Summary Petrobras cancelled its Titanium Explorer deep water drill ship contract with Vantage Drilling. The contract represents the lion's share of Vantage's backlog and could render Vantage unable to service its $2.6B debt load. Falling oil prices and a depreciating real may hinder Petrobras from servicing its $134B debt, some of which is denominated in U.S. dollars. Titanium Explorer may be one of many more contracts to be cancelled by Petrobras. Investors should avoid Petrobras vendors like National Oilwell Varco, Ensco, Paragon and Diamond Offshore. Vantage Drilling (NYSEMKT:VTG) recently received notice that Petrobras (NYSE:PBR) had cancelled the contract for its deep water drill ship, Titanium Explorer. The notice alleged that Vantage breached its obligations under the contact. Vantage has filed for an arbitration hearing and asserts it is a wrongful attempt to terminate the drilling contract: The Notice does not provide any explanation as to the facts and conduct that constitute a breach by Vantage of its obligations under the Drilling Contract. Vantage strongly disagrees with the allegations of contractual breaches made by PAI and PVIS in the Notice. Vantage has filed for arbitration to challenge the assertions made in the Notice and to assert that the Notice is a wrongful attempt to terminate the Drilling Contract. Titanium Explorer is one of three deep water drill ships owned by Vantage, with one under construction; it also owns four jack ups. More importantly, the contract cancellation could cause irreparable damage to Vantage's backlog. At Q2 2015 it had a backlog of $1.7 billion of which about $374 million (22%) runs off by the end of 2015. More