are typically more expensive and longer in duration than shallow-water drilling programs, deepwater operators tend to take a longer-term view of the global economy and oil and natural gas prices. We believe there are approximately 90

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deepwater and ultra-deepwater rigs (including both drillships and semisubmersibles) being developed or currently under construction for delivery through the end of 2012, which will add to the worldwide supply. However, the continuing global credit crisis may significantly impede some rig owners from completing these rigs. Significant recent oilfield discoveries offshore Brazil and continued deepwater field development in the Gulf of Mexico, West Africa and India are expected to further increase the demand for deepwater and ultra-deepwater drillings rigs. We do not currently expect day rates for ultra-deepwater drillships and semisubmersible rigs to be as adversely impacted by declining rig demand as other rig classes and expect oil and gas companies to sustain their investment in deepwater projects resulting in continued high utilization levels during 2009 and 2010. However, if the current worldwide economic decline in activity becomes more sustained reducing the outlook for oil and natural gas demand beyond 2010, operators may delay or cancel significant deepwater development programs, thus reducing the demand for deepwater and ultra-deepwater drillships and semisubmersibles.

We anticipate that personnel costs will continue to trend higher, especially for the higher specification equipment, due to the increased level of activity in the drilling industry escalating the competition for skilled labor. Lead times and costs for certain critical equipment components essential to the operation of rigs are anticipated to increase due to limitations in manufacturing capacity.

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Subsequent Events

On December 18, 2008, we entered into a loan agreement (the "Loan Agreement") with F3 Capital. Under the terms of the Loan Agreement, F3 Capital agreed to make an unsecured loan to the Company in the principal amount of $10.0 million on or before December 24, 2008 and all outstanding amounts bore interest at an annual rate of 7% to February 16, 2009 and 10% thereafter. On March 4, 2009, F3 Capital agreed to settle the outstanding principal and interest for approximately 10.3 million ordinary shares.

On January 9, 2009, we sold 5,517,241 of the Company's ordinary shares, par value $.001 per share to F3 Capital in consideration for $8,000,000 based on the preceding 5-day average of $1.45 per share. The proceeds were used to fund our portion of the collateral for a performance bond and for general corporate purposes. No commission or similar remuneration was paid in connection with the sale.

On March 3, 2009, we entered into a loan agreement (the "Second Loan Agreement") with F3 Capital. Under the terms of the Second Loan Agreement, F3 Capital agreed to make an unsecured loan to us in the principal amount of $4.0 million on or before March 9, 2009. Subject to shareholder approval, F3 Capital has elected to convert amounts outstanding under the Loan Agreement into 3,921,569 ordinary shares at a price equal to the closing price of the ordinary shares on the preceding day, March 2, 2009, which was $1.02 per share.

Results of Operations

We have little operating history. Our activity since inception has been to prepare for our fundraising through an offering of our equity securities and, subsequently, to complete a business combination. We completed our initial public offering on May 30, 2007 and the acquisition of OGIL on June 12, 2008. Until the acquisition of OGIL, we generated non-operating income in the form of interest income on the cash held in our trust account. With the acquisition of OGIL, we established an operational base in Singapore to oversee the construction of the rigs and prepare for operation of the rigs upon completion of construction. We began to generate operating revenue in February 2009 when the Emerald Driller began its initial two-year contract.

Revenue: In 2008, we recognized revenue of approximately $913,000 consisting primarily of $825,000 of fees for construction oversight services provided to Mandarin and $88,000 for services to our customer related to the preparation of the Emerald Driller to initiate operations in 2009. We did not recognize any revenue in 2007.

Operating Expenses: In 2008, we incurred approximately $5.4 million of operating expenses primarily associated with our initial operations base in Singapore to oversee the construction of our rig fleet, and prepare for our initial operations. Prior to the June 2008 acquisition of OGIL, we had no operating assets or bases. Accordingly, there were no comparable expenses in 2007.

General and Administrative Expenses: General and administrative expenses were approximately $9.3 million in 2008 as compared to $937,000 in 2007. The increase was primarily due to the acquisition of OGIL in June 2008. Prior to the acquisition, the general and administrative expenses were limited to evaluating potential acquisitions and the administrative expenses associated with being a public company. Following the acquisition, we increased the corporate staffing to support our operations, to market our rig fleet on a worldwide basis and establish the necessary infrastructure of a public company. The primary costs increases were in compensation expense, travel expense, professional fees and insurance expense.

