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Commitments and Contingencies
12 Months Ended
Dec. 31, 2019
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies

Note 16—Commitments and Contingencies

Commitments—As of December 31, 2019, we had no material commitments.

Bank Guarantee—As of December 31, 2019, we were contingently liable under a  certain bank guarantee totaling approximately $5.4 million issued as security in the normal course of our business.

Contingencies—It is to be expected that we will routinely be involved in litigation and disputes arising in the ordinary course of our business.

In January 2013, the Zonda Debtors entered into, and/or guaranteed the Construction Contract with SHI for the construction of the Pacific Zonda, with a purchase price of approximately $517.5 million and original delivery date of March 31, 2015. On October 29, 2015, the Zonda Debtors exercised their right to rescind the Construction Contract due to SHI’s failure to timely deliver the drillship in accordance with the contractual specifications. The carrying value of the newbuild at the date of rescission was $315.7 million, consisting of (i) advance payments in the aggregate of $181.1 million paid by the Zonda Debtors to SHI, (ii) purchased equipment, (iii) internally capitalized construction costs and (iv) capitalized interest. SHI rejected the rescission, and on November 25, 2015, formally commenced an arbitration proceeding against the Zonda Debtors in London under the Arbitration Act 1996 before a tribunal of three arbitrators (as specified in the Construction Contract) (the “Tribunal”). SHI claims that the Zonda Debtors wrongfully rejected their tendered delivery of the drillship and seeks the final installment of the purchase price under the Construction Contract. On November 30, 2015, the Zonda Debtors made demand under the third-party refund guarantee accompanying the Construction Contract for the amount of the advance payments made under the Construction Contract, plus interest. Any payment under the refund guarantee is suspended until an award in the Zonda Debtors’ favor under the arbitration is obtained. In addition to seeking repayment of the advance payments made under the Construction Contract, the Zonda Debtors made a counterclaim for the return of their purchased equipment, or the value of such equipment, and damages for wasted expenditures. The Zonda Debtors owned $75.0 million in purchased equipment for the Pacific Zonda, a majority of which remained on board the Pacific Zonda. As part of our “first day” relief in the Chapter 11 proceedings, the Bankruptcy Court granted us a modification of the automatic stay provisions of the Bankruptcy Code to allow us to proceed with this arbitration.

An evidentiary hearing was held in London before the Tribunal from February 5 through March 2, 2018. Written closing submissions and short replies to such submissions were filed with the Tribunal in May 2018. Oral closing submissions were heard by the Tribunal in early August 2018.  

 

In our bankruptcy proceedings, SHI has asserted claims against the Zonda Debtors, secured by the Pacific Zonda, for approximately $387.4 million, for the remaining unpaid purchase price, interest and costs. The Zonda Debtors filed the Zonda Plan which was confirmed by order of the Bankruptcy Court on January 30, 2019 and are not Debtors under the Plan of Reorganization. On the date the Zonda Plan was confirmed, the Zonda Debtors had $4.6 million in cash and no other material assets after accounting for post-petition administrative expenses (other than the value of their claims against SHI) for SHI to recover against on account of its claims.

 

On November 19, 2018, the Debtors emerged from bankruptcy after successfully completing their reorganization pursuant to the Plan of Reorganization. As of that date, we deconsolidated the Zonda Debtors, which filed a separate plan of reorganization and are not Debtors under the Plan of Reorganization. See Note 3. As a result of adopting Fresh Start Accounting, we estimated the receivable related to the Zonda Arbitration at $204.7 million, included within receivable from unconsolidated subsidiaries on our consolidated balance sheet as of December 31, 2018.

 

On January 15, 2020, the Tribunal awarded SHI approximately $320 million with respect to its claims against the Zonda Debtors.  The award does not include approximately $100 million in interest and costs sought by SHI, on which the Tribunal reserved making a decision to a later date. On February 11, 2020, the Zonda Debtors filed an application with the High Court in London seeking permission to appeal the Tribunal’s award.  There can be no assurance that the Zonda Debtors will receive permission to appeal, or that if such permission is granted, that any such appeal will be successful in reversing the Tribunal’s award.

 

If the Zonda Debtors are successful in their appeal of the Tribunal’s award,  the Zonda Debtors will emerge from bankruptcy pursuant to the terms of the Zonda Plan. If the Zonda Debtors are unsuccessful in the appeal, the Company expects that the Zonda Debtors will be liquidated in accordance with the terms of the Zonda Plan. 

 

As a result of the Tribunal’s decision, we have eliminated our investment and net receivable balances related to the Zonda Debtors as of December 31, 2019. We recognized a loss of $216.7 million, recorded in loss from unconsolidated subsidiaries, due to the write-off of the $204.7 million receivable related to the Zonda Arbitration and other asset balances associated with the Zonda Debtors. As of December 31, 2019, we had no cost basis in our investment in the Zonda Debtors and discontinued the equity method of accounting.

 

On December 20, 2018, after the Company and its subsidiaries other than the Zonda Debtors had completed the Plan of Reorganization and emerged from bankruptcy, SHI filed with the Bankruptcy Court an untimely secured contingency claim against Pacific Drilling S.A., our parent company, in the amount of approximately $387.4 million. We have filed an objection to the claim on the basis that the claim should be disallowed due to its being filed long after the May 1, 2018 claims bar date established by order of the Bankruptcy Court. In addition, we believe SHI has no basis for a claim against Pacific Drilling S.A. because, among other things, Pacific Drilling S.A. was not a party to the Construction Contract nor the guaranty.