10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

☑  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020

OR

☐  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to _____

Commission file number 001-35345

PACIFIC DRILLING S.A.

(Exact name of registrant as specified in its charter)

Grand Duchy of Luxembourg	Not Applicable
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
8-10, Avenue de la Gare L-1610 Luxembourg	Not Applicable
(Address of principal executive offices)	(Zip Code)
Registrant’s telephone number, including area code: +352 27 85 81 35
Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol	Name of each exchange on which registered
Common shares, par value $0.01 per share	PACD	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes ☑   No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes ☑   No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer	☐	Accelerated Filer	☑
Non-Accelerated Filer	☐	Smaller Reporting Company	☐
		Emerging Growth Company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).   Yes ☐   No ☑

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.  Yes ☑   No ☐

As of October 30, 2020, there were 75,203,391 common shares outstanding.

PACIFIC DRILLING S.A.
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2020

	Page
PART I — FINANCIAL INFORMATION
Item 1 — Financial Statements
Condensed Consolidated Statements of Operations	2
Condensed Consolidated Statements of Comprehensive Loss	3
Condensed Consolidated Balance Sheets	4
Condensed Consolidated Statements of Equity	5
Condensed Consolidated Statements of Cash Flows	6
Notes to Condensed Consolidated Financial Statements	7
Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3 — Quantitative and Qualitative Disclosure about Market Risk	41
Item 4 — Controls and Procedures	41
PART II — OTHER INFORMATION	42
Item 1 — Legal Proceedings	42
Item 1A — Risk Factors	42
Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds	47
Item 3 — Defaults Upon Senior Securities	47
Item 6 — Exhibits	47

1

PART I — FINANCIAL INFORMATION

Item 1 — Financial Statements

Unaudited Condensed Consolidated Financial Statements

PACIFIC DRILLING S.A. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(in thousands, except per share information) (unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Revenues
Contract drilling	$	46,415	$	54,315	$	174,758	$	196,646
Costs and expenses
Operating expenses		48,429		60,324		196,758		164,874
General and administrative expenses		8,486		8,855		26,376		30,111
Depreciation and amortization expense		26,889		47,734		80,631		165,963
Pre-petition charges		7,278		—		9,888		—
Loss from unconsolidated subsidiaries		—		488		—		2,512
		91,082		117,401		313,653		363,460
Operating loss		(44,667)		(63,086)		(138,895)		(166,814)
Other income (expense)
Interest expense		(26,619)		(24,459)		(78,353)		(72,904)
Write-off of debt premium, net		4,448		—		4,448		—
Reorganization items		—		(24)		(362)		(1,905)
Interest income		194		1,510		1,522		5,147
Other expense		(236)		(409)		(449)		(720)
Loss before income taxes		(66,880)		(86,468)		(212,089)		(237,196)
Income tax expense		3,363		4,315		6,515		11,152
Net loss	$	(70,243)	$	(90,783)	$	(218,604)	$	(248,348)
Loss per common share, basic	$	(0.93)	$	(1.21)	$	(2.91)	$	(3.31)
Weighted-average shares outstanding, basic		75,203		75,005		75,195		75,012
Loss per common share, diluted	$	(0.93)	$	(1.21)	$	(2.91)	$	(3.31)
Weighted-average shares outstanding, diluted		75,203		75,005		75,195		75,012

See accompanying notes to unaudited condensed consolidated financial statements.

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PACIFIC DRILLING S.A. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Loss

(in thousands) (unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Net loss	$	(70,243)	$	(90,783)	$	(218,604)	$	(248,348)
Total other comprehensive income		—		—		—		—
Total comprehensive loss	$	(70,243)	$	(90,783)	$	(218,604)	$	(248,348)

See accompanying notes to unaudited condensed consolidated financial statements.

3

PACIFIC DRILLING S.A. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(in thousands, except par value) (unaudited)

	September 30,		December 31,
	2020		2019
Assets:
Cash and cash equivalents	$	218,681	$	278,620
Restricted cash		6,106		6,089
Accounts receivable, net		24,159		29,252
Materials and supplies		45,217		43,933
Deferred costs, current		4,094		16,961
Prepaid expenses and other current assets		19,842		15,732
Total current assets		318,099		390,587
Property and equipment, net		1,766,188		1,842,549
Other assets		26,034		23,423
Total assets	$	2,110,321	$	2,256,559
Liabilities and shareholders’ equity:
Accounts payable	$	16,512	$	24,223
Accrued expenses		26,631		27,924
Long-term debt, current		1,126,391		—
Accrued interest		50,990		15,703
Deferred revenue, current		1,616		7,567
Total current liabilities		1,222,140		75,417
Long-term debt		—		1,073,734
Other long-term liabilities		33,432		38,577
Total liabilities		1,255,572		1,187,728
Commitments and contingencies
Shareholders’ equity:
Common shares, $0.01 par value per share, 82,500 shares authorized and issued and 75,203 and 75,007 shares outstanding as of September 30, 2020 and December 31, 2019, respectively		752		751
Additional paid-in capital		1,657,202		1,652,681
Treasury shares, at cost		(652)		(652)
Accumulated deficit		(802,553)		(583,949)
Total shareholders’ equity		854,749		1,068,831
Total liabilities and shareholders’ equity	$	2,110,321	$	2,256,559

See accompanying notes to unaudited condensed consolidated financial statements.

4

PACIFIC DRILLING S.A. AND SUBSIDIARIES

Condensed Consolidated Statements of Shareholders’ Equity

(in thousands) (unaudited)

				Additional							Total
	Common Shares			Paid-In		Treasury Shares			Accumulated		Shareholders’
	Shares	Amount		Capital		Shares	Amount		Deficit		Equity
Balance at December 31, 2019	75,007	$	751	$	1,652,681	7,493	$	(652)	$	(583,949)	$	1,068,831
Shares issued under share-based compensation plan	192		1		(280)	(192)		—		—		(279)
Share-based compensation	—		—		1,847	—		—		—		1,847
Net loss	—		—		—	—		—		(60,963)		(60,963)
Balance at March 31, 2020	75,199	$	752	$	1,654,248	7,301	$	(652)	$	(644,912)	$	1,009,436
Shares issued under share-based compensation plan	4		—		—	(4)		—		—		—
Share-based compensation	—		—		1,806	—		—		—		1,806
Net loss	—		—		—	—		—		(87,398)		(87,398)
Balance at June 30, 2020	75,203	$	752	$	1,656,054	7,297	$	(652)	$	(732,310)	$	923,844
Modification of unvested share-based compensation awards resulting in liability classification	—		—		(239)	—		—		—		(239)
Share-based compensation	—		—		1,387	—		—		—		1,387
Net loss	—		—		—	—		—		(70,243)		(70,243)
Balance at September 30, 2020	75,203	$	752	$	1,657,202	7,297	$	(652)	$	(802,553)	$	854,749
				Additional							Total
	Common Shares			Paid-In		Treasury Shares			Accumulated		Shareholders’
	Shares	Amount		Capital		Shares	Amount		Deficit		Equity
Balance at December 31, 2018	75,031	$	750	$	1,645,692	7,469	$	—	$	(27,484)	$	1,618,958
Shares repurchased	(8)		—		—	8		(124)		—		(124)
Share-based compensation	—		—		865	—		—		—		865
Net loss	—		—		—	—		—		(83,979)		(83,979)
Balance at March 31, 2019	75,023	$	750	$	1,646,557	7,477	$	(124)	$	(111,463)	$	1,535,720
Shares repurchased	(36)		—		—	36		(528)		—		(528)
Share-based compensation	—		—		2,199	—		—		—		2,199
Net loss	—		—		—	—		—		(73,586)		(73,586)
Balance at June 30, 2019	74,987	$	750	$	1,648,756	7,513	$	(652)	$	(185,049)	$	1,463,805
Shares issued under share-based compensation plan	20		1		(83)	(20)		—		—		(82)
Share-based compensation	—		—		2,012	—		—		—		2,012
Net loss	—		—		—	—		—		(90,783)		(90,783)
Balance at September 30, 2019	75,007	$	751	$	1,650,685	7,493	$	(652)	$	(275,832)	$	1,374,952

See accompanying notes to unaudited condensed consolidated financial statements.

5

PACIFIC DRILLING S.A. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(in thousands) (unaudited)

	Nine Months Ended September 30,
	2020		2019
Cash flow from operating activities:
Net loss	$	(218,604)	$	(248,348)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization expense		80,631		165,963
Amortization of deferred revenue		(11,433)		(1,513)
Amortization of deferred costs		20,824		879
Amortization of deferred financing costs		430		—
Amortization of debt premium, net		(519)		(330)
Interest paid-in-kind		9,237		25,638
Write-off of debt premium, net		(4,448)		—
Deferred income taxes		1,065		7,157
Share-based compensation expense		5,041		5,076
Loss from unconsolidated subsidiaries		—		2,512
Changes in operating assets and liabilities:
Accounts receivable		5,093		38,798
Materials and supplies		(1,284)		(3,557)
Deferred costs		(13,968)		(6,329)
Prepaid expenses and other assets		(2,000)		(4,155)
Accounts payable and accrued expenses		25,971		16,729
Deferred revenue		5,482		7,444
Net cash provided by (used in) operating activities		(98,482)		5,964
Cash flow from investing activities:
Capital expenditures		(9,342)		(31,108)
Net cash used in investing activities		(9,342)		(31,108)
Cash flow from financing activities:
Payments for shares issued under share-based compensation plan		(280)		(82)
Proceeds from long-term debt		50,000		—
Payments for financing costs		(1,818)		(1,215)
Purchases of treasury shares		—		(652)
Net cash provided by (used in) financing activities		47,902		(1,949)
Net decrease in cash and cash equivalents		(59,922)		(27,093)
Cash, cash equivalents and restricted cash, beginning of period		284,709		389,075
Cash, cash equivalents and restricted cash, end of period	$	224,787	$	361,982

See accompanying notes to unaudited condensed consolidated financial statements.

6

PACIFIC DRILLING S.A. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

Note 1 — Nature of Business

Pacific Drilling S.A. and its subsidiaries (“Pacific Drilling,” the “Company,” “we,” “us” or “our”) is an international offshore drilling contractor committed to exceeding client expectations by delivering the safest, most efficient and reliable deepwater drilling services in the industry.

Note 2 — Bankruptcy Proceedings and Liquidity

Bankruptcy Proceeding — On October 30, 2020 (the “Petition Date”), Pacific Drilling S.A. and certain of its subsidiaries (collectively, the “Debtors”) filed voluntary petitions (the “Bankruptcy Petitions”) for relief under Chapter 11 of Title 11 of the United States Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Southern District of Texas (the “Bankruptcy Court”) and commenced insolvency proceedings in the Cayman Islands whereby the Company initiated the pre-presentation process for the Company’s wholly-owned, Cayman Island subsidiary, Pacific Drilling Company Limited, in the Grand Court of the Cayman Islands Financial Services Division (the “Cayman Proceedings”). On November 1, 2020, the Bankruptcy Court approved the joint administration of the Chapter 11 proceedings under the caption In re Pacific Drilling S.A., et al., Case No. 20-35212 (DRJ). No trustee has been appointed and we will continue to operate as a “debtor in possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and the orders of the Bankruptcy Court. To assure ordinary course operations, we have sought and obtained approval from the Bankruptcy Court for a variety of “first day” motions, including authority to maintain bank accounts and other customary relief. The relief requested in these motions will allow us to continue to operate our business in the normal course.

The Bankruptcy Petitions and the Cayman Proceedings were filed in order to effect a pre-arranged, consensual joint Chapter 11 plan of reorganization (the “Plan of Reorganization”) in accordance with the terms of a restructuring support agreement entered into by and among the Debtors and certain holders (the “Consenting Creditors”) of the Company’s Notes (as defined below) on October 30, 2020 (the “RSA”).

As a result of the Bankruptcy Petitions, the realization of assets and the satisfaction of liabilities are subject to uncertainty. The filing of the Bankruptcy Petitions constituted an event of default with respect to all of our existing debt obligations. While operating as debtors-in-possession under Chapter 11, we may sell or otherwise dispose of or liquidate assets or settle liabilities, subject to the approval of the Bankruptcy Court or as otherwise permitted in the ordinary course of business (and subject to applicable orders of the Bankruptcy Court), for amounts other than those reflected in the accompanying condensed consolidated financial statements. Further, any restructuring plan may impact the amounts and classifications of assets and liabilities reported in our condensed consolidated financial statements.

Emergence from 2017 Bankruptcy Proceedings — On November 2, 2018, the United States Bankruptcy Court for the Southern District of New York (the “2017 Bankruptcy Court”) confirmed the Company’s Modified Fourth Amended Joint Plan of Reorganization, dated October 31, 2018 (the “2018 Plan”), and on November 19, 2018, the 2018 Plan became effective and we emerged from our 2017 Chapter 11 bankruptcy proceedings (the “2017 Bankruptcy Proceedings”) after successfully completing our reorganization pursuant to the 2018 Plan. We had filed the 2018 Plan with the 2017 Bankruptcy Court in connection with our voluntary petitions for relief under the Bankruptcy Code, initially filed on November 12, 2017 (the “2017 Petition Date”), which were jointly administered under the caption In re Pacific Drilling S.A., et al., Case No. 17-13193 (MEW).

The Company’s two subsidiaries involved in the arbitration with Samsung Heavy Industries Co. Ltd. (“SHI”) related to the Pacific Zonda (see Note 13), Pacific Drilling VIII Limited and Pacific Drilling Services, Inc. (together, the “Zonda Debtors”), filed a separate plan of reorganization that was confirmed by order of the 2017 Bankruptcy Court on January 30, 2019 (the “Zonda Plan”) and are not Debtors under the 2018 Plan or the current Bankruptcy Petitions.

Pursuant to the 2018 Plan, we raised approximately $1.5 billion in new capital, before expenses, consisting of

7

PACIFIC DRILLING S.A. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued

approximately $1.0 billion raised through the issuance of $750.0 million aggregate principal amount of our 8.375% First Lien Notes due 2023 (the “First Lien Notes”) and approximately $273.6 million aggregate principal amount of our 11.0%/12.0% Second Lien PIK Notes due 2024 (the “Second Lien PIK Notes” and, together with the First Lien Notes, the “Notes”), and $500.0 million raised through the issuance of new common shares pursuant to a private placement and a separate equity rights offering. We used a portion of the net proceeds to repay all of our pre-petition indebtedness that was not equitized pursuant to the 2018 Plan to repay the post-petition debtor-in-possession financing, and to pay certain fees and expenses.

Upon our emergence from the 2017 Bankruptcy Proceedings on November 19, 2018, we deconsolidated the Zonda Debtors. The Zonda Debtors remain in the 2017 Bankruptcy Proceedings. During the year ended December 31, 2019, we accounted for our investment in the Zonda Debtors using the equity method of accounting. As of December 31, 2019, we discontinued applying the equity method on the Zonda Debtors. See Note 13.

Liquidity — Our liquidity fluctuates depending on a number of factors, including, among others, our contract backlog, our revenue efficiency and the timing of accounts receivable collection, as well as payments for operating costs and other obligations.

Primary sources of funds for our short-term liquidity needs are expected to be our existing cash and cash equivalents. As of October 31, 2020, we had $116.4 million of cash and cash equivalents and $5.8 million of restricted cash. As part of our “first day” relief in the Chapter 11 proceedings, we obtained approval from the Bankruptcy Court of our motion seeking authority to use property that may be deemed to be “cash collateral” of our pre-petition lenders within the meaning of Section 363(a) of the Bankruptcy Code, which may include a portion of our cash flow generated from operating activities.

We have significant indebtedness. Our level of indebtedness has adversely impacted and is continuing to adversely impact our financial condition. Our financial condition, the defaults under our debt agreements, and the risks and uncertainties surrounding our Chapter 11 proceedings raise substantial doubt about our ability to continue as a going concern. However, the condensed consolidated financial statements have been prepared on a going concern basis of accounting, which contemplates continuity of operations, realization of assets, and satisfaction of liabilities and commitments in the normal course of business. The condensed consolidated financial statements do not include any adjustments that might result from the outcome of our Chapter 11 proceedings. If we cannot continue as a going concern, adjustments to the carrying values and classification of our assets and liabilities and the reported amounts of income and expenses could be required and could be material.

Note 3 — Significant Accounting Policies

Basis of Presentation — Our accompanying condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (“SEC”). Pursuant to such rules and regulations, these financial statements do not include all disclosures required by GAAP for complete financial statements. Our condensed consolidated financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair presentation of our financial position, results of operations and cash flows for the presented interim periods. Such adjustments are considered to be of a normal recurring nature unless otherwise identified. Operating results for the three and nine months ended September 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020 or for any future period. The accompanying condensed consolidated financial statements and notes should be read in conjunction with the audited consolidated financial statements and notes of the Company for the year ended December 31, 2019, included in our annual report on Form 10-K filed on March 12, 2020 (our “2019 Annual Report”).

Principles of Consolidation — Our condensed consolidated financial statements include the accounts of Pacific Drilling S.A., and consolidated subsidiaries that we control by ownership of a majority voting interest and entities that meet the criteria for variable interest entities for which we are deemed to be the primary beneficiary for accounting

8

PACIFIC DRILLING S.A. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued

purposes. We eliminate all intercompany transactions and balances in consolidation.

We are party to a Nigerian joint venture, Pacific International Drilling West Africa Limited (“PIDWAL”), with Derotech Offshore Services Limited (“Derotech”), a privately-held Nigerian registered limited liability company. Derotech owns 51% of PIDWAL and we own 49% of PIDWAL. Each of, Pacific Bora Ltd. (“PBL”) and Pacific Scirocco Ltd. (“PSL”), which own the Pacific Bora and the Pacific Scirocco, respectively, are owned 49.9% by our wholly-owned subsidiary, Pacific Drilling Limited (“PDL”) and 50.1% by Pacific Drillship Nigeria Limited (“PDNL”). PDNL is owned 0.1% by PDL and 99.9% by PIDWAL. Derotech will not accrue the economic benefits of its interest in PIDWAL unless and until it satisfies certain outstanding obligations to us and a certain pledge is cancelled by us. Likewise, PIDWAL will not accrue the economic benefits of its interest in PDNL unless and until it satisfies certain outstanding obligations to us and a certain pledge is cancelled by us. PIDWAL and PDNL are variable interest entities for which we are the primary beneficiary. Accordingly, we consolidate all interests of PIDWAL and PDNL in our condensed consolidated financial statements and no portion of their operating results is allocated to the noncontrolling interest.

Recently Adopted Accounting Standards

Measurement of Credit Losses on Financial Instruments — On June 16, 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326), which introduces a new model for recognizing credit losses based on an estimate of expected lifetime credit loss on financial assets ranging from short-term trade accounts receivable to long-term financings. In April 2019, the FASB issued codification improvements to Topic 326 to clarify all expected recoveries should be included in the estimate of the allowance for credit losses. We adopted the standard effective January 1, 2020 with no material effect on our consolidated statements of financial position, operations or cash flows or related disclosures. See Note 10.

Recently Issued Accounting Standards

Simplifications to Income Tax Accounting — On December 18, 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes, which removes certain exceptions for investments, intra-period allocations and interim calculations, and adds guidance to reduce complexity in accounting for income taxes. This update is effective for annual and interim periods beginning after January 1, 2021. We are currently evaluating the effect the standard may have on our consolidated financial statements and related disclosures.

Note 4 — Property and Equipment

Property and equipment consists of the following:

	September 30,		December 31,
	2020		2019
	(in thousands)
Drillships and related equipment	$	1,966,409	$	1,962,211
Other property and equipment		330		259
Property and equipment, cost		1,966,739		1,962,470
Accumulated depreciation		(200,551)		(119,921)
Property and equipment, net	$	1,766,188	$	1,842,549

During the first quarter of 2020, the COVID-19 pandemic weakened demand for oil, and we saw significant cuts in the current year’s capital expenditure budgets for many exploration and production companies coupled with a severe oversupply of oil. The impact of these market conditions on our business has been direct and significantly negative. As a result, we determined an impairment indicator existed and we tested for impairment in the first quarter of 2020. We performed a recoverability test and determined that the estimated undiscounted cash flows of our drillships significantly exceeded their carrying amounts. As a result, no impairment loss was recorded.

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PACIFIC DRILLING S.A. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued

Note 5 — Debt

As of September 30, 2020, debt, net of debt premium (discount), consisted of the following:

	September 30,		December 31,
	2020		2019
	(in thousands)
Due within one year:
Revolving Credit Facility	$	50,000	$	—
First Lien Notes		750,000		—
Second Lien PIK Notes		326,391		—
Total current debt		1,126,391		—
Long-term debt:
First Lien Notes		—		747,910
Second Lien PIK Notes		—		325,824
Total long-term debt		—		1,073,734
Total debt	$	1,126,391	$	1,073,734

First Lien Notes

On September 26, 2018, Pacific Drilling First Lien Escrow Issuer Limited (the “First Lien Escrow Issuer”), a private company limited by shares incorporated in the British Virgin Islands and wholly owned subsidiary of the Company, entered into an indenture (the “First Lien Notes Indenture”) with Wilmington Trust, National Association, as trustee (the “Trustee”) and collateral agent, relating to the issuance by the First Lien Escrow Issuer of the First Lien Notes. In November 2018, the First Lien Escrow Issuer merged into the Company and the Company assumed all obligations of the First Lien Escrow Issuer under the First Lien Notes Indenture.

While discussions with the Consenting Creditors regarding the terms of a potential consensual comprehensive restructuring of its indebtedness were continuing prior to the filing of the Bankruptcy Petitions, the Company did not make the $31.4 million interest payment due and payable on October 1, 2020 with respect to the First Lien Notes, and used the 30-day grace period provided under the indentures governing the First Lien Notes. The Company’s election to use the grace period did not trigger a cross-default under any of the Company’s debt obligations as the Company obtained any necessary waiver or consent. As a result of the filing of the Bankruptcy Petitions, the full principal amount of the First Lien Notes was automatically accelerated and is currently due and payable.

The First Lien Notes accrue interest at a rate of 8.375% per annum, payable semi-annually in arrears on April 1 and October 1 of each year beginning on April 1, 2019. The First Lien Notes will mature on October 1, 2023, unless earlier redeemed or repurchased.

The First Lien Notes are jointly and severally and fully and unconditionally guaranteed on a senior secured basis by all of the Company’s subsidiaries other than the Zonda Debtors, certain immaterial subsidiaries and PIDWAL. On October 15, 2020, the High Court denied the application of the Zonda Debtors to appeal the arbitration award against them. Accordingly, the Company expects that the Zonda Debtors will be liquidated in accordance with the terms of the Zonda Plan and the Zonda Debtors will not provide collateral for or guarantee the First Lien Notes or the Second Lien PIK Notes. See Note 13 for further discussion.

The First Lien Notes are secured by first-priority liens on substantially all assets of the Company and the guarantors (other than certain excluded property), including (i) vessels, (ii) books and records, (iii) certain deposit accounts and the amounts contained therein, (iv) assignments of proceeds of hull and machinery and loss of hire

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PACIFIC DRILLING S.A. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued

insurance, (v) assignments of earnings from drilling contracts, and (vi) equity interests owned by the Company and the guarantors, in each case, subject to certain exceptions.

The First Lien Notes Indenture contains covenants limiting the ability of the Company, and any subsidiary to, among other things, (i) incur or guarantee additional indebtedness and issue preferred stock, (ii) pay dividends on or redeem or repurchase capital stock, make certain investments, make certain payments on or with respect to subordinated and junior debt (including making cash interest or principal payments on the Second Lien PIK Notes (as defined below)), (iii) create or incur certain liens, (iv) impose restrictions on the ability of restricted subsidiaries to pay dividends, (v) merge or consolidate with other entities, (vi) enter into certain transactions with affiliates, (vii) impair the security interests in the collateral for the First Lien Notes, and (viii) engage in certain lines of business. These covenants are subject to a number of important exceptions and qualifications and certain of them will be suspended with respect to the First Lien Notes in the event that the First Lien Notes obtain an investment grade rating.

The Company may be required to offer to purchase the First Lien Notes at 101.0% of the principal amount thereof, plus accrued and unpaid interest, upon the occurrence of a Change of Control (as defined in the First Lien Notes Indenture), and at 100.0% of the principal amount, plus accrued and unpaid interest, under certain other circumstances.

At any time on or after October 1, 2020, the Company may redeem the First Lien Notes, in whole or in part, at the following redemption prices (expressed as a percentage of the principal amount), plus accrued and unpaid interest, during the twelve-month period beginning on October 1 of the years indicated: 2020 – 104.188%; 2021 – 102.094%; 2022 and thereafter – 100.0%.

The First Lien Notes Indenture contains customary events of default, including, among other things, (i) failure to make required payments; (ii) failure to comply with certain agreements or covenants; (iii) failure to pay certain other indebtedness; (iv) certain events of bankruptcy and insolvency; and (v) failure to pay certain judgments. An event of default under the First Lien Notes Indenture will allow either the Trustee or the holders of at least 25.0% in aggregate principal amount of the then-outstanding First Lien Notes to accelerate, or in certain cases will automatically cause the acceleration of, the amounts due under the First Lien Notes.

Intercreditor Agreement

The relationship between holders of First Lien Notes (and any future first lien debt), on the one hand, and Second Lien PIK Notes (and any future junior lien debt), on the other hand, is governed by an intercreditor agreement. Pursuant to the intercreditor agreement, the liens securing first lien debt are effectively senior in priority to the liens securing junior lien debt.

Second Lien PIK Notes

On September 26, 2018, Pacific Drilling Second Lien Escrow Issuer Limited (the “Second Lien Escrow Issuer”), a private company limited by shares incorporated in the British Virgin Islands and a wholly owned subsidiary of the Company, entered into an indenture (the “Second Lien PIK Notes Indenture”) with the Trustee, as trustee and junior lien collateral agent, relating to the issuance by the Second Lien Escrow Issuer of approximately $273.6 million aggregate principal amount of Second Lien PIK Notes. Approximately $23.6 million aggregate principal amount was issued as a commitment fee to an ad hoc group of holders of our pre-petition notes in exchange for their agreement to backstop the issuance of the Second Lien PIK Notes. In November 2018, the Second Lien Escrow Issuer merged into the Company and the Company assumed all obligations of the Second Lien Escrow Issuer under the Second Lien PIK Notes Indenture.

While discussions with the Consenting Creditors regarding the terms of a potential consensual comprehensive restructuring of its indebtedness were continuing prior to the filing of the Bankruptcy Petitions, the Company did not make the $19.6 million interest payment due and payable on October 1, 2020 with respect to the Second Lien PIK Notes, and used the 30-day grace period provided under the indentures governing the Second Lien PIK Notes. The Company’s election to use the grace period did not trigger a cross-default under any of the Company’s debt obligations as the

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Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued

Company obtained any necessary waiver or consent.As a result of the filing of the Bankruptcy Petitions, the full principal amount of the Second Lien PIK Notes was automatically accelerated and is currently due and payable.

For each interest period, interest is payable, at the option of the Company, (i) entirely in cash (“Cash Interest”), (ii) entirely through the issuance of additional Second Lien PIK Notes having the same terms and conditions as the Second Lien PIK Notes issued in the initial Second Lien PIK Notes offering in a principal amount equal to the amount of interest then due and payable or by increasing the then outstanding aggregate principal amount of Second Lien PIK Notes (“PIK Interest”) or (iii) 50% as Cash Interest and 50% as PIK Interest. If the Company elects to pay interest for an interest period entirely in the form of Cash Interest, interest will accrue at a rate of 11.0% per annum for such interest period. If the Company elects to pay interest for an interest period entirely in the form of PIK Interest, interest will accrue at a rate of 12.0% per annum for such interest period. If the Company elects to pay 50% in Cash Interest and 50% in PIK Interest for an interest period, (i) interest in respect of the Cash Interest portion will accrue at 11.0% and (ii) interest in respect of the PIK Interest portion will accrue at 12.0% for such interest period.

Interest on the Second Lien PIK Notes is payable semi-annually in arrears on April 1 and October 1 of each year beginning on April 1, 2019. The Second Lien PIK Notes will mature on April 1, 2024, unless earlier redeemed or repurchased. As of September 30, 2020, the Company has made the following payments in the form of PIK Interest:

Payment Date	PIK Interest
	(in thousands)
April 1, 2019	$	16,873
October 1, 2019		17,429
April 1, 2020		18,475

The Second Lien PIK Notes are jointly and severally and fully and unconditionally guaranteed on a senior secured basis by all of the Company’s subsidiaries that guarantee the Company’s First Lien Notes and are secured by second-priority liens on all of the assets of the Company and the guarantors that also serve as collateral for the Company’s First Lien Notes.

The Second Lien PIK Notes Indenture contains covenants limiting the ability of the Company, and any subsidiary to, among other things, (i) incur or guarantee additional indebtedness and issue preferred stock, (ii) pay dividends on or redeem or repurchase capital stock, make certain investments, make certain payments on or with respect to subordinated and junior debt, (iii) create or incur certain liens, (iv) impose restrictions on the ability of restricted subsidiaries to pay dividends, (v) merge or consolidate with other entities, (vi) enter into certain transactions with affiliates, (vii) impair the security interests in the collateral for the Second Lien PIK Notes, and (viii) engage in certain lines of business. These covenants are subject to a number of important exceptions and qualifications and certain of them will be suspended with respect to the Second Lien PIK Notes in the event that the Second Lien PIK Notes obtain an investment grade rating.

The Company may be required to offer to purchase the Second Lien PIK Notes at 101.0% of the principal amount thereof, plus accrued and unpaid interest, upon the occurrence of a Change of Control (as defined in the Second Lien PIK Notes Indenture) (a “Change of Control Offer”), and at 100.0% of the principal amount, plus accrued and unpaid interest, under certain other circumstances.

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Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued

The Company may redeem the Second Lien PIK Notes, in whole or in part, at the following redemption prices (expressed as a percentage of principal amount), plus any accrued and unpaid interest, during the six-month period beginning on the dates indicated below:

Date	Price
October 1, 2020	109.0%
April 1, 2021	106.0%
October 1, 2021	103.0%
April 1, 2022 and thereafter	100.0%

At any time after a Change of Control occurs, the Company may redeem all, but not less than all, of the Second Lien PIK Notes at the following redemption prices (expressed as a percentage of principal amount), plus any accrued and unpaid interest, during the six-month period beginning on the dates indicated below:

Date	Price
October 1, 2020	109.0%
April 1, 2021	106.0%
October 1, 2021	103.0%
April 1, 2022 and thereafter	100.0%

If the Company exercises this Change of Control redemption right, it may elect not to make the Change of Control Offer described above.

The Second Lien PIK Notes Indenture contains customary events of default, including, among other things, (i) failure to make required payments; (ii) failure to comply with certain agreements or covenants; (iii) failure to pay certain other indebtedness; (iv) certain events of bankruptcy and insolvency; and (v) failure to pay certain judgments. An event of default under the Second Lien PIK Notes Indenture will allow either the Trustee or the holders of at least 25.0% in aggregate principal amount of the then-outstanding Second Lien PIK Notes to accelerate, or in certain cases, will automatically cause the acceleration of, the amounts due under the Second Lien PIK Notes.

Revolving Credit Facility

On February 7, 2020, the Company, as borrower, Angelo, Gordon Energy Servicer, LLC (“Angelo Gordon”), as administrative agent and the lenders party thereto, entered into a revolving credit agreement that provided a $50.0 million first lien superpriority revolving credit facility (the “Revolving Credit Facility”). As of September 30, 2020, the full available amount of $50.0 million was drawn on the facility. All borrowings under the Revolving Credit Facility were incurred at the Company level. The Revolving Credit Facility was scheduled to mature on April 1, 2023.

Borrowings under the Revolving Credit Facility bore interest at a LIBO rate determined by reference to the then effective three-month LIBO rate, with a 1.5% floor, adjusted for statutory reserve requirements, plus an applicable percentage of 7.5%, payable quarterly. The Company paid a quarterly commitment fee at a 1.5% annual rate for unused commitments. The Company was required to pay a “prepayment premium” in connection with prepayments resulting in termination of the Revolving Credit Facility equal to 2% of the principal amount of such commitments terminated during the first 12 months following the closing date.

On October 30, 2020, prior to the filing of the Bankruptcy Petitions, the Company repaid in full the $50.0 million Revolving Credit Facility plus accrued interest and prepayment premium, and the Revolving Credit Facility was terminated. Upon such repayment in accordance with the payoff letter, dated October 29, 2020 by and between the Company and Angelo Gordon, the Revolving Credit Facility and all commitments thereunder were terminated, all liens and security interests granted to secure the obligations under the Revolving Credit Facility were automatically

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Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued

terminated, and the Company and its agents and designees were authorized to file such termination statements and releases in order to permit the termination of such liens and security interests.

Debt Premium (Discount) and Deferred Financing Costs

As a result of the filing of the Bankruptcy Petitions, we wrote off $6.1 million of unamortized net debt premium associated with our First Lien Notes and Second Lien PIK Notes and $1.6 million of deferred financing costs associated with the Revolving Credit Facility as of September 30, 2020. The net effect of such write-offs is presented as “Write-off of debt premium, net” in the condensed consolidated statements of operations.

Note 6 — Earnings per Share

The following reflects the income and the share data used in the basic and diluted earnings per share (“EPS”) computations:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	(in thousands, except per share information)
Numerator:
Net loss, basic and diluted	$	(70,243)	$	(90,783)	$	(218,604)	$	(248,348)
Denominator:
Weighted-average shares outstanding, basic		75,203		75,005		75,195		75,012
Weighted-average shares outstanding, diluted		75,203		75,005		75,195		75,012
Loss per share:
Basic	$	(0.93)	$	(1.21)	$	(2.91)	$	(3.31)
Diluted	$	(0.93)	$	(1.21)	$	(2.91)	$	(3.31)

The following table presents the share effects of share-based compensation awards that were excluded from our computations of diluted EPS, as their effect would have been anti-dilutive for the periods presented:

	Three Months Ended September 30,		Nine Months Ended September 30,
	2020	2019	2020	2019
	(in thousands)		(in thousands)
Share-based compensation awards	169	1,622	169	1,622

Note 7 — Income Taxes

We recognize tax benefits from an uncertain tax position only if it is more likely than not that the position will be sustained upon examination by taxing authorities based on the technical merits of the position. The amount recognized is the largest benefit that we believe has greater than a 50% likelihood of being realized upon settlement. As of September 30, 2020 and December 31, 2019, we had $43.5 million and $43.5 million, respectively, of unrecognized tax benefits which were included in other long-term liabilities on our condensed consolidated balance sheets and would favorably impact our consolidated effective tax rate if realized. To the extent we have income tax receivable balances available to utilize against amounts payable for unrecognized tax benefits, we have presented such receivable balances as a reduction to other long-term liabilities on our condensed consolidated balance sheets. As of September 30, 2020 and December 31, 2019 we have no accrued interest and penalties related to uncertain tax positions on our balance sheets as such payments would not be required by law.

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PACIFIC DRILLING S.A. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued

Note 8 — Revenue from Contracts with Clients

Our contracts generally provide for termination at the election of the client with an “early termination payment” to be paid to us if a contract is terminated prior to the expiration of the fixed term. Such compensation is recognized as revenue when our performance obligation is satisfied, the termination fee can be reasonably measured and collection is probable. For the three and nine months ended September 30, 2020, our revenue included $14.1 million of termination fees as a result of client cancellations.

Contract Assets and Liabilities

The following table provides information about trade receivables, contract assets and contract liabilities:

	September 30,		December 31,
	2020		2019
	(in thousands)
Trade receivables, net	$	23,588	$	28,926
Current contract liabilities (deferred revenue)		1,616		7,567

Significant changes in contract assets and contract liabilities for the nine months ended September 30, 2020 are as follows:

	Contract Assets		Contract Liabilities
	(in thousands)
Balance at December 31, 2019	$	—	$	7,567
Decrease due to amortization of deferred revenue		—		(11,433)
Increase due to billings related to mobilization revenue and capital upgrades		—		5,582
Increase due to demobilization revenue recognized		5,100		—
Decrease due to billing of demobilization fee		(5,000)		—
Transfers between balances		(100)		(100)
Balance at September 30, 2020	$	—	$	1,616

Future Amortization of Contract Liabilities

The following table reflects revenue expected to be recognized in the future related to unsatisfied performance obligations as of September 30, 2020:

	Remaining
	three months		For the years ending December 31,
	2020		2021		2022		2023 and thereafter		Total
	(in thousands)
Amortization of contract liabilities	$	633	$	1,095	$	—	$	—	$	1,728

The expected timing for recognition of such revenue is based on the estimated start date and duration of each respective contract as of September 30, 2020. The actual timing of recognition of such amounts may vary due to factors outside of our control. We have applied the optional exemption in Topic 606 and have not disclosed the variable consideration related to our estimated future dayrate revenue.

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PACIFIC DRILLING S.A. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued

Note 9 — Leases

Our leasing activities primarily consist of operating leases with our integrated services subcontractors, corporate offices, regional shorebase offices and office equipment. The components and other information related to leases are as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	(in thousands)
Lease Expense
Operating lease cost	$	5,382	$	732	$	22,932	$	2,100
Supplemental Cash Flows Information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases		366		360		1,099		1,079
Right-of-use assets obtained in exchange for lease obligations:
Operating leases		—		—		—		6,935

	September 30, 2020		December 31, 2019
Weighted Average Remaining Lease Term (in years)
Operating leases		4.0		4.8
Weighted Average Discount Rate
Operating leases		8.1%		8.1%

Future minimum lease payments for our leases as of September 30, 2020 and a reconciliation to lease liabilities recorded on our condensed consolidated balance sheet are as follows:

	Operating Leases
Years Ending December 31,	(in thousands)
2020 (excluding nine months ended September 30, 2020)	$	373
2021		1,499
2022		1,525
2023		1,552
2024		1,179
Total future minimum lease payments		6,128
Less imputed interest		(882)
Total	$	5,246
Reported as of September 30, 2020
Accrued expenses	$	1,118
Other long-term liabilities		4,128
Total lease liabilities	$	5,246

Note 10 — Credit Losses

Effective January 1, 2020, we recognize an allowance for credit losses that results in the underlying accounts receivable reflecting the net amount expected to be collected. The allowance is measured and recorded upon the initial

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PACIFIC DRILLING S.A. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued

recognition of the accounts receivable based on its amortized cost that we do not expect to collect over the contractual life.