Impairment and Termination Costs: Our option to purchase the Titanium Explorerexpired on November 30, 2008 and we recognized the $10.0 million termination fee related to the purchase option. Additionally, we wrote off the $28.3 million book value related to the rig when we did not exercise the purchase option. The $28.3 million book value represented the estimated fair market value of the option on June 12, 2008 when we acquired the option in the OGIL acquisition. At that time, oil prices were at peak levels and financing for the drillship was expected to be available. During the period from the date of acquisition to the expiration date, there was an unprecedented fall in oil prices and the global credit crisis made financing unavailable; accordingly, the option lost significant value.

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Interest Income: Interest income for the years ended December 31, 2008 and 2007 was approximately $4.1 million and $7.7million, respectively. The decrease in interest income is the result of having lower cash balances available for investment in 2008 as compared to 2007. Vantage Energy, our predecessor, completed its initial public offering of approximately $270.0 million in May 2007. These funds were held in trust and substantially all the proceeds were invested in interest bearing securities for the remainder of 2007 and the first half of 2008. In June 2008, the funds were released to us for general corporate purposes when we completed the acquisition of OGIL. We used the funds to
(i) fund the $56.0 million non-equity portion of the total consideration to be paid for the shares of OGIL, as adjusted pursuant to the terms of the purchase agreement, (ii) make scheduled shipyard payments for the construction of the jack-up rigs, (iii) pay the deferred underwriting fee of $8.3 million, (iv) pay income taxes and (v) fund ongoing operations.

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Liquidity and Capital Resources

As of December 31, 2008, we had approximately $16.6 million of cash available for general corporate purposes. Additionally, we have posted approximately $0.7 million cash as collateral for bid tenders and established a $1.0 million debt reserve.

At December 31, 2008 we had outstanding shipyard commitments to complete the Sapphire Driller, Aquamarine Driller and Topaz Driller of approximately $261.6 million (see Contractual Obligations table) plus estimated additional costs of spares and shipyard oversight expenses of $34.1 million to put these jackups in service. We had undrawn borrowings of approximately $301.0 million under our credit facility. However, as described below, the credit facility was amended in December 2008 to restrict certain borrowings under the credit facility (the "Amended Credit Agreement"). Pursuant to our Amended Credit Agreement, we had unrestricted available borrowings of $10.0 million for the Emerald Driller which was drawn in January 2009 and $31.0 million for the Sapphire Driller which will complete the Sapphire Driller's shipyard obligations. The remaining $260.0 million is restricted until such time as the banks can complete the syndication of the loan to additional banks that would provide the remaining funding. It is believed that the primary factor to achieving a successful syndication is the contracting of the jackups with acceptable terms, the timing of which is uncertain. While the timing of the contracting of the jackups is uncertain, the shipyard has agreed to amendments to the shipyard payment schedule in order to accommodate the restrictions placed on us by the Amended Credit Agreement by deferring all significant shipyard payments on the Aquamarine Drillerand Topaz Driller to June 30, 2009. The shipyard has also expressed their willingness to provide additional financial assistance if necessary. We believe that all such forbearance by the shipyard is dependent upon our good faith effort to complete the syndication of the Amended Credit Agreement or raise alternative sources of funding. Accordingly, we have on-going discussions with alternative sources of funding which are generally more expensive than the Amended Credit Agreement. While our discussion with these alternative sources of funding have indicated that funding is available, although on more expensive terms, there can be no assurances that adequate funding will be available or available on acceptable terms. In the event that we do not complete the syndication of the Amended Credit Agreement or complete an alternative source of funding by June 30, 2009 and the shipyard elects not to continue its forbearance, the shipyard could choose to foreclose on the jackups still under construction and the banks may determine that we are in default of the Amended Credit Agreement and accelerate the payment terms.

Short-term Debt: On December 18, 2008, we entered into the Loan Agreement with F3 Capital. Under the terms of the Loan Agreement, F3 Capital agreed to make an unsecured loan to the Company in the principal amount of $10.0 million on or before December 24, 2008 and all outstanding amounts bore interest at an annual rate of 7% to February 16, 2009 and 10% thereafter. On March 4, 2009, F3 Capital agreed to settle the outstanding principal and interest for approximately 10.3 million ordinary shares.

Long-term Debt: On June 12, 2008, we entered into a $440.0 million credit agreement with a syndicate of lenders to finance the construction and delivery of the four Baker Marine Pacific Class 375 jackup rigs, which was subsequently amended on December 22, 2008. The Amended Credit Agreement consists of the following: (i) a term loan in the amount of $320.0 million (the "Term Loan");
(ii) a top-up loan in the amount of $80.0 million (the "Top-up Loan"); and
(iii) a revolving loan in the amount of $40.0 million (the "Revolving Loan"). Each of the Term Loan, Top-up Loan and Revolving Loan shall be split into four equal tranches; one for each of the jackup rigs. The Amended Credit Agreement required each of the jackup rigs be placed in a separate entity which we . . .