We use short-term creditworthiness data of our clients from credit rating agencies to measure expected credit losses on accounts receivable on a collective basis when similar risk characteristics exist. If we determine that the accounts receivable from a client does not share risk characteristics with others, we evaluate the asset for expected credit losses on an individual basis and do not include it in a collective evaluation. To estimate the allowance for credit losses, we apply the aging method based on our historical credit loss experience adjusted for any applicable current conditions and reasonable and supportable forecasts of future economic conditions. We considered the impact of the COVID-19 pandemic and lower oil prices on our current estimate of credit losses as of September 30, 2020.

As of both January 1, 2020 and September 30, 2020, the allowance for credit losses related to our accounts receivable and contract assets was nil, and there were no corresponding activities for the three and nine months ended September 30, 2020.

Note 11 — Share-Based Compensation

During the third quarter of 2020, the Company modified its cash incentive programs and cancelled all outstanding equity compensation awards granted to key executive officers and employees with the concurrent grant of new cash retention and incentive bonuses. The retention bonuses are subject to service-based vesting through the earlier of: (i) August 3, 2021 and (ii) the effective date of the Company’s Plan of Reorganization (the “Vesting Date”). The incentive bonuses are subject to both (i) performance-based vesting upon the Company’s achievement of certain performance metrics during the third and fourth quarters of the Company’s 2020 fiscal year and (ii) service-based vesting through either the payment date of the bonus (for non-executive employees) or the Vesting Date (for executive officers). We accounted for the transaction as a modification of unvested share-based compensation awards, which resulted in the transfer of $0.2 million from equity to liability for the three months ended September 30, 2020.

Note 12 — Fair Value Measurements

We estimated fair value by using appropriate valuation methodologies and information available to management as of September 30, 2020 and December 31, 2019. Considerable judgment is required in developing these estimates, and accordingly, estimated values may differ from actual results.

The estimated fair value of cash and cash equivalents, restricted cash, accounts receivable, accounts payable and accrued expenses approximated their carrying value due to their short-term nature. It is not practicable to estimate the fair value of the Revolving Credit Facility. The following table presents the carrying value and estimated fair value of our cash and cash equivalents and debt:

	September 30, 2020				December 31, 2019
	Carrying		Estimated		Carrying		Estimated
	Value		Fair Value		Value		Fair Value
		(in thousands)
Cash and cash equivalents	$	218,681	$	218,681	$	278,620	$	278,620
First Lien Notes		750,000		135,000		747,910		682,500
Second Lien PIK Notes		326,391		1,632		325,824		183,949

Our cash equivalents are primarily invested in money market instruments with original maturities of three months or less. We estimate the fair values of our debt using quoted market prices to the extent available and significant other observable inputs, which represent Level 2 fair value measurements.

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PACIFIC DRILLING S.A. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued

Note 13 — Commitments and Contingencies

Commitments — As of September 30, 2020, we had no material commitments.

Bank Guarantee — As of September 30, 2020, 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.

On the Petition Date, Pacific Drilling S.A. and certain of its subsidiaries filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court. As a result of the Chapter 11 proceedings, attempts to prosecute, collect, secure or enforce remedies with respect to pre-petition claims against us are subject to the automatic stay provisions of Section 362(a) of the Bankruptcy Code, including litigation relating to us and our subsidiaries that are Debtors in the Chapter 11 proceedings.

In January 2013, the Zonda Debtors entered into, and/or guaranteed a 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 (the “Construction Contract”). 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 claimed that the Zonda Debtors wrongfully rejected their tendered delivery of the drillship and sought 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 was suspended until an award in the Zonda Debtors’ favor under the arbitration was 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.

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.

As part of our “first day” relief in the 2017 Chapter 11 proceedings, the 2017 Bankruptcy Court granted us a modification of the automatic stay provisions of the Bankruptcy Code to allow us to proceed with this arbitration. In the 2017 Chapter 11 proceedings, SHI 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. On November 19, 2018, the Company and certain of its subsidiaries other than the Zonda Debtors emerged from bankruptcy after successfully completing their reorganization pursuant to the 2018 Plan. The Zonda Debtors filed the Zonda Plan which was confirmed by order of the 2017 Bankruptcy Court on January 30, 2019 and are not Debtors under the 2018 Plan or the current Bankruptcy Proceedings. 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 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

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PACIFIC DRILLING S.A. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued

with the High Court in London seeking permission to appeal the Tribunal’s award. On October 15, 2020, the High Court in London denied the application by the Zonda Debtors. 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. 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 2018 Plan and emerged from bankruptcy, SHI filed with the 2017 Bankruptcy Court an untimely secured contingency claim against Pacific Drilling S.A., our parent company, in the amount of approximately $387.4 million. We 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 2017 Bankruptcy Court. On March 26, 2020, the 2017 Bankruptcy Court sustained our objection and expunged SHI’s claim, and on May 8, 2020, the 2017 Bankruptcy Court issued an order closing the Company’s 2017 bankruptcy case. The Company does not believe there would be a sound legal basis upon which any claims could be asserted by the Zonda Debtors against the Debtors. Nevertheless, under the terms of the Plan of Reorganization, any such claims or causes of action asserted, or that may be asserted, by the Zonda Debtors are General Unsecured Claims that will receive no distribution under the Plan of Reorganization, and will be released, extinguished, and discharged by the Plan of Reorganization.

Note 14 — Supplemental Cash Flow Information

During the nine months ended September 30, 2020 and 2019, we paid $33.9 million and $32.3 million of interest in cash, respectively. During the nine months ended September 30, 2020 and 2019, we paid $4.0 million and $6.3 million of income taxes, respectively.

During the nine months ended September 30, 2020 and 2019, we paid $0.8 million and $4.5 million in reorganization items, respectively.

Within our condensed consolidated statements of cash flows, capital expenditures represent expenditures for which cash payments were made during the period. These amounts exclude accrued capital expenditures, which are capital expenditures that were accrued but unpaid. During the nine months ended September 30, 2020 and 2019, changes in accrued capital expenditures were $(5.1) million and $(4.5) million, respectively.

Note 15 — Subsequent Events

While discussions with the Consenting Creditors regarding the terms of a potential consensual comprehensive restructuring of its indebtedness were continuing prior to the filing of the Bankruptcy Petitions, the Company did not make the $31.4 million interest payment due and payable on October 1, 2020 with respect to the First Lien Notes and the $19.6 million PIK interest payment due and payable on October 1, 2020 with respect to the Second Lien PIK Notes. See Note 5.

On October 15, 2020, the High Court in London denied the application by the Zonda Debtors to appeal the Tribunal’s award. See Note 13.

On October 30, 2020, prior to filing the Bankrutpcy Petitions the Company repaid in full the $50.0 million first lien superpriority Revolving Credit Facility plus accrued interest and prepayment premium. See Note 5.

On the Petition Date, Pacific Drilling S.A. and certain of its subsidiaries filed the Bankruptcy Petitions for relief under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court. See Note 2.

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PACIFIC DRILLING S.A. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued

On November 2, 2020, the Company was notified by the New York Stock Exchange (the “NYSE”) that, as a result of the Bankruptcy Petitions, and in accordance with Section 802.01D of the NYSE Listed Company Manual, the NYSE has commenced proceedings to delist the Company’s common shares from the NYSE. The NYSE also indefinitely suspended trading of the Company’s common shares effective November 2, 2020. The NYSE will apply to the SEC to delist the common shares upon completion of all applicable procedures.

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Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

We are an international offshore drilling contractor committed to exceeding client expectations by delivering the safest, most efficient and reliable deepwater drilling services in the industry. We believe we own and operate the only deepwater fleet comprised solely of sixth and seventh generation high-specification drillships, and that our current fleet of seven drillships offers premium technical capabilities to our clients. The term “high-specification,” as used in the floating rig drilling industry to denote a particular segment of the market, can vary and continues to evolve with technological improvements. We generally consider high-specification requirements to include non-harsh environment drillships delivered in or after 2005 and capable of drilling in water depths of 10,000 feet or more.

Our Fleet

The following table sets forth certain information regarding our fleet as of October 31, 2020:

		Water Depth	Hook Load	# of Blowout	Dual Load
Rig Name	Delivered	(in feet)	(tons)	Preventers	Path(a)
Pacific Bora	2010	10,000	1,000	2	No
Pacific Mistral	2011	12,000	1,000	1	No
Pacific Scirocco	2011	12,000	1,000	1	Yes
Pacific Santa Ana	2011	12,000	1,000	1	Yes
Pacific Khamsin	2013	12,000	1,250	2	Yes
Pacific Sharav	2014	12,000	1,250	2	Yes
Pacific Meltem	2014	12,000	1,250	2	Yes

(a) All of our drillships have a dual derrick drilling system and five of our seven drillships are dual load path capable. The dual load path capable drillships can lower pipe and equipment to the seafloor from both drilling stations under the derrick, reducing well construction time by allowing operations to be conducted concurrently, rather than consecutively in series as the process has, due to equipment limitations, traditionally required. The remaining two drillships contain a dual derrick drilling system, but only use the secondary derrick to prepare pipe and equipment for the primary drilling process.

21

Fleet Status

The status of our fleet as of October 31, 2020 and certain historical fleet information for the periods covered by the financial statements included in this report follows:

● The Pacific Bora operated under a contract with Eni for two wells in Nigeria from November 2018 to July 2019 and completed another contract with Eni for one well in Oman from February 2020 to early April 2020. The Pacific Bora is currently idle in Oman.

● The Pacific Mistral is currently idle in Las Palmas.

● The Pacific Scirocco is currently idle in Las Palmas.

● The Pacific Santa Ana operated under a contract with Total for one well in Senegal and one well in Mauritania from April to September 2019. This contract also provides for two option wells that would follow the Petronas Phase II work. The Pacific Santa Ana is currently under a contract to perform integrated services for Phase II of the plug and abandonment project with Petronas in Mauritania, starting in December 2019 with an estimated 360 days of work. Petronas provided us with a notice of suspension due to force majeure on March 29, 2020, and in accordance with the contract terms, we were on stand-by at 70% of the contractual dayrate through April 28, 2020. We have agreed with Petronas to continue on stand-by up to March 31, 2021 at 35% of the contractual dayrate, which, due to our own cost reductions as well as negotiated cost reductions from our third-party integrated service providers, will allow us to cover substantially all rig and third-party costs until the rig is called back to work by the client. On September 30, 2020, Petronas provided notification for the rig to resume work on January 1, 2021. The Pacific Santa Ana is currently ramping up in Las Palmas.

● The Pacific Khamsin is currently working in the U.S. Gulf of Mexico under a contract with Equinor/Total that started in December 2019. The current work ongoing with Total is expected to end in November 2020. The previously exercised third firm well with Equinor was cancelled for a termination fee.

● The Pacific Sharav operated under a five-year contract with a subsidiary of Chevron through August 2019, and continued to operate under an extension of the contract with Chevron in the U.S. Gulf of Mexico through early April 2020. On February 25, 2020, the Pacific Sharav entered into a contract with Murphy for two firm wells and one option well in Mexico, which was cancelled by the client in July 2020 for a termination fee. On July 24, 2020, the Pacific Sharav entered into a contract with Murphy for ten firm wells in the U.S. Gulf of Mexico for an estimated duration of approximately 450 days with a further five option wells, which is estimated to commence in the second quarter of 2021. The Pacific Sharav is currently idle in the U.S. Gulf of Mexico.

● The Pacific Meltem is currently idle in Las Palmas.

From time to time, we are awarded letters of intent or receive letters of award for our drillships. Certain of those letters remain subject to negotiation and execution of definitive contracts and other customary conditions. No assurance can be given as to the terms of any such arrangement, such as the applicable duration or dayrate, until a definitive contract is entered into by the parties, if we are able to finalize a contract at all.

Impact of COVID-19 Pandemic on our Business

Since January 2020, the global health crisis caused by the novel coronavirus disease known as COVID-19 has caused significant disruption in international economies and financial and oil markets, including a substantial decline in the price of oil. The COVID-19 outbreak was declared a pandemic by the World Health Organization on March 11, 2020. The pandemic has weakened demand for oil, and after the Organization of the Petroleum Exporting Countries (“OPEC”) and a group of oil producing nations led by Russia failed on March 6, 2020 to agree on oil production cuts, Saudi Arabia announced that it would cut oil prices and increase production, leading to a sharp further decline in oil trading prices.

Since March 2020, as jurisdictions around the world enacted stay-at-home orders, ordered non-essential businesses to close and restricted air and land travel to try to reduce the spread of the virus, global demand for oil and gas declined further, resulting in substantial incremental oil price declines. Despite an agreement to cut production levels by

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nearly 10 million barrels per day that was finally reached by OPEC, Russia and certain other oil producing nations on April 12, 2020, the continued extreme supply and demand disparity led to an unprecedented plunge in oil prices. Oil producers have responded to the lower demand for oil and lower oil prices by cutting their 2020 capital budgets, with our clients generally cutting their budgets by 20%-30% and cancelling or delaying to 2021 work that had been scheduled or awarded to us for 2020. As discussed further below, the recent resurgence of the pandemic in many jurisdictions has added further uncertainty regarding when oil prices may recover.

The impact of these market conditions on our business has been direct and significantly negative. Although four of our seven drillships were working during the first quarter 2020, two of our rigs, the Pacific Bora and the Pacific Sharav completed their projects in early April 2020. Contract opportunities that we had expected to provide follow-on work for the Pacific Sharav and the Pacific Bora have been delayed through at least 2021. The Pacific Santa Ana was working through the first quarter on a project for Petronas which was suspended due to force majeure on March 29, 2020, and in accordance with the contract terms, we were on stand-by at 70% of the contractual dayrate through April 28, 2020, following which we agreed with Petronas to continue on stand-by up to March 31, 2021 at 35% of the contractual dayrate. We mobilized the Pacific Meltem to the U.S. Gulf of Mexico in the first quarter in anticipation of winning a contract for work that has since been delayed, and thus have mobilized the rig back to Las Palmas. As noted above, certain contracts for the Pacific Khamsin and Pacific Sharav have been cancelled for termination fees. The Pacific Mistral and Pacific Scirocco remain smart-stacked in Las Palmas.

The global pandemic has also impacted our day-to-day operations. As jurisdictions have closed airports and restricted air and land travel, we have faced challenges in effecting crew changes on our rigs which have required us in some cases to extend the work schedules of our offshore workers past their scheduled time off. In other cases, we have had to re-route travel for our workers through the fewer open airports resulting in increased travel time, inconvenience and cost. For the project being performed by the Pacific Khamsin in the U.S. Gulf of Mexico, we have partnered with our clients, Equinor and Total, to take extraordinary measures to keep our employees safe and the rig sanitary, including imposing a quarantine on each offshore employee and contractor prior to returning to work on the rig and implementing preboarding screening procedures. We have likewise taken steps to reduce the risk of COVID-19 exposure on all of our other drillships. Onshore, we closed our Houston, Luxembourg and Dubai offices since mid-March, requiring all of our employees to work remotely.

In light of these business conditions, on April 1, 2020, we implemented a Company-wide reduction in base salaries of 10% to 12%. Our Board also reduced the retainer fees payable to our directors by 10%. We have laid off approximately 51% of our offshore workforce and carried out significant reductions or furloughs of our onshore workers to reduce overhead costs. We have also initiated other cost reduction measures, including reducing rig cost, shore-based office costs, operations support costs, general and administrative expenses and other similar measures.

These market conditions and our liquidity outlook led us to believe that our current capital structure would not be sustainable. Accordingly, in the second quarter of 2020, we engaged financial and legal advisors to assist us in evaluating various alternatives to address our liquidity outlook and capital structure. Over the course of the last several months, we engaged in discussions with certain holders of our Notes seeking to reach acceptable terms for a restructuring. These discussions ultimately resulted in our signing the RSA with the Consenting Creditors, providing for a pre-arranged, consensual Plan of Reorganization to be effected through our recently filed Bankruptcy Petitions. For additional information, see Note 2 to our unaudited condensed consolidated financial statements in this report. As a result of the Bankruptcy Petitions, on November 2, 2020, we received notice from the NYSE that it has commenced proceedings to delist our common shares from the NYSE. For additional information, see Note 15 to our unaudited condensed consolidated financial statements in this report.

Market Outlook

Historically, operating results in the offshore contract drilling industry have been cyclical and directly related to the demand for and the available supply of capable drilling rigs, which are influenced by various factors. The sustained low oil prices in the past several years rendered many deepwater projects less attractive to our clients and, coupled with investor pressure to be free cash flow positive, significantly impacted the number of projects available for high-specification drillships. Though our clients have managed to reduce their total well construction costs over the past

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several years, thereby allowing them economic success at lower oil prices and making deepwater projects more attractive, the recent severe decline in the price of oil due to the significant supply and demand disparity caused by the COVID-19 pandemic has rendered many deepwater projects uneconomic in the current environment. We expect reduced levels of exploration drilling to continue in the near term as well as deferral of major development programs until 2021 or later. Specifically, since the recent drop in commodity price, two-thirds of the visible contract opportunities for 2020 have either been canceled or delayed until next year.

During the second and third quarters of 2020 some jurisdictions began to ease restrictions relating to the pandemic as the rate of increase in new cases declined; however, generally beginning in mid-June 2020 and extending through the time of the filing of this report, many jurisdictions have experienced a resurgence in cases and some governments have extended or re-imposed restrictions. The resurgences have raised concerns that demand weakness for oil will continue for some time and perhaps longer than expected. In addition, oil production cuts agreed to by Russia and OPEC and certain other oil producing nations are subject to phase out, which may put additional pressure on oil prices. We cannot predict the future impact of the pandemic on our business or oil prices.

Drilling Rig Supply

We estimate that there are currently 103 high-specification drillships across the industry. We estimate that there are approximately 12 high-specification drillships in late stages of construction still to be delivered with only two having firm contracts announced and several with delayed delivery dates.

A significant number of floating rigs have been removed from the actively marketed fleet through cold stacking or scrapping in recent years. Despite this reduction in supply, the excess supply of high-specification drillships is expected to grow into 2021 as more rigs are stacked due to the current market dynamics. Recently we have seen scrapping announcements for several lower specification sixth generation drillships in the industry and expect this trend to continue due to low economic value assigned to this asset class. Although we have visibility into the maximum number of high-specification drillships that could be available, we cannot accurately predict how many of those rigs will be actively marketed or how many of those rigs may be temporarily or permanently removed from the market.

Drilling Rig Demand

Demand for our drillships is a function of the worldwide levels of deepwater exploration and development spending by oil and gas companies. The type of projects that modern drillships undertake are generally located in deeper water, in more remote locations, and can be more capital intensive or require more time to first oil than competing alternatives. The drilling programs of oil and gas companies are also affected by the global economic and political climate, access to quality drilling prospects, exploration success, perceived future availability and lead time requirements for drilling equipment, advances in drilling technology, and emphasis on deepwater and high-specification exploration and production versus other areas.

The first quarter of this year started strong with improving market fundamentals and solid demand growth for high-specification drillships, reflected in increased utilization and rising dayrates in many markets. However, beginning in mid-March, many exploration and production companies significantly reduced their current year’s capital expenditure budgets as a result of the COVID-19 pandemic coupled with a severe oversupply of oil. At the beginning of this year there was a total demand for 70 high-specification drillships worldwide but that has declined to 51 at the end of the third quarter with project cancellations and delays. As the year has progressed, contracting activity remains minimal, and we expect improvement in demand will not occur until the second half of 2021 or later.

Supply and Demand Balance

The imbalance of supply and demand has resulted in significantly lower dayrates. While significant scrapping and cold stacking of floating assets have lowered the total rig supply, supply of deepwater drilling rigs continues to exceed demand. With expected contract cancellations or delays, the excess supply of deepwater drilling rigs has increased, and

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the utilization and resulting dayrates for high-specification floating rigs have deteriorated in 2020. We believe this trend will not reverse until the second half of 2021 and possibly beyond.

For more information on this and other risks to our business and our industry, please read Part I Item 1A. “Risk Factors” in our 2019 Annual Report and Part II Item 1A. “Risk Factors” in this report.

Contract Backlog

Our contract backlog includes firm commitments only, which are represented by signed drilling contracts. As of October 31, 2020 our contract backlog was approximately $161.2 million and was attributable to revenues we expect to generate from the Pacific Khamsin, the Pacific Santa Ana and the Pacific Sharav under their existing drilling contracts. We calculate our contract backlog by multiplying the contractual dayrate by the number of days committed under the contracts (excluding options to extend), assuming full utilization, and also including mobilization fees, upgrade reimbursements and other revenue sources, such as the standby rate during upgrades, as stipulated in the applicable contracts. For a well-by-well contract, we calculate the contract backlog by estimating the expected number of remaining days to drill the firm wells committed. On September 30, 2020, Petronas provided notification for the Pacific Santa Ana to resume work on January 1, 2021. Accordingly, we have assumed that the rig remains on standby at 35% of the contractual day rate through January 1, 2021 and then resumes work at the full contractual rate.

The actual amounts of revenues earned and the actual periods during which revenues are earned may differ from our contract backlog and periods shown in the table below due to various factors, including unplanned downtime and maintenance projects and other factors. Our contracts generally provide for termination at the election of the client with an “early termination payment” to be paid to us if a contract is terminated prior to the expiration of the fixed term. However, under certain limited circumstances, such as destruction of a drilling rig or sustained unacceptable performance by us, an early termination payment is not required to be paid. Accordingly, the actual amount of revenues earned may be substantially lower than the backlog reported.

The following table sets forth certain contracting information regarding our fleet as of October 31, 2020:

				Contractual
	Contracted		Contract	Dayrate
Rig	Location	Client	Commencement	(US$000's)	Comments
Pacific Khamsin	U.S. Gulf of Mexico	Total	April 2020	222(1)	​ Contract expected to end in November 2020.
Pacific Santa Ana	Mauritania	Petronas	December 2019	296(2)	​ Contract to perform integrated services for a plug and abandonment project estimated at 350 days. Petronas provided us with a notice of suspension due to force majeure on March 29, 2020, and in accordance with the contract terms, we were on stand-by at 70% of the contractual dayrate through April 28, 2020. We agreed with Petronas to continue on stand-by up to March 31, 2021 at 35% of the contractual dayrate. On September 30, 2020, Petronas provided notification for the rig to resume work on January 1, 2021.
	Senegal/Mauritania	Total			​ Two one-well options whose commencement would follow contract with Petronas.
Pacific Sharav	U.S. Gulf of Mexico	Murphy	Q2 2021	180	​ Contract for ten firm wells and five option wells.

(1) Based on client not electing MPD services, the dayrate includes a base dayrate of $185,000 and integrated services package provided as part of the contract.

(2) Full contractual dayrate prior to application of standby rate. Backlog data assumes that the Pacific Santa Ana remains on standby at 35% of the contractual day rate through January 1, 2021 and then resumes work at the full contractual rate.

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Results of Operations

Three Months Ended September 30, 2020 Compared to Three Months Ended September 30, 2019

The following table provides a comparison of our condensed consolidated results of operations for the three months ended September 30, 2020 and 2019:

	Three Months Ended September 30,
	2020		2019		Change		% Change
	(in thousands, except percentages)
Revenues
Contract drilling	$	46,415	$	54,315	$	(7,900)	(15%)
Costs and expenses
Operating expenses		48,429		60,324		(11,895)	(20%)
General and administrative expenses		8,486		8,855		(369)	(4%)
Depreciation and amortization expense		26,889		47,734		(20,845)	(44%)
Pre-petition charges		7,278		—		7,278	100%
Loss from unconsolidated subsidiaries		—		488		(488)	(100%)
		91,082		117,401		(26,319)	(22%)
Operating loss		(44,667)		(63,086)		18,419	29%
Other income (expense)
Interest expense		(26,619)		(24,459)		(2,160)	(9%)
Write-off of debt premium, net		4,448		—		4,448	100%
Reorganization items		—		(24)		24	100%
Interest income		194		1,510		(1,316)	(87%)
Other expense		(236)		(409)		173	42%
Loss before income taxes		(66,880)		(86,468)		19,588	23%
Income tax expense		3,363		4,315		(952)	(22%)
Net loss	$	(70,243)	$	(90,783)	$	20,540	23%

Revenues. The decrease in revenues for the three months ended September 30, 2020, as compared to the three months ended September 30, 2019, was primarily due to the Pacific Sharav earning no dayrate revenue in the current period whereas it worked under its legacy Chevron five-year contract with Chevron in the prior period. The decrease was partially offset by the Pacific Khamsin working for Total in the current period while offhire in the prior period, and termination fees from the cancellation by Equinor for the third firm well of the Pacific Khmasin contract and from the cancellation by Murphy for the Pacific Sharav contract for work in Mexico.

Revenues for the three months ended September 30, 2020 and 2019 included amortization of deferred revenue and recognition of demobilization revenue of $2.5 million and $0.4 million and reimbursable revenues of $2.5 million and $3.1 million, respectively.

During the three months ended September 30, 2020, average revenue efficiency was 90.8% driven by unplanned downtime on the Pacific Khamsin, compared to 95.6% for the three months ended September 30, 2019. Revenue efficiency is defined as the actual contractual dayrate revenue (excluding mobilization fees, upgrade reimbursements and other revenue sources) divided by the maximum amount of contractual dayrate revenue that could have been earned during such period.

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Operating expenses. The following table summarizes operating expenses:

	Three Months Ended September 30,
	2020		2019
	(in thousands)
Direct rig related operating expenses	$	31,186	$	50,807
Integrated services		5,387		—
Reimbursable costs		2,406		2,634
Shore-based and other support costs		4,049		6,590
Amortization of deferred costs		5,401		293
Total	$	48,429	$	60,324

The decrease in direct rig related operating expenses for the three months ended September 30, 2020, as compared to the three months ended September 30, 2019, resulted primarily from lower costs from the ramping down of the Pacific Bora and the Pacific Sharav, and lower costs from the Pacific Santa Ana on stand-by for Petronas during the current period while it operated for Total in the prior period.

Integrated services for the three months ended September 30, 2020 represent costs incurred on the Pacific Khamsin and the Pacific Santa Ana for subcontractors provided for under their respective contracts.

Reimbursable costs are not included under the scope of the drilling contract’s initial dayrate, but are subject to reimbursement from our clients. Reimbursable costs can be highly variable between quarters. Because the reimbursement of these costs by our clients is recorded as additional revenue, they do not generally negatively affect our margins.

The decrease in shore-based and other support costs for the three months ended September 30, 2020, as compared to the three months ended September 30, 2019, was due to reduction in force implemented in the first half of 2020 for shore-based offices and a decrease in salaries for all employees effective April 2020.

The increase in amortization of deferred costs for the three months ended September 30, 2020, as compared to the prior period, was primarily due to upfront preparation and initial mobilization costs of the Pacific Khamsin being amortized in the current period.

General and administrative expenses. The decrease in general and administrative expenses for the three months ended September 30, 2020, as compared to the three months ended September 30, 2019 was primarily a result of a reduction in force implemented in May 2020 and a decrease in salaries for all employees effective April 2020, paritally offset by an increase in director fees due to the declassification of our Board and the resulting replacement of two former Class B directors, who did not receive director fees, with two new independent directors, and the payment of director fees to all non-employee directors.

Pre-petition charges. During the three months ended September 30, 2020, we incurred legal and financial advisor costs of $7.3 million related to negotiations for the restructuring of our debt prior to filing the Bankruptcy Petitions for relief under Chapter 11 of the Bankruptcy Code.

Depreciation and amortization expense. The decrease in depreciation and amortization expense for the three months ended September 30, 2020, as compared to the same period in 2019, resulted from a client-related intangible asset that was fully amortized in August 2019.

Interest expense. The increase in interest expense for the three months ended September 30, 2020, as compared to the same period of 2019, was due to the compounding effect of PIK interest on the Second Lien PIK Notes and interest incurred on the Revolving Credit Facility.

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Write-off of debt premium, net. As a result of the filing of the Bankruptcy Petitions, we wrote off $6.1 million of net debt premium associated with our First Lien Notes and Second Lien PIK Notes and $1.6 million of deferred financing costs associated with the Revolving Credit Facility as of September 30, 2020.

Income taxes. Historically, we calculated our provision for income taxes during interim reporting periods both by applying the estimated annual effective tax rate for the full fiscal year to pre-tax income or loss and also using the discrete method on the portion of earnings where no such annual estimate could be reasonably calculated. Based on our expectations that for the remainder of the year we cannot reliably estimate the effective tax rate, we employ the discrete method of determining our tax provision based on the pre-tax results for the three-month period ending September 30, 2020. We will continue to evaluate income tax estimates under the historical method in subsequent quarters and continue to employ the discrete effective tax rate method if warranted.

The relationship between our provision for or benefit from income taxes and our pre-tax book income can vary significantly from period to period considering, among other factors, (a) the overall level of pre-tax book income, (b) changes in the blend of income that is taxed based on gross revenues or at high effective tax rates versus pre-tax book income or at low effective tax rates and (c) our rig operating structures. Consequently, our income tax expense does not necessarily change proportionally with our pre-tax book income. Significant decreases in our pre-tax book income typically result in higher effective tax rates, while significant increases in pre-tax book income can lead to lower effective tax rates, subject to the other factors impacting income tax expense noted above. Additionally, pre-tax book losses typically result in negative effective tax rates due to withholding taxes, local taxation on profitable operations, and deemed profit tax based on revenue even while reporting operational losses. During the three months ended September 30, 2020 and 2019, our effective tax rates were (5.0)% and (5.0)%, respectively.

Nine Months Ended September 30, 2020 Compared to Nine Months Ended September 30, 2019

The following table provides a comparison of our condensed consolidated results of operations for the nine months ended September 30, 2020 and 2019:

	Nine Months Ended September 30,
	2020		2019		Change		% Change
	(in thousands, except percentages)
Revenues
Contract drilling	$	174,758	$	196,646	$	(21,888)	(11%)
Costs and expenses
Operating expenses		196,758		164,874		31,884	19%
General and administrative expenses		26,376		30,111		(3,735)	(12%)
Depreciation and amortization expense		80,631		165,963		(85,332)	(51%)
Pre-petition charges		9,888		—		9,888	100%
Loss from unconsolidated subsidiaries		—		2,512		(2,512)	(100%)
		313,653		363,460		(49,807)	(14%)
Operating loss		(138,895)		(166,814)		27,919	17%
Other income (expense)
Interest expense		(78,353)		(72,904)		(5,449)	(7%)
Write-off of debt premium, net		4,448		—		4,448	100%
Reorganization items		(362)		(1,905)		1,543	81%
Interest income		1,522		5,147		(3,625)	(70%)
Other expense		(449)		(720)		271	38%
Loss before income taxes		(212,089)		(237,196)		25,107	11%
Income tax expense		6,515		11,152		(4,637)	(42%)
Net loss	$	(218,604)	$	(248,348)	$	29,744	12%

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Revenues. The decrease in revenues for the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019, was primarily due to lower operating revenues from the Pacific Sharav completing its legacy Chevron five-year contract in August 2019 and continuing to work for Chevron at a lower market dayrate until early April 2020. The decrease was also due to the Pacific Bora working for Eni in Oman from February to early April 2020 while operating under another contract with Eni in Nigeria from November 2018 to July 2019. The decrease was partially offset by higher operating revenues from the Pacific Khamsin working for Equinor and Total in the current period while offhire in the prior period and from the Pacific Santa Ana being on contract with Petronas for the entire current period while operating for Total from April 2019 in the prior period. The decrease was also partially offset by termination fees from the cancellation by Equinor for the third firm well of the Pacific Khmasin contract and from the cancellation by Murphy for the Pacific Sharav contract for work in Mexico.

Revenues for the nine months ended September 30, 2020 and 2019 included amortization of deferred revenue and recognition of demobilization revenue of $16.5 million and $1.5 million and reimbursable revenues of $15.5 million and $10.3 million, respectively. The increase was primarily due to the Pacific Bora earning mobilization and demobilization revenue on its contract with Eni in Oman in the current period.

During the nine months ended September 30, 2020, we achieved an average revenue efficiency of 92.4% driven by unplanned downtime on the Pacific Khamsin, compared to 97.1% for the nine months ended September 30, 2019.

Operating expenses. The following table summarizes operating expenses:

	Nine Months Ended September 30,
	2020		2019
	(in thousands)
Direct rig related operating expenses	$	120,347	$	134,887
Integrated services		25,897		—
Reimbursable costs		12,753		8,024
Shore-based and other support costs		16,937		21,084
Amortization of deferred costs		20,824		879
Total	$	196,758	$	164,874

The decrease in direct rig related operating expenses for the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019, resulted primarily from lower operating expenses on the Pacific Bora and the Pacific Sharav as both drillships completed their contracts in early April 2020 while operating for longer durations during the prior period. The decrease was also due to the Pacific Santa Ana on stand-by with Petronas from April 2020 in the current period while operating for Total from April 2019 in the prior period. The decrease was partially offset by higher expenses from the Pacific Khamsin working for Equinor and Total in the current period while having no drilling operations in the prior period.

Integrated services for the nine months ended September 30, 2020 represent costs incurred by the Pacific Khamsin and the Pacific Santa Ana for subcontractors to perform integrated services as part of the contracts with Equinor/Total and Petronas, both of which commenced in December 2019.

The decrease in shore-based and other support costs for the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019, was due to reduction in force implemented in the first half of 2020 for shore-based offices and a decrease in salaries for all employees effective April 2020.

The increase in amortization of deferred costs for the nine months ended September 30, 2020, as compared to the prior period, was primarily due to upfront preparation and initial mobilization costs of the Pacific Khamsin and the Pacific Bora being amortized in the current period over their respective contract periods.

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General and administrative expenses. The decrease in general and administrative expenses for the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019, was primarily due to reductions in force implemented in February 2019 and May 2020 and a decrease in salaries for all employees effective April 2020.

Pre-petition charges. During the nine months ended September 30, 2020, we incurred legal and financial advisor costs of $9.9 million related to negotiations for the restructuring of our debt prior to filing the Bankruptcy Petitions for relief under Chapter 11 of the Bankruptcy Code.

Depreciation and amortization expense. The decrease in depreciation and amortization expense for the nine months ended September 30, 2020, as compared to the same period in 2019, resulted from a client-related intangible asset that was fully amortized in August 2019.

Interest expense. The increase in interest expense for the nine months ended September 30, 2020, as compared to the same period of 2019, was due to the compounding effect of PIK interest on the Second Lien PIK Notes and interest incurred on the Revolving Credit Facility.

Write-off of debt premium, net. As a result of the filing of the Bankruptcy Petitions, we wrote off $6.1 million of net debt premium associated with our First Lien Notes and Second Lien PIK Notes and $1.6 million of deferred financing costs associated with the Revolving Credit Facility as of September 30, 2020.

Reorganization items. We classified all income, expenses, gains or losses that were incurred or realized subsequent to the 2017 Petition Date and as a result of the 2017 Bankruptcy Proceedings as reorganization items, which primarily consisted of professional fees. See Emergence from 2017 Bankruptcy Proceedings in Note 2 to our unaudited condensed consolidated financial statements.

Income taxes. Historically, we calculated our provision for income taxes during interim reporting periods both by applying the estimated annual effective tax rate for the full fiscal year to pre-tax income or loss and also using the discrete method on the portion of earnings where no such annual estimate could be reasonably calculated. Based on our expectations that for the remainder of the year we cannot reliably estimate the effective tax rate, we employ the discrete method of determining our tax provision based on the pre-tax results for the nine-month period ending September 30, 2020. We will continue to evaluate income tax estimates under the historical method in subsequent quarters and continue to employ the discrete effective tax rate method if warranted.

The relationship between our provision for or benefit from income taxes and our pre-tax book income can vary significantly from period to period considering, among other factors, (a) the overall level of pre-tax book income, (b) changes in the blend of income that is taxed based on gross revenues or at high effective tax rates versus pre-tax book income or at low effective tax rates and (c) our rig operating structures. Consequently, our income tax expense does not necessarily change proportionally with our pre-tax book income. Significant decreases in our pre-tax book income typically result in higher effective tax rates, while significant increases in pre-tax book income can lead to lower effective tax rates, subject to the other factors impacting income tax expense noted above. Additionally, pre-tax book losses typically result in negative effective tax rates due to withholding taxes, local taxation on profitable operations, and deemed profit tax based on revenue even while reporting operational losses. During the nine months ended September 30, 2020 and 2019, our effective tax rates were (3.1)% and (4.7)%, respectively.

Voluntary Reorganization Under Chapter 11

On the Petition Date, the Debtors filed Bankruptcy Petitions for reorganization under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court, and commenced the Cayman Proceedings. On November 1, 2020, the Bankruptcy Court approved the Debtors’ joint administration of their Chapter 11 proceedings under the caption In re Pacific Drilling S.A., et al., Case No. 20-35212 (DRJ).

The Chapter 11 proceedings and Cayman Proceedings were filed in order to effect the Company’s Plan of Reorganization and implement the Restructuring. Copies of the Plan of Reorganization and associated disclosure

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statement and further information about the Chapter 11 proceedings can be found at http://cases.primeclerk.com/pacificdrilling2020.

We are currently operating our business as debtors-in-possession in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. After we filed the Bankruptcy Petitions, we sought and obtained approval from the Bankruptcy Court for a variety of “first day” motions, including authority to maintain bank accounts and other customary relief. The relief sought in these motions will allow us to continue to operate our business in the normal course.

Subject to certain exceptions, under the Bankruptcy Code, the filing of the Bankruptcy Petitions automatically enjoined, or stayed, the commencement or continuation of most judicial or administrative proceedings or filing of other actions against the Debtors or their property to recover, collect or secure a claim arising prior to the Petition Date. Accordingly, although the filing of the Bankruptcy Petitions triggered defaults under the Debtors’ funded debt obligations, creditors are stayed from taking any actions against the Debtors as a result of such defaults, subject to certain limited exceptions permitted by the Bankruptcy Code. Absent an order of the Bankruptcy Court, substantially all of the Debtors’ pre-petition liabilities are subject to settlement under the Bankruptcy Code.

For the duration of the Chapter 11 proceedings, our operations and ability to develop and execute our business plan are subject to the risks and uncertainties associated with the Chapter 11 process as described in Item 1A. “Risk Factors.” As a result of these risks and uncertainties, the amount and composition of our assets and liabilities, and the number and identity of individuals constituting our officers and directors could be significantly different following the outcome of the Chapter 11 proceedings, and the description of the our operations, properties and liquidity and capital resources included in this report and prior reports submitted to the SEC may not accurately reflect our operations, properties and liquidity and capital resources following the Chapter 11 process.

Further, subject to certain exceptions, under the Bankruptcy Code, the Debtors may assume, assume and assign or reject executory contracts and unexpired leases subject to the approval of the Bankruptcy Court and certain other conditions. Generally, the rejection of an executory contract or unexpired lease is treated as a pre-petition breach of such executory contract or unexpired lease and, subject to certain exceptions, relieves the Debtors of performing their future obligations under such executory contract or unexpired lease but entitles the contract counterparty or lessor to a pre-petition general unsecured claim for damages caused by such deemed breach subject, in the case of the rejection of unexpired leases of real property, to certain caps on damages. Counterparties to such rejected contracts or leases may assert unsecured claims in the Bankruptcy Court against the applicable Debtors’ estate for such damages. Generally, the assumption or assumption and assignment of an executory contract or unexpired lease requires the Debtors to cure existing monetary defaults under such executory contract or unexpired lease and provide adequate assurance of future performance thereunder. Accordingly, any description of an executory contract or unexpired lease with the Debtors in this report and prior reports submitted to the SEC, including where applicable a quantification of the Company’s obligations under any such executory contract or unexpired lease with the Debtors, is qualified by any overriding rejection rights the Debtors have under the Bankruptcy Code. Further, nothing herein is or shall be deemed an admission with respect to any claim amounts or calculations arising from the rejection of any executory contract or unexpired lease and the Debtors expressly preserve all of their rights with respect thereto. In particular, on November 3, 2020, the Debtors filed motions with the Bankruptcy Court to reject (i) their real property lease for their offices located at Energy Tower I, 11700 Katy Freeway, Houston, Texas 77079 and (ii) a certain registration rights agreement.

Copies of these motions and any other pleadings can be obtained at the Debtors’ restructuring website for free by visiting http://cases.primeclerk.com/pacificdrilling2020.

Restructuring Support Agreement; Plan of Reorganization

On October 30, 2020, the Company and certain of its direct and indirect wholly-owned subsidiaries entered into a Restructuring Support Agreement (the “RSA”) with certain holders (the “Consenting Creditors”) of the Company’s First Lien Notes and Second Lien PIK Notes.

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As set forth in the RSA, including in the term sheets attached thereto (the “Term Sheets”), the parties to the RSA have agreed to the principal terms of a proposed financial restructuring (the “Restructuring”) of the Company. The Restructuring contemplates the filing of the Bankruptcy Petitions by the Debtors under the Bankruptcy Code and the implementation of the Restructuring through the Plan of Reorganization. The Restructuring further requires a parallel insolvency proceeding for the Company’s wholly-owned Cayman subsidiary, Pacific Drilling Company Limited, as part of the Cayman Proceedings in order to effectuate and gain recognition of the Restructuring in the Cayman Islands.

The RSA and the Term Sheets provide, among other things, as follows:

(a) Distributions to Secured Creditors.

(i) First Lien Notes Claims. Each holder of an allowed First Lien Notes claim, on the Plan of Reorganization effective date, or as soon as reasonably practicable thereafter, in full and final satisfaction, compromise, settlement, release, and discharge of and in exchange for such First Lien Notes claim, will receive its pro rata share of 91.5% of the new equity interests to be issued by Pacific Drilling Company Limited, as reorganized pursuant to the Plan of Reorganization (the “New PDC Equity”), subject to dilution on account of the equity issued, if any, pursuant to the New 2L Warrants (as defined below) and pursuant to a management incentive plan providing for issuance of up to eight percent (8%) of the New PDC Equity (the “Management Incentive Plan”), and cash sufficient to satisfy any accrued and unpaid indenture trustee fees and expenses pursuant to the First Lien Notes indenture.

(ii) Second Lien PIK Notes Claims. Each holder of an allowed Second Lien PIK Notes claim, on the Plan of Reorganization effective date, or as soon as reasonably practicable thereafter, in full and final satisfaction, compromise, settlement, release, and discharge of and in exchange for such Second Lien PIK Notes claim, will receive: (i) its pro rata share of 8.5% of the New PDC Equity, subject to dilution on account of the equity issued, if any, pursuant to the Management Incentive Plan and New 2L Warrants; and (ii) new 7-year warrants (the “New 2L Warrants”) to purchase its pro rata share of 15% of the New PDC Equity exercisable at a strike price equivalent to an equity value of Pacific Drilling Company Limited, as reorganized pursuant to the Plan of Reorganization, of $750 million, and (iii) cash sufficient to satisfy any accrued and unpaid indenture trustee fees and expenses pursuant to the Second Lien PIK Notes indenture.

(b) General Unsecured Creditors. Holders of general unsecured claims will receive no recovery under the Plan of Reorganization.

(c) Existing Equity holders in the Company. Holders of beneficial equity interests in the Company will receive no recovery under the Plan of Reorganization and all such equity will be cancelled, released, extinguished and discharged, and title to such interests will be deemed transferred to a designated estate representative for purposes of, and as further described in the Plan of Reorganization.

(d) The Exit Facility. On the effective date of the Plan of Reorganization, the reorganized Company will enter into a new senior secured delayed draw term loan credit facility in the aggregate principal amount of up to $80 million (the “Exit Facility”), which will be secured by first priority liens on all Collateral (as defined in the Term Sheets) and backstopped by certain holders of the First Lien Notes.

(e) Backstop Commitment Letter. Certain holders of First Lien Notes, who are also Consenting Creditors under the RSA, have agreed to enter into a backstop commitment letter with the Company prior to the Petition Date (as defined below) to backstop the Exit Facility pursuant to the terms and conditions in the Backstop Commitment Letter (as defined below).

(f) Milestones. The Company has agreed to comply with the following milestones with respect to the Restructuring:

(i) By 11:59 p.m. (prevailing Eastern Time) on October 31, 2020, the date for the commencement of the Chapter 11 proceedings shall have occurred;

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(ii) On the Petition Date, the Company shall have filed those certain operational and administrative first day pleadings, including a motion seeking approval to use Cash Collateral (as defined in the RSA), the Plan of Reorganization, the related disclosure statement, a motion seeking approval of the Plan of Reorganization, the related disclosure statement, and the solicitation materials and procedures set forth therein;

(iii) No later than 5 calendar days after the Petition Date, the Bankruptcy Court shall have entered an interim order governing the use of the Company’s Cash Collateral;

(iv) No later than 16 calendar days after the Petition Date, the Bankruptcy Court shall have entered an order conditionally approving the disclosure statement;

(v) No later than 30 calendar days after the Petition Date, the Bankruptcy Court shall have entered the final order governing the use of the Company’s Cash Collateral;

(vi) No later than 55 calendar days after the Petition Date, the Bankruptcy Court shall have entered an order confirming the Plan of Reorganization (the “Confirmation Order”);

(vii) No later than 59 calendar days after the Petition Date and before entry of the Confirmation Order, the Cayman Islands court presiding over the Cayman Proceedings shall have entered all orders and confirmations (i.e., the sealed validation completing the Cayman Proceedings) relating to the Cayman Proceedings and such orders shall not be stayed, modified, revised, or vacated and shall not be subject to any pending appeal; and

(viii) No later than 61 calendar days after the Petition Date, the Plan of Reorganization effective date shall have occurred.

(g) Employee Matters. Certain severance arrangements and agreements in place with the Company’s executive officers and vice presidents will be amended to, among other things: (i) clarify that the Restructuring will not constitute a “change of control” for purposes of such arrangements and agreements, and (ii) provide for a $1 million pro rata reduction to the severance payments that would be due the Company’s five named executive officers in connection with a qualifying termination following a change of control if the change of control occurs prior to August 3, 2021. In addition, the terms of the prepaid retention and incentive awards received by the Company’s five named executive officers in August 2020 will be amended to extend the applicable clawback period to the earlier of the consummation of a change of control or August 3, 2021.

The foregoing description of the RSA and Term Sheets does not purport to be complete and is qualified in its entirety by reference to the full text of the RSA and the Term Sheets, a copy of which is incorporated by reference as Exhibit 10.5 to this report and is incorporated by reference herein.

Any new securities to be issued pursuant to the Restructuring will not be registered under the Securities Act of 1933, as amended (the “Securities Act”), or any state securities laws, but will be issued pursuant to an exemption from such registration provided in Section 1145 of the Bankruptcy Code. This report does not constitute an offer to sell or buy, nor the solicitation of an offer to sell or buy, any securities referred to herein, nor is this report a solicitation of consents to or votes to accept any Chapter 11 plan of reorganization. Any solicitation or offer will only be made pursuant to a court approved disclosure statement and only to such persons and in such jurisdictions as is permitted under applicable law.

Delayed-Draw Exit Facility Backstop Commitment Letter

On October 30, 2020, the Company entered into a Commitment Letter (the “Backstop Commitment Letter”) with certain of the Consenting Creditors (such Consenting Creditors, the “Backstop Commitment Parties”).

The Backstop Commitment Parties have committed to provide the Exit Facility upon the Company’s emergence from bankruptcy on the terms and subject to the conditions of the Backstop Commitment Letter. As consideration for the

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commitment by the Backstop Commitment Parties, the Company has paid in cash a put option premium (the “Put Option Premium”) of 5.0% of each Backstop Commitment Party’s commitment under the Backstop Commitment Letter.

The transactions contemplated by the Backstop Commitment Letter are conditioned upon the satisfaction or waiver of customary conditions for transactions of this nature, including, without limitation, (i) the satisfaction of at least two (2) non-affiliated first lien Consenting Creditors represented by Akin Gump Strauss Hauer & Feld LLP that collectively hold at least a majority of the aggregate backstop commitments held by all Backstop Commitment Parties with the form and substance of the definitive financing documentation, (ii) the payment of all reasonable and documented out-of-pocket costs, fees, expenses and other compensation payable to the administrative agent and the Backstop Commitment Parties (including, without limitation, the Put Option Premium), (iii) the execution and delivery of definitive loan documents related to the Exit Facility that are consistent with the terms set forth in the Backstop Commitment Letter, and (iv) the consummation of the Restructuring before or substantially concurrently with the entry of the definitive financing documentation, to the extent required under the RSA.

The foregoing description of the Backstop Commitment Letter does not purport to be complete and is qualified in its entirety by the full text of the Backstop Commitment Letter, a copy of which is incorporated by reference as Exhibit 10.6 to this report and is incorporated by reference herein.

Liquidity and Capital Resources

Liquidity

Our liquidity fluctuates depending on a number of factors, including, among others, our contract backlog, our revenue efficiency and the timing of accounts receivable collection as well as payments for operating costs and other obligations.

Primary sources of funds for our short-term liquidity needs are expected to be our existing cash and cash equivalents. As of October 31, 2020, we had $116.4 million of cash and cash equivalents and $5.8 million of restricted cash.

Ability to Continue as a Going Concern

We have significant indebtedness. Our level of indebtedness has adversely impacted and is continuing to adversely impact our financial condition. Our financial condition, the defaults under our debt agreements, and the risks and uncertainties surrounding our Chapter 11 proceedings raise substantial doubt about our ability to continue as a going concern. However, the condensed consolidated financial statements included in this report have been prepared on a going concern basis of accounting, which contemplates continuity of operations, realization of assets, and satisfaction of liabilities and commitments in the normal course of business. The condensed consolidated financial statements do not include any adjustments that might result from the outcome of our Chapter 11 proceedings. If we cannot continue as a going concern, adjustments to the carrying values and classification of our assets and liabilities and the reported amounts of income and expenses could be required and could be material.

Capital Expenditures

We have no material commitments for capital expenditures related to the construction of a newbuild drillship. We do, however, expect to incur capital expenditures for purchases in the ordinary course of business. Such existing capital expenditure commitments are included in purchase obligations presented below under the heading “Contractual Obligations.”

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Sources and Uses of Cash

The following table provides a comparison of our cash flow from operating activities for the nine months ended September 30, 2020 and 2019:

	Nine Months Ended September 30,
	2020		2019		Change
	(in thousands)
Cash flow from operating activities:
Net loss	$	(218,604)	$	(248,348)	$	29,744
Depreciation and amortization expense		80,631		165,963		(85,332)
Amortization of deferred revenue		(11,433)		(1,513)		(9,920)
Amortization of deferred costs		20,824		879		19,945
Amortization of deferred financing costs		430		—		430
Amortization of debt premium, net		(519)		(330)		(189)
Interest paid-in-kind		9,237		25,638		(16,401)
Write-off of debt premium, net		(4,448)		—		(4,448)
Deferred income taxes		1,065		7,157		(6,092)
Share-based compensation expense		5,041		5,076		(35)
Loss from unconsolidated subsidiaries		—		2,512		(2,512)
Changes in operating assets and liabilities, net		19,294		48,930		(29,636)
Net cash provided by (used in) operating activities	$	(98,482)	$	5,964	$	(104,446)

The decrease in net cash from operating activities for the nine months ended September 30, 2020 compared to the prior period resulted primarily from lower overall contract margin for our drillships in the current period, including the Pacific Sharav that completed its legacy Chevron five-year contract in August 2019 and continued working for Chevron at a lower market dayrate until early April 2020. The decrease was also due to current period payments to legal and financial advisors related to our restructuring efforts prior to the filing of the Bankruptcy Petitions, retention bonuses and incentive bonuses (paid at 67% of target) to executive officers in lieu of their cancelled equity awards, and certain other incentive programs. The decrease was partially offset by cost savings from headcount and other spending reductions.

The following table presents our cash flow from investing activities for the nine months ended September 30, 2020 and 2019:

	Nine Months Ended September 30,
	2020		2019		Change
	(in thousands)
Cash flow from investing activities:
Capital expenditures	$	(9,342)	$	(31,108)	$	21,766
Net cash used in investing activities	$	(9,342)	$	(31,108)	$	21,766

Capital expenditures for the nine months ended September 30, 2019 were higher than the nine months ended September 30, 2020 as they included purchases related to rig enhancement equipment, including a managed pressure drilling system.

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The following table presents our cash flow from financing activities for the nine months ended September 30, 2020 and 2019:

	Nine Months Ended September 30,
	2020		2019		Change
	(in thousands)
Cash flow from financing activities:
Payments for shares issued under share-based compensation plan	$	(280)	$	(82)	$	(198)
Proceeds from long-term debt		50,000		—		50,000
Payments for financing costs		(1,818)		(1,215)		(603)
Purchases of treasury shares		—		(652)		652
Net cash provided by (used in) financing activities	$	47,902	$	(1,949)	$	49,851

During the nine months ended September 30, 2020, we entered into and drew the full $50.0 million available under our Revolving Credit Facility and paid the related debt financing fees. During the nine months ended September 30, 2019, we paid the remaining professional fees related to the issuance of the First Lien Notes and Second Lien PIK Notes.

Description of Indebtedness

For information about our indebtedness, see Note 5 to our unaudited condensed consolidated financial statements included in this report and Notes 7 and 23 to our consolidated financial statements included in our 2019 Annual Report.

Bank Guarantee

As of October 31, 2020, we were contingently liable under a certain bank guarantee totaling approximately $5.4 million issued as security in the normal course of our business.

Derivative Instruments and Hedging Activities

We may enter into derivative instruments from time to time to manage our exposure to fluctuations in interest rates and foreign exchange rates. We do not enter into derivative transactions for speculative purposes; however, for accounting purposes, certain transactions may not meet the criteria for hedge accounting. We had no outstanding derivatives as of October 31, 2020.

Off-Balance Sheet Arrangements

As of October 31, 2020, we did not have any off-balance sheet arrangements.

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Contractual Obligations

The table below sets forth our contractual obligations as of September 30, 2020:

	Remaining
	three months		For the years ending December 31,
	2020		2021-2022		2023-2024		Thereafter		Total
	(in thousands)
Contractual Obligations
Long-term debt(a)	$	1,073,614	$	—	$	—	$	—	$	1,073,614
Interest on long-term debt(b)		31,794		125,625		309,417		—		466,836
Operating leases		434		3,143		2,733		—		6,310
Purchase obligations(c)		15,076		2,434		—		—		17,510
Total contractual obligations(d)	$	1,120,918	$	131,202	$	312,150	$	—	$	1,564,270

(a) Amounts are based on the aggregate outstanding principal balances of the Revolving Credit Facility, the First Lien Notes and the Second Lien PIK Notes. As a result of our filing of the Bankruptcy Petitions on the Petition Date, the full amounts of our long-term debt were automatically accelerated and are currently due and payable, but have been stayed subject to settlement under the Bankruptcy Code.

(b) Interest payments are based on our existing outstanding borrowings at their contractual rate and payment schedules without giving effect to the filing of the Bankruptcy Petitions. Interest on the First Lien Notes and the Second Lien PIK Notes at their respective interest rates of 8.375% and 12.0%, which assumes the interest on the Second Lien PIK Notes will be paid in-kind. Accrued paid in-kind interest is assumed to be settled in cash at the date of maturity of the Second Lien PIK Notes. Interest on the Revolving Credit Facility is based on outstanding borrowings of $50.0 million using current LIBOR as of September 30, 2020 through October 30, 2020. Subsequent to September 30, 2020, we repaid the Revolving Credit Facility in full and terminated the facility.

(c) Purchase obligations are agreements to purchase goods and services that are enforceable and legally binding, that specify all significant terms, including the quantities to be purchased, price provisions and the approximate timing of the transactions, which includes our purchase orders for goods and services entered into in the normal course of business.

(d) Contractual obligations do not include approximately $43.5 million of liabilities from unrecognized tax benefits related to uncertain tax positions, inclusive of interest and penalties, included on our condensed consolidated balance sheets as of September 30, 2020. We are unable to specify with certainty the future periods in which we may be obligated to settle such amounts.

Some of the figures included in the table above are based on estimates and assumptions about these obligations, including their duration and other factors. The contractual obligations we will actually pay in future periods may vary from those reflected in the tables.

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Critical Accounting Estimates and Policies

The preparation of unaudited condensed consolidated financial statements in conformity with GAAP requires management to make certain estimates and assumptions. These estimates and assumptions impact the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the balance sheet date and the amounts of revenues and expenses recognized during the reporting period. On an ongoing basis, we evaluate our estimates and assumptions, including those related to allowance for credit losses, financial instruments, obsolescence for materials and supplies, depreciation of property and equipment, deferred costs, impairment of long-lived assets, income taxes, share-based compensation and contingencies. We base our estimates and assumptions on historical experience and on various other factors we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from such estimates.

See Note 4 to our unaudited condensed consolidated financial statements included in this report for a discussion of our impairment analysis of long-lived assets.

For a discussion of the critical accounting policies and estimates that we use in the preparation of our unaudited condensed consolidated financial statements, see Item 7, “Management’s Discussion and Analysis of Financial Conditions and Results of Operations - Critical Accounting Estimates and Policies” in our 2019 Annual Report. During the nine months ended September 30, 2020, there have been no material changes to the judgments, assumptions and estimates upon which our critical accounting estimates are based. Significant accounting policies and recently issued accounting standards are discussed in Note 3 to our unaudited condensed consolidated financial statements included in this report and in Note 2 to our consolidated financial statements included in our 2019 Annual Report.

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements and information contained in this report constitute “forward-looking statements” within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, and are generally identifiable by their use of words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “intend,” “our ability to,” “may,” “plan,” “potential,” “predict,” “project,” “projected,” “should,” “will,” “would,” or other similar words which are not generally historical in nature. The forward-looking statements speak only as of the date of this report, and we undertake no obligation to publicly update or revise any forward-looking statements after the date they are made, whether as a result of new information, future events or otherwise.

Our forward-looking statements express our current expectations or forecasts of possible future results or events, including the potential outcome of our Bankruptcy Petitions; the future impact of the COVID-19 pandemic on our business, future financial and operational performance and cash balances; our future liquidity position and future efforts to improve our liquidity position; revenue efficiency levels; market outlook; forecasts of trends; future client contract opportunities; future contract dayrates; our business strategies and plans or objectives of management; estimated duration of client contracts; backlog; expectations regarding the outcome of the ongoing bankruptcy proceedings of our two subsidiaries against whom the arbitration award related to the drillship known as the Pacific Zonda in favor of Samsung Heavy Industries Co. Ltd. (“SHI”) was rendered and the potential impact of the Tribunal’s decision on our future operations, financial position, results of operations and liquidity.

Although we believe that the assumptions and expectations reflected in our forward-looking statements are reasonable and made in good faith, these statements are not guarantees, and actual future results may differ materially due to a variety of factors. These statements are subject to a number of risks and uncertainties and are based on a number of judgments and assumptions as of the date such statements are made about future events, many of which are beyond our control. Actual events and results may differ materially from those anticipated, estimated, projected or implied by us in such statements due to a variety of factors, including if one or more of these risks or uncertainties materialize, or if our underlying assumptions prove incorrect.

Important factors that could cause actual results to differ materially from our expectations include:

● the potential outcome of our Bankruptcy Petitions;

● evolving risks from the COVID-19 outbreak and resulting significant disruption in international economies, and international financial and oil markets, including a substantial decline in the price of oil during 2020, which if sustained would continue to have a material adverse effect on our financial condition, results of operations and cash flow;

● changes in actual and forecasted worldwide oil and gas supply and demand and prices, and the related impact on demand for our services;

● the offshore drilling market, including changes in capital expenditures by our clients;

● rig availability and supply of, and demand for, high-specification drillships and other drilling rigs competing with our fleet;

● our ability to enter into and negotiate favorable terms for new drilling contracts or extensions of existing drilling contracts;

● our ability to successfully negotiate and consummate definitive contracts and satisfy other customary conditions with respect to letters of intent and letters of award that we receive for our drillships;

● actual contract commencement dates;

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● possible cancellation, renegotiation, termination or suspension of drilling contracts as a result of mechanical difficulties, performance, market changes or other reasons;

● costs related to stacking of rigs and costs to reactivate a stacked rig;

● downtime and other risks associated with offshore rig operations, including unscheduled repairs or maintenance, relocations, severe weather or hurricanes or accidents;

● our small fleet and reliance on a limited number of clients;

● the outcome of our subsidiaries’ bankruptcy proceedings and any actions that SHI or others may take in the bankruptcy or other proceedings against the Company and its subsidiaries;

● our ability to continue as a going concern;

● our ability to obtain Bankruptcy Court approval with respect to motions or other requests made to the Bankruptcy Court in our Chapter 11 proceedings;

● our ability to confirm and consummate the Plan of Reorganization;

● the effects of our Chapter 11 proceedings on our operations and agreements, including our relationships with employees, regulatory authorities, customers, suppliers, banks and other financing sources, insurance companies and other third parties;

● the length of time that we will operate under Chapter 11 protection and the continued availability of operating capital during the pendency of the proceedings;

● risks associated with third-party motions in our Chapter 11 proceedings, which may interfere with our ability to confirm and consummate the Plan of Reorganization;

● increased advisory costs to execute the Plan of Reorganization; the potential adverse effects of our Chapter 11 proceedings on our liquidity, results of operations, or business prospects;

● increased administrative and legal costs related to our Chapter 11 proceedings and other litigation and the inherent risks involved in a bankruptcy process;

● the potential effects of the expected delisting of our common shares from trading on the NYSE, including how long our common shares will trade on the over-the-counter market;

● the potential effect of the anticipated suspension by the Company of its SEC reporting obligations; and

● the other risk factors described under the heading “Risk Factors” in Part I Item 1A. of our 2019 Annual Report, as updated in Part II Item 1A. of this report.

All forward-looking statements in this report are expressly qualified in their entirety by the cautionary statements in this section and the “Risk Factors” section in our 2019 Annual Report and in this report. Additional factors or risks that we currently deem immaterial, that are not presently known to us, that arise in the future or that are not specific to us could also cause our actual results to differ materially from our expected results. Given these uncertainties, you are cautioned not to unduly rely on our forward-looking statements, which speak only as of the date made. We undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or developments, changed circumstances or otherwise. Further, we may make changes to our business strategies and plans at any time and without notice, based on any changes in the above-listed factors, our assumptions or otherwise, any of which could materially affect our results.

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Item 3 — Quantitative and Qualitative Disclosures About Market Risk

We are exposed to certain market risks arising from the use of financial instruments in the ordinary course of business. These risks arise primarily as a result of potential changes in the fair market value of financial instruments that would result from adverse fluctuations in interest rates and foreign currency exchange rates as discussed below. We have entered, and in the future may enter, into derivative financial instrument transactions to manage or reduce market risk, but we do not enter into derivative financial instrument transactions for speculative or trading purposes. We had no outstanding derivatives as of September 30, 2020 and December 31, 2019.

Interest Rate Risk. Subsequent to the termination of the Revolving Credit Facility on October 30, 2020, we have no variable interest debt.

Foreign Currency Exchange Rate Risk. We are exposed to foreign exchange risk associated with our international operations. For a discussion of our foreign exchange risk, see Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” in our 2019 Annual Report. There have been no material changes to these previously reported matters during the nine months ended September 30, 2020.

Item 4 — Controls and Procedures

Disclosure controls and procedures — We carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as defined in the United States Securities Exchange Act of 1934 (the “Exchange Act”), Rules 13a-15 and 15d-15, as of the end of the period covered by this report. Our disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act is (1) accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, to allow timely decisions regarding required disclosure and (2) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2020.

Internal control over financial reporting — There were no changes to our internal control over financial reporting during the quarter ended September 30, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II — OTHER INFORMATION

Item 1 — Legal Proceedings

See Note 2 and Note 13 to our unaudited condensed consolidated financial statements included in this report, which are incorporated herein by reference.

Item 1A — Risk Factors

In addition to the other information set forth in this report, you should carefully consider the risk factors previously disclosed under Part I Item 1A. “Risk Factors” in our 2019 Annual Report, which could materially affect our business, financial condition or future results. Except as disclosed in the updated Risk Factors below and elsewhere in this report, there have been no significant changes in our risk factors as described in our 2019 Annual Report. In particular, please see the discussion under the headings “Impact of COVID-19 Pandemic on our Business” and “Market Outlook” in Part I Item 2 of this report.

In addition to the risk factors listed below, the Debtors’ disclosure statement (filed with the Plan of Reorganization) contains additional risk factors regarding the Chapter 11 proceedings. Copies of the Plan of Reorganization and associated disclosure statement and further information about the Chapter 11 proceedings can be found at http://cases.primeclerk.com/pacificdrilling2020.

Trading in our securities during the Chapter 11 proceedings is highly speculative and poses substantial risks. Our Plan of Reorganization provides that the holders of our common shares will not receive any distribution with respect to, or be able to recover any portion of, their investments.

Our proposed Plan of Reorganization provides that holders of our common shares will not receive any recovery nor retain any interests in the reorganized company upon emergence. At this time it is not possible to predict the ultimate effect of the Chapter 11 proceedings on our business, various creditors and security holders, or if and when it may be possible to emerge from bankruptcy. The Plan of Reorganization provides that holders of our common shares will not be entitled to receive, and will not receive or retain, any property or interest in property on account of such equity interests in the reorganized company upon emergence. In such an event, amounts invested by holders of our outstanding common shares will not be recoverable. Consequently, our currently outstanding common shares likely have no value. Trading prices for our common shares are volatile and may bear little or no relationship to the actual recovery, if any, by the holders of such securities in the Chapter 11 proceedings. Accordingly, we urge that extreme caution be exercised with respect to existing and future investments in our common shares.

The NYSE has notified us that it intends to delist our common shares, after which our common shares may trade in the over-the-counter market. This could negatively affect our share price and liquidity. Trading in our securities during the pendency of our Chapter 11 proceedings poses substantial risks.

In connection with our filing of the Bankruptcy Petitions, the NYSE notified us that it would delist our common shares upon completion of all applicable procedures. The delisting will be effective 10 days after a Form 25 is filed with the SEC by the NYSE. The deregistration of our common shares under Section 12(b) of the Exchange Act will be effective 90 days, or such shorter period as the SEC may determine, after the filing of the Form 25. Upon deregistration of our common shares under Section 12(b) of the Exchange Act, we will retain current and periodic reporting obligations under Section 15(d) of the Exchange Act; however, we expect to be in a position to suspend these obligations in the near future. Our common shares may trade in the over-the-counter (“OTC”) market on the Pink Open Market of the OTC Markets Group, under the symbol “PACDQ.” The Pink Open Market is a significantly more limited market than the NYSE, and trading on the Pink Open Market may result in a less liquid market available for existing and potential shareholders to trade the common shares and could further depress the trading price of the common shares. The delisting of our common shares from the NYSE, deregistration of our common shares under the Exchange Act and suspension of our SEC reporting obligations could also result in other adverse consequences, including lower demand for our shares, adverse publicity and a reduced interest in our Company from investors, analysts and other market participants. In addition, the delisting and deregistration could impair our ability to raise additional capital through equity or debt

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financing and our ability to attract and retain employees by means of equity compensation. There can be no assurance that our common shares will continue to trade on the Pink Open Market or that any public market for the common shares will exist in the future, that broker-dealers will provide public quotes of the common shares on the OTC market, that the trading volume of the common shares will be sufficient to provide for an efficient trading market, or that quotes for the common shares will not be blocked in the future. Due to these and other risks described in this report, trading in our common shares during the pendency of our Chapter 11 proceedings poses substantial risks.

The amount of publicly-available information concerning us may decrease substantially if we are able to suspend our SEC reporting obligations in the near future, which may occur during or shortly following our anticipated emergence from bankruptcy.

We currently have fewer than 300 holders of record of our common shares, which we also expect to be true upon emergence from bankruptcy. Therefore, once delisted from the NYSE, we will be eligible to suspend our reporting obligations under Section 15(d) of the Exchange Act, and expect to do so in the near future, either before or shortly after emergence from our Chapter 11 proceedings, which would suspend our obligations to file periodic reports with the SEC. Although we could thereafter voluntarily elect to provide information to our security holders, we would not be legally obligated to do so. To the extent these actions limit the amount of publicly available information concerning us and our common shares, our ability to raise additional funds, the ability of our shareholders to sell their common shares, and the liquidity and trading prices of our common shares could all be negatively impacted.

We are subject to the risks and uncertainties associated with our Chapter 11 proceedings.

As a consequence of our filing the Bankruptcy Petitions, our operations and our ability to develop and execute our business plan, and our continuation as a going concern, will be subject to the risks and uncertainties associated with bankruptcy. These risks include the following:

● our ability to confirm and consummate the Plan of Reorganization with respect to the Chapter 11 proceedings;

● our ability to obtain court approval with respect to motions filed in Chapter 11 proceedings from time to time;

● the high costs of bankruptcy proceedings and related fees;

● our ability to obtain sufficient financing to allow us to emerge from bankruptcy and execute our business plan post-emergence, and our ability to comply with terms and conditions of that financing;

● our ability to maintain our relationships with our vendors, suppliers, service providers, customers, and other third parties, and with our directors, officers and employees;

● our ability to maintain contracts that are critical to our operations on reasonably acceptable terms and conditions;

● our ability to execute our business plan in the current depressed commodity price environment;

● the ability to attract, motivate and retain key employees;

● the ability of third parties to seek and obtain court approval to terminate contracts and other agreements with us;

● the possibility that the Chapter 11 proceedings will disrupt or impede our domestic and international operations; and

● the actions and decisions of our creditors and other third parties who have interests in our Chapter 11 proceedings that may be inconsistent with our plans.

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Any delays in our Chapter 11 proceedings increase the risks of our inability to reorganize our business and emerge from bankruptcy and may increase our costs associated with the bankruptcy process.

These risks and uncertainties could affect our business and operations in various ways. For example, negative publicity associated with the Chapter 11 proceedings could adversely affect our relationships with our vendors, suppliers, service providers, customers, employees and other third parties, which in turn could adversely affect our operations and financial condition. In particular, critical suppliers, vendors and customers may determine not to do business with us due to our Chapter 11 proceedings. Also, during the pendency of the Chapter 11 proceedings, we will need the prior approval of the Bankruptcy Court for transactions outside the ordinary course of business, which may limit our ability to respond timely to certain events or take advantage of certain opportunities. Additionally, losses of key personnel or erosion of employee morale could have a material adverse effect on our ability to meet customer expectations, thereby adversely affecting our business and results of operations. The failure to retain or attract and maintain members of our management team, and other key personnel could impair our ability to execute our strategy and implement operational initiatives, thereby having a material adverse effect on our financial condition and results of operations. Because of the risks and uncertainties associated with a voluntary filing for relief under Chapter 11 of the Bankruptcy Code and the related proceedings, we cannot accurately predict or quantify the ultimate impact that events that occur during our Chapter 11 proceedings may have on our business, financial condition and results of operations, and there is no certainty as to our ability to continue as a going concern.

Additionally, so long as the Chapter 11 proceedings continue, we will be required to incur significant costs for professional fees and other expenses associated with the administration of the Chapter 11 proceedings. The Chapter 11 proceedings may also require us to seek debtor-in-possession financing to fund operations. If we are unable to obtain such financing on favorable terms or at all, our chances of successfully reorganizing our business may be seriously jeopardized, the likelihood that we instead will be required to liquidate our assets may be enhanced, and, as a result, our securities could become further devalued or become worthless.

Furthermore, we cannot predict the ultimate amount of all settlement terms for the liabilities that will be subject to the Plan of Reorganization. Even once the Plan of Reorganization is approved and implemented, our operating results may be adversely affected by the possible reluctance of prospective lenders and other counterparties to do business with a company that recently emerged from Chapter 11 proceedings.

We may not be able to obtain confirmation of the Chapter 11 Plan of Reorganization

To emerge successfully from Bankruptcy Court protection as a viable entity, we must meet certain statutory requirements with respect to adequacy of disclosure regarding the Plan of Reorganization, solicit and obtain the requisite acceptances of the Plan of Reorganization, demonstrate the feasibility of the Plan of Reorganization to the Bankruptcy Court by a preponderance of the evidence and fulfill other statutory conditions for confirmation of the Plan of Reorganization, which have not occurred to date. The confirmation process can be subject to numerous, unanticipated potential delays. There can also be no assurance that the Plan of Reorganization will be approved by the Bankruptcy Court, so we urge caution with respect to existing and future investments in our securities.

We may receive objections to confirmation of the Plan of Reorganization from various stakeholders in the Chapter 11 proceedings. We cannot predict the impact that any objection to or third party motion during the Chapter 11 proceedings may have on a Bankruptcy Court’s decision to confirm the Plan of Reorganization or our ability to complete the Plan of Reorganization. Any objection may cause us to devote significant resources in response which could materially and adversely affect our business, financial condition and results of operations.

If the Plan of Reorganization is not confirmed by the Bankruptcy Court, it is unclear whether we would be able to reorganize our business and what, if any, distributions holders of claims against us, including holders of our secured and unsecured debt and equity, would ultimately receive with respect to their claims. There can be no assurance as to whether we will successfully reorganize and emerge from the Chapter 11 proceedings or, if we do successfully reorganize, as to when we would emerge from Chapter 11 proceedings. If no plan of reorganization can be confirmed, or the Bankruptcy Court finds that it would be in the best interest of creditors and/or the Debtors, the Bankruptcy Court may convert our

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Chapter 11 proceedings to cases under Chapter 7 of the Bankruptcy Code. In such event, a Chapter 7 trustee would be appointed or elected to liquidate the Debtors’ assets for distribution in accordance with the priorities established by the Bankruptcy Code. The Debtors believe that liquidation under Chapter 7 would result in significantly smaller distributions being made to the Debtors’ creditors than those provided for in a Chapter 11 plan of reorganization because of (i) the likelihood that the assets would have to be sold or otherwise disposed of in a disorderly fashion over a short period of time rather than reorganizing or selling in a controlled manner the Debtors’ businesses as a going concern, (ii) additional administrative expenses involved in the appointment of a Chapter 7 trustee, and (iii) additional expenses and claims, some of which would be entitled to priority, that would be generated during the liquidation and from the rejection of leases and other executory contracts in connection with a cessation of operations.

Upon emergence from a filing of voluntary relief under Chapter 11 of the Bankruptcy Code, our historical financial information may not be indicative of our future financial performance.

Our capital structure may be significantly altered under the Plan of Reorganization. Under fresh-start reporting rules that may apply to us upon the effective date of the Plan of Reorganization, our assets and liabilities would be adjusted to fair values and our accumulated deficit would be restated to zero. Accordingly, if fresh-start reporting rules apply, our financial condition and results of operations following our emergence from the Chapter 11 proceedings would not be comparable to the financial condition and results of operations reflected in our historical financial statements. Further, the Plan of Reorganization could materially change the amounts and classifications reported in our consolidated historical financial statements, which do not give effect to any adjustments to the carrying value of assets or amounts of liabilities that might be necessary as a consequence of confirmation of a plan of reorganization.

The pursuit of the Chapter 11 proceedings have consumed, and will continue to consume, a substantial portion of the time and attention of our management, which may have an adverse effect on our business and results of operations, and we may face increased levels of employee attrition.

It is impossible to predict with certainty the amount of time that we could spend in bankruptcy or to assure parties in interest that the Plan of Reorganization will be confirmed. The Chapter 11 proceedings may involve additional expense and our management will be required to spend a significant amount of time and effort focusing on the proceedings. This diversion of attention may materially adversely affect the conduct of our business and, as a result, our financial condition and results of operations, particularly if the Chapter 11 proceedings are protracted.

During the pendency of the Chapter 11 proceedings, our employees will face considerable distraction and uncertainty, and we may experience increased levels of employee attrition. A loss of key personnel or material erosion of employee morale could have a material adverse effect on our ability to effectively, efficiently and safely conduct our business, and could impair our ability to execute our strategy and implement operational initiatives, thereby having a material adverse effect on our business and on our financial condition and results of operations.

We have substantial liquidity needs and may not be able to obtain sufficient liquidity to confirm a plan of reorganization and exit bankruptcy.

Although we have lowered our capital budget and reduced the scale of our operations significantly, our business remains capital intensive. In addition to the cash requirements necessary to fund ongoing operations, we have incurred significant professional fees and other costs in connection with the restructuring and expect that we will continue to incur significant professional fees and costs throughout the Chapter 11 proceedings. There are no assurances that our current liquidity is sufficient to allow us to satisfy our obligations related to the Chapter 11 proceedings, to proceed with the confirmation of the Plan of Reorganization and to emerge from bankruptcy. We can provide no assurance that we will be able to secure additional interim financing or exit financing sufficient to meet our liquidity needs.

Our liquidity, including our ability to meet our ongoing operational obligations, is dependent upon, among other things: (i) our ability to comply with the terms and conditions of any cash collateral order that may be entered by the Bankruptcy Court in connection with our Chapter 11 proceedings, (ii) our ability to maintain adequate cash on hand, (iii) our ability to generate cash flow from operations, (iv) our ability to confirm and consummate a Chapter 11 plan of reorganization and (v) the cost, duration and outcome of the Chapter 11 proceedings.

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The Plan of Reorganization is based in large part upon assumptions and analyses developed by us. If these assumptions and analyses prove to be incorrect, our plan may be unsuccessful in its execution.

The Plan of Reorganization would affect our capital structure and the ownership, structure and operation of our businesses and will reflect assumptions and analyses based on our experience and perception of historical trends, current conditions and expected future developments, as well as other factors that we consider appropriate under the circumstances. Whether actual future results and developments will be consistent with our expectations and assumptions depends on a number of factors, including but not limited to (i) our ability to change substantially our capital structure, (ii) our ability to obtain adequate liquidity and access financing sources, (iii) our ability to maintain customers’ confidence in our viability as a continuing entity and to attract and retain sufficient business from them, (iv) our ability to retain key employees and (v) the overall strength and stability of general economic conditions of the financial and oil and gas industries, both in the U.S. and in global markets. The failure of any of these factors could materially adversely affect the successful reorganization of our businesses.

In addition, the Plan of Reorganization will rely upon financial projections, including with respect to revenues, EBITDA, capital expenditures, debt service and cash flow. Financial forecasts are necessarily speculative, and it is likely that one or more of the assumptions and estimates that are the basis of these financial forecasts will not be accurate. In our case, the forecasts will be even more speculative than normal, due to the ongoing COVID-19 pandemic and because they involve fundamental changes in the nature of our capital structure. Accordingly, we expect that our actual financial condition and results of operations will differ, perhaps materially, from what we have anticipated. Consequently, there can be no assurance that the results or developments contemplated by any plan of reorganization we may implement will occur or, even if they do occur, that they will have the anticipated effects on us and our subsidiaries or our businesses or operations. The failure of any such results or developments to materialize as anticipated could materially adversely affect the successful execution of any plan of reorganization.

We may be subject to claims that will not be discharged in our Chapter 11 proceedings, which could have a material adverse effect on our financial condition and results of operations.

The Bankruptcy Code provides that the confirmation of a Chapter 11 plan of reorganization discharges a debtor from substantially all debts arising prior to confirmation. With few exceptions, all claims that arose prior to confirmation of the plan of reorganization (i) would be subject to compromise and/or treatment under the plan of reorganization and (ii) would be discharged in accordance with the Bankruptcy Code and the terms of the plan of reorganization. Any claims not ultimately discharged through a Chapter 11 plan of reorganization could be asserted against the reorganized entities and may have an adverse effect on our business and our financial condition and results of operations on a post-reorganization basis.

Even if a Chapter 11 plan of reorganization is consummated, we may not be able to achieve our stated goals and continue as a going concern.

Even if the Plan of Reorganization is consummated, we will continue to face a number of risks, including further deterioration in commodity prices or other changes in economic conditions, changes in our industry, changes in demand for oil and gas and increasing expenses. Accordingly, we cannot guarantee that the Plan of Reorganization will achieve our stated goals.

Furthermore, even if our debts are reduced or discharged through the Plan of Reorganization, we may need to raise additional funds through public or private debt or equity financing or other various means to fund our business after the completion of our Chapter 11 proceedings. Our access to additional financing is, and for the foreseeable future will likely continue to be, extremely limited, if it is available at all. Therefore, adequate funds may not be available when needed or may not be available on favorable terms, if they are available at all.

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Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Repurchases of Equity Securities

On February 22, 2019, our shareholders approved a share repurchase program for a total expenditure of up to $15.0 million for a two-year period. We may purchase shares in one or several transactions on the open market or otherwise; however, we are not obligated to repurchase any specific number or dollar value of common shares under the program. As of October 31, 2020, we have repurchased a total of 44,710 of our common shares on the open market with the last repurchase occurring in May 2019 and had approximately $14.3 million remaining available under the program.

				Total number of		Approximate dollar
				shares repurchased		value of shares that
				as part of publicly		may yet be repurchased
	Total number of	Average price paid		announced plans or		under the plans or
Period	shares repurchased	per share ($)		programs		programs
July 2020	—		—	—	$	14,347,529
August 2020	—		—	—	$	14,347,529
September 2020	—		—	—	$	14,347,529
Total	—		—	—

Item 3 — Defaults Upon Senior Securities

See Notes 2 and 5 to our unaudited condensed consolidated financial statements.

Item 6 — Exhibits

		Filed or Furnished with
Exhibit		this	Incorporated by Reference
Number	Exhibit Title	Form 10-Q	Form	File No.	Date Filed
2.1	Amended Joint Plan of Liquidation/Reorganization for Pacific Drilling Services, Inc. and Pacific Drilling VIII Limited Pursuant to Chapter 11 of the Bankruptcy Code [Docket No. 30], dated as of January 22, 2019‌		20-F	001-35345	3/12/19
2.2	Order Confirming the Debtors’ Amended Joint Plan of Liquidation/Reorganization, as entered by the Bankruptcy Court on January 30, 2019 [Docket No. 881]‌		20-F	001-35345	3/12/19
3.1	Coordinated Articles of Association of Pacific Drilling S.A., dated June 4, 2019‌		6-K	001-35345	8/13/19
4.1	Indenture, dated September 26, 2018, between Pacific Drilling First Lien Escrow Issuer Limited and Wilmington Trust, National Association as Trustee and Collateral Agent relating to the Company’s 8.375% First Lien Notes due 2023‌		6-K	001-35345	9/28/18
4.2	Form of 8.375% First Lien Note due 2023‌		6-K	001-35345	9/28/18
4.3	First Supplemental Indenture, dated November 19, 2018, between Pacific Drilling S.A. and Wilmington Trust, National Association as Trustee and Collateral Agent relating to the Company’s 8.375% First Lien Notes due 2023‌		6-K	001-35345	11/20/18

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		Filed or Furnished with
Exhibit		this	Incorporated by Reference
Number	Exhibit Title	Form 10-Q	Form	File No.	Date Filed
4.4	Second Supplemental Indenture, dated November 19, 2018, between Pacific Drilling S.A., the Guarantors named therein and Wilmington Trust, National Association as Trustee and Collateral Agent relating to the Company’s 8.375% First Lien Notes due 2023‌		6-K	001-35345	11/20/18
4.5	Indenture, dated September 26, 2018, between Pacific Drilling Second Lien Escrow Issuer Limited and Wilmington Trust, National Association as Trustee and Junior Lien Collateral Agent relating to the Company’s 11.000% / 12.000% Second Lien PIK Notes due 2024‌		6-K	001-35345	9/28/18
4.6	Form of 11.000% / 12.000% Second Lien PIK Note due 2024‌		6-K	001-35345	9/28/18
4.7	First Supplemental Indenture, dated November 19, 2018, between Pacific Drilling S.A. and Wilmington Trust, National Association as Trustee and Junior Lien Collateral Agent relating to the Company’s 11.000% / 12.000% Second Lien PIK Notes due 2024‌		6-K	001-35345	11/20/18
4.8	Second Supplemental Indenture, dated November 19, 2018, between Pacific Drilling S.A., the Guarantors named therein and Wilmington Trust, National Association as Trustee and Junior Lien Collateral Agent relating to the Company’s 11.000% / 12.000% Second Lien PIK Notes due 2024‌		6-K	001-35345	11/20/18
4.9	Intercreditor Agreement, dated as of November 19, 2018, between Wilmington Trust, National Association, in its capacity as First Lien Collateral Agent, and Wilmington Trust, National Association, in its capacity as Junior Lien Collateral Agent, and acknowledged and agreed to by the Company and the Grantors named therein‌		6-K	001-35345	11/20/18
10.1*	Form of Retention and Incentive Award Agreement for executive officers granted August 20, 2020	X
10.2*	Form of Severance and Change of Control Agreement by and between Pacific Drilling Manpower, Inc. and each of the Company’s executive officers (other than Messrs. Wolford and Harris) dated August 25, 2020	X
10.3*	Amendment No. 1 to Employment Agreement by and between Pacific Drilling Manpower, Inc. and Bernie G. Wolford Jr. dated August 25, 2020	X
10.4*	Amendment No. 1 to Employment Agreement by and between Pacific Drilling Manpower, Inc. and James W. Harris dated August 25, 2020	X
10.5	Restructuring Support Agreement, dated October 30, 2020 by and among the Company, certain of the Company’s direct and indirect wholly-owned subsidiaries and the Consenting Creditors.		8-K	001-35345	11/2/20

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		Filed or Furnished with
Exhibit		this	Incorporated by Reference
Number	Exhibit Title	Form 10-Q	Form	File No.	Date Filed
10.6	Backstop Commitment Letter, dated October 30, 2020 by and among the Company and certain of the Consenting Creditors		8-K	001-35345	11/2/20
31.1	Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer	X
31.2	Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer	X
32.1♦	Certificate of Chief Executive Officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002	X
32.2♦	Certificate of Chief Financial Officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002	X
101.INS	Inline XBRL Instance Document.	X
101.SCH	Inline XBRL Taxonomy Extension Schema Document.	X
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document.	X
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document.	X
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document.	X
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document.	X
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)	X

*	Indicates management contract or compensatory plan or arrangement.
♦	Furnished herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	Pacific Drilling S.A.
	(Registrant)
Dated:  November 6, 2020	By	/s/ Richard E. Tatum
		Richard E. Tatum
		Senior Vice President & Chief Accounting Officer

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EX-10.1

Exhibit 10.1

PERSONAL AND CONFIDENTIAL

August 20, 2020

[Participant Name]

Dear [·],

As you know, Pacific Drilling S.A. (“PDSA”), the parent company of Pacific Drilling Manpower, Inc. (the “Company”), is currently facing a challenging business environment. In light of this situation, the Company determined that our compensation program should be restructured to better align with the Company’s performance and employee retention priorities. As such, we have made certain changes to your compensation and offer you the opportunity to earn cash bonuses on the terms and conditions set forth in this letter agreement (this “Agreement”). We thank you for our continued dedication to the Company.

For purposes of this Agreement, the term “Parent” shall refer to the ultimate parent entity of the Company, which may include as applicable PDSA or Pacific Drilling Company Limited, an entity established under the laws of the Cayman Islands, unless in the future a separate entity beneficially owns greater than 50% of the common stock of the Company, at which point such entity shall also be considered a “Parent.” Other capitalized terms used herein but not otherwise defined shall have the meanings set forth in Section 6.

1. Retention Bonus Award.

(a)Subject to the terms of this Agreement, the Company has granted you a cash retention bonus in the aggregate amount of U.S. $[____] (the “Retention Bonus”). Subject to your acceptance of this Agreement, including your repayment obligations, the Company will advance and prepay the Retention Bonus, net of applicable taxes and withholdings, on or before August 31, 2020.

(b)The Retention Bonus is subject to a service-based vesting condition and, except as otherwise provided herein, will be earned and vested provided you remain employed and in good standing through the earlier of (i) August 3, 2021, and (ii) the effective date of PDSA’s plan of reorganization or liquidation under chapter 11 of the Bankruptcy Code, or the date PDSA’s case under chapter 11 of the Bankruptcy Code is dismissed or converted to a case under chapter 7 of the Bankruptcy Code (such earlier date being the “Vesting Date”).

(c)You will be required to repay the Net After-Tax Value of the Retention Bonus in the event your employment with the Company is terminated (or you are under notice of such a termination) for Cause or as a result of your voluntary resignation (or providing notice of such a resignation) (other than as a result of death or Disability) without Good Reason prior to the Vesting Date. For the avoidance of doubt, if your employment terminates prior to the Vesting Date as a result of a Qualifying Termination prior to the Vesting Date and the condition set forth in Section 3 is satisfied, the Retention Bonus will be deemed earned and vested and will not be required to be repaid. Any required repayment of the Retention Bonus must be made promptly, and in all events within sixty (60) calendar days following the date of your termination of employment with the Company.

2.Incentive Bonus Award.

(a)Subject to the terms of this Agreement, the Company has also granted you a cash incentive bonus

in the aggregate amount of U.S. $[____] (the “Incentive Bonus”), which amount represents the target award and which is the maximum amount that may be earned and payable under the award. Subject to your acceptance of this Agreement, including your repayment obligations, the Company will advance and prepay the target amount of the Incentive Bonus, net of applicable taxes and withholdings, on or before August 31, 2020.

(b)The Incentive Bonus is subject to both performance-based and service-based vesting conditions. Except as otherwise provided herein, the Incentive Bonus will be earned and vested (i) based on the Parent and its subsidiaries’ level of achievement of the performance metrics described below during the third and fourth quarters of the 2020 fiscal year (the “Performance Period”), and (ii) provided you remain employed and in good standing through the Vesting Date. The performance metrics consist of (i) incremental backlog, (ii) health, safety and environmental (“HSE”) performance, and (iii) contract drilling costs (per day) (the “Performance Metrics”), weighted equally as described on Appendix A.

With respect to each Performance Metric, 50% of the target amount will vest based on achievement of “threshold” performance levels during the Performance Period, 100% of the target amount will vest based on achievement of “target” performance levels during the Performance Period, and 150% of the target amount will vest based on achievement of “stretch” performance levels during the Performance Period. As noted, no amount above the target pre-paid amount will be earned or payable; however, in connection with the determination of any clawback applicable to the Incentive Bonus, performance above target for one Performance Metric will be used to offset performance below target for another Performance Metric.

(c)During the first quarter of 2021, the Board of Directors of Parent, acting in good faith, will determine the level of achievement of the Performance Metrics and the percentage of the target amount of the Incentive Bonus, if any, earned as a result of such achievement. You will be required to repay the Net After-Tax Value of the unearned portion of the target Incentive Bonus in the event the target Performance Metrics are not met, subject to the right of offset discussed above. Any required repayment of the target Incentive Award under this Section 2(c) must be made promptly following the Parent’s determination of the level of achievement of the Performance Metrics and in all events within twenty (20) calendar days following the date of the Company notifies you that a repayment is due.

(d)Except as provided below, you will also be required to repay the Net After-Tax Value of the target Incentive Bonus, less any amount previously repaid pursuant to Section 2(c) above, if your employment with the Company terminates prior to the Vesting Date. Notwithstanding the foregoing, if your employment terminates prior to the Vesting Date as a result of a Qualifying Termination and the condition set forth in Section 3 is satisfied, the Incentive Bonus will not be required to be repaid, except for any amounts due pursuant to Section 2(c). Any required repayment of the target Incentive Bonus under this Section 2(d) must be made within sixty (60) calendar days following the date of your termination of employment with the Company.

3.Release Condition. Your eligibility and entitlement to retain any amounts under Sections 1 and 2 of this Agreement in connection with a Qualifying Termination (other than due to death) is dependent upon your execution and delivery to the Company, on or before the Release Expiration Date (as defined below), and non-revocation within any time provided by the Company to do so, of a release of all claims in a form provided by the Company (the “Release”), which Release shall release the Company and its affiliates, and the foregoing entities’ respective shareholders, members, partners, officers, managers, directors, fiduciaries, employees, representatives, attorneys, agents and benefit plans (and fiduciaries of such plans), from any and all claims, including any and all causes of action arising out of your employment with the Company or its affiliates or the termination of such employment, but excluding all claims to payments you may have under this Agreement or any vested rights or benefits under any of the Company’s benefit plans or any other agreement in which you are party to immediately prior to your termination of employment. If the Release is not executed and returned to the Company on or before the Release Expiration Date, and the required revocation period has not fully expired without revocation of the Release by you, then you shall not be entitled to any portion of payments under Sections 1 and 2. As used herein, the “Release Expiration Date” is that date that is twenty-one (21) days following the date upon which the Company delivers the Release to you (which shall occur no later than seven (7) days after the date of the Qualifying Termination) or, in the event that such termination of employment is “in connection with an exit

2

incentive or other employment termination program” for a group or class of employees (as such phrase is defined in the Age Discrimination in Employment Act of 1967, as amended), the date that is forty-five (45) days following such delivery date.

4.[Pre-Payment of Long Term Incentive Cash Award. In [December 2019], you were awarded a long term incentive cash award (the “Cash Award”) that by its terms will vest on December 31, 2020, provided the service conditions set forth in the award agreement are satisfied. Subject to your acceptance of this Agreement, the Company will advance and prepay your Cash Award on or before August 31, 2020. Except as provided herein, you will be required to repay the Net After-Tax Value of the Cash Award in the event your employment with the Company is terminated prior to December 31, 2020. If, prior to such date, your employment is terminated by the Company without Cause or you resign with Good Reason following a Change in Control as defined in the Plan (as defined below), the Cash Award will be deemed earned and vested and will not be required to be repaid. Any required repayment of the Cash Award must be made promptly, and in all events within twenty (20) calendar days following the date of your termination of employment with the Company.] [Included for executive officers other than Mr. Wolford only.]

5.Forfeiture of Prior Awards. Your eligibility to receive the Retention Bonus and the Incentive Bonus described in this Agreement is in lieu of your participation in and eligibility to receive or retain (i) any award under the Company’s annual cash incentive program for 2020, and (ii) any outstanding unvested equity-based awards previously granted under PDSA’s 2018 Omnibus Stock Incentive Plan (the “Plan”). By signing this Agreement below, you expressly acknowledge and agree that you are forfeiting, in exchange for no consideration, any and all outstanding unvested restricted stock units, performance-based restricted stock units and performance share units previously granted to you under the Plan, and that all such awards are hereafter cancelled and null and void.

6.Definitions. For purposes of this Agreement:

(a)“Cause” shall mean: (i) your failure to perform substantially the material duties of your position (other than as a result of incapacity due to physical or mental illness); (ii) your gross negligence, fraud or willful misconduct in the course of your employment with your employer that has a detrimental effect on the Company, your employer or any of their affiliates; (iii) your commission of any act or your failure to take any act that the Company or your employer reasonably determines was intended by you to injure the reputation, business, or business relationships of the Company, your employer or any of their affiliates; (iv) your indictment of, conviction of, or plea of guilty or nolo contendere to (A) any misdemeanor involving moral turpitude, theft, unethical business conduct or other conduct which could reflect in some material fashion unfavorably upon the Company, your employer or any of their affiliates or (B) any felony (or the equivalent of such misdemeanor or felony in a jurisdiction other than the United States); (v) your material breach of any restrictive covenants contained in an agreement between you and the Company or your employer; or (vi) your intentional, material misappropriation, embezzlement or misuse of funds or property belonging to the Company, your employer or any of their affiliates. Notwithstanding the foregoing, if you are party to an effective employment, severance or change in control agreement with the Company or a subsidiary that contains a definition of “Cause,” then in lieu of the foregoing definition, for purposes of this Agreement, “Cause” shall have the meaning specified in such other agreement.

(b)“Disability” shall exist if you are rendered incapable of satisfactorily discharging your duties and responsibilities to the Company because of physical or mental illness, and either (i) you become eligible to receive benefits under the Company's long-term disability plan as in effect on the date of termination, or (ii) if the Company has no long-term disability plan in effect during such period, you are rendered incapable of performing your duties: (A) with or without reasonable accommodation; (B) with no return date; and/or (C) the period of incapacitation cannot be reasonably accommodated. Notwithstanding the foregoing, if you are party to an effective employment, severance or change in control agreement with the Company or a subsidiary that contains a definition of “Disability,” then in lieu of the foregoing definition, for purposes of this Agreement, “Disability” shall have the meaning specified in such other agreement.

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(c)“Good Reason” shall mean: (i) a material diminution in your title, duties or responsibilities; (ii) a material reduction in your base salary, other than as part of an across-the-board reduction in the salaries of other similarly situated employees of the Company or your employer; or (iii) any reduction in the aggregate compensation and benefits provided to you, other than any such reduction that is part of an across-the-board reduction in aggregate compensation and benefits provided to other similarly situated employees of the Company or your employer. You shall not have the right to terminate your employment hereunder for Good Reason unless (1) within 30 days of the initial existence of the condition or conditions giving rise to such right you provide written notice to the Company of the existence of such condition or conditions, and (2) the Company fails to remedy such condition or conditions within 30 days following the receipt of such written notice (the “Cure Period”). If any such condition is not remedied within the Cure Period, you must terminate your employment with the Company within a reasonable period of time, not to exceed 30 days, following the end of the Cure Period. Notwithstanding the foregoing, if you are party to an effective employment, severance or change in control agreement with the Company or a subsidiary that contains a definition of “Good Reason,” then in lieu of the foregoing definition, for purposes of this Agreement, “Good Reason” shall have the meaning specified in such other agreement.

(d)For purposes of calculating any repayment amounts due under this Agreement, “Net After-Tax Value” shall be determined assuming you pay tax at the highest effective marginal combined federal, state and local income tax rate for the year in which the repayment event occurs applicable to individual taxpayers residing in the your city and state.

(e)“Qualifying Termination” shall mean your termination of employment as a result of any of the following reasons: (i) by your employer without Cause, (ii) by you with Good Reason, (iii) your death, or (iv) your Disability.

7.Tax Matters. The Company shall have the right to deduct from any compensation paid to you, the amount of any required withholding taxes in respect of the awards under this Agreement. This Agreement is intended to comply with or be exempt from the requirements of Section 409A of the Internal Revenue Code of 1986, as amended, and the regulations and guidance promulgated thereunder, and all such provisions shall be construed and interpreted accordingly.

8.Retention Rights. This Agreement does not give you the right to continue in the employ of the Company or its affiliates or to be retained by the Company or its affiliates in any other capacity.

9.Binding Effect.  This Agreement is personal to you and may not be assigned by you except upon death. This Agreement inures to the benefit of and is binding upon each of you, the Company, and any successors to the Company.

10.Applicable Law. This Agreement will be interpreted and enforced under the laws of the State of Texas (without regard to their choice of law provisions).

11.Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of you and the Company, and our respective heirs, legal representatives, successors, and permitted assigns.

*                 *                 *

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By signing below, you acknowledge receipt of this Agreement, and agree that (a) you have carefully read, fully understand and agree to all of the terms and conditions described in this Agreement; and (b) you understand and agree that this Agreement constitutes the entire understanding between you and the Company regarding the Retention Bonus and the Incentive Bonus.

PACIFIC DRILLING MANPOWER, INC.
By:	Bernie G. Wolford, Jr.
Title:	Chief Executive Officer

Accepted and Agreed:
By:
Name:	[Name of Employee]
Date:

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APPENDIX A

Incentive Bonus – Performance Metrics Summary:

Metric	Weighting	Threshold (50%)	Target (100%)	Stretch (150%)
Incremental Backlog	33%	$76.5 million	$94.0 million	$115.6 million
HSE Performance	33%	Index Score	Index Score	Index Score
Contract Drilling Costs (per day)	33%	$51,900	$48,100	$44,300

HSE Performance Index Scorecard for Full-Year 2020:

Elements		Target Range				Actual 2019	IADC** 2019	Min	Max
Injury and Illness		50%	100%		150%
30%	TRIF*	<3.05(6)	2.05(4)		<1.55(3)	2.73(5)	2.25	0%	45%
10%	LTIF*	<0.55(1)	0 (0)		0(0)	0.55(1)	0.64	0%	15%
20%	HiPoF	<1.55(3)	1.05(2)		<0.55(1)	1.09(2)		0%	30%
Process Safety
10%	WCI	2	1		0	0		0%	15%
Environment
10%	Spills >1 bbls	3	2		1	1		0%	15%
10%	Spills >10 bbls	1	0		0	0		0%	15%
Dropped Objects
10%	DOF	<8.05(16)	6.05(12)		<4.05(8)	8.19(15)		0%	15%
Parentheses show actual incidents. All Injury/Illness targets based on forecast of 2,000,000 manhours in 2020. Note – 0.05 on each frequency target allows achievement even with a 10% shortfall in manhours.
				Index Range				0	150
Override	Any Catastrophic Event (Fatality, etc) = Zero on Safety Index
*    TRIF and LTIF are combined Parent and subsidiaries’ results for IADC ISP in relevant Water Regions Consolidated (US, EUR, AFR) **  IADC data is the consolidation of applicable IADC Water Regions for combined Parent and subsidiaries’ Operations.

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EX-10.2

Exhibit 10.2

SEVERANCE AND CHANGE OF CONTROL AGREEMENT

This Severance and Change of Control Agreement (“Agreement”) between Pacific Drilling Manpower, Inc., a Delaware corporation (the “Company”), and «Full_MI_Name» (the “Executive”) is dated as of August 25, 2020 (the “Agreement Date”).

WITNESSETH

WHEREAS, the Company is an indirect wholly-owned subsidiary of Pacific Drilling S.A., a public limited liability company (société anonyme) organized under the laws of the Grand Duchy of Luxembourg registered with the Luxembourg register of commerce and companies under registration number B159658 having its registered address at 8-10 Avenue de la Gare, L-1610, Luxembourg (the “PDSA”);

WHEREAS, the Company provides management services to the PDSA and subsidiaries of PDSA (collectively, the “Group”) engaged in the business of providing offshore drilling services through the use of high-specification floating rigs;

WHEREAS, the Executive has been and will continue to be an Executive of the Company and as a result has had, and will continue to gain, access to and knowledge of certain trade secrets and other confidential information regarding the Company, including without limitation, the assets, manner of doing business, processes, techniques and other proprietary information which constitutes a valuable asset of the Company;

WHEREAS, this Agreement supersedes and replaces in its entirety the Severance and Change of Control Agreement between the Company and Executive dated as of «Original_Agmt_Date» (the “Prior Agreement”) and the Prior Agreement is hereby of no further force and effect; provided, however, that the following shall continue to apply to this Agreement: (i) the modification to the Prior Agreement reflected in the letter agreement between the Executive and the Company dated April 1, 2020, which confirmed that the Company-wide base salary reductions shall not impact the severance calculations, and (ii) the Executive’s agreement to waive his or her right to receive an annual bonus for 2020 contained in the letter agreement between the Executive and the Company dated August 20, 2020, as a result of which such bonus elimination does not constitute Good Reason under the Agreement (together, the “Letter Agreements”);

NOW, THEREFORE, in consideration of the mutual undertakings of this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows:

ARTICLE 1

DEFINITIONS

As used in this Agreement, the following terms have the meanings specified:

Section 1.1Affiliate. “Affiliate” shall mean a Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, another specified Person.

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Section 1.2Board. “Board” shall mean the Board of Directors of the Parent.

Section 1.3Business. “Business” shall mean the provision by the Group of offshore drilling services through the use of high-specification floating rigs.

Section 1.4Cause. “Cause” shall mean the Executive’s (a) willful breach of Section 5.1 or 5.2 of this Agreement; (b) conviction of, or plea of guilty or nolo contendere to, a felony or other crime involving dishonesty or moral turpitude; (c) material breach of the Group’s Global Code of Conduct, Insider Trading Standard or other Board or Group adopted policies applicable to management conduct; (d) knowing falsification of information contained in any report provided to the Board or filed or furnished by the Parent with the U.S. Securities and Exchange Commission (“SEC”) or with any exchange on which the Parent’s securities are listed for trading; or (e) willful engagement in illegal conduct or gross misconduct that is materially injurious to the Group or substantial, willful and repeated failure to perform duties as instructed by the Board.

The Executive’s employment shall not be deemed terminated for Cause unless the Company shall have delivered to the Executive a termination notice with a copy of a resolution adopted by the affirmative vote of not less than three-quarters of the entire Board at a meeting called for such purpose (after reasonable notice is provided to the Executive and the Executive has had an opportunity, with counsel, to be heard by the Board) finding that the Executive should be terminated for Cause and specifying in reasonable detail the grounds therefor.

Section 1.5Change of Control.

(a)For purposes of this Agreement, “Change of Control” means (capitalized terms not otherwise defined will have the meanings ascribed to them in paragraph (b) below):

(i)the acquisition by any Person together with all Affiliates of such Person, of Beneficial Ownership of more than 50% of the outstanding Shares, or more than 50% of the combined voting power of the Parent’s then outstanding securities; provided, however, that for purposes of this paragraph (a)(i), the following will not constitute a Change of Control:

(A)any acquisition (other than a “Business Combination,” as defined below, that constitutes a Change of Control under paragraph (a)(ii) hereof) of Shares directly from the Parent,

(B)any acquisition of Shares by the Parent or its subsidiaries,

(C)any acquisition of Shares by any employee benefit plan (or related trust) sponsored or maintained by the Parent or any corporation or other entity controlled by the Parent, or

(D)any acquisition of Shares pursuant to a Business Combination that does not constitute a Change of Control under paragraph (a)(ii) hereof; or

(ii)the consummation of a reorganization, merger, consolidation, conversion, or statutory share exchange (including a merger or consolidation of the Parent or any direct or

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indirect subsidiary of the Parent), or sale or other disposition of all or substantially all of the assets of the Parent (a “Business Combination”), in each case, unless, immediately following such Business Combination, all of the following conditions exist:

(A)the individuals and entities who were the Beneficial Owners of the Parent Voting Stock immediately prior to such Business Combination have direct or indirect Beneficial Ownership of more than 50% of the then outstanding shares of common stock, and more than 50% of the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, of the Post-Transaction Corporation, and

(B)no Person together with all Affiliates of such Person (excluding the Parent and any employee benefit plan or related trust of the Post-Transaction Corporation or any subsidiary of the Parent, the Post-Transaction Corporation or any subsidiary of either), Beneficially Owns 50% or more of the then outstanding shares of common stock of the Post-Transaction Corporation or 50% or more of the combined voting power of the then outstanding voting securities of such corporation (provided that for purposes of this paragraph (a)(ii)(B), if prior to the Business Combination a Person with its Affiliates owns more than 50%, then references to 50% shall refer to such higher percentage), and

(C)at least a majority of the members of the board of directors of the Post-Transaction Corporation were members of the Board at the time of the Board’s execution of the initial agreement approving the Business Combination (or approved by a majority of the members of the Board at the time of such initial agreement), or

(iii)individuals who, as of the Agreement Date, constitute the Board of the Parent (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual who becomes a director after the Agreement Date through either (A) an election by the Incumbent Board to fill a vacancy, or (B) an election by the Parent’s shareholders following a nomination of such individual by the vote of at least a majority of the directors then comprising the Incumbent Board, shall be considered a member of the Incumbent Board, unless such individual’s initial assumption of office is a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Incumbent Board, or

(iv)approval by the shareholders of the Parent of a complete liquidation or dissolution of the Parent.

(b)As used in this definition of Change of Control and elsewhere in this Agreement, the following terms have the meanings indicated:

(i)“Beneficial Owner” (and variants thereof), with respect to a security, means a Person who, directly or indirectly (through any contract, understanding, relationship or otherwise), has or shares (A) the power to vote, or direct the voting of, the security, and/or (B) the power to dispose of, or to direct the disposition of, the security.

(ii)“Parent Voting Stock” or “Shares” means any capital stock of the Parent that is then entitled to vote for the election of directors.

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(iii)“Post-Transaction Corporation” means (A) unless a Change of Control includes a Business Combination, the Parent after the Change of Control; or (B) if a Change of Control includes a Business Combination, the corporation resulting from the Business Combination unless, as a result of such Business Combination, an ultimate parent corporation controls the Parent or all or substantially all of the Parent’s assets either directly or indirectly, in which case, “Post-Transaction Corporation” shall mean such ultimate parent corporation.

Section 1.6Company. “Company” shall mean (a) the Company as defined above and its successors and assigns as permitted by Section 6.1(a), and (b) in appropriate contexts, any subsidiary or corporate Affiliate of the Company.

Section 1.7Confidential Information. “Confidential Information” shall mean any information, knowledge or data of any nature and in any form (including information that is electronically transmitted or stored on any form of magnetic or electronic storage media) relating to the past, current or prospective business or operations of any member of the Group, that at the time or times concerned is not generally known to persons engaged in businesses similar to those conducted or contemplated by any member of the Group, whether produced by any member of the Group or any of their respective consultants, agents or independent contractors or by the Executive, and whether or not marked confidential, including without limitation information relating to any of the Group’s services, projects or jobs, project or job locations, estimating or bidding procedures, bidding strategies, business plans, business acquisitions, joint ventures, processes, research and development ideas, methods or techniques, training methods and materials, and other operational methods or techniques, quality assurance procedures or standards, operating procedures, files, plans, specifications, proposals, drawings, charts, graphs, support data, trade secrets, supplier lists, supplier information, purchasing methods or practices, distribution and selling activities, consultants’ reports, marketing and engineering or other technical studies, maintenance records, employment or personnel data, marketing data, strategies or techniques, financial reports, budgets, projections, cost analyses, pricing information and analyses, employee lists, customer records, customer lists, customer source lists, proprietary computer software, and internal notes and memoranda relating to any of the foregoing.

Section 1.8Date of Termination. “Date of Termination” shall mean (a) if the Executive’s employment is terminated by the Company, the date that the Company notifies the Executive of such termination or any later date specified in the notice of termination, which shall not be more than 15 days after the date of the notice; (b) if the Executive’s employment is terminated voluntarily by the Executive, the date that the Executive notifies the Company of such termination or any later date specified therein (which date shall not be later than 30 days after the giving of such notice), as the case may be; or (c) if the Executive’s employment is terminated as a result of the Executive’s death or Disability, the date of such death or the date of determination of such Disability pursuant to Section 1.9, as the case may be.

Section 1.9Disability. “Disability” shall be deemed to have occurred if the Executive is rendered incapable of satisfactorily discharging his or her duties and responsibilities to the Company because of physical or mental illness, and either (a) the Executive becomes eligible to receive benefits under the Company’s long-term disability plan as in effect on the Date of Termination, or (b) if the Company has no long-term disability plan in effect during such period, the Executive is rendered incapable of performing his or her duties: (i) with or without

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reasonable accommodation; (ii) with no return date; and/or (iii) the period of incapacitation cannot be reasonably accommodated.

Section 1.10Good Reason. “Good Reason” shall mean any of the following events or conditions, provided that (a) the Executive shall have provided written notice to the Company within 90 days of the initial existence of the condition described in this Section 1.10, (b) such event or condition continues uncured for a period of 30 days after written notice thereof is given by the Executive to the Company, and (c) the Date of Termination is no later than 90 days following the Board’s receipt of the notice provided in subpart (a) above:

(i)A material reduction by the Company of the Executive’s base salary that is then in effect or Executive’s Target Bonus (as compared to the Target Bonus approved in March 2020), without Executive’s prior consent, except, in the case of a termination under Article 3 hereof only, a reduction that is part of, and consistent in amount, percentage and/or application with, an across-the-board reduction in the base salaries or Target Bonus opportunities of the senior executives of the Company;

(ii)A material diminution in the Executive’s duties and status as an officer of the Company;

(iii)A failure in any material respect by the Company to perform any of its obligations to the Executive under this Agreement; or

(iv)The relocation of the geographic location of the Executive’s principal place of employment to a location more than twenty five (25) miles outside the greater Houston, Texas metropolitan area (excluding reasonably required business travel in connection with the performance of the Executive’s duties).

Section 1.11Group. “Group” shall mean the Parent and its subsidiaries collectively.

Section 1.12Parent. “Parent” means the ultimate parent entity of the Company, which may include as applicable PDSA or Pacific Drilling Company Limited, an entity established under the laws of the Cayman Islands, unless in the future a separate entity Beneficially Owns greater than 50% of the common stock of the Company, at which point such entity shall also be considered a “Parent.”

Section 1.13Person. “Person” shall mean a natural person or entity, and will also mean the group or syndicate created when two or more Persons act as a syndicate or other group (including without limitation a partnership, limited partnership, joint venture or other joint undertaking) for the purpose of acquiring, holding, voting or disposing of a security, except that “Person” will not include an underwriter temporarily holding a security pursuant to an offering of the security.

Section 1.14Prohibited Territories. “Prohibited Territories” shall mean those jurisdictions listed on Appendix A attached hereto, as it may be amended or modified from time to time in accordance with the provisions of Section 5.2 hereof.

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Section 1.15Protected Period. “Protected Period” shall mean the period beginning with the date of the Change of Control and continuing through the date that is 18 months thereafter.

Section 1.16Section 409A. “Section 409A” shall mean Section 409A of the Internal Revenue Code of 1986, as amended, and all regulations and guidance issued thereunder.

Section 1.17Target Bonus. “Target Bonus” shall refer to the target annual bonus established for the Executive for the year in which the termination occurs (waiving any subjective performance criteria and assuming achievement by the Company of all objective performance goals of the bonus plan at exactly 100%), without giving effect to any subsequent waiver by the Executive of his or her rights to receive the annual bonus. If, for any given year, the Executive’s Date of Termination occurs prior to the establishment of a target annual bonus for that year, the Target Bonus shall refer to the target annual bonus established for the Executive for the prior year.

Section 1.18Termination Bonus. “Termination Bonus” shall mean an amount equal to the product of (a) the Target Bonus and (b) the fraction derived (expressed as a decimal) by dividing (i) the number of days in the year of termination that preceded the Date of Termination by (ii) 365.

ARTICLE 2

TERM

Section 2.1Agreement Term. This Agreement shall commence on the Agreement Date and continue in effect through December 31, 2022, provided, however, that, commencing on January 1, 2023 and each second January 1st thereafter (January 1, 2025, January 1, 2027, etc.), the term of this Agreement shall automatically be extended for two additional years unless, not later than 60 days prior to the expiration date, the Company or the Executive shall give written notice that it does not wish to extend the term of this Agreement, in which case the Agreement shall, subject to Section 2.2, be terminated as of the expiration date. For avoidance of doubt, if neither party shall have given timely written notice of termination of this Agreement prior to December 31, 2022, then the Agreement shall automatically be extended through December 31, 2024, and so forth.

Section 2.2Company Decision to not Renew Agreement. (a) If during the one-year period immediately following the expiration of the term of this Agreement as a result of the Company having given to the Executive a non-extension notice under Section 2.1, the Company terminates the Executive’s employment without Cause or the Executive terminates his or her employment for Good Reason prior to a Change of Control, then the Executive shall be entitled to the same benefits as are provided under Section 3.1.

(b)If a non-extension notice is given by the Company under Section 2.1, and a Change of Control of the Company shall occur during, or within six months following the expiration of, the term of this Agreement, this Agreement shall continue in effect through the Protected Period following the Change of Control and if the Company terminates the Executive’s employment without Cause or the Executive terminates his or her employment for Good Reason

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during such Protected Period, then the Executive shall be entitled to the same benefits as are provided under Section 4.1.

ARTICLE 3

TERMINATION PRIOR TO CHANGE OF CONTROL

Section 3.1Termination of Employment by the Company without Cause or by Executive for Good Reason. If during the term of this Agreement, and prior to a Change of Control, the Company terminates the Executive’s employment without Cause, or the Executive terminates his or her employment for Good Reason, in accordance with Section 3.5 and provided the conditions set forth in Section 6.11 are met, the Executive shall be entitled to the following:

(a)In addition to the sums payable in accordance with Section 3.3, a lump sum payment (the “Severance Payment”) equal to the sum of:

(i)An amount equal to 1.5 times the sum of (A) the greater of the Executive’s annual base salary in effect for the fiscal year that the Date of Termination occurs or the Executive’s annual base salary as of March 31, 2020, and (B) the Target Bonus;

(ii)An amount equal to the Termination Bonus; and

(iii)An amount equal to the sum of the Company contributions that would be made for 18 months of group life, long-term disability and health insurance benefits (collectively, the “Group Benefits”) calculated based on monthly Company contributions as of the Date of Termination with respect to coverage that was provided to the Executive and his or her dependents as of such date.

(b)With regard to long-term incentive awards, including but not limited to stock options, restricted stock, restricted stock units or long-term cash awards granted to the Executive by the Company or Parent (collectively, the “LTI Awards”) outstanding as of the Date of Termination:

(i)acceleration of the vesting of any LTI Awards that vest solely based on the passage of time (as opposed to performance) and that were scheduled to vest by their terms within one year following the Date of Termination; provided however, that payment of any such awards shall not be accelerated unless permitted under Section 409A, if applicable, and

(ii)for LTI Awards that vest based on performance, if the performance period for such award will end within one year following the Date of Termination, such award will not be forfeited but will remain outstanding and vest in accordance with its terms following the end of the performance period based on the level of achievement of the applicable performance goals.

To the extent this Section 3.1(b) changes the terms of any such LTI Awards held by the Executive now or in the future in a manner that is beneficial to the Executive, this Section 3.1(b) shall be deemed to be an amendment to the agreement between the Company or Parent and the Executive setting forth the terms of such awards and shall form a part of such agreement.

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Section 3.2Termination for Other Reasons. If during the term of this Agreement, the Executive’s employment is terminated by the Company for Cause, by the Executive without Good Reason, or as a result of Executive’s death or Disability, this Agreement shall terminate without further obligation by the Company to the Executive other than as provided in Section 3.3 hereof.

Section 3.3Accrued Obligations and Other Benefits. Upon the termination of Executive’s employment for any reason, the Company shall promptly pay the Executive or his or her legal representatives, in addition to any other benefits provided herein, (a) the Executive’s base salary accrued through the Date of Termination, and (b) any earned but unused vacation pay.

Section 3.4LTI Awards and Other Incentives. The benefits provided for in this Article 3 are in addition to the value or benefit of any LTI Awards or other incentives, the exercisability, vesting or payment of which is accelerated or otherwise enhanced upon a termination of Executive’s employment pursuant to the terms of any stock incentive plan or agreement heretofore or hereafter adopted by any member of the Group.

Section 3.5Payment Timing. Subject to the Executive’s compliance with Section 6.11 and except as otherwise required by Section 6.19, the Severance Payment shall be made and the acceleration and/or retention of the LTI Awards provided for under Section 3.1 shall be effective on the Company’s first regularly scheduled pay date that is on or after the date that is sixty (60) days after the Date of Termination.

ARTICLE 4

TERMINATION FOLLOWING A CHANGE OF CONTROL

Section 4.1Termination of Employment by the Company without Cause or by the Executive for Good Reason. If a Change of Control occurs during the term of this Agreement and following the Change of Control, the Company during the Protected Period terminates the Executive’s employment without Cause, or the Executive terminates his or her employment for Good Reason, in accordance with Section 4.5 and provided the conditions set forth in Section 6.11 are met, the Executive shall be entitled to the following:

(a)In addition to sums payable under Section 4.3, a lump sum payment (the “CIC Severance Payment”) equal to the sum of:

(i)an amount equal to 2.0 times the sum of (A) the greater of the Executive’s annual base salary in effect for the fiscal year in which the Date of Termination occurs or the Executive’s annual base salary as of March 31, 2020 and (B) the Target Bonus; and.

(ii)An amount equal to the sum of the Company contributions that would be made for 24 months of Group Benefits, calculated based on monthly Company contributions as of the Date of Termination with respect to coverage that was provided to the Executive and his or her dependents as of such date.

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(b)With respect to LTI Awards outstanding as of the Date of Termination:

(i)acceleration of the vesting of all LTI Awards that vest solely based on the passage of time (as opposed to performance); provided however, that payment of any such awards shall not be accelerated unless permitted under Section 409A, if applicable, and

(ii)for LTI Awards that vest based on performance, accelerated vesting of such award at the target level; provided however, that payout of any such awards shall not be accelerated unless permitted under Section 409A, if applicable.

To the extent this Section 4.1(b) changes the terms of any LTI Awards held by the Executive now or in the future in a manner that is beneficial to the Executive, this Section 4.1(b) shall be deemed to be an amendment to the agreement between the Company or Parent and the Executive setting forth the terms of such awards and shall form a part of such agreement.

Section 4.2Termination for Other Reasons. If during the Protected Period, the Executive’s employment is terminated by the Company for Cause, by the Executive without Good Reason, or as a result of Executive’s death or Disability, this Agreement shall terminate without further obligation by the Company to the Executive other than as provided in Section 4.3 hereof.

Section 4.3Accrued Obligations and Other Benefits. Upon the termination of Executive’s employment for any reason, the Company shall promptly pay the Executive or his or her legal representatives, in addition to any other benefits provided herein, (a) the Executive’s base salary accrued through the Date of Termination and (b) any earned but unused vacation pay.

Section 4.4LTI Awards and Other Incentives. The benefits provided for in this Article 4 are in addition to the value or benefit of any LTI Awards or other incentives, the exercisability, vesting or payment of which is accelerated or otherwise enhanced pursuant to the terms of any stock incentive plan or agreement heretofore or hereafter adopted by any member of the Group upon a termination of Executive’s employment.

Section 4.5Payment Timing. Subject to the Executive’s compliance with Section 6.11, and except as otherwise required by Section 6.19, the CIC Severance Payment shall be made and the acceleration of the LTI Awards provided for under Section 4.1 shall be effective on the Company’s first regularly scheduled pay date that is on or after the date that is sixty (60) days after the Date of Termination.

Section 4.6Excise Tax Provision.

(a)Notwithstanding any other contrary provisions in any plan, program or policy of any member of the Group, if all or any portion of the benefits payable under this Agreement, either alone or together with other payments and benefits that the Executive receives or is entitled to receive from any member of the Group, would constitute a “parachute payment” within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”), the Company shall reduce the Executive’s payments and benefits payable under this Agreement to the extent necessary so that no portion thereof shall be subject to the excise tax imposed by Section 4999 of the Code, but only if, by reason of such reduction, the net after-tax

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benefit shall exceed the net after-tax benefit if such reduction were not made. “Net after-tax benefit” for these purposes shall mean the sum of (i) the total amount payable to Executive under this Agreement, plus (ii) all other payments and benefits which Executive receives or is then entitled to receive from any member of the Group that, alone or in combination with the payments and benefits payable under this Agreement, would constitute a “parachute payment” within the meaning of Section 280G of the Code (each such benefit hereinafter referred to as an “Additional Parachute Payment”), less (iii) the amount of federal income taxes payable with respect to the foregoing calculated at the maximum marginal income tax rate for each year in which the foregoing shall be paid to the Executive (based upon the rate in effect for such year as set forth in the Code at the time of the payment under this Agreement), less (iv) the amount of excise taxes imposed with respect to the payments and benefits described in (i) and (ii) above by Section 4999 of the Code. The reduction of payments and benefits hereunder, if applicable, shall be made by reducing, first, payments or benefits to be paid in cash hereunder in the order in which such payment or benefit would be paid or provided (beginning with such payment or benefit that would be made last in time and continuing, to the extent necessary, through to such payment or benefit that would be made first in time) and, then, reducing any benefit to be provided in-kind hereunder in a similar order.

(b)All determinations required to be made under this Section 4.6 shall be made by the accounting firm that was the Parent’s independent auditor prior to the Change of Control or any other third party acceptable to the Executive and the Company (the “Accounting Firm”). The Accounting Firm shall provide detailed supporting calculations both to the Company and the Executive. All fees and expenses of the Accounting Firm shall be borne solely by the Company. Absent manifest error, any determination by the Accounting Firm shall be binding upon the Company and the Executive.

(c)For purposes of determining whether and the extent to which any payments would constitute a “parachute payment” (i) no portion of any payments or benefits that the Executive shall have waived at such time and in such manner as not to constitute a “payment” within the meaning of section 280G(b) of the Code shall be taken into account, (ii) no portion of the payments shall be taken into account which, in the opinion of tax counsel (“Tax Counsel”) reasonably acceptable to the Executive and selected by the Accounting Firm, does not constitute a “parachute payment” within the meaning of section 280G(b)(2) of the Code (including by reason of section 280G(b)(4)(A) of the Code) and, in calculating the excise tax, no portion of such payments shall be taken into account which, in the opinion of Tax Counsel, constitutes reasonable compensation for services actually rendered, within the meaning of section 280G(b)(4)(B) of the Code, in excess of the “base amount” (within the meaning set forth in section 280G(b)(3) of the Code) allocable to such reasonable compensation, and (iii) the value of any non-cash benefit or any deferred payment or benefit included in the payments shall be determined by the Accounting Firm in accordance with the principles of sections 280G(d)(3) and (4) of the Code.

Section 4.7Certain Pre-Change-of-Control Terminations. Notwithstanding any other provision of this Agreement, the Executive’s employment shall be deemed to have been terminated following a Change of Control by the Company without Cause or by the Executive for Good Reason, if:

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(a)the Executive’s employment is terminated by the Company without Cause or by the Executive for Good Reason and such termination without Cause or the act, circumstance or event which constitutes Good Reason occurred after either: (i) the Company has signed a letter of intent or an agreement with respect to a transaction that if consummated would result in a Change of Control, or (ii) a public announcement is made of a proposed transaction that if consummated would result in a Change of Control, or

(b)the Executive’s employment is terminated by the Company without Cause or by the Executive for Good Reason and on or before the earlier of the date that is six months following the Date of Termination or March 10th of the calendar year following the Date of Termination: (i) a Change of Control occurs, (ii) the Company signs a letter of intent or agreement with respect to a transaction that if consummated would result in a Change of Control, or (iii) a public announcement is made of a proposed transaction that if consummated would result in a Change of Control.

If the conditions of Section 4.7(a) are met as of the Date of Termination, the Executive shall be entitled to the payments and benefits provided under and as set forth in Section 4.1 in lieu of the payments and benefits provided under Section 3.1. If the conditions of Section 4.7(b) are met, the Executive shall be entitled to the payments and benefits provided under Section 4.1, less any payments and benefits previously received by the Executive under Section 3.1, and any such additional payments shall be paid to the Executive as soon as practicable following the applicable triggering event set forth in Section 4.7(b), but in no event later than March 15th of the calendar year following the Date of Termination, provided the condition in Section 6.11 was previously satisfied.

ARTICLE 5

NONDISCLOSURE, NONCOMPETITION AND NONSOLICITATION

Section 5.1Nondisclosure of Confidential Information. Executive acknowledges and agrees that in the course of his or her employment, Executive has been in a position to have access to and develop Confidential Information. The Company promises to continue to provide Confidential Information to Executive during his or her tenure as an employee of the Company. As long as Executive is an employee of the Company, the Executive shall hold in a fiduciary capacity for the benefit of the Company all Confidential Information which the Executive obtained during the Executive’s employment (whether prior to or after the Agreement Date) and shall use such Confidential Information solely in the good faith performance of his or her duties for the Company. If the employment of the Executive is terminated for any reason, then, commencing with the Date of Termination and continuing perpetually thereafter, the Executive shall (a) not communicate, divulge or make available to any Person (other than the Company) any such Confidential Information, except with the prior written consent of the Company or as may be required by law or legal process, and (b) deliver promptly to the Company upon its written request any Confidential Information in his or her possession, including any duplicates thereof and any notes or other records the Executive has prepared with respect thereto, provided that Executive need not deliver to the Company, and may retain, one copy of any personal diaries, calendars, rolodexes or personal notes of correspondence. If the provisions of any applicable law or the order of any court would require the Executive to disclose or otherwise make available any Confidential Information to a governmental authority or to any other third

11

party, the Executive shall give the Company, unless it is unlawful to do so, prompt prior written notice of such required disclosure and an opportunity to contest the requirement of such disclosure or apply for a protective order with respect to such Confidential Information by appropriate proceedings.

Under the Defend Trade Secrets Act of 2016 and the Dodd-Frank Wall Street Reform and Consumer Protection Act and its regulations, an Executive shall not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret that: (A) is made (i) in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney; and (ii) solely for the purpose of reporting or investigating a suspected violation of law; or (B) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal. An individual who files a lawsuit for retaliation by an employer for reporting a suspected violation of law may disclose the trade secret to the attorney of the individual and use the trade secret information in the court proceeding, if the individual: (X) files any document containing the trade secret under seal; and (Y) does not disclose the trade secret, except pursuant to court order.

Section 5.2Noncompetition; Nonsolicitation. The Executive acknowledges that in the course of his or her employment with the Company, Executive has become familiar, and will become familiar, with such Confidential Information, that Executive has developed the goodwill of the Group and will continue to be in a position to develop the goodwill of the Group, and that his or her services have been and will be of special, unique and extraordinary value to the Group.

Therefore, the Executive agrees that during the Term of this Agreement and for a period following the Date of Termination of one year, the Executive will not:

(a)other than any shares or other ownership interest in any such Person owned by the Executive on the Agreement Date, directly or indirectly, engage or invest in, own, manage, operate, finance, control, or acquire an interest in, be employed by or render services to, or otherwise engage, participate in, or be associated or in any manner connected with (whether as a proprietor, partner, stockholder, member, director, officer, employee, joint venturer, investor, consultant, agent, sales representative, broker or other participant) any Person engaged in or planning to become engaged in any business in competition with the Business within the Prohibited Territories;

(b)contact any customer of any member of the Group to solicit, divert or entice away the business of such customer, or otherwise disrupt the relationship between such customer and any member of the Group;

(c)solicit, induce, influence or attempt to influence any supplier, lessor, lessee, licensor, partner, joint venturer, potential acquiree or any other person who has a business relationship with any member of the Group, or who on the Date of Termination is engaged in discussions or negotiations to enter into a business relationship with any member of the Group, to discontinue, reduce or limit the extent of such relationship with any member of the Group; or

(d)make contact with any employee of any member of the Group for the purpose of soliciting such employee for hire, whether as an employee, independent contractor,

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consultant or otherwise, or otherwise disrupting such employee’s relationship with any member of the Group, except that Executive shall not be precluded from hiring any employee of any member of the Group who has been terminated by any member of the Group prior to commencement of employment discussions between the Executive and such person.

The Executive agrees that he or she will, at any time prior to the Date of Termination, and at the Company’s request, promptly execute any amendment or modification of the Prohibited Territories (by amending Appendix A) that is necessary to reflect the appropriate jurisdictions, including, without limitation, to add any additional jurisdictions where the Group engages in the Business in the future. All references to Appendix A in this Agreement shall be deemed to refer to Appendix A as so amended or modified.

The Executive agrees that: (i) the covenants and agreements set forth in this Section 5.2 are reasonable both in scope of geographical area and duration, (ii) the Company would not have entered into this Agreement but for such covenants of the Executive, (iii) such covenants have been made in order to induce the Company to enter into this Agreement, and (iv) such covenants and agreements are reasonable and necessary for the protection of the Confidential Information, assets, goodwill and business acquired by the Group. To the extent permitted by applicable law, Executive covenants and agrees not to institute, maintain, prosecute or in any way aid in the institution, maintenance or prosecution of any lawsuit, action, claim, arbitration or other proceeding against the Company or any of its Affiliates with respect to the enforceability of the covenants contained in this Section 5.2 and Executive hereby irrevocably waives all defenses otherwise available to the Executive with respect to the strict enforcement of such covenants and agreements by the Company.

Notwithstanding the foregoing, the Executive’s obligations set forth in Section 5.2(a) will cease to apply upon the Company’s failure to timely pay all of the amounts due to the Executive under Section 3.1 or Section 4.1, as set forth in Sections 3.5 and 4.5, respectively.

Section 5.3Injunctive Relief; Forfeiture of Future Payments and Benefits; Other Remedies. The Executive acknowledges that a breach by the Executive of Sections 5.1 or 5.2 herein would cause immediate and irreparable harm to the Company for which an adequate monetary remedy does not exist; hence, the Executive agrees that, in the event of a breach or threatened breach by the Executive of the provisions of Sections 5.1 or 5.2 herein during the Term of this Agreement or after the Date of Termination, the Company shall be entitled to injunctive relief restraining the Executive from such violation without the necessity of proof of actual damage or the posting of any bond, except as required by non-waivable, applicable law. Nothing herein, however, shall be construed as prohibiting the Company from pursuing any other remedy at law or in equity to which the Company may be entitled under applicable law in the event of a breach or threatened breach of this Agreement by the Executive, including without limitation the recovery of damages and/or costs and expenses, such as reasonable attorneys’ fees, incurred by the Company as a result of any such breach or threatened breach. In addition to the foregoing remedies, the Company shall have the right upon the occurrence of any breach of any nondisclosure, noncompetition or nonsolicitation covenant contained in this Article 5, to cancel any unpaid severance payments, salary, bonus, commissions or reimbursements otherwise outstanding at the Date of Termination, including the suspension or elimination of payments and benefits under Articles 3 and 4. The Executive acknowledges that any such suspension or

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elimination of payments would not constitute, and should not be characterized as, liquidated damages.

Section 5.4Governing Law of this Article 5; Consent to Jurisdiction.

(a)Any dispute regarding the reasonableness of the covenants and agreements set forth in this Article 5 or the territorial scope or duration thereof or the remedies available to the Company upon any breach of such covenants and agreements, shall be governed by and interpreted in accordance with the laws of the State of Texas. The parties agree that it is their mutual intent that the provisions of this Agreement be enforced to the fullest extent permitted under applicable law, whether now or hereafter in effect, and, to the extent permitted by applicable law, the parties waive any provision of applicable law that would render any provision of Article 5 invalid or unenforceable.

(b)The Executive expressly, knowingly and voluntarily agrees that the covenants and agreements of Section 5.2 will be governed by and interpreted in accordance with the laws of the State of Texas, and the Executive expressly, knowingly and voluntarily consents to jurisdiction in state or federal court in Harris County, Texas, for any disputes arising out of or related to the covenants and agreements set forth in Section 5.2.

Section 5.5The Executive’s Understanding of this Article. The Executive represents to the Company that he or she has read and understands, and agrees to be bound by, the terms of this Article 5 (including Appendix A hereto). The Executive acknowledges that the covenants contained in Article 5 are the result of arm’s-length bargaining and are fair and reasonable in light of (a) the importance of the functions performed by the Executive and the length of time it would take the Company to find and train a suitable replacement, and (b) the nature and scope of the operations of the Group.

ARTICLE 6

MISCELLANEOUS

Section 6.1Binding Effect; Successors.

(a)This Agreement shall be binding upon and inure to the benefit of the Company and its successors or assigns, but the Company may assign this Agreement only (i) to an Affiliate or (ii) pursuant to a merger or consolidation in which the Company is not the continuing entity, or the sale or liquidation of all or substantially all of the assets of the Company, provided that the assignee or transferee is the successor to all or substantially all of the assets of the Company; and such assignee or transferee assumes the liabilities, obligations and duties of the Company under this Agreement, either contractually or as a matter of law.

(b)This Agreement is personal to the Executive and shall not be assignable by the Executive without the consent of the Company (there being no obligation to give such consent) other than such rights or benefits as are transferred by will or the laws of descent and distribution.

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(c)The Company shall require any successor to or assignee of (whether direct or indirect, by purchase, merger, consolidation or otherwise) all or substantially all of the assets or businesses of the Company to assume unconditionally in writing this Agreement.

(d)The Company shall also require all entities that control or that after a transaction will control (directly or indirectly) the Company or any such successor or assignee to agree in writing to cause to be performed all of the obligations under this Agreement.

Section 6.2Notices. All notices, claims, demands, or consents contemplated hereunder must be in writing and shall be deemed to have given upon receipt of delivery by: (a) hand (against a receipt therefor), (b) certified or registered mail, postage prepaid, return receipt requested, (c) a nationally recognized overnight courier service (against a receipt therefor) or (d) email transmission with confirmation of receipt. All such notices must be addressed as follows:

If to the Company, to:

Pacific Drilling Manpower, Inc.

11700 Katy Freeway, Suite 175

Houston, Texas 77079

Attention:  Lisa M. Buchanan, SVP & General Counsel

Email:l.buchanan@pacificdrilling.com

If to the Executive, to:

«Full_MI_Name»

«P_Address_Line_1»

«P_City», «State» «P_Postal_Code»

or such other address as to which any party hereto may have notified the other in writing.

Section 6.3Governing Law. This Agreement shall be construed and enforced in accordance with and governed by the internal laws of the State of Texas without regard to principles of conflict of laws.

Section 6.4Withholding. The Executive agrees that the Company has the right to withhold, from the amounts payable pursuant to this Agreement, all amounts required to be withheld under applicable income and/or employment tax laws, or as otherwise stated in documents granting rights that are affected by this Agreement.

Section 6.5Amendment, Waiver. No provision of this Agreement may be modified, amended or waived except by an instrument in writing signed by both parties.

Section 6.6Severability of Article 5. If any term or provision of Article 5 of this Agreement, or the application thereof to any person or circumstance, shall at any time or to any extent be invalid, illegal or unenforceable in any respect as written, the Executive and the Company intend for any court construing the terms and provisions of Article 5 to modify or limit such provision so as to render it valid and enforceable to the fullest extent allowed by law. Any

15

such provision that is not susceptible of such reformation shall be ignored so as to not affect any other term or provision of Article 5, and the remainder of this Agreement, or the application of such term or provision to persons or circumstances other than those as to which it is held invalid, illegal or unenforceable, shall not be affected thereby.

Section 6.7Waiver of Breach. The waiver by either party of a breach of any provision of this Agreement shall not constitute a waiver of any subsequent breach thereof.

Section 6.8Remedies Not Exclusive. No remedy specified herein shall be deemed an exclusive remedy, and accordingly, in addition to all of the rights and remedies provided for in this Agreement, the parties shall have all other rights and remedies available by applicable law.

Section 6.9Company’s Reservation of Rights. The Executive serves at the pleasure of the Parent’s Board of Directors and the Company has the right at any time to terminate the Executive’s employment by the Company, or to change or diminish his or her status, subject to the rights of the Executive to claim the benefits conferred by this Agreement.

Section 6.10Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument.

Section 6.11Conditions to Receipt of Benefits. . Notwithstanding anything in this Agreement to the contrary, the Executive’s eligibility and entitlement to the Severance Payment, the CIC Severance Payment and the acceleration and/or retention of the LTI Awards provided for under Sections 3.1 and 4.1 are dependent upon the Executive’s (a) continued compliance with the Executive’s obligations under Article 5 of this Agreement and (b) execution and delivery to the Company, on or before the Release Expiration Date (as defined below), and non-revocation within any time provided by the Company to do so, of a release of all claims in a form provided by the Company and Parent (the “Release”), which Release shall release each member of the Group and their respective affiliates, and the foregoing entities’ respective shareholders, members, partners, officers, managers, directors, fiduciaries, employees, representatives, attorneys, agents and benefit plans (and fiduciaries of such plans) from any and all claims, including any and all causes of action arising out of the Executive’s employment with the Company and any other member of the Group or the termination of such employment, but excluding all claims to severance payments the Executive may have under Articles 3 or 4 or any vested rights or benefits under any of the Company’s benefit plans or any other agreement in which the Executive participated immediately prior to the termination of such employment. If the Release is not executed and returned to the Company on or before the Release Expiration Date, and the required revocation period has not fully expired without revocation of the Release by the Executive, then the Executive shall not be entitled to any portion of payments or benefits under Section 3.1 or Section 4.1. As used herein, the “Release Expiration Date” is that date that is twenty-one (21) days following the date upon which the Company delivers the Release to the Executive (which shall occur no later than seven (7) days after the Date of Termination) or, in the event that such termination of employment is “in connection with an exit incentive or other employment termination program” for a group or class of employees (as such phrase is defined in the Age Discrimination in Employment Act of 1967, as amended), the date that is forty-five (45) days following such delivery date.

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Section 6.12Mutual Nondisparagement. Each party agrees that, following the Executive’s termination of employment, such party will not make any public statements which materially disparage the other party. Notwithstanding the foregoing, nothing in this Section 6.12 shall prohibit any person from making truthful statements when required by law, order of a court or other body having jurisdiction.

Section 6.13Assistance with Claims. Executive agrees that, consistent with the Executive’s business and personal affairs, during and after his or her employment by the Company, Executive will assist the Company and its Affiliates in the defense of any claims, or potential claims that may be made or threatened to be made against them in any legal, arbitration or governmental proceeding or investigation (a “Proceeding”), and will assist the Company and its Affiliates in the prosecution of any claims that may be made by the Company or its Affiliates in any Proceeding. The Company shall reimburse Executive for all of Executive’s reasonable out-of-pocket expenses associated with such assistance, including travel expenses and any attorneys’ fees and, following the Date of Termination, shall pay a reasonable per diem fee that is commensurate with the services required of the Executive.

Section 6.14No Set-Off; No Mitigation Obligation. The obligations of the Company to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive other than as set forth in Section 5.3 hereof. In no event shall the Executive be obligated to seek other employment or take any other action to mitigate the amounts or benefits payable to the Executive under any of the provisions of this Agreement.

Section 6.15Resignation from Board of Directors. If the Executive is a director of the Parent or any member of the Group, and his or her status as an employee is terminated for any reason other than death, the Executive shall, if requested by the Company, and as a condition to be paid or reimbursed any amounts or benefits hereunder, immediately resign as a director of the Parent or other member of the Group.

Section 6.16Mediation; Preservation of Legal Rights. Except as may be otherwise provided in Article 5 of this Agreement, any dispute or controversy arising under or in connection with this Agreement (“Dispute”) shall be settled in accordance with the procedures described in this Section 6.16.

(a)The parties shall attempt in good faith to resolve any Dispute promptly by discussions between Executive and executives or members of the Board of Directors of Parent (“Company Representatives”) who have authority to settle the Dispute. Either party may give to the other party notice (a “Dispute Notice”) of any Dispute not resolved in the normal course of business. Within five days after delivery of such notice, the Executive and Company Representatives shall agree upon a mutually acceptable time and place to meet and shall meet at the time and place agreed, and thereafter as often as they reasonably deem necessary, to exchange relevant information and to attempt to resolve the Dispute. The first such meeting shall take place within 30 days of the Dispute Notice. If the parties are unable to resolve the Dispute within 30 days of the first meeting, or if the parties fail to agree on a time and place for an initial meeting within five days of delivery of the Dispute Notice, either party may initiate mediation

17

and litigation of the Dispute as provided hereinafter. If a party intends to be accompanied at any meeting by an attorney, the other party shall be given at least three business days’ notice of that intention and may also be accompanied by an attorney. All discussions pursuant to this Section 6.16 shall be treated as compromise and settlement negotiations for the purposes of applicable rules of evidence and procedure.

(b)If the Dispute is not resolved through discussion as provided in Section 6.16(a), either disputing party may require the other to submit to non-binding mediation with the assistance of a neutral, unaffiliated mediator. If the parties are unable to agree upon a neutral party, they shall seek the assistance of the Company’s outside counsel in the selection process.

(c)If the parties are unable to resolve the Dispute through the foregoing non-binding procedures, each party shall have the full right to seek resolution of the Dispute through legal action. Any lawsuit relating to a Dispute arising out of or relating to this Agreement that is not resolved by the non-binding procedures provided above must be brought in a state or federal court located in Harris County, Texas. The parties agree to waive trial by jury.

(d)Notwithstanding the Dispute resolution provisions of this Section 6.16, either party may bring an action in a court of competent jurisdiction in an effort to enforce the provisions of this Section 6.16 and to seek injunctive relief to protect the party’s rights pending resolution of a Dispute pursuant to Section 6.16.

Section 6.17Company’s Representations. The Company represents and warrants that it is fully authorized to enter into this Agreement, that the Agreement has been duly authorized by all necessary corporate action, that the performance of its obligations under this Agreement will not violate any agreement between it and any other person, firm or organization or any applicable law or regulation and that this Agreement is enforceable in accordance with its terms.

Section 6.18Entire Agreement. This Agreement constitutes the entire agreement between the parties concerning the subject matter hereof and supersedes all prior and contemporaneous agreements, if any, between the parties relating to the subject matter hereof, except for the Letter Agreements, which shall continue to act to modify this Agreement.

Section 6.19Section 409A.

(a)Notwithstanding any provision of this Agreement to the contrary, all provisions of this Agreement are intended to comply with Section 409A or an exemption therefrom and shall be construed and administered in accordance with such intent. Any payments under this Agreement that may be excluded from Section 409A either as separation pay due to an involuntary separation from service or as a short-term deferral shall be excluded from Section 409A to the maximum extent possible. For purposes of Section 409A, each installment payment provided under this Agreement shall be treated as a separate payment. Any payments to be made under this Agreement upon a termination of the Executive’s employment shall only be made if such termination of employment constitutes a “separation from service” under Section 409A.

(b)To the extent that any right to reimbursement of expenses or payment of any benefit in-kind under this Agreement constitutes nonqualified deferred compensation (within

18

the meaning of Section 409A), (i) any such expense reimbursement shall be made by the Company no later than the last day of the taxable year following the taxable year in which such expense was incurred by the Executive, (ii) the right to reimbursement or in-kind benefits shall not be subject to liquidation or exchange for another benefit, and (iii) the amount of expenses eligible for reimbursement or in-kind benefits provided during any taxable year shall not affect the expenses eligible for reimbursement or in-kind benefits to be provided in any other taxable year; provided, that the foregoing clause shall not be violated with regard to expenses reimbursed under any arrangement covered by Section 105(b) of the Code solely because such expenses are subject to a limit related to the period in which the arrangement is in effect.

(c)Notwithstanding any provision in this Agreement to the contrary, if any payment or benefit provided for herein would be subject to additional taxes and interest under Section 409A if the Executive’s receipt of such payment or benefit is not delayed until the earlier of (i) the date of the Executive’s death or (ii) the date that is six (6) months after the Date of Termination (such date, the “Section 409A Payment Date”), then such payment or benefit shall not be provided to the Executive (or the Executive’s estate, if applicable) until the Section 409A Payment Date. Notwithstanding the foregoing, the Company makes no representations that the payments and benefits provided under this Agreement are exempt from, or compliant with, Section 409A and in no event shall any member of the Group be liable for all or any portion of any taxes, penalties, interest or other expenses that may be incurred by the Executive on account of non-compliance with Section 409A.

Section 6.20Clawback. To the extent required by applicable law or any applicable securities exchange listing standards, or if the Executive violates any non-competition, non-solicitation, non-disparagement or nondisclosure covenant or agreement with the Group, the Company may require forfeiture or recoupment of any severance or other compensation paid to the Executive under this Agreement. Notwithstanding any provision of this Agreement to the contrary, the Company and Parent reserve the right, without the consent of the Executive, to adopt any such clawback policies and procedures, including such policies and procedures applicable to this Agreement with retroactive effect; provided such clawback policies and procedures apply to all senior executives of the Company or Parent.

Section 6.21Survival. Notwithstanding the expiration of the term of this Agreement by virtue of Section 2.1 or otherwise, any provision of this Agreement which by its terms is intended to have continuing effect beyond the date on which the term of this Agreement expires, shall continue in full force and effect and shall be enforceable in accordance with its terms by the parties hereto.

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IN WITNESS WHEREOF, the Company and the Executive have caused this Agreement to be executed as of the Agreement Date.

COMPANY:

PACIFIC DRILLING MANPOWER, INC.

By:

Name:  Bernie G. Wolford, Jr.

Title:    Chief Executive Officer and President

EXECUTIVE:

«Full_MI_Name»

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Appendix A

JURISDICTIONS

(as of the Agreement Date)

The Executive acknowledges and agrees that as of the Agreement Date the Company operates throughout all territories listed below and that he/she performs services and/or, will perform services throughout those territories, and/or, has obtained Company confidential information, or will obtain Company confidential information regarding Company business throughout all territories.

The State of Texas, USA

The State of Mississippi, USA

The State of Alabama, USA

The State of Louisiana, USA

Ghana

Mauritania

Nigeria

Brazil

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EX-10.3

Exhibit 10.3

AMENDMENT NO. 1

TO

EMPLOYMENT AGREEMENT

THIS AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT (this “Amendment”) between Pacific Drilling Manpower, Inc., a Delaware corporation (the “Company”) and Bernie G. Wolford, Jr. (“Employee”) is dated effective as of August 25, 2020 (the “Amendment Date”).

RECITALS:

A.        The Company and Employee entered into an Employment Agreement, dated effective as of November 19, 2018, which was subsequently modified by that certain letter agreement dated April 1, 2020 (as so modified, the “Agreement”). Capitalized terms used but not defined herein shall have the meaning given in the Agreement.

B         The Parties desire to amend the Agreement as of the Amendment Date to provide additional severance protections to Employee and make certain other changes as set forth herein.

NOW THEREFORE, in consideration of Employee’s continued employment and for good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the Company and Employee agree to amend the Agreement as follows:

1.         As used in the Agreement and this Amendment, the term “Parent” shall refer to the ultimate parent entity of the Company, which may include as applicable Pacific Drilling S.A., a limited liability company (société anonyme) organized under the laws of Luxembourg, having its registered office located at 8-10 Avenue de la Gare, L-1610 Luxembourg, and registered with the Luxembourg register of commerce and companies under number B 159658, organized under the laws of Luxembourg (“PDSA”) or Pacific Drilling Company Limited, an entity established under the laws of the Cayman Islands, unless in the future a separate entity beneficially owns greater than 50% of the common stock of the Company, at which point such entity shall also be considered a “Parent.”

2.         Effective August 20, 2020, Employee and the Company entered into a letter agreement providing for the payment of retention and incentive bonus awards to Employee, subject to certain conditions, including Employee’s agreement that such awards are in lieu of his right to receive any award under the Company’s annual cash incentive program for 2020. The Parties agree that Employee’s waiver of his right to receive an annual cash incentive award for 2020 will not impact the calculation of any severance payments that may become due under the Agreement, and any references to the “target value of Employee’s Annual Bonus” for 2020 in the Agreement and this Amendment shall refer to Employee’s target value approved by the PDSA Board of Directors on March 10, 2020. Employee further agrees that the elimination of his right to receive an annual cash incentive award for 2020 does not constitute Good Reason under the Agreement.

3.         Section 5(c)(iii) is amended to revise the definition of “Good Reason” to remove limitations on Employee’s asserting Good Reason during the Protection Period, and shall read in its entirety as follows:

(iii)         a material and adverse change to, or a material reduction of, Employee’s duties and responsibilities to the Company or the Parent; or

4.         Section 5(d) of the Agreement is amended to revise the definition of “Disability” to be consistent with the definition of such term used in other agreements between the Company and its officers, and shall read in its entirety as follows:

(d)        Death or Disability. Upon the death or Disability of Employee, Employee’s employment with Company shall terminate. For purposes of this Agreement, a “Disability” shall exist if the Employee is rendered incapable of satisfactorily discharging his duties and responsibilities to the Company because of physical or mental illness, and either (i) Employee becomes eligible to receive benefits under the Company's long-term disability plan as in effect on the date of termination, or (ii) if the Company has no long-term disability plan in effect during such period, Employee is rendered incapable of performing his duties: (A) with or without reasonable accommodation; (B) with no return date; and/or (C) the period of incapacitation cannot be reasonably accommodated.

5.         Section 6(a) of the Agreement is amended to clarify language, and shall read in its entirety as follows:

(a)       For Cause; Other than for Good Reason. If Employee’s employment is terminated during the Employment Period (i) by the Company for Cause pursuant to Section 5(a) or (ii) by Employee other than for Good Reason pursuant to Section 5(e), then Employee shall be entitled to all earned but unused vacation and unpaid Base Salary earned by Employee through the date that Employee’s employment terminates (the “Termination Date”) and, subject to the terms and conditions of any benefit plans in which he may participate at the time of such termination, any post-employment benefits available pursuant to the terms of those plans; however, Employee shall not be entitled to any additional amounts or benefits as the result of such termination of employment.

6.         Section 6(b) of the Agreement is amended to revise the method of calculating the severance payments due under the Agreement and the duration of the Protection Period, and shall read in its entirety as follows:

(b)       Without Cause; For Good Reason.

(i)       In addition to the amounts in Section 6(a), subject to Section 6(g) below, Employee shall be entitled to certain severance consideration described below, payable at the times and in the form set forth in Section 6(f) below, if Employee’s employment is terminated during the Employment Period (x) by the Company without Cause pursuant to Section 5(b) or (y) by Employee for Good Reason pursuant to Section 5(c), the Company shall provide Employee with a severance payment in an amount equal to (A) $4,000,000 if such termination occurs prior to January 1, 2021 (the “Enhanced Payment”) (unless such termination occurs during the Protection Period as defined below) or (B) if such

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termination occurs on or after January 1, 2021 the sum of (1) two (2) times the sum of (i) the greater of Employee’s Base Salary as in effect immediately prior to the Termination Date or Employee’s Base Salary as of March 31, 2020 and (ii) the target value of Employee’s Annual Bonus for the Bonus Year during which such termination occurs in accordance with Section 3(b), and (2) an amount equal to the product of (i) the target value of Employee’s Annual Bonus for the Bonus Year during which such termination occurs in accordance with Section 3(b) and (ii) the fraction derived (expressed as a decimal) by dividing the number of days in the year of termination that preceded the Termination Date by 365, and (3) an amount equal to the sum of the Company contributions that would be made for 24 months of group life, long-term disability and health insurance benefits (collectively, the “Group Benefits”) calculated based on monthly Company contributions as of the Termination Date with respect to coverage that was provided to Employee and his dependents as of such date (the amount set forth in clause (A) or (B), the “Severance Payment”).

(ii)        Notwithstanding the foregoing, subject to Section 6(g) below and payable at the times and in the form set forth in Section 6(f) below, if Employee’s employment is terminated during the Employment Period (x) by the Company without Cause pursuant to Section 5(b) or (y) by Employee for Good Reason pursuant to Section 5(c), in each case, during the Protection Period (as defined below), in lieu of providing the amounts due in Section 6(b)(i), the Company shall provide Employee with a severance payment in an amount equal to the sum of (A) two and a half (2.5) times the sum of (1) the greater of Employee’s Base Salary as in effect immediately prior to the Termination Date or Employee’s Base Salary as of March 31, 2020 and (2) the target value of Employee’s Annual Bonus for the Bonus Year during which such termination occurs in accordance with Section 3(b), and (B) an amount equal to the sum of the Company contributions that would be made for 30 months of Group Benefits calculated based on monthly Company contributions as of the Termination Date with respect to coverage that was provided to Employee and his dependents as of such date (the “CIC Severance Payment”), (and for the avoidance of doubt if such termination is prior to January 1, 2021 then the CIC Severance Payment shall apply and not the Enhanced Payment). For purposes of this Agreement, “Protection Period” is the period of time during the Employment Period beginning on the date of a Change of Control and continuing through the date that is 18 months thereafter.

(iii)       Notwithstanding any other provision of this Agreement, Employee’s employment shall be deemed to have been terminated during the Protection Period following a Change of Control by the Company without Cause or by the Executive for Good Reason, if:

(A)         Employee’s employment is terminated by the Company without Cause or by Employee for Good Reason and such termination without Cause or the act, circumstance or event which constitutes Good Reason occurred after either: (i) the Company has signed a letter of intent or an agreement with respect to a transaction that if consummated would result in a Change of Control,

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or (ii) a public announcement is made of a proposed transaction that if consummated would result in a Change of Control, or

(B)         Employee’s employment is terminated by the Company without Cause or by Employee for Good Reason and on or before the earlier of the date that is six months following the Termination Date or March 10th of the calendar year following the Termination Date: (i) a Change of Control occurs, (ii) the Company signs a letter of intent or agreement with respect to a transaction that if consummated would result in a Change of Control, or (iii) a public announcement is made of a proposed transaction that if consummated would result in a Change of Control.

If the conditions of Section 6(b)(iii)(A) are met as of the Termination Date, Employee shall be entitled to the payments and benefits provided under and as set forth in Section 6(b)(ii) in lieu of the payments and benefits provided under Section 6(b)(i). If the conditions of Section 6(b)(iii)(B) are met, Employee shall be entitled to the payments and benefits provided under Section 6(b)(ii), less any payments and benefits previously received by the Executive or due under Section 6(b)(i), and any such additional payments shall be paid to Employee as soon as practicable following the applicable triggering event set forth in Section 6(b)(iii)(B), but in no event later than March 15th of the calendar year following the Termination Date, provided the condition in Section 6(g) was previously satisfied.

7.         Section 6(c) of the Agreement is amended to clarify language, and shall read in its entirety as follows:

(c)          Death or Disability. If Employee’s employment is terminated during the Employment Period due to Employee’s death or Disability pursuant to Section 5(d), then Employee shall be entitled to all earned but unpaid vacation and unpaid Base Salary earned by Employee through the Termination Date and, subject to the terms and conditions of any benefit plans in which he may participate at the time of such termination, any post-employment benefits available pursuant to the terms of those plans; however, Employee shall not be entitled to any additional amounts or benefits under this Agreement as the result of such termination of employment.

8.         Section 6(d) of the Agreement is amended to provide for accelerated vesting and retention of certain long-term incentive awards in connection with certain terminations of employment, and shall read in its entirety as follows:

(d)          Acceleration of Long-Term Incentive Awards. Subject to Section 6(g) below, if Employee’s employment is terminated during the Employment Period (i) by the Company without Cause pursuant to Section 5(b) or (ii) by Employee for Good Reason pursuant to Section 5(c), any long-term incentive awards, including but not limited to stock options, restricted stock, restricted stock units or long-term cash awards granted to the Executive by the Company or Parent

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(collectively, the “LTI Awards”) outstanding as of the Termination Date will be treated as follows:

(i)           vesting will accelerate for any LTI Awards that vest solely based on the passage of time (as opposed to performance) and that were scheduled to vest by their terms within one year following the Termination Date; provided however, that if such termination occurs during the Protection Period, vesting will accelerate for all LTI Awards that vest solely based on the passage of time; provided further, however, that payment of any such awards shall not be accelerated unless permitted under Section 409A, if applicable, and

(ii)          for LTI Awards that vest based on performance, if the performance period for such award will end within one year following the Termination Date, such award will not be forfeited but will remain outstanding and vest in accordance with its terms following the end of the performance period based on the level of achievement of the applicable performance goals; provided, however, that if such termination happens during the Protection Period, all LTI Awards that vest based on performance shall vest at the target level; provided further, however, that payment of any such awards shall not be accelerated unless permitted under Section 409A, if applicable.

To the extent this Section 6(d) changes the terms of any such LTI Awards held by Employee now or in the future in a manner that is beneficial to Employee, this Section 6(d) shall be deemed to be an amendment to the agreement between the Company or Parent and the Executive setting forth the terms of such awards and shall form a part of such agreement.

9.         Section 6(e) of the Agreement is deleted in its entirety and replaced with “[Intentionally Omitted.]”

10.       Section 6(f) of the Agreement is amended to include a reference to the timing of the acceleration of the LTI Awards, and shall read in its entirety as follows:

(f)           Payment Timing. Payment of the Severance Payment or the CIC Severance Payment (individually, as applicable, the “Cash Severance Payment”), as applicable, shall be divided into substantially equal installments and paid in accordance with the Company’s normal payroll procedures over a 18-month period for the Severance Payment, provided that if the Enhanced Payment is made then the period shall be 24 months rather than 18, and a 24-month period for the CIC Severance Payment, in each case, following the Termination Date; provided, however, that (i) the first installment of the Cash Severance Payment shall be paid and the acceleration of the LTI Awards provided for under Section 6(d) shall be effective on the Company’s first regularly scheduled pay date that is on or after the date that is sixty (60) days after the Termination Date, the Company shall pay to Employee, without interest, a number of such installments equal to the number of such installments that would have been paid during the period beginning on the Termination Date and ending on the Company’s first

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regularly scheduled pay date that is on or after the date that is sixty (60) days after the Termination Date had the installments been paid on a monthly basis commencing on the Company’s first regularly scheduled pay date coincident with or next following the Termination Date, and each of the remaining installments shall be paid on a monthly basis thereafter, (ii) to the extent, if any, that the aggregate amount of the installments of the Cash Severance Payment that would otherwise be paid pursuant to the preceding provisions of this Section 6(f) after March 15 of the calendar year following the calendar year in which the Termination Date occurs (the “Applicable March 15”) exceeds the maximum exemption amount under Treasury Regulation Section 1.409A-1(b)(9)(iii)(A), then such excess shall be paid to Employee in a lump sum on the Applicable March 15 (or the first business day preceding the Applicable March 15 if the Applicable March 15 is not a business day) and the installments of the Cash Severance Payment payable after the Applicable March 15 shall be reduced by such excess (beginning with the installment first payable after the Applicable March 15 and continuing with the next succeeding installment until the aggregate reduction equals such excess), and (iii) all remaining installments of the Cash Severance Payment, if any, that would otherwise be paid pursuant to the preceding provisions of this Section 6(f) after December 31 of the calendar year following the calendar year in which the Termination Date occurs shall be paid with the installment of the Cash Severance Payment, if any, due in December of the calendar year following the calendar year in which the Termination Date occurs.

11.       Section 6(i) of the Agreement is amended to revise the definition of “Change of Control,” and shall read in its entirety as follows:

(i)         Change of Control Definition. (i) As used herein, “Change of Control” means (capitalized terms not otherwise defined will have the meanings ascribed to them in paragraph (ii) below):

(A)       the acquisition by any Person together with all Affiliates of such Person, of Beneficial Ownership of more than 50% of the outstanding Shares, or more than 50% of the combined voting power of the Parent’s then outstanding securities; provided, however, that for purposes of this paragraph (i)(A), the following will not constitute a Change of Control:

(1)        any acquisition (other than a “Business Combination,” as defined below, that constitutes a Change of Control under paragraph (i)(B) hereof) of Shares directly from the Parent,

(2)        any acquisition of Shares by the Parent or its subsidiaries,

(3)        any acquisition of Shares by any employee benefit plan (or related trust) sponsored or maintained by the Parent or any corporation or other entity controlled by the Parent, or

(4)        any acquisition of Shares pursuant to a Business Combination that does not constitute a Change of Control under paragraph (i)(B) hereof; or

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(B)       the consummation of a reorganization, merger, consolidation, conversion, or statutory share exchange (including a merger or consolidation of the Parent or any direct or indirect subsidiary of the Parent), or sale or other disposition of all or substantially all of the assets of the Parent (a “Business Combination”), in each case, unless, immediately following such Business Combination, all of the following conditions exist:

(1)        the individuals and entities who were the Beneficial Owners of the Parent Voting Stock immediately prior to such Business Combination have direct or indirect Beneficial Ownership of more than 50% of the then outstanding shares of common stock, and more than 50% of the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, of the Post-Transaction Corporation, and

(2)        no Person together with all Affiliates of such Person (excluding the Parent and any employee benefit plan or related trust of the Post-Transaction Corporation or any subsidiary of the Parent, the Post-Transaction Corporation or any subsidiary of either), Beneficially Owns 50% or more of the then outstanding shares of common stock of the Post-Transaction Corporation or 50% or more of the combined voting power of the then outstanding voting securities of such corporation (provided that for purposes of this paragraph (i)(B)(2), if prior to the Business Combination a Person with its Affiliates owns more than 50%, then references to 50% shall refer to such higher percentage), and

(3)        at least a majority of the members of the board of directors of the Post-Transaction Corporation were members of the Board at the time of the Board’s execution of the initial agreement approving the Business Combination (or approved by a majority of the members of the Board at the time of such initial agreement), or

(C)       individuals who, as of the Amendment Date, constitute the Board of the Parent (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual who becomes a director after the Amendment Date through either (i) an election by the Incumbent Board to fill a vacancy, or (ii) an election by the Parent’s shareholders following a nomination of such individual by the vote of at least a majority of the directors then comprising the Incumbent Board, shall be considered a member of the Incumbent Board, unless such individual’s initial assumption of office is a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Incumbent Board, or

(D)       approval by the shareholders of the Parent of a complete liquidation or dissolution of the Parent.

(ii)       As used in this definition of Change of Control, the following terms have the meanings indicated:

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(A)       “Affiliate” means a Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, another specified Person.

(B)       “Beneficial Owner” (and variants thereof), with respect to a security, means a Person who, directly or indirectly (through any contract, understanding, relationship or otherwise), has or shares (1) the power to vote, or direct the voting of, the security, and/or (2) the power to dispose of, or to direct the disposition of, the security.

(C)       “Parent Voting Stock” or “Shares” means any capital stock of the Parent that is then entitled to vote for the election of directors.

(D)       “Person” means a natural person or entity, and will also mean the group or syndicate created when two or more Persons act as a syndicate or other group (including without limitation a partnership, limited partnership, joint venture or other joint undertaking) for the purpose of acquiring, holding, voting or disposing of a security, except that “Person” will not include an underwriter temporarily holding a security pursuant to an offering of the security.

(E)        “Post-Transaction Corporation” means (1) unless a Change of Control includes a Business Combination, the Parent after the Change of Control; or (2) if a Change of Control includes a Business Combination, the corporation resulting from the Business Combination unless, as a result of such Business Combination, an ultimate parent corporation controls the Parent or all or substantially all of the Parent’s assets either directly or indirectly, in which case, “Post-Transaction Corporation” shall mean such ultimate parent corporation.

12.       Section 7(b)(i) is amended to revise the parameters of the non-competition covenant, and shall read in its entirety as follows:

(i)           engage in or participate within the Market Area (as defined below) in competition with any member of the Company Group in any aspect of the Business (as defined below), which prohibition shall prevent Employee from directly or indirectly owning, managing, operating, joining, becoming an officer, director, employee or consultant of, or loaning money to, or selling or leasing equipment or real estate to or otherwise being affiliated with any person or entity engaged in, or planning to engage in, the Business in the Market Area; or

13.       Section 7(j)(v) of the Agreement is amended to add additional territories to the definition of “Market Area,” and shall read in its entirety as follows:

(v)          “Market Area” shall mean states of Texas, Mississippi, Alabama, and Louisiana, the countries of Ghana, Mauritania, Nigeria and Brazil, and any additional areas in which the Company expands its operations or creates plans to expand its operations with such areas added to Exhibit B hereof from time to time and provided to Employee.

14.       Section 8(a) of the Agreement is amended to change the applicable state for

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purposes of dispute resolution to the state of Texas, and shall read on its entirety as follows:

(a)          Each Party irrevocably agrees for the exclusive benefit of the other that any and all suits, actions or proceedings relating to this Agreement (a “Proceeding”) shall be maintained in either the courts of the State of Texas or the federal District Courts sitting in Houston, Texas (collectively, the “Chosen Courts”) and that the Chosen Courts shall have exclusive jurisdiction to hear and determine or settle any such Proceeding and that any such Proceedings shall only be brought in the Chosen Courts. Each Party irrevocably waives any objection that it may have now or hereafter to the laying of the venue of any Proceedings in the Chosen Courts and any claim that any Proceedings have been brought in an inconvenient forum and further irrevocably agrees that a judgment in any Proceeding brought in the Chosen Courts shall be conclusive and binding upon it and may be enforced in the courts of any other jurisdiction. Each of the Parties hereto irrevocably and unconditionally agrees that (i) to the extent such party is not otherwise subject to service of process in the State of Texas, it will appoint (and maintain an agreement with respect to) an agent in the State of Texas as such party’s agent for acceptance of legal process and notify the other party hereto of the name and address of said agent, (ii) service of process may also be made on such party by pre-paid certified mail with a validated proof of mailing receipt constituting evidence of valid service sent to such party at the address set forth in Section 17 of this Agreement, as such address may be changed from time to time pursuant hereto, and (iii) service made pursuant to clause (i) or (ii) above shall, to the fullest extent permitted by applicable law, have the same legal force and effect as if served upon such party personally within the State of Texas.

15.       Section 13 of the Agreement is amended to change the applicable state law to Texas, and shall read in its entirety as follows:

13.       Applicable Law. This Agreement shall in all respects be construed according to the laws of the State of Texas without regard to its conflict of laws principles that would result in the application of the laws of another jurisdiction.

16.       Section 20 of the Agreement, related to excise tax determinations, is amended to add procedural requirements regarding the calculation of such excise taxes, and shall read in its entirety as follows:

20.       Certain Excise Taxes. Notwithstanding anything to the contrary in this Agreement, if Employee is a “disqualified individual” (as defined in Section 280G(c) of the Code), and the payments and benefits provided for in this Agreement, together with any other payments and benefits which Employee has the right to receive from the Company or any of its affiliates, would constitute a “parachute payment” (as defined in Section 280G(b)(2) of the Code), then the payments and benefits provided for in this Agreement shall be either (i) reduced (but not below zero) so that the present value of such total amounts and benefits received by Employee from the Company or any of its affiliates shall be one dollar ($1.00) less than three times Employee’s “base amount” (as defined in

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Section 280G(b)(3) of the Code) and so that no portion of such amounts and benefits received by Employee shall be subject to the excise tax imposed by Section 4999 of the Code or (ii) paid in full, whichever produces the better net after-tax position to Employee (taking into account any applicable excise tax under Section 4999 of the Code and any other applicable taxes). The reduction of payments and benefits hereunder, if applicable, shall be made by reducing, first, payments or benefits to be paid in cash hereunder in the order in which such payment or benefit would be paid or provided (beginning with such payment or benefit that would be made last in time and continuing, to the extent necessary, through to such payment or benefit that would be made first in time) and, then, reducing any benefit to be provided in-kind hereunder in a similar order. All determinations required to be made under this Section 20 shall be made by the accounting firm that was the Parent's independent auditor prior to the Change of Control or any other third party acceptable to Employee and the Company (the "Accounting Firm"). The Accounting Firm shall provide detailed supporting calculations both to the Company and Employee. All fees and expenses of the Accounting Firm shall be borne solely by the Company. Absent manifest error, any determination by the Accounting Firm shall be binding upon the Company and Employee. If a reduced payment or benefit is made or provided and through error or otherwise that payment or benefit, when aggregated with other payments and benefits from the Company or any of its affiliates used in determining if a “parachute payment” exists, exceeds one dollar ($1.00) less than three times Employee’s base amount, then Employee shall immediately repay such excess to the Company upon notification that an overpayment has been made. Nothing in this Section 20 shall require the Company Group to be responsible for, or have any liability or obligation with respect to, Employee’s excise tax liabilities under Section 4999 of the Code.

17.       Parent previously guaranteed certain of the Company’s obligations under the Agreement, and the Company and Employee hereby release Parent from this guarantee, which will no longer be of any force and effect under the Agreement, and Section 26 of the Agreement is deleted in its entirety.

18.       This Amendment may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument.

19.       All terms and provisions of the Agreement not amended hereby, either expressly or by necessary implication, shall remain in full force and effect. From and after the Amendment Date, all references to the term “Agreement” in this Amendment or the original Agreement shall include the terms contained in this Amendment.

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IN WITNESS WHEREOF, Employee and the Company each have executed this Agreement to be effective as of the Amendment Date.

EMPLOYEE
Bernie G. Wolford, Jr.
PACIFIC DRILLING MANPOWER, INC.
By:
Name:	Amy Roddy
Title:	Senior Vice President, Corporate Services

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EX-10.4

Exhibit 10.4

AMENDMENT NO. 1

TO

EMPLOYMENT AGREEMENT

THIS AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT (this “Amendment”) between Pacific Drilling Manpower, Inc., a Delaware corporation (the “Company”) and James W. Harris (“Employee”) is dated effective as of August 25, 2020 (the “Amendment Date”).

RECITALS:

A.The Company and Employee entered into an Employment Agreement, dated effective as of July 22, 2019, which was subsequently modified by that certain letter agreement dated April 1, 2020 (as so modified, the “Agreement”). Capitalized terms used but not defined herein shall have the meaning given in the Agreement.

BThe Parties desire to amend the Agreement as of the Amendment Date to provide additional severance protections to Employee and make certain other changes as set forth herein.

NOW THEREFORE, in consideration of Employee’s continued employment and for good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the Company and Employee agree to amend the Agreement as follows:

1.As used in the Agreement and this Amendment, the term “Parent” shall refer to the ultimate parent entity of the Company, which may include as applicable Pacific Drilling S.A., a limited liability company (société anonyme) organized under the laws of Luxembourg, having its registered office located at 8-10 Avenue de la Gare, L-1610 Luxembourg, and registered with the Luxembourg register of commerce and companies under number B 159658, organized under the laws of Luxembourg (“PDSA”) or Pacific Drilling Company Limited, an entity established under the laws of the Cayman Islands, unless in the future a separate entity beneficially owns greater than 50% of the common stock of the Company, at which point such entity shall also be considered a “Parent.”

2.Effective August 20, 2020, Employee and the Company entered into a letter agreement providing for the payment of retention and incentive bonus awards to Employee, subject to certain conditions, including Employee’s agreement that such awards are in lieu of his right to receive any award under the Company’s annual cash incentive program for 2020. The Parties agree that Employee’s waiver of his right to receive an annual cash incentive award for 2020 will not impact the calculation of any severance payments that may become due under the Agreement, and any references to the “target value of Employee’s Annual Bonus” for 2020 in the Agreement and this Amendment shall refer to Employee’s target value approved by the PDSA Board of Directors on March 10, 2020. Employee further agrees that the elimination of his right to receive an annual cash incentive award for 2020 does not constitute Good Reason under the Agreement.

3.Section 5(c)(ii) of the Agreement is amended to revise this prong in the definition of “Good Reason” to be consistent with the provision in other agreements between the Company and its officers, and shall read in its entirety as follows:

(ii) the relocation of the geographic location of Employee’s principal place of employment to a location more than twenty five (25) miles outside the greater Houston, Texas metropolitan area (excluding reasonably required business travel in connection with the performance of Employee’s duties);

4.Section 5(d) of the Agreement is amended to revise the definition of “Disability” to be consistent with the definition of such term used in other agreements between the Company and its officers, and shall read in its entirety as follows:

(d)Death or Disability. Upon the death or Disability of Employee, Employee’s employment with Company shall terminate. For purposes of this Agreement, a “Disability” shall exist if the Employee is rendered incapable of satisfactorily discharging his duties and responsibilities to the Company because of physical or mental illness, and either (i) Employee becomes eligible to receive benefits under the Company's long-term disability plan as in effect on the date of termination, or (ii) if the Company has no long-term disability plan in effect during such period, Employee is rendered incapable of performing his duties: (A) with or without reasonable accommodation; (B) with no return date; and/or (C) the period of incapacitation cannot be reasonably accommodated.

5.Section 6(a) of the Agreement is amended to clarify language, and shall read in its entirety as follows:

(a)For Cause; Other than for Good Reason. If Employee’s employment is terminated during the Employment Period (i) by the Company for Cause pursuant to Section 5(a) or (ii) by Employee other than for Good Reason pursuant to Section 5(e), then Employee shall be entitled to all earned but unused vacation and unpaid Base Salary earned by Employee through the date that Employee’s employment terminates (the “Termination Date”) and, subject to the terms and conditions of any benefit plans in which he may participate at the time of such termination, any post-employment benefits available pursuant to the terms of those plans; however, Employee shall not be entitled to any additional amounts or benefits as the result of such termination of employment.

6.Section 6(b) of the Agreement is amended to revise the method of calculating the severance payments due under the Agreement and the duration of the Protection Period, and shall read in its entirety as follows:

(b)Without Cause; For Good Reason. In addition to the amounts in Section 6(a), and subject to Section 6(e) below, Employee shall be entitled to certain severance consideration described below, payable as set forth in Section 6(d) below, if Employee’s employment is terminated during the Employment Period (x) by the Company without Cause pursuant to Section 5(b) or (y) by Employee for Good Reason pursuant to Section 5(c), as follows:

(i)Except as otherwise provided in Section 6(b)(ii), the Company shall provide Employee with a severance payment in an amount equal

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to the sum of (A) one and one-half (1.5) times the sum of (1) the greater of Employee’s Base Salary as in effect immediately prior to the Termination Date or Employee’s Base Salary as of March 31, 2020 and (2) the target value of Employee’s Annual Bonus for the Bonus Year during which such termination occurs in accordance with Section 3(b), (B) an amount equal to the product of (1) the target value of Employee’s Annual Bonus for the Bonus Year during which such termination occurs in accordance with Section 3(b) and (2) the fraction derived (expressed as a decimal) by dividing the number of days in the year of termination that preceded the Termination Date by 365, and (C) an amount equal to the sum of the Company contributions that would be made for 18 months of group life, long-term disability and health insurance benefits (collectively, the “Group Benefits”) calculated based on monthly Company contributions as of the Termination Date with respect to coverage that was provided to Employee and his dependents as of such date (the “Severance Payment”).

(ii)If such termination of Employee’s employment by the Company without Cause or by Employee for Good Reason occurs during the Protection Period (as defined below), in lieu of the Severance Payment, the Company shall provide Employee with a severance payment equal to the sum of (A) two (2) times the sum of (1) the greater of Employee’s Base Salary as in effect immediately prior to the Termination Date or Employee’s Base Salary as of March 31, 2020 and (2) the target value of Employee’s Annual Bonus for the Bonus Year during which such termination occurs in accordance with Section 3(b), and (B) an amount equal to the sum of the Company contributions that would be made for 24 months of Group Benefits, calculated based on monthly Company contributions as of the Termination Date with respect to coverage that was provided to the Employee and his dependents as of such date (the “CIC Severance Payment”).

For purposes of this Agreement, “Protection Period” is the period of time during the Employment Period beginning on the date of a Change of Control and continuing through the date that is 18 months thereafter.

(iii)Notwithstanding any other provision of this Agreement, Employee’s employment shall be deemed to have been terminated during the Protection Period following a Change of Control by the Company without Cause or by the Executive for Good Reason, if:

(A)Employee’s employment is terminated by the Company without Cause or by Employee for Good Reason and such termination without Cause or the act, circumstance or event which constitutes Good Reason occurred after either: (i) the Company has signed a letter of intent or an agreement with respect to a transaction that if consummated would result in a Change of Control, or (ii) a public announcement is made of a proposed transaction that if consummated would result in a Change of Control, or

3

(B)Employee’s employment is terminated by the Company without Cause or by Employee for Good Reason and on or before the earlier of the date that is six months following the Termination Date or March 10th of the calendar year following the Termination Date: (i) a Change of Control occurs, (ii) the Company signs a letter of intent or agreement with respect to a transaction that if consummated would result in a Change of Control, or (iii) a public announcement is made of a proposed transaction that if consummated would result in a Change of Control.

If the conditions of Section 6(b)(iii)(A) are met as of the Termination Date, Employee shall be entitled to the payments and benefits provided under and as set forth in Section 6(b)(ii) in lieu of the payments and benefits provided under Section 6(b)(i). If the conditions of Section 6(b)(iii)(B) are met, Employee shall be entitled to the payments and benefits provided under Section 6(b)(ii), less any payments and benefits previously received by the Executive or due under Section 6(b)(i), and any such additional payments shall be paid to Employee as soon as practicable following the applicable triggering event set forth in Section 6(b)(iii)(B), but in no event later than March 15th of the calendar year following the Termination Date, provided the condition in Section 6(g) was previously satisfied.

7.Section 6(c) of the Agreement is amended to clarify language, and shall read in its entirety as follows:

(c)Death or Disability. If Employee’s employment is terminated during the Employment Period due to Employee’s death or Disability pursuant to Section 5(d), then Employee shall be entitled to all earned but unpaid vacation and unpaid Base Salary earned by Employee through the Termination Date and, subject to the terms and conditions of any benefit plans in which he may participate at the time of such termination, any post-employment benefits available pursuant to the terms of those plans; however, Employee shall not be entitled to any additional amounts or benefits under this Agreement as the result of such termination of employment.

8.Section 6(d) of the Agreement is amended to provide for the timing of vesting of outstanding LTI Awards (as defined in Section 10 below), and shall read in its entirety as follows:

(d)Payment Timing. Subject to Section 6(e), payment of the Severance Payment or the CIC Severance Payment (individually, as applicable, the “Cash Severance Payment”), as applicable, shall be made and the acceleration of the LTI Awards provided for under Section 6(h) shall be effective on the Company’s first regularly scheduled pay date that is on or after the date that is sixty (60) days after the Termination Date.

9.Section 6(e) of the Agreement is amended to include “other payments and benefits” as subject to the conditions set forth in the section, and shall read in its entirety as

4

follows:

(e)Conditions to Receipt of Severance Consideration. Notwithstanding the foregoing, Employee’s eligibility and entitlement to the Cash Severance Payment and any other payment or benefit referenced in Section 6 (collectively, the “Severance Consideration”) are dependent upon Employee’s (i) continued compliance with Employee’s obligations under each of Section 7 below and (ii) execution and delivery to the Company, on or before the Release Expiration Date (as defined below), and non-revocation within any time provided by the Company to do so, of a release of all claims in a form provided by the Company and Parent (the “Release”), which Release shall release each member of the Company Group and their respective affiliates, and the foregoing entities’ respective shareholders, members, partners, officers, managers, directors, fiduciaries, employees, representatives, attorneys, agents and benefit plans (and fiduciaries of such plans) from any and all claims, including any and all causes of action arising out of Employee’s employment with the Company and any other member of the Company Group or the termination of such employment, but excluding all claims to severance payments Employee may have under this Section 6 or any vested rights or benefits under any of the Company’s benefit plans or any other agreement in which Employee participated immediately prior to the termination of such employment. If the Release is not executed and returned to the Company on or before the Release Expiration Date, and the required revocation period has not fully expired without revocation of the Release by Employee, then Employee shall not be entitled to the Severance Consideration. As used herein, the “Release Expiration Date” is that date that is twenty-one (21) days following the date upon which the Company delivers the Release to Employee (which shall occur no later than seven (7) days after the Termination Date) or, in the event that such termination of employment is “in connection with an exit incentive or other employment termination program” for a group or class of employees (as such phrase is defined in the Age Discrimination in Employment Act of 1967, as amended), the date that is forty-five (45) days following such delivery date.

10.Section 6(g) of the Agreement is amended to revise the definition of “Change of Control,” and shall read in its entirety as follows:

(i)Change of Control Definition. (i) As used herein, “Change of Control” means (capitalized terms not otherwise defined will have the meanings ascribed to them in paragraph (ii) below):

(A)the acquisition by any Person together with all Affiliates of such Person, of Beneficial Ownership of more than 50% of the outstanding Shares, or more than 50% of the combined voting power of the Parent’s then outstanding securities; provided, however, that for purposes of this paragraph (i)(A), the following will not constitute a Change of Control:

(1)any acquisition (other than a “Business Combination,” as defined below, that constitutes a Change of Control under paragraph (i)(B) hereof) of Shares directly from the Parent,

5

(2)any acquisition of Shares by the Parent or its subsidiaries,

(3)any acquisition of Shares by any employee benefit plan (or related trust) sponsored or maintained by the Parent or any corporation or other entity controlled by the Parent, or

(4)any acquisition of Shares pursuant to a Business Combination that does not constitute a Change of Control under paragraph (i)(B) hereof; or

(B)the consummation of a reorganization, merger, consolidation, conversion, or statutory share exchange (including a merger or consolidation of the Parent or any direct or indirect subsidiary of the Parent), or sale or other disposition of all or substantially all of the assets of the Parent (a “Business Combination”), in each case, unless, immediately following such Business Combination, all of the following conditions exist:

(1)the individuals and entities who were the Beneficial Owners of the Parent Voting Stock immediately prior to such Business Combination have direct or indirect Beneficial Ownership of more than 50% of the then outstanding shares of common stock, and more than 50% of the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, of the Post-Transaction Corporation, and

(2)no Person together with all Affiliates of such Person (excluding the Parent and any employee benefit plan or related trust of the Post-Transaction Corporation or any subsidiary of the Parent, the Post-Transaction Corporation or any subsidiary of either), Beneficially Owns 50% or more of the then outstanding shares of common stock of the Post-Transaction Corporation or 50% or more of the combined voting power of the then outstanding voting securities of such corporation (provided that for purposes of this paragraph (i)(B)(2), if prior to the Business Combination a Person with its Affiliates owns more than 50%, then references to 50% shall refer to such higher percentage), and

(3)at least a majority of the members of the board of directors of the Post-Transaction Corporation were members of the Board at the time of the Board’s execution of the initial agreement approving the Business Combination (or approved by a majority of the members of the Board at the time of such initial agreement), or

(C)individuals who, as of the Amendment Date, constitute the Board of the Parent (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual who becomes a director after the Amendment Date through either (i) an election by the Incumbent Board to fill a vacancy, or (ii) an election by the Parent’s shareholders following a nomination of such individual by the vote of at least a majority of the directors then comprising the Incumbent Board, shall be considered a member of the Incumbent Board, unless such individual’s initial assumption of office is a result

6

of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Incumbent Board, or

(D)approval by the shareholders of the Parent of a complete liquidation or dissolution of the Parent.

(ii)As used in this definition of Change of Control, the following terms have the meanings indicated:

(A)“Affiliate” means a Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, another specified Person.

(B)“Beneficial Owner” (and variants thereof), with respect to a security, means a Person who, directly or indirectly (through any contract, understanding, relationship or otherwise), has or shares (1) the power to vote, or direct the voting of, the security, and/or (2) the power to dispose of, or to direct the disposition of, the security.

(C)“Parent Voting Stock” or “Shares” means any capital stock of the Parent that is then entitled to vote for the election of directors.

(D)“Person” means a natural person or entity, and will also mean the group or syndicate created when two or more Persons act as a syndicate or other group (including without limitation a partnership, limited partnership, joint venture or other joint undertaking) for the purpose of acquiring, holding, voting or disposing of a security, except that “Person” will not include an underwriter temporarily holding a security pursuant to an offering of the security.

(E)“Post-Transaction Corporation” means (1) unless a Change of Control includes a Business Combination, the Parent after the Change of Control; or (2) if a Change of Control includes a Business Combination, the corporation resulting from the Business Combination unless, as a result of such Business Combination, an ultimate parent corporation controls the Parent or all or substantially all of the Parent’s assets either directly or indirectly, in which case, “Post-Transaction Corporation” shall mean such ultimate parent corporation.

11.A new Section 6(h) of the Agreement is added to provide for accelerated vesting and retention of certain long-term incentive awards in connection with certain terminations of employment, and shall read in its entirety as follows:

(d)Acceleration of Long-Term Incentive Awards. Subject to Section 6(e) below, if Employee’s employment is terminated during the Employment Period (i) by the Company without Cause pursuant to Section 5(b) or (ii) by Employee for Good Reason pursuant to Section 5(c), any long-term incentive awards, including but not limited to stock options, restricted stock, restricted stock units or long-term cash awards granted to the Executive by the Company or Parent (collectively, the “LTI Awards”) outstanding as of the Termination Date will be treated as follows:

7

(i)vesting will accelerate for any LTI Awards that vest solely based on the passage of time (as opposed to performance) and that were scheduled to vest by their terms within one year following the Termination Date; provided however, that if such termination occurs during the Protection Period, vesting will accelerate for all LTI Awards that vest solely based on the passage of time; provided further, however, that payment of any such awards shall not be accelerated unless permitted under Section 409A, if applicable, and

(ii)for LTI Awards that vest based on performance, if the performance period for such award will end within one year following the Termination Date, such award will not be forfeited but will remain outstanding and vest in accordance with its terms following the end of the performance period based on the level of achievement of the applicable performance goals; provided, however, that if such termination happens during the Protection Period, all LTI Awards that vest based on performance shall vest at the target level; provided further, however, that payment of any such awards shall not be accelerated unless permitted under Section 409A, if applicable.

To the extent this Section 6(h) changes the terms of any such LTI Awards held by Employee now or in the future in a manner that is beneficial to Employee, this Section 6(h) shall be deemed to be an amendment to the agreement between the Company or Parent and the Executive setting forth the terms of such awards and shall form a part of such agreement.

12.Section 7(b)(i) is amended to revise the parameters of the non-competition covenant, and shall read in its entirety as follows:

(i)engage in or participate in competition with any member of the Company Group in any aspect of the Business (as defined below) within the Market Area (as defined below), which prohibition shall prevent Employee from directly or indirectly owning, managing, operating, joining, becoming an officer, director, employee or consultant of, or loaning money to, or selling or leasing equipment or real estate to or otherwise being affiliated with any person or entity engaged in, or planning to engage in, the Business in the Market Area; or

13.Section 7(j)(v) of the Agreement is amended to add additional territories to the definition of “Market Area,” and shall read in its entirety as follows:

(v)“Market Area” shall mean states of Texas, Mississippi, Alabama, and Louisiana, the countries of Ghana, Mauritania, Nigeria and Brazil, and any additional areas in which the Company expands its operations or creates plans to expand its operations with such areas added to Exhibit B hereof from time to time and provided to Employee.

14.Section 20 of the Agreement, related to excise tax determinations, is amended to add procedural requirements regarding the calculation of such excise taxes, and shall read in its entirety as follows:

8

20.Certain Excise Taxes. Notwithstanding anything to the contrary in this Agreement, if Employee is a “disqualified individual” (as defined in Section 280G(c) of the Code), and the payments and benefits provided for in this Agreement, together with any other payments and benefits which Employee has the right to receive from the Company or any of its affiliates, would constitute a “parachute payment” (as defined in Section 280G(b)(2) of the Code), then the payments and benefits provided for in this Agreement shall be either (i) reduced (but not below zero) so that the present value of such total amounts and benefits received by Employee from the Company or any of its affiliates shall be one dollar ($1.00) less than three times Employee’s “base amount” (as defined in Section 280G(b)(3) of the Code) and so that no portion of such amounts and benefits received by Employee shall be subject to the excise tax imposed by Section 4999 of the Code or (ii) paid in full, whichever produces the better net after-tax position to Employee (taking into account any applicable excise tax under Section 4999 of the Code and any other applicable taxes). The reduction of payments and benefits hereunder, if applicable, shall be made by reducing, first, payments or benefits to be paid in cash hereunder in the order in which such payment or benefit would be paid or provided (beginning with such payment or benefit that would be made last in time and continuing, to the extent necessary, through to such payment or benefit that would be made first in time) and, then, reducing any benefit to be provided in-kind hereunder in a similar order. All determinations required to be made under this Section 20 shall be made by the accounting firm that was the Parent's independent auditor prior to the Change of Control or any other third party acceptable to Employee and the Company (the "Accounting Firm"). The Accounting Firm shall provide detailed supporting calculations both to the Company and Employee. All fees and expenses of the Accounting Firm shall be borne solely by the Company. Absent manifest error, any determination by the Accounting Firm shall be binding upon the Company and Employee. If a reduced payment or benefit is made or provided and through error or otherwise that payment or benefit, when aggregated with other payments and benefits from the Company or any of its affiliates used in determining if a “parachute payment” exists, exceeds one dollar ($1.00) less than three times Employee’s base amount, then Employee shall immediately repay such excess to the Company upon notification that an overpayment has been made. Nothing in this Section 20 shall require the Company Group to be responsible for, or have any liability or obligation with respect to, Employee’s excise tax liabilities under Section 4999 of the Code.

15.Parent previously guaranteed certain of the Company’s obligations under the Agreement, and the Company and Employee hereby release Parent from this guarantee, which will no longer be of any force and effect under the Agreement, and Section 26 of the Agreement is deleted in its entirety.

16.This Amendment may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument.

9

17.All terms and provisions of the Agreement not amended hereby, either expressly or by necessary implication, shall remain in full force and effect. From and after the Amendment Date, all references to the term “Agreement” in this Amendment or the original Agreement shall include the terms contained in this Amendment.

10

IN WITNESS WHEREOF, Employee and the Company each have executed this Agreement to be effective as of the Amendment Date.

EMPLOYEE

James W. Harris

PACIFIC DRILLING MANPOWER, INC.

By:

Name:  Bernie G. Wolford, Jr.

Title:    Chief Executive Officer and President

11

EX-31.1

Exhibit 31.1

CEO CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Bernie G. Wolford Jr., certify that:

1. I have reviewed this report on Form 10-Q of Pacific Drilling S.A.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 6, 2020

By:	/s/ Bernie G. Wolford Jr.
Name:	Bernie G. Wolford Jr.
Title:	Chief Executive Officer

EX-31.2

Exhibit 31.2

CFO CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, James W. Harris, certify that:

1. I have reviewed this report on Form 10-Q of Pacific Drilling S.A.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 6, 2020

By:	/s/ James W. Harris
Name:	James W. Harris
Title:	Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION
PURSUANT TO SECTION 906 OF

THE SARBANES-OXLEY ACT OF 2002 (SUBSECTIONS (a) AND (b)

OF SECTION 1350, CHAPTER 63 OF TITLE 18, UNITED STATES CODE)

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), I, Bernie G. Wolford Jr., Chief Executive Officer of Pacific Drilling S.A., hereby certify, to my knowledge, that:

1. the Company’s quarterly report on Form 10-Q for the quarter ended September 30, 2020 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 6, 2020

By:	/s/ Bernie G. Wolford Jr.
Name:	Bernie G. Wolford Jr.
Title:	Chief Executive Officer

The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) and is not being filed as part of the Report or as a separate disclosure document.

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the U.S. Securities and Exchange Commission or its staff upon request.

EX-32.2

Exhibit 32.2

CERTIFICATION
PURSUANT TO SECTION 906 OF

THE SARBANES-OXLEY ACT OF 2002 (SUBSECTIONS (a) AND (b)

OF SECTION 1350, CHAPTER 63 OF TITLE 18, UNITED STATES CODE)

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), I, James W. Harris, Chief Financial Officer of Pacific Drilling S.A., hereby certify, to my knowledge, that:

1. the Company’s quarterly report on Form 10-Q for the quarter ended September 30, 2020 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 6, 2020

By:	/s/ James W. Harris
Name:	James W. Harris
Title:	Chief Financial Officer

The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) and is not being filed as part of the Report or as a separate disclosure document.

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the U.S. Securities and Exchange Commission or its staff upon request.

XML

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2020	Oct. 30, 2020
Document And Entity Information [Abstract]
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Sep. 30, 2020
Document Transition Report	false
Entity File Number	001-35345
Entity Registrant Name	PACIFIC DRILLING S.A.
Entity Incorporation, State or Country Code	N4
Entity Tax Identification Number	00-0000000
Entity Address, Address Line One	8-10, Avenue de la Gare
Entity Address, Postal Zip Code	L-1610
Entity Address, Country	LU
City Area Code	+352
Local Phone Number	27 85 81 35
Title of 12(b) Security	Common shares, par value $0.01 per share
Trading Symbol	PACD
Security Exchange Name	NYSE
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Bankruptcy Proceedings, Reporting Current	true
Entity Common Stock, Shares Outstanding		75,203,391
Entity Address, City or Town	Luxembourg
Amendment Flag	false
Document Fiscal Year Focus	2020
Document Fiscal Period Focus	Q3
Entity Central Index Key	0001517342
Current Fiscal Year End Date	--12-31

XML

Condensed Consolidated Statements of Operations - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Revenues
Contract drilling	$ 46,415	$ 54,315	$ 174,758	$ 196,646
Revenue, Product and Service [Extensible List]	us-gaap:OilAndGasServiceMember	us-gaap:OilAndGasServiceMember	us-gaap:OilAndGasServiceMember	us-gaap:OilAndGasServiceMember
Costs and expenses
Operating expenses	$ 48,429	$ 60,324	$ 196,758	$ 164,874
General and administrative expenses	8,486	8,855	26,376	30,111
Depreciation and amortization expense	26,889	47,734	80,631	165,963
Pre-petition charges	7,278		9,888
Loss from unconsolidated subsidiaries		488		2,512
Total costs and expenses	91,082	117,401	313,653	363,460
Operating loss	(44,667)	(63,086)	(138,895)	(166,814)
Other income (expense)
Interest expense	(26,619)	(24,459)	(78,353)	(72,904)
Write-off of debt premium, net	4,448		4,448
Reorganization items		(24)	(362)	(1,905)
Interest income	194	1,510	1,522	5,147
Other expense	(236)	(409)	(449)	(720)
Loss before income taxes	(66,880)	(86,468)	(212,089)	(237,196)
Income tax expense	3,363	4,315	6,515	11,152
Net loss	$ (70,243)	$ (90,783)	$ (218,604)	$ (248,348)
Loss per common share, basic (in dollars per share)	$ (0.93)	$ (1.21)	$ (2.91)	$ (3.31)
Weighted-average shares outstanding, basic	75,203	75,005	75,195	75,012
Loss per common share, diluted (in dollars per share)	$ (0.93)	$ (1.21)	$ (2.91)	$ (3.31)
Weighted-average shares outstanding, diluted	75,203	75,005	75,195	75,012

XML

Condensed Consolidated Statements of Comprehensive Loss - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Statement of Comprehensive Income [Abstract]
Net loss	$ (70,243)	$ (90,783)	$ (218,604)	$ (248,348)
Total comprehensive loss	$ (70,243)	$ (90,783)	$ (218,604)	$ (248,348)

XML

Condensed Consolidated Balance Sheets - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019
Assets:
Cash and cash equivalents	$ 218,681	$ 278,620
Restricted cash	6,106	6,089
Accounts receivable, net	24,159	29,252
Materials and supplies	45,217	43,933
Deferred costs, current	4,094	16,961
Prepaid expenses and other current assets	19,842	15,732
Total current assets	318,099	390,587
Property and equipment, net	1,766,188	1,842,549
Other assets	26,034	23,423
Total assets	2,110,321	2,256,559
Liabilities and shareholders' equity:
Accounts payable	16,512	24,223
Accrued expenses	26,631	27,924
Long-term debt, current	1,126,391
Accrued interest	50,990	15,703
Deferred revenue, current	1,616	7,567
Total current liabilities	1,222,140	75,417
Long-term debt		1,073,734
Other long-term liabilities	33,432	38,577
Total liabilities	1,255,572	1,187,728
Commitments and contingencies
Shareholders' equity:
Common shares, $0.01 par value per share, 82,500 shares authorized and issued and 75,203 and 75,007 shares outstanding as of September 30, 2020 and December 31, 2019, respectively	752	751
Additional paid-in capital	1,657,202	1,652,681
Treasury shares, at cost	(652)	(652)
Accumulated deficit	(802,553)	(583,949)
Total shareholders' equity	854,749	1,068,831
Total liabilities and shareholders' equity	$ 2,110,321	$ 2,256,559

XML

Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares shares in Thousands	Sep. 30, 2020	Dec. 31, 2019
Statement of Financial Position [Abstract]
Common shares, par value (in dollars per share)	$ 0.01	$ 0.01
Common shares, shares authorized	82,500	82,500
Common shares, shares issued	82,500	82,500
Common shares, shares outstanding	75,203	75,007

XML

Condensed Consolidated Statements of Shareholders' Equity - USD ($) shares in Thousands, $ in Thousands	Common Shares	Additional Paid-In Capital	Treasury Shares	Accumulated Deficit	Total
Beginning Balance (in shares) at Dec. 31, 2018	75,031		7,469
Beginning Balance at Dec. 31, 2018	$ 750	$ 1,645,692		$ (27,484)	$ 1,618,958
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Shares repurchased			$ (124)		(124)
Shares repurchased (in shares)	(8)		8
Share-based compensation		865			865
Net loss				(83,979)	(83,979)
Ending Balance (in shares) at Mar. 31, 2019	75,023		7,477
Ending Balance at Mar. 31, 2019	$ 750	1,646,557	$ (124)	(111,463)	1,535,720
Beginning Balance (in shares) at Dec. 31, 2018	75,031		7,469
Beginning Balance at Dec. 31, 2018	$ 750	1,645,692		(27,484)	1,618,958
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net loss					(248,348)
Ending Balance (in shares) at Sep. 30, 2019	75,007		7,493
Ending Balance at Sep. 30, 2019	$ 751	1,650,685	$ (652)	(275,832)	1,374,952
Beginning Balance (in shares) at Mar. 31, 2019	75,023		7,477
Beginning Balance at Mar. 31, 2019	$ 750	1,646,557	$ (124)	(111,463)	1,535,720
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Shares repurchased			$ (528)		(528)
Shares repurchased (in shares)	(36)		36
Share-based compensation		2,199			2,199
Net loss				(73,586)	(73,586)
Ending Balance (in shares) at Jun. 30, 2019	74,987		7,513
Ending Balance at Jun. 30, 2019	$ 750	1,648,756	$ (652)	(185,049)	1,463,805
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Shares issued under share-based compensation plan (in shares)	20		(20)
Shares issued under share-based compensation plan	$ 1	(83)			(82)
Share-based compensation		2,012			2,012
Net loss				(90,783)	(90,783)
Ending Balance (in shares) at Sep. 30, 2019	75,007		7,493
Ending Balance at Sep. 30, 2019	$ 751	1,650,685	$ (652)	(275,832)	$ 1,374,952
Beginning Balance (in shares) at Dec. 31, 2019	75,007		7,493		82,500
Beginning Balance at Dec. 31, 2019	$ 751	1,652,681	$ (652)	(583,949)	$ 1,068,831
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Shares issued under share-based compensation plan (in shares)	192		(192)
Shares issued under share-based compensation plan	$ 1	(280)			(279)
Share-based compensation		1,847			1,847
Net loss				(60,963)	(60,963)
Ending Balance (in shares) at Mar. 31, 2020	75,199		7,301
Ending Balance at Mar. 31, 2020	$ 752	1,654,248	$ (652)	(644,912)	$ 1,009,436
Beginning Balance (in shares) at Dec. 31, 2019	75,007		7,493		82,500
Beginning Balance at Dec. 31, 2019	$ 751	1,652,681	$ (652)	(583,949)	$ 1,068,831
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net loss					$ (218,604)
Ending Balance (in shares) at Sep. 30, 2020	75,203		7,297		82,500
Ending Balance at Sep. 30, 2020	$ 752	1,657,202	$ (652)	(802,553)	$ 854,749
Beginning Balance (in shares) at Mar. 31, 2020	75,199		7,301
Beginning Balance at Mar. 31, 2020	$ 752	1,654,248	$ (652)	(644,912)	1,009,436
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Shares issued under share-based compensation plan (in shares)	4		(4)
Share-based compensation		1,806			1,806
Net loss				(87,398)	(87,398)
Ending Balance (in shares) at Jun. 30, 2020	75,203		7,297
Ending Balance at Jun. 30, 2020	$ 752	1,656,054	$ (652)	(732,310)	923,844
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Modification of unvested share-based compensation awards resulting in liability classification		(239)			(239)
Share-based compensation		1,387			1,387
Net loss				(70,243)	$ (70,243)
Ending Balance (in shares) at Sep. 30, 2020	75,203		7,297		82,500
Ending Balance at Sep. 30, 2020	$ 752	$ 1,657,202	$ (652)	$ (802,553)	$ 854,749

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Condensed Consolidated Statements of Cash Flows - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019
Cash flow from operating activities:
Net loss	$ (218,604)	$ (248,348)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization expense	80,631	165,963
Amortization of deferred revenue	(11,433)	(1,513)
Amortization of deferred costs	20,824	879
Amortization of deferred financing costs	430
Amortization of debt premium, net	(519)	(330)
Interest paid-in-kind	9,237	25,638
Write-off of debt premium, net	(4,448)
Deferred income taxes	1,065	7,157
Share-based compensation expense	5,041	5,076
Loss from unconsolidated subsidiaries		2,512
Changes in operating assets and liabilities:
Accounts receivable	5,093	38,798
Materials and supplies	(1,284)	(3,557)
Deferred costs	(13,968)	(6,329)
Prepaid expenses and other assets	(2,000)	(4,155)
Accounts payable and accrued expenses	25,971	16,729
Deferred revenue	5,482	7,444
Net cash provided by (used in) operating activities	(98,482)	5,964
Cash flow from investing activities:
Capital expenditures	(9,342)	(31,108)
Net cash used in investing activities	(9,342)	(31,108)
Cash flow from financing activities:
Payments for shares issued under share-based compensation plan	(280)	(82)
Proceeds from long-term debt	50,000
Payments for financing costs	(1,818)	(1,215)
Purchases of treasury shares		(652)
Net cash provided by (used in) financing activities	47,902	(1,949)
Net decrease in cash and cash equivalents	(59,922)	(27,093)
Cash, cash equivalents and restricted cash, beginning of period	284,709	389,075
Cash, cash equivalents and restricted cash, end of period	$ 224,787	$ 361,982

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Nature of Business

9 Months Ended

Sep. 30, 2020

Nature of Business

Nature of Business

Note 1 — Nature of Business

Pacific Drilling S.A. and its subsidiaries (“Pacific Drilling,” the “Company,” “we,” “us” or “our”) is an international offshore drilling contractor committed to exceeding client expectations by delivering the safest, most efficient and reliable deepwater drilling services in the industry.

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Bankruptcy Proceedings and Liquidity

9 Months Ended

Sep. 30, 2020

Emergence from Bankruptcy Proceedings

Bankruptcy Proceedings and Liquidity

Note 2 — Bankruptcy Proceedings and Liquidity

Bankruptcy Proceeding — On October 30, 2020 (the “Petition Date”), Pacific Drilling S.A. and certain of its subsidiaries (collectively, the “Debtors”) filed voluntary petitions (the “Bankruptcy Petitions”) for relief under Chapter 11 of Title 11 of the United States Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Southern District of Texas (the “Bankruptcy Court”) and commenced insolvency proceedings in the Cayman Islands whereby the Company initiated the pre-presentation process for the Company’s wholly-owned, Cayman Island subsidiary, Pacific Drilling Company Limited, in the Grand Court of the Cayman Islands Financial Services Division (the “Cayman Proceedings”). On November 1, 2020, the Bankruptcy Court approved the joint administration of the Chapter 11 proceedings under the caption In re Pacific Drilling S.A., et al., Case No. 20-35212 (DRJ). No trustee has been appointed and we will continue to operate as a “debtor in possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and the orders of the Bankruptcy Court. To assure ordinary course operations, we have sought and obtained approval from the Bankruptcy Court for a variety of “first day” motions, including authority to maintain bank accounts and other customary relief. The relief requested in these motions will allow us to continue to operate our business in the normal course.

The Bankruptcy Petitions and the Cayman Proceedings were filed in order to effect a pre-arranged, consensual joint Chapter 11 plan of reorganization (the “Plan of Reorganization”) in accordance with the terms of a restructuring support agreement entered into by and among the Debtors and certain holders (the “Consenting Creditors”) of the Company’s Notes (as defined below) on October 30, 2020 (the “RSA”).

As a result of the Bankruptcy Petitions, the realization of assets and the satisfaction of liabilities are subject to uncertainty. The filing of the Bankruptcy Petitions constituted an event of default with respect to all of our existing debt obligations. While operating as debtors-in-possession under Chapter 11, we may sell or otherwise dispose of or liquidate assets or settle liabilities, subject to the approval of the Bankruptcy Court or as otherwise permitted in the ordinary course of business (and subject to applicable orders of the Bankruptcy Court), for amounts other than those reflected in the accompanying condensed consolidated financial statements. Further, any restructuring plan may impact the amounts and classifications of assets and liabilities reported in our condensed consolidated financial statements.

Emergence from 2017 Bankruptcy Proceedings — On November 2, 2018, the United States Bankruptcy Court for the Southern District of New York (the “2017 Bankruptcy Court”) confirmed the Company’s Modified Fourth Amended Joint Plan of Reorganization, dated October 31, 2018 (the “2018 Plan”), and on November 19, 2018, the 2018 Plan became effective and we emerged from our 2017 Chapter 11 bankruptcy proceedings (the “2017 Bankruptcy Proceedings”) after successfully completing our reorganization pursuant to the 2018 Plan. We had filed the 2018 Plan with the 2017 Bankruptcy Court in connection with our voluntary petitions for relief under the Bankruptcy Code, initially filed on November 12, 2017 (the “2017 Petition Date”), which were jointly administered under the caption In re Pacific Drilling S.A., et al., Case No. 17-13193 (MEW).

The Company’s two subsidiaries involved in the arbitration with Samsung Heavy Industries Co. Ltd. (“SHI”) related to the Pacific Zonda (see Note 13), Pacific Drilling VIII Limited and Pacific Drilling Services, Inc. (together, the “Zonda Debtors”), filed a separate plan of reorganization that was confirmed by order of the 2017 Bankruptcy Court on January 30, 2019 (the “Zonda Plan”) and are not Debtors under the 2018 Plan or the current Bankruptcy Petitions.

Pursuant to the 2018 Plan, we raised approximately $1.5 billion in new capital, before expenses, consisting of

approximately $1.0 billion raised through the issuance of $750.0 million aggregate principal amount of our 8.375% First Lien Notes due 2023 (the “First Lien Notes”) and approximately $273.6 million aggregate principal amount of our 11.0%/12.0% Second Lien PIK Notes due 2024 (the “Second Lien PIK Notes” and, together with the First Lien Notes, the “Notes”), and $500.0 million raised through the issuance of new common shares pursuant to a private placement and a separate equity rights offering. We used a portion of the net proceeds to repay all of our pre-petition indebtedness that was not equitized pursuant to the 2018 Plan to repay the post-petition debtor-in-possession financing, and to pay certain fees and expenses.

Upon our emergence from the 2017 Bankruptcy Proceedings on November 19, 2018, we deconsolidated the Zonda Debtors. The Zonda Debtors remain in the 2017 Bankruptcy Proceedings. During the year ended December 31, 2019, we accounted for our investment in the Zonda Debtors using the equity method of accounting. As of December 31, 2019, we discontinued applying the equity method on the Zonda Debtors. See Note 13.

Liquidity — Our liquidity fluctuates depending on a number of factors, including, among others, our contract backlog, our revenue efficiency and the timing of accounts receivable collection, as well as payments for operating costs and other obligations.

Primary sources of funds for our short-term liquidity needs are expected to be our existing cash and cash equivalents. As of October 31, 2020, we had $116.4 million of cash and cash equivalents and $5.8 million of restricted cash. As part of our “first day” relief in the Chapter 11 proceedings, we obtained approval from the Bankruptcy Court of our motion seeking authority to use property that may be deemed to be “cash collateral” of our pre-petition lenders within the meaning of Section 363(a) of the Bankruptcy Code, which may include a portion of our cash flow generated from operating activities.

We have significant indebtedness. Our level of indebtedness has adversely impacted and is continuing to adversely impact our financial condition. Our financial condition, the defaults under our debt agreements, and the risks and uncertainties surrounding our Chapter 11 proceedings raise substantial doubt about our ability to continue as a going concern. However, the condensed consolidated financial statements have been prepared on a going concern basis of accounting, which contemplates continuity of operations, realization of assets, and satisfaction of liabilities and commitments in the normal course of business. The condensed consolidated financial statements do not include any adjustments that might result from the outcome of our Chapter 11 proceedings. If we cannot continue as a going concern, adjustments to the carrying values and classification of our assets and liabilities and the reported amounts of income and expenses could be required and could be material.

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Significant Accounting Policies

9 Months Ended

Sep. 30, 2020

Significant Accounting Policies

Significant Accounting Policies

Note 3 — Significant Accounting Policies

Basis of Presentation — Our accompanying condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (“SEC”). Pursuant to such rules and regulations, these financial statements do not include all disclosures required by GAAP for complete financial statements. Our condensed consolidated financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair presentation of our financial position, results of operations and cash flows for the presented interim periods. Such adjustments are considered to be of a normal recurring nature unless otherwise identified. Operating results for the three and nine months ended September 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020 or for any future period. The accompanying condensed consolidated financial statements and notes should be read in conjunction with the audited consolidated financial statements and notes of the Company for the year ended December 31, 2019, included in our annual report on Form 10-K filed on March 12, 2020 (our “2019 Annual Report”).

Principles of Consolidation — Our condensed consolidated financial statements include the accounts of Pacific Drilling S.A., and consolidated subsidiaries that we control by ownership of a majority voting interest and entities that meet the criteria for variable interest entities for which we are deemed to be the primary beneficiary for accounting

purposes. We eliminate all intercompany transactions and balances in consolidation.

We are party to a Nigerian joint venture, Pacific International Drilling West Africa Limited (“PIDWAL”), with Derotech Offshore Services Limited (“Derotech”), a privately-held Nigerian registered limited liability company. Derotech owns 51% of PIDWAL and we own 49% of PIDWAL. Each of, Pacific Bora Ltd. (“PBL”) and Pacific Scirocco Ltd. (“PSL”), which own the Pacific Bora and the Pacific Scirocco, respectively, are owned 49.9% by our wholly-owned subsidiary, Pacific Drilling Limited (“PDL”) and 50.1% by Pacific Drillship Nigeria Limited (“PDNL”). PDNL is owned 0.1% by PDL and 99.9% by PIDWAL. Derotech will not accrue the economic benefits of its interest in PIDWAL unless and until it satisfies certain outstanding obligations to us and a certain pledge is cancelled by us. Likewise, PIDWAL will not accrue the economic benefits of its interest in PDNL unless and until it satisfies certain outstanding obligations to us and a certain pledge is cancelled by us. PIDWAL and PDNL are variable interest entities for which we are the primary beneficiary. Accordingly, we consolidate all interests of PIDWAL and PDNL in our condensed consolidated financial statements and no portion of their operating results is allocated to the noncontrolling interest.

Recently Adopted Accounting Standards

Measurement of Credit Losses on Financial Instruments — On June 16, 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326), which introduces a new model for recognizing credit losses based on an estimate of expected lifetime credit loss on financial assets ranging from short-term trade accounts receivable to long-term financings. In April 2019, the FASB issued codification improvements to Topic 326 to clarify all expected recoveries should be included in the estimate of the allowance for credit losses. We adopted the standard effective January 1, 2020 with no material effect on our consolidated statements of financial position, operations or cash flows or related disclosures. See Note 10.

Recently Issued Accounting Standards

Simplifications to Income Tax Accounting — On December 18, 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes, which removes certain exceptions for investments, intra-period allocations and interim calculations, and adds guidance to reduce complexity in accounting for income taxes. This update is effective for annual and interim periods beginning after January 1, 2021. We are currently evaluating the effect the standard may have on our consolidated financial statements and related disclosures.

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Property and Equipment

9 Months Ended

Sep. 30, 2020

Property and Equipment

Property and Equipment

Note 4 — Property and Equipment

Property and equipment consists of the following:

	September 30,		December 31,
	2020		2019
	(in thousands)
Drillships and related equipment	$	1,966,409	$	1,962,211
Other property and equipment		330		259
Property and equipment, cost		1,966,739		1,962,470
Accumulated depreciation		(200,551)		(119,921)
Property and equipment, net	$	1,766,188	$	1,842,549

During the first quarter of 2020, the COVID-19 pandemic weakened demand for oil, and we saw significant cuts in the current year’s capital expenditure budgets for many exploration and production companies coupled with a severe oversupply of oil. The impact of these market conditions on our business has been direct and significantly negative. As a result, we determined an impairment indicator existed and we tested for impairment in the first quarter of 2020. We performed a recoverability test and determined that the estimated undiscounted cash flows of our drillships significantly exceeded their carrying amounts. As a result, no impairment loss was recorded.

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Debt

9 Months Ended

Sep. 30, 2020

Debt

Debt

Note 5 — Debt

As of September 30, 2020, debt, net of debt premium (discount), consisted of the following:

	September 30,		December 31,
	2020		2019
	(in thousands)
Due within one year:
Revolving Credit Facility	$	50,000	$	—
First Lien Notes		750,000		—
Second Lien PIK Notes		326,391		—
Total current debt		1,126,391		—
Long-term debt:
First Lien Notes		—		747,910
Second Lien PIK Notes		—		325,824
Total long-term debt		—		1,073,734
Total debt	$	1,126,391	$	1,073,734

First Lien Notes

On September 26, 2018, Pacific Drilling First Lien Escrow Issuer Limited (the “First Lien Escrow Issuer”), a private company limited by shares incorporated in the British Virgin Islands and wholly owned subsidiary of the Company, entered into an indenture (the “First Lien Notes Indenture”) with Wilmington Trust, National Association, as trustee (the “Trustee”) and collateral agent, relating to the issuance by the First Lien Escrow Issuer of the First Lien Notes. In November 2018, the First Lien Escrow Issuer merged into the Company and the Company assumed all obligations of the First Lien Escrow Issuer under the First Lien Notes Indenture.

While discussions with the Consenting Creditors regarding the terms of a potential consensual comprehensive restructuring of its indebtedness were continuing prior to the filing of the Bankruptcy Petitions, the Company did not make the $31.4 million interest payment due and payable on October 1, 2020 with respect to the First Lien Notes, and used the 30-day grace period provided under the indentures governing the First Lien Notes. The Company’s election to use the grace period did not trigger a cross-default under any of the Company’s debt obligations as the Company obtained any necessary waiver or consent. As a result of the filing of the Bankruptcy Petitions, the full principal amount of the First Lien Notes was automatically accelerated and is currently due and payable.

The First Lien Notes accrue interest at a rate of 8.375% per annum, payable semi-annually in arrears on April 1 and October 1 of each year beginning on April 1, 2019. The First Lien Notes will mature on October 1, 2023, unless earlier redeemed or repurchased.

The First Lien Notes are jointly and severally and fully and unconditionally guaranteed on a senior secured basis by all of the Company’s subsidiaries other than the Zonda Debtors, certain immaterial subsidiaries and PIDWAL. On October 15, 2020, the High Court denied the application of the Zonda Debtors to appeal the arbitration award against them. Accordingly, the Company expects that the Zonda Debtors will be liquidated in accordance with the terms of the Zonda Plan and the Zonda Debtors will not provide collateral for or guarantee the First Lien Notes or the Second Lien PIK Notes. See Note 13 for further discussion.

The First Lien Notes are secured by first-priority liens on substantially all assets of the Company and the guarantors (other than certain excluded property), including (i) vessels, (ii) books and records, (iii) certain deposit accounts and the amounts contained therein, (iv) assignments of proceeds of hull and machinery and loss of hire

insurance, (v) assignments of earnings from drilling contracts, and (vi) equity interests owned by the Company and the guarantors, in each case, subject to certain exceptions.

The First Lien Notes Indenture contains covenants limiting the ability of the Company, and any subsidiary to, among other things, (i) incur or guarantee additional indebtedness and issue preferred stock, (ii) pay dividends on or redeem or repurchase capital stock, make certain investments, make certain payments on or with respect to subordinated and junior debt (including making cash interest or principal payments on the Second Lien PIK Notes (as defined below)), (iii) create or incur certain liens, (iv) impose restrictions on the ability of restricted subsidiaries to pay dividends, (v) merge or consolidate with other entities, (vi) enter into certain transactions with affiliates, (vii) impair the security interests in the collateral for the First Lien Notes, and (viii) engage in certain lines of business. These covenants are subject to a number of important exceptions and qualifications and certain of them will be suspended with respect to the First Lien Notes in the event that the First Lien Notes obtain an investment grade rating.

The Company may be required to offer to purchase the First Lien Notes at 101.0% of the principal amount thereof, plus accrued and unpaid interest, upon the occurrence of a Change of Control (as defined in the First Lien Notes Indenture), and at 100.0% of the principal amount, plus accrued and unpaid interest, under certain other circumstances.

At any time on or after October 1, 2020, the Company may redeem the First Lien Notes, in whole or in part, at the following redemption prices (expressed as a percentage of the principal amount), plus accrued and unpaid interest, during the twelve-month period beginning on October 1 of the years indicated: 2020 – 104.188%; 2021 – 102.094%; 2022 and thereafter – 100.0%.

The First Lien Notes Indenture contains customary events of default, including, among other things, (i) failure to make required payments; (ii) failure to comply with certain agreements or covenants; (iii) failure to pay certain other indebtedness; (iv) certain events of bankruptcy and insolvency; and (v) failure to pay certain judgments. An event of default under the First Lien Notes Indenture will allow either the Trustee or the holders of at least 25.0% in aggregate principal amount of the then-outstanding First Lien Notes to accelerate, or in certain cases will automatically cause the acceleration of, the amounts due under the First Lien Notes.

Intercreditor Agreement

The relationship between holders of First Lien Notes (and any future first lien debt), on the one hand, and Second Lien PIK Notes (and any future junior lien debt), on the other hand, is governed by an intercreditor agreement. Pursuant to the intercreditor agreement, the liens securing first lien debt are effectively senior in priority to the liens securing junior lien debt.

Second Lien PIK Notes

On September 26, 2018, Pacific Drilling Second Lien Escrow Issuer Limited (the “Second Lien Escrow Issuer”), a private company limited by shares incorporated in the British Virgin Islands and a wholly owned subsidiary of the Company, entered into an indenture (the “Second Lien PIK Notes Indenture”) with the Trustee, as trustee and junior lien collateral agent, relating to the issuance by the Second Lien Escrow Issuer of approximately $273.6 million aggregate principal amount of Second Lien PIK Notes. Approximately $23.6 million aggregate principal amount was issued as a commitment fee to an ad hoc group of holders of our pre-petition notes in exchange for their agreement to backstop the issuance of the Second Lien PIK Notes. In November 2018, the Second Lien Escrow Issuer merged into the Company and the Company assumed all obligations of the Second Lien Escrow Issuer under the Second Lien PIK Notes Indenture.

While discussions with the Consenting Creditors regarding the terms of a potential consensual comprehensive restructuring of its indebtedness were continuing prior to the filing of the Bankruptcy Petitions, the Company did not make the $19.6 million interest payment due and payable on October 1, 2020 with respect to the Second Lien PIK Notes, and used the 30-day grace period provided under the indentures governing the Second Lien PIK Notes. The Company’s election to use the grace period did not trigger a cross-default under any of the Company’s debt obligations as the

Company obtained any necessary waiver or consent.As a result of the filing of the Bankruptcy Petitions, the full principal amount of the Second Lien PIK Notes was automatically accelerated and is currently due and payable.

For each interest period, interest is payable, at the option of the Company, (i) entirely in cash (“Cash Interest”), (ii) entirely through the issuance of additional Second Lien PIK Notes having the same terms and conditions as the Second Lien PIK Notes issued in the initial Second Lien PIK Notes offering in a principal amount equal to the amount of interest then due and payable or by increasing the then outstanding aggregate principal amount of Second Lien PIK Notes (“PIK Interest”) or (iii) 50% as Cash Interest and 50% as PIK Interest. If the Company elects to pay interest for an interest period entirely in the form of Cash Interest, interest will accrue at a rate of 11.0% per annum for such interest period. If the Company elects to pay interest for an interest period entirely in the form of PIK Interest, interest will accrue at a rate of 12.0% per annum for such interest period. If the Company elects to pay 50% in Cash Interest and 50% in PIK Interest for an interest period, (i) interest in respect of the Cash Interest portion will accrue at 11.0% and (ii) interest in respect of the PIK Interest portion will accrue at 12.0% for such interest period.

Interest on the Second Lien PIK Notes is payable semi-annually in arrears on April 1 and October 1 of each year beginning on April 1, 2019. The Second Lien PIK Notes will mature on April 1, 2024, unless earlier redeemed or repurchased. As of September 30, 2020, the Company has made the following payments in the form of PIK Interest:

Payment Date	PIK Interest
	(in thousands)
April 1, 2019	$	16,873
October 1, 2019		17,429
April 1, 2020		18,475

The Second Lien PIK Notes are jointly and severally and fully and unconditionally guaranteed on a senior secured basis by all of the Company’s subsidiaries that guarantee the Company’s First Lien Notes and are secured by second-priority liens on all of the assets of the Company and the guarantors that also serve as collateral for the Company’s First Lien Notes.

The Second Lien PIK Notes Indenture contains covenants limiting the ability of the Company, and any subsidiary to, among other things, (i) incur or guarantee additional indebtedness and issue preferred stock, (ii) pay dividends on or redeem or repurchase capital stock, make certain investments, make certain payments on or with respect to subordinated and junior debt, (iii) create or incur certain liens, (iv) impose restrictions on the ability of restricted subsidiaries to pay dividends, (v) merge or consolidate with other entities, (vi) enter into certain transactions with affiliates, (vii) impair the security interests in the collateral for the Second Lien PIK Notes, and (viii) engage in certain lines of business. These covenants are subject to a number of important exceptions and qualifications and certain of them will be suspended with respect to the Second Lien PIK Notes in the event that the Second Lien PIK Notes obtain an investment grade rating.

The Company may be required to offer to purchase the Second Lien PIK Notes at 101.0% of the principal amount thereof, plus accrued and unpaid interest, upon the occurrence of a Change of Control (as defined in the Second Lien PIK Notes Indenture) (a “Change of Control Offer”), and at 100.0% of the principal amount, plus accrued and unpaid interest, under certain other circumstances.

The Company may redeem the Second Lien PIK Notes, in whole or in part, at the following redemption prices (expressed as a percentage of principal amount), plus any accrued and unpaid interest, during the six-month period beginning on the dates indicated below:

Date	Price
October 1, 2020	109.0%
April 1, 2021	106.0%
October 1, 2021	103.0%
April 1, 2022 and thereafter	100.0%

At any time after a Change of Control occurs, the Company may redeem all, but not less than all, of the Second Lien PIK Notes at the following redemption prices (expressed as a percentage of principal amount), plus any accrued and unpaid interest, during the six-month period beginning on the dates indicated below:

Date	Price
October 1, 2020	109.0%
April 1, 2021	106.0%
October 1, 2021	103.0%
April 1, 2022 and thereafter	100.0%

If the Company exercises this Change of Control redemption right, it may elect not to make the Change of Control Offer described above.

The Second Lien PIK Notes Indenture contains customary events of default, including, among other things, (i) failure to make required payments; (ii) failure to comply with certain agreements or covenants; (iii) failure to pay certain other indebtedness; (iv) certain events of bankruptcy and insolvency; and (v) failure to pay certain judgments. An event of default under the Second Lien PIK Notes Indenture will allow either the Trustee or the holders of at least 25.0% in aggregate principal amount of the then-outstanding Second Lien PIK Notes to accelerate, or in certain cases, will automatically cause the acceleration of, the amounts due under the Second Lien PIK Notes.

Revolving Credit Facility

On February 7, 2020, the Company, as borrower, Angelo, Gordon Energy Servicer, LLC (“Angelo Gordon”), as administrative agent and the lenders party thereto, entered into a revolving credit agreement that provided a $50.0 million first lien superpriority revolving credit facility (the “Revolving Credit Facility”). As of September 30, 2020, the full available amount of $50.0 million was drawn on the facility. All borrowings under the Revolving Credit Facility were incurred at the Company level. The Revolving Credit Facility was scheduled to mature on April 1, 2023.

Borrowings under the Revolving Credit Facility bore interest at a LIBO rate determined by reference to the then effective three-month LIBO rate, with a 1.5% floor, adjusted for statutory reserve requirements, plus an applicable percentage of 7.5%, payable quarterly. The Company paid a quarterly commitment fee at a 1.5% annual rate for unused commitments. The Company was required to pay a “prepayment premium” in connection with prepayments resulting in termination of the Revolving Credit Facility equal to 2% of the principal amount of such commitments terminated during the first 12 months following the closing date.

On October 30, 2020, prior to the filing of the Bankruptcy Petitions, the Company repaid in full the $50.0 million Revolving Credit Facility plus accrued interest and prepayment premium, and the Revolving Credit Facility was terminated. Upon such repayment in accordance with the payoff letter, dated October 29, 2020 by and between the Company and Angelo Gordon, the Revolving Credit Facility and all commitments thereunder were terminated, all liens and security interests granted to secure the obligations under the Revolving Credit Facility were automatically

terminated, and the Company and its agents and designees were authorized to file such termination statements and releases in order to permit the termination of such liens and security interests.

Debt Premium (Discount) and Deferred Financing Costs

As a result of the filing of the Bankruptcy Petitions, we wrote off $6.1 million of unamortized net debt premium associated with our First Lien Notes and Second Lien PIK Notes and $1.6 million of deferred financing costs associated with the Revolving Credit Facility as of September 30, 2020. The net effect of such write-offs is presented as “Write-off of debt premium, net” in the condensed consolidated statements of operations.

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Earnings per Share

9 Months Ended

Sep. 30, 2020

Earnings Per Share

Earnings per Share

Note 6 — Earnings per Share

The following reflects the income and the share data used in the basic and diluted earnings per share (“EPS”) computations:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	(in thousands, except per share information)
Numerator:
Net loss, basic and diluted	$	(70,243)	$	(90,783)	$	(218,604)	$	(248,348)
Denominator:
Weighted-average shares outstanding, basic		75,203		75,005		75,195		75,012
Weighted-average shares outstanding, diluted		75,203		75,005		75,195		75,012
Loss per share:
Basic	$	(0.93)	$	(1.21)	$	(2.91)	$	(3.31)
Diluted	$	(0.93)	$	(1.21)	$	(2.91)	$	(3.31)

The following table presents the share effects of share-based compensation awards that were excluded from our computations of diluted EPS, as their effect would have been anti-dilutive for the periods presented:

	Three Months Ended September 30,		Nine Months Ended September 30,
	2020	2019	2020	2019
	(in thousands)		(in thousands)
Share-based compensation awards	169	1,622	169	1,622

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Income Taxes

9 Months Ended

Sep. 30, 2020

Income Taxes

Income Taxes

Note 7 — Income Taxes

We recognize tax benefits from an uncertain tax position only if it is more likely than not that the position will be sustained upon examination by taxing authorities based on the technical merits of the position. The amount recognized is the largest benefit that we believe has greater than a 50% likelihood of being realized upon settlement. As of September 30, 2020 and December 31, 2019, we had $43.5 million and $43.5 million, respectively, of unrecognized tax benefits which were included in other long-term liabilities on our condensed consolidated balance sheets and would favorably impact our consolidated effective tax rate if realized. To the extent we have income tax receivable balances available to utilize against amounts payable for unrecognized tax benefits, we have presented such receivable balances as a reduction to other long-term liabilities on our condensed consolidated balance sheets. As of September 30, 2020 and December 31, 2019 we have no accrued interest and penalties related to uncertain tax positions on our balance sheets as such payments would not be required by law.

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Revenue from Contracts with Clients

9 Months Ended

Sep. 30, 2020

Revenue from Contracts with Clients

Revenue from Contracts with Clients

Note 8 — Revenue from Contracts with Clients

Our contracts generally provide for termination at the election of the client with an “early termination payment” to be paid to us if a contract is terminated prior to the expiration of the fixed term. Such compensation is recognized as revenue when our performance obligation is satisfied, the termination fee can be reasonably measured and collection is probable. For the three and nine months ended September 30, 2020, our revenue included $14.1 million of termination fees as a result of client cancellations.

Contract Assets and Liabilities

The following table provides information about trade receivables, contract assets and contract liabilities:

	September 30,		December 31,
	2020		2019
	(in thousands)
Trade receivables, net	$	23,588	$	28,926
Current contract liabilities (deferred revenue)		1,616		7,567

Significant changes in contract assets and contract liabilities for the nine months ended September 30, 2020 are as follows:

	Contract Assets		Contract Liabilities
	(in thousands)
Balance at December 31, 2019	$	—	$	7,567
Decrease due to amortization of deferred revenue		—		(11,433)
Increase due to billings related to mobilization revenue and capital upgrades		—		5,582
Increase due to demobilization revenue recognized		5,100		—
Decrease due to billing of demobilization fee		(5,000)		—
Transfers between balances		(100)		(100)
Balance at September 30, 2020	$	—	$	1,616

Future Amortization of Contract Liabilities

The following table reflects revenue expected to be recognized in the future related to unsatisfied performance obligations as of September 30, 2020:

	Remaining
	three months		For the years ending December 31,
	2020		2021		2022		2023 and thereafter		Total
	(in thousands)
Amortization of contract liabilities	$	633	$	1,095	$	—	$	—	$	1,728

The expected timing for recognition of such revenue is based on the estimated start date and duration of each respective contract as of September 30, 2020. The actual timing of recognition of such amounts may vary due to factors outside of our control. We have applied the optional exemption in Topic 606 and have not disclosed the variable consideration related to our estimated future dayrate revenue.

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Leases

9 Months Ended

Sep. 30, 2020

Leases

Leases

Note 9 — Leases

Our leasing activities primarily consist of operating leases with our integrated services subcontractors, corporate offices, regional shorebase offices and office equipment. The components and other information related to leases are as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	(in thousands)
Lease Expense
Operating lease cost	$	5,382	$	732	$	22,932	$	2,100
Supplemental Cash Flows Information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases		366		360		1,099		1,079
Right-of-use assets obtained in exchange for lease obligations:
Operating leases		—		—		—		6,935

	September 30, 2020		December 31, 2019
Weighted Average Remaining Lease Term (in years)
Operating leases		4.0		4.8
Weighted Average Discount Rate
Operating leases		8.1%		8.1%

Future minimum lease payments for our leases as of September 30, 2020 and a reconciliation to lease liabilities recorded on our condensed consolidated balance sheet are as follows:

	Operating Leases
Years Ending December 31,	(in thousands)
2020 (excluding nine months ended September 30, 2020)	$	373
2021		1,499
2022		1,525
2023		1,552
2024		1,179
Total future minimum lease payments		6,128
Less imputed interest		(882)
Total	$	5,246
Reported as of September 30, 2020
Accrued expenses	$	1,118
Other long-term liabilities		4,128
Total lease liabilities	$	5,246

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Credit Losses

9 Months Ended

Sep. 30, 2020

Credit Losses

Credit Losses

Note 10 — Credit Losses

Effective January 1, 2020, we recognize an allowance for credit losses that results in the underlying accounts receivable reflecting the net amount expected to be collected. The allowance is measured and recorded upon the initial

recognition of the accounts receivable based on its amortized cost that we do not expect to collect over the contractual life.

We use short-term creditworthiness data of our clients from credit rating agencies to measure expected credit losses on accounts receivable on a collective basis when similar risk characteristics exist. If we determine that the accounts receivable from a client does not share risk characteristics with others, we evaluate the asset for expected credit losses on an individual basis and do not include it in a collective evaluation. To estimate the allowance for credit losses, we apply the aging method based on our historical credit loss experience adjusted for any applicable current conditions and reasonable and supportable forecasts of future economic conditions. We considered the impact of the COVID-19 pandemic and lower oil prices on our current estimate of credit losses as of September 30, 2020.

As of both January 1, 2020 and September 30, 2020, the allowance for credit losses related to our accounts receivable and contract assets was nil, and there were no corresponding activities for the three and nine months ended September 30, 2020.

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Share-Based Compensation

9 Months Ended

Sep. 30, 2020

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Share-Based Compensation

Note 11 — Share-Based Compensation

During the third quarter of 2020, the Company modified its cash incentive programs and cancelled all outstanding equity compensation awards granted to key executive officers and employees with the concurrent grant of new cash retention and incentive bonuses. The retention bonuses are subject to service-based vesting through the earlier of: (i) August 3, 2021 and (ii) the effective date of the Company’s Plan of Reorganization (the “Vesting Date”). The incentive bonuses are subject to both (i) performance-based vesting upon the Company’s achievement of certain performance metrics during the third and fourth quarters of the Company’s 2020 fiscal year and (ii) service-based vesting through either the payment date of the bonus (for non-executive employees) or the Vesting Date (for executive officers). We accounted for the transaction as a modification of unvested share-based compensation awards, which resulted in the transfer of $0.2 million from equity to liability for the three months ended September 30, 2020.

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Fair Value Measurements

9 Months Ended

Sep. 30, 2020

Fair Value Disclosures

Fair Value Measurements

Note 12 — Fair Value Measurements

We estimated fair value by using appropriate valuation methodologies and information available to management as of September 30, 2020 and December 31, 2019. Considerable judgment is required in developing these estimates, and accordingly, estimated values may differ from actual results.

The estimated fair value of cash and cash equivalents, restricted cash, accounts receivable, accounts payable and accrued expenses approximated their carrying value due to their short-term nature. It is not practicable to estimate the fair value of the Revolving Credit Facility. The following table presents the carrying value and estimated fair value of our cash and cash equivalents and debt:

	September 30, 2020				December 31, 2019
	Carrying		Estimated		Carrying		Estimated
	Value		Fair Value		Value		Fair Value
		(in thousands)
Cash and cash equivalents	$	218,681	$	218,681	$	278,620	$	278,620
First Lien Notes		750,000		135,000		747,910		682,500
Second Lien PIK Notes		326,391		1,632		325,824		183,949

Our cash equivalents are primarily invested in money market instruments with original maturities of three months or less. We estimate the fair values of our debt using quoted market prices to the extent available and significant other observable inputs, which represent Level 2 fair value measurements.

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Commitments and Contingencies

9 Months Ended

Sep. 30, 2020

Commitments and Contingencies Disclosure

Commitments and Contingencies

Note 13 — Commitments and Contingencies

Commitments — As of September 30, 2020, we had no material commitments.

Bank Guarantee — As of September 30, 2020, 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.

On the Petition Date, Pacific Drilling S.A. and certain of its subsidiaries filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court. As a result of the Chapter 11 proceedings, attempts to prosecute, collect, secure or enforce remedies with respect to pre-petition claims against us are subject to the automatic stay provisions of Section 362(a) of the Bankruptcy Code, including litigation relating to us and our subsidiaries that are Debtors in the Chapter 11 proceedings.

In January 2013, the Zonda Debtors entered into, and/or guaranteed a 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 (the “Construction Contract”). 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 claimed that the Zonda Debtors wrongfully rejected their tendered delivery of the drillship and sought 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 was suspended until an award in the Zonda Debtors’ favor under the arbitration was 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.

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.

As part of our “first day” relief in the 2017 Chapter 11 proceedings, the 2017 Bankruptcy Court granted us a modification of the automatic stay provisions of the Bankruptcy Code to allow us to proceed with this arbitration. In the 2017 Chapter 11 proceedings, SHI 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. On November 19, 2018, the Company and certain of its subsidiaries other than the Zonda Debtors emerged from bankruptcy after successfully completing their reorganization pursuant to the 2018 Plan. The Zonda Debtors filed the Zonda Plan which was confirmed by order of the 2017 Bankruptcy Court on January 30, 2019 and are not Debtors under the 2018 Plan or the current Bankruptcy Proceedings. 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 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. On October 15, 2020, the High Court in London denied the application by the Zonda Debtors. 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. 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 2018 Plan and emerged from bankruptcy, SHI filed with the 2017 Bankruptcy Court an untimely secured contingency claim against Pacific Drilling S.A., our parent company, in the amount of approximately $387.4 million. We 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 2017 Bankruptcy Court. On March 26, 2020, the 2017 Bankruptcy Court sustained our objection and expunged SHI’s claim, and on May 8, 2020, the 2017 Bankruptcy Court issued an order closing the Company’s 2017 bankruptcy case. The Company does not believe there would be a sound legal basis upon which any claims could be asserted by the Zonda Debtors against the Debtors. Nevertheless, under the terms of the Plan of Reorganization, any such claims or causes of action asserted, or that may be asserted, by the Zonda Debtors are General Unsecured Claims that will receive no distribution under the Plan of Reorganization, and will be released, extinguished, and discharged by the Plan of Reorganization.

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Supplemental Cash Flow Information

9 Months Ended

Sep. 30, 2020

Supplemental Cash Flow Information

Supplemental Cash Flow Information

Note 14 — Supplemental Cash Flow Information

During the nine months ended September 30, 2020 and 2019, we paid $33.9 million and $32.3 million of interest in cash, respectively. During the nine months ended September 30, 2020 and 2019, we paid $4.0 million and $6.3 million of income taxes, respectively.

During the nine months ended September 30, 2020 and 2019, we paid $0.8 million and $4.5 million in reorganization items, respectively.

Within our condensed consolidated statements of cash flows, capital expenditures represent expenditures for which cash payments were made during the period. These amounts exclude accrued capital expenditures, which are capital expenditures that were accrued but unpaid. During the nine months ended September 30, 2020 and 2019, changes in accrued capital expenditures were $(5.1) million and $(4.5) million, respectively.

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Subsequent Events

9 Months Ended

Sep. 30, 2020

Subsequent Events

Subsequent Events

Note 15 — Subsequent Events

While discussions with the Consenting Creditors regarding the terms of a potential consensual comprehensive restructuring of its indebtedness were continuing prior to the filing of the Bankruptcy Petitions, the Company did not make the $31.4 million interest payment due and payable on October 1, 2020 with respect to the First Lien Notes and the $19.6 million PIK interest payment due and payable on October 1, 2020 with respect to the Second Lien PIK Notes. See Note 5.

On October 15, 2020, the High Court in London denied the application by the Zonda Debtors to appeal the Tribunal’s award. See Note 13.

On October 30, 2020, prior to filing the Bankrutpcy Petitions the Company repaid in full the $50.0 million first lien superpriority Revolving Credit Facility plus accrued interest and prepayment premium. See Note 5.

On the Petition Date, Pacific Drilling S.A. and certain of its subsidiaries filed the Bankruptcy Petitions for relief under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court. See Note 2.

On November 2, 2020, the Company was notified by the New York Stock Exchange (the “NYSE”) that, as a result of the Bankruptcy Petitions, and in accordance with Section 802.01D of the NYSE Listed Company Manual, the NYSE has commenced proceedings to delist the Company’s common shares from the NYSE. The NYSE also indefinitely suspended trading of the Company’s common shares effective November 2, 2020. The NYSE will apply to the SEC to delist the common shares upon completion of all applicable procedures.

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Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2020

Significant Accounting Policies

Basis of Presentation

Basis of Presentation — Our accompanying condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (“SEC”). Pursuant to such rules and regulations, these financial statements do not include all disclosures required by GAAP for complete financial statements. Our condensed consolidated financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair presentation of our financial position, results of operations and cash flows for the presented interim periods. Such adjustments are considered to be of a normal recurring nature unless otherwise identified. Operating results for the three and nine months ended September 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020 or for any future period. The accompanying condensed consolidated financial statements and notes should be read in conjunction with the audited consolidated financial statements and notes of the Company for the year ended December 31, 2019, included in our annual report on Form 10-K filed on March 12, 2020 (our “2019 Annual Report”).

Principles of Consolidation

Principles of Consolidation — Our condensed consolidated financial statements include the accounts of Pacific Drilling S.A., and consolidated subsidiaries that we control by ownership of a majority voting interest and entities that meet the criteria for variable interest entities for which we are deemed to be the primary beneficiary for accounting

purposes. We eliminate all intercompany transactions and balances in consolidation.

We are party to a Nigerian joint venture, Pacific International Drilling West Africa Limited (“PIDWAL”), with Derotech Offshore Services Limited (“Derotech”), a privately-held Nigerian registered limited liability company. Derotech owns 51% of PIDWAL and we own 49% of PIDWAL. Each of, Pacific Bora Ltd. (“PBL”) and Pacific Scirocco Ltd. (“PSL”), which own the Pacific Bora and the Pacific Scirocco, respectively, are owned 49.9% by our wholly-owned subsidiary, Pacific Drilling Limited (“PDL”) and 50.1% by Pacific Drillship Nigeria Limited (“PDNL”). PDNL is owned 0.1% by PDL and 99.9% by PIDWAL. Derotech will not accrue the economic benefits of its interest in PIDWAL unless and until it satisfies certain outstanding obligations to us and a certain pledge is cancelled by us. Likewise, PIDWAL will not accrue the economic benefits of its interest in PDNL unless and until it satisfies certain outstanding obligations to us and a certain pledge is cancelled by us. PIDWAL and PDNL are variable interest entities for which we are the primary beneficiary. Accordingly, we consolidate all interests of PIDWAL and PDNL in our condensed consolidated financial statements and no portion of their operating results is allocated to the noncontrolling interest.

Recently Adopted / Issued Accounting Standards

Recently Adopted Accounting Standards

Measurement of Credit Losses on Financial Instruments — On June 16, 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326), which introduces a new model for recognizing credit losses based on an estimate of expected lifetime credit loss on financial assets ranging from short-term trade accounts receivable to long-term financings. In April 2019, the FASB issued codification improvements to Topic 326 to clarify all expected recoveries should be included in the estimate of the allowance for credit losses. We adopted the standard effective January 1, 2020 with no material effect on our consolidated statements of financial position, operations or cash flows or related disclosures. See Note 10.

Recently Issued Accounting Standards

Simplifications to Income Tax Accounting — On December 18, 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes, which removes certain exceptions for investments, intra-period allocations and interim calculations, and adds guidance to reduce complexity in accounting for income taxes. This update is effective for annual and interim periods beginning after January 1, 2021. We are currently evaluating the effect the standard may have on our consolidated financial statements and related disclosures.

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Property and Equipment (Tables)

9 Months Ended

Sep. 30, 2020

Property and Equipment

Summary of property and equipment

	September 30,		December 31,
	2020		2019
	(in thousands)
Drillships and related equipment	$	1,966,409	$	1,962,211
Other property and equipment		330		259
Property and equipment, cost		1,966,739		1,962,470
Accumulated depreciation		(200,551)		(119,921)
Property and equipment, net	$	1,766,188	$	1,842,549

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Debt (Tables)

9 Months Ended

Sep. 30, 2020

Summary of Debt

	September 30,		December 31,
	2020		2019
	(in thousands)
Due within one year:
Revolving Credit Facility	$	50,000	$	—
First Lien Notes		750,000		—
Second Lien PIK Notes		326,391		—
Total current debt		1,126,391		—
Long-term debt:
First Lien Notes		—		747,910
Second Lien PIK Notes		—		325,824
Total long-term debt		—		1,073,734
Total debt	$	1,126,391	$	1,073,734

Schedule of payments in the form of PIK Interest

Payment Date	PIK Interest
	(in thousands)
April 1, 2019	$	16,873
October 1, 2019		17,429
April 1, 2020		18,475

Schedule of redemption prices expressed as a percentage of principal amount

The Company may redeem the Second Lien PIK Notes, in whole or in part, at the following redemption prices (expressed as a percentage of principal amount), plus any accrued and unpaid interest, during the six-month period beginning on the dates indicated below:

Date	Price
October 1, 2020	109.0%
April 1, 2021	106.0%
October 1, 2021	103.0%
April 1, 2022 and thereafter	100.0%

Occurrence Of Change Of Control

Schedule of redemption prices expressed as a percentage of principal amount

At any time after a Change of Control occurs, the Company may redeem all, but not less than all, of the Second Lien PIK Notes at the following redemption prices (expressed as a percentage of principal amount), plus any accrued and unpaid interest, during the six-month period beginning on the dates indicated below:

Date	Price
October 1, 2020	109.0%
April 1, 2021	106.0%
October 1, 2021	103.0%
April 1, 2022 and thereafter	100.0%

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Earnings per Share (Tables)

9 Months Ended

Sep. 30, 2020

Earnings Per Share

Income and Share Data Used In Basic and Diluted EPS Computations

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	(in thousands, except per share information)
Numerator:
Net loss, basic and diluted	$	(70,243)	$	(90,783)	$	(218,604)	$	(248,348)
Denominator:
Weighted-average shares outstanding, basic		75,203		75,005		75,195		75,012
Weighted-average shares outstanding, diluted		75,203		75,005		75,195		75,012
Loss per share:
Basic	$	(0.93)	$	(1.21)	$	(2.91)	$	(3.31)
Diluted	$	(0.93)	$	(1.21)	$	(2.91)	$	(3.31)

Share Effects of Share-Based Compensation Awards Excluded from Computations of Diluted EPS

	Three Months Ended September 30,		Nine Months Ended September 30,
	2020	2019	2020	2019
	(in thousands)		(in thousands)
Share-based compensation awards	169	1,622	169	1,622

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Revenue from Contracts with Clients (Tables)

9 Months Ended

Sep. 30, 2020

Revenue from Contracts with Clients

Schedule of trade receivables, contract assets and contract liabilities

	September 30,		December 31,
	2020		2019
	(in thousands)
Trade receivables, net	$	23,588	$	28,926
Current contract liabilities (deferred revenue)		1,616		7,567

Schedule of significant changes in contract assets and contract liabilities

	Contract Assets		Contract Liabilities
	(in thousands)
Balance at December 31, 2019	$	—	$	7,567
Decrease due to amortization of deferred revenue		—		(11,433)
Increase due to billings related to mobilization revenue and capital upgrades		—		5,582
Increase due to demobilization revenue recognized		5,100		—
Decrease due to billing of demobilization fee		(5,000)		—
Transfers between balances		(100)		(100)
Balance at September 30, 2020	$	—	$	1,616

Summary of revenue expected to be recognized in the future related to unsatisfied performance obligations

	Remaining
	three months		For the years ending December 31,
	2020		2021		2022		2023 and thereafter		Total
	(in thousands)
Amortization of contract liabilities	$	633	$	1,095	$	—	$	—	$	1,728

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Leases (Tables)

9 Months Ended

Sep. 30, 2020

Leases

Schedule of components and other information related to leases

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	(in thousands)
Lease Expense
Operating lease cost	$	5,382	$	732	$	22,932	$	2,100
Supplemental Cash Flows Information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases		366		360		1,099		1,079
Right-of-use assets obtained in exchange for lease obligations:
Operating leases		—		—		—		6,935

	September 30, 2020		December 31, 2019
Weighted Average Remaining Lease Term (in years)
Operating leases		4.0		4.8
Weighted Average Discount Rate
Operating leases		8.1%		8.1%

Schedule of future minimum lease payments

	Operating Leases
Years Ending December 31,	(in thousands)
2020 (excluding nine months ended September 30, 2020)	$	373
2021		1,499
2022		1,525
2023		1,552
2024		1,179
Total future minimum lease payments		6,128
Less imputed interest		(882)
Total	$	5,246
Reported as of September 30, 2020
Accrued expenses	$	1,118
Other long-term liabilities		4,128
Total lease liabilities	$	5,246

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Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2020

Fair Value Disclosures

Carrying Value and Estimated Fair Value of Other Long-term Debt Instruments

	September 30, 2020				December 31, 2019
	Carrying		Estimated		Carrying		Estimated
	Value		Fair Value		Value		Fair Value
		(in thousands)
Cash and cash equivalents	$	218,681	$	218,681	$	278,620	$	278,620
First Lien Notes		750,000		135,000		747,910		682,500
Second Lien PIK Notes		326,391		1,632		325,824		183,949

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Bankruptcy Proceedings and Liquidity - (Details) $ in Thousands		9 Months Ended
	Nov. 19, 2018 USD ($)	Sep. 30, 2020 USD ($) subsidiary	Oct. 31, 2020 USD ($)	Dec. 31, 2019 USD ($)	Sep. 26, 2018 USD ($)
Bankruptcy Proceeding and Liquidity [Line Items]
Number of subsidiaries involved in arbitration with SHI | subsidiary		2
Proceeds for Reorganization	$ 1,500,000
Proceeds raised from issuance of debt	1,000,000
Proceeds from issuance of common stock	$ 500,000
Cash and cash equivalents		$ 218,681	$ 116,400	$ 278,620
Restricted Cash			$ 5,800
First Lien Notes
Bankruptcy Proceeding and Liquidity [Line Items]
Aggregate principal amount					$ 750,000
Debt instrument, interest rate					8.375%
Second Lien PIK Notes
Bankruptcy Proceeding and Liquidity [Line Items]
Aggregate principal amount					$ 273,600
Second Lien PIK Notes | Cash Interest
Bankruptcy Proceeding and Liquidity [Line Items]
Debt instrument, interest rate		11.00%
Second Lien PIK Notes | Interest Payment in Kind
Bankruptcy Proceeding and Liquidity [Line Items]
Debt instrument, interest rate		12.00%

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Significant Accounting Policies - Principal of Consolidation (Details)	9 Months Ended
	Sep. 30, 2020
Pacific International Drilling West Africa Limited
Variable Interest Entity [Line Items]
Percentage of ownership in joint venture	49.00%
Derotech Offshore Services Limited | Pacific International Drilling West Africa Limited
Variable Interest Entity [Line Items]
Percentage of ownership in joint venture	51.00%
Pacific International Drilling West Africa Limited | PDNL
Variable Interest Entity [Line Items]
Percentage of ownership in joint venture	99.90%
PDL | PDNL
Variable Interest Entity [Line Items]
Percentage of ownership in joint venture	0.10%
PDL | Pacific Bora Ltd and Pacific Scirocco Ltd
Variable Interest Entity [Line Items]
Percentage of ownership in joint venture	49.90%
PDNL | Pacific Bora Ltd and Pacific Scirocco Ltd
Variable Interest Entity [Line Items]
Percentage of ownership in joint venture	50.10%

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Property and Equipment - Components of Property and Equipment (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Sep. 30, 2020	Dec. 31, 2019
Property, Plant and Equipment [Line Items]
Property and equipment, cost		$ 1,966,739	$ 1,962,470
Accumulated depreciation		(200,551)	(119,921)
Property and equipment, net		1,766,188	1,842,549
Impairment loss	$ 0
Drillships and Related Equipment
Property, Plant and Equipment [Line Items]
Property and equipment, cost		1,966,409	1,962,211
Other property and equipment
Property, Plant and Equipment [Line Items]
Property and equipment, cost		$ 330	$ 259

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Debt - Summary of Debt (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019
Debt Instrument [Line Items]
Total current debt	$ 1,126,391
Long-term debt		$ 1,073,734
Total debt	1,126,391	1,073,734
Revolving Credit Facility
Debt Instrument [Line Items]
Total current debt	50,000
First Lien Notes
Debt Instrument [Line Items]
Total current debt	750,000
Long-term debt		747,910
Second Lien PIK Notes
Debt Instrument [Line Items]
Total current debt	$ 326,391
Long-term debt		$ 325,824

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Debt - Lien Notes (Details) - USD ($) $ in Thousands						9 Months Ended
	Oct. 01, 2020	Apr. 01, 2020	Oct. 01, 2019	Apr. 01, 2019	Sep. 26, 2018	Sep. 30, 2020	Sep. 30, 2019
Debt Instrument [Line Items]
Interest paid-in-kind						$ 9,237	$ 25,638
First Lien Notes
Debt Instrument [Line Items]
Aggregate principal amount					$ 750,000
Debt instrument, interest rate					8.375%
First Lien Notes | Minimum
Debt Instrument [Line Items]
Original principal amount (as a percent)						25.00%
First Lien Notes | Redemption Scenario Change Of Control
Debt Instrument [Line Items]
Redemption price (as a percent)					101.00%
First Lien Notes | Redemption Scenario Certain Other Circumstances
Debt Instrument [Line Items]
Redemption price (as a percent)					100.00%
First Lien Notes | Redemption Period One
Debt Instrument [Line Items]
Redemption price (as a percent)						104.188%
First Lien Notes | Redemption Period Two
Debt Instrument [Line Items]
Redemption price (as a percent)						102.094%
First Lien Notes | Redemption Period Three
Debt Instrument [Line Items]
Redemption price (as a percent)						100.00%
First Lien Notes | Redemption Period Four
Debt Instrument [Line Items]
Redemption price (as a percent)						100.00%
Second Lien PIK Notes
Debt Instrument [Line Items]
Aggregate principal amount					$ 273,600
Cash interest (as a percent)					50.00%
PIK Interest (as a percent)					50.00%
Commitment fee					$ 23,600
Second Lien PIK Notes | Minimum
Debt Instrument [Line Items]
Original principal amount (as a percent)						25.00%
Second Lien PIK Notes | Redemption Scenario Change Of Control
Debt Instrument [Line Items]
Redemption price (as a percent)						101.00%
Second Lien PIK Notes | Redemption Scenario Certain Other Circumstances
Debt Instrument [Line Items]
Redemption price (as a percent)						100.00%
Second Lien PIK Notes | Cash Interest
Debt Instrument [Line Items]
Debt instrument, interest rate						11.00%
Second Lien PIK Notes | Interest Payment in Kind
Debt Instrument [Line Items]
Debt instrument, interest rate						12.00%
Payment of PIK Interest		$ 18,475	$ 17,429	$ 16,873
Second Lien PIK Notes | Redemption Period One
Debt Instrument [Line Items]
Redemption price (as a percent)						109.00%
Second Lien PIK Notes | Redemption Period One | Redemption Scenario Change Of Control
Debt Instrument [Line Items]
Redemption price (as a percent)						109.00%
Second Lien PIK Notes | Redemption Period Two
Debt Instrument [Line Items]
Redemption price (as a percent)						106.00%
Second Lien PIK Notes | Redemption Period Two | Redemption Scenario Change Of Control
Debt Instrument [Line Items]
Redemption price (as a percent)						106.00%
Second Lien PIK Notes | Redemption Period Three
Debt Instrument [Line Items]
Redemption price (as a percent)						103.00%
Second Lien PIK Notes | Redemption Period Three | Redemption Scenario Change Of Control
Debt Instrument [Line Items]
Redemption price (as a percent)						103.00%
Second Lien PIK Notes | Redemption Period Four
Debt Instrument [Line Items]
Redemption price (as a percent)						100.00%
Second Lien PIK Notes | Redemption Period Four | Redemption Scenario Change Of Control
Debt Instrument [Line Items]
Redemption price (as a percent)						100.00%
Subsequent Events | First Lien Notes
Debt Instrument [Line Items]
Interest payment due and payable	$ 31,400
Grace period to make interest payment	30 days
Subsequent Events | Second Lien PIK Notes
Debt Instrument [Line Items]
Interest payment due and payable	$ 19,600
Grace period to make interest payment	30 days

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Debt - Revolving Credit Facility (Details) - USD ($) $ in Millions			9 Months Ended
	Oct. 30, 2020	Feb. 07, 2020	Sep. 30, 2020
Revolving Credit Facility
Debt Instrument [Line Items]
Maximum borrowing capacity		$ 50.0
Amount drawn			$ 50.0
Commitment fee (as a percent)		1.50%
Prepayment premium (as a percent)			2.00%
Write-off of deferred financing costs			$ 1.6
Revolving Credit Facility | Three-month LIBOR
Debt Instrument [Line Items]
LIBO rate floor		1.50%
Interest rate (as a percent)		7.50%
First Lien Notes and Second Lien PIK Notes
Debt Instrument [Line Items]
written off of unamortized net debt premium			$ 6.1
Subsequent Events | Revolving Credit Facility
Debt Instrument [Line Items]
Repayments of debt	$ 50.0

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Earnings per Share - Income and Share Data Used In Basic and Diluted Earnings Per Share Computations (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended						9 Months Ended
	Sep. 30, 2020	Jun. 30, 2020	Mar. 31, 2020	Sep. 30, 2019	Jun. 30, 2019	Mar. 31, 2019	Sep. 30, 2020	Sep. 30, 2019
Numerator:
Net loss, basic and diluted	$ (70,243)	$ (87,398)	$ (60,963)	$ (90,783)	$ (73,586)	$ (83,979)	$ (218,604)	$ (248,348)
Denominator:
Weighted-average shares outstanding, basic	75,203			75,005			75,195	75,012
Weighted-average shares outstanding, diluted	75,203			75,005			75,195	75,012
Loss per share:
Basic (in dollars per share)	$ (0.93)			$ (1.21)			$ (2.91)	$ (3.31)
Diluted (in dollars per share)	$ (0.93)			$ (1.21)			$ (2.91)	$ (3.31)

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Earnings per Share - Share Effects of Share-based Compensation Awards Excluded from Computations of Diluted EPS (Details) - shares shares in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Share-Based Compensation Awards
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Share-based compensation awards (in shares)	169	1,622	169	1,622

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Income Taxes - Additional Information (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019
Income Taxes
Unrecognized Tax Benefits	$ 43,500	$ 43,500
Penalties and interest accrued	$ 0	$ 0

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Revenue from Contracts with Clients (Details) - USD ($) $ in Thousands	3 Months Ended	9 Months Ended
	Sep. 30, 2020	Sep. 30, 2020	Dec. 31, 2019
Contract with Customer, Asset and Liability [Abstract]
Trade receivables, net	$ 23,588	$ 23,588	$ 28,926
Current contract liabilities (deferred revenue)	1,616	1,616	$ 7,567
Termination fees included in revenue	$ 14,100	$ 14,100

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Revenue from Contracts with Clients - Contract assets and liabilities (Details) $ in Thousands	9 Months Ended
	Sep. 30, 2020 USD ($)
Contract Assets
Increase due to demobilization revenue recognized	$ 5,100
Decrease due to billing of demobilization fee	(5,000)
Transfers between balances	(100)
Contract Liabilities
Balance at the beginning of period	7,567
Decrease due to amortization of deferred revenue	(11,433)
Increase due to billings related to mobilization revenue and capital upgrades	5,582
Transfers between balances	(100)
Balance at the end of period	$ 1,616

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Revenue from Contracts with Clients - Future Amortization of Contract Liabilities (Details) $ in Thousands	Sep. 30, 2020 USD ($)
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]
Amortization of contract liabilities	$ 1,728
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2020-10-01
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Period	3 months
Amortization of contract liabilities	$ 633
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2021-01-01
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Period	12 months
Amortization of contract liabilities	$ 1,095

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Leases (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019	Dec. 31, 2019
Leases
Operating lease cost	$ 5,382	$ 732	$ 22,932	$ 2,100
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$ 366	$ 360	$ 1,099	1,079
Right-of-use assets obtained in exchange for lease obligations - operating leases				$ 6,935
Weighted Average Remaining Lease Term (in years)
Operating leases	4 years		4 years		4 years 9 months 18 days
Weighted Average Discount Rate
Operating leases	8.10%		8.10%		8.10%

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Leases - Maturity (Details) $ in Thousands	Sep. 30, 2020 USD ($)
Leases
2020 (excluding nine months ended September 30, 2020)	$ 373
2021	1,499
2022	1,525
2023	1,552
2024	1,179
Total future minimum lease payments	6,128
Less imputed interest	(882)
Total	$ 5,246

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Leases - Balance Sheet Reporting (Details) $ in Thousands	Sep. 30, 2020 USD ($)
Leases
Operating lease liability current	$ 1,118
Operating Lease, Liability, Current, Statement of Financial Position [Extensible List]	Accrued Liabilities, Current
Operating lease liability noncurrent	$ 4,128
Operating Lease, Liability, Noncurrent, Statement of Financial Position [Extensible List]	Other Liabilities, Noncurrent
Total lease liabilities	$ 5,246

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Credit Losses (Details) - USD ($) $ in Thousands	3 Months Ended	9 Months Ended
	Sep. 30, 2020	Sep. 30, 2020	Jan. 01, 2020
Credit Losses
Allowance for doubtful receivables
Change in credit loss allowance	$ 0	$ 0

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Share-Based Compensation - Additional Information (Details) $ in Thousands	3 Months Ended
	Sep. 30, 2020 USD ($)
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]
Modification of unvested share-based compensation awards resulting in liability classification	$ 239

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Fair Value Measurements - Carrying Value and Estimated Fair Value of Financial Instruments (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019
Carrying Value
Fair Value Disclosure
Cash equivalents carrying value	$ 218,681	$ 278,620
Carrying Value | First Lien Notes
Fair Value Disclosure
Long-term debt	750,000	747,910
Carrying Value | Second Lien PIK Notes
Fair Value Disclosure
Long-term debt	326,391	325,824
Estimated Fair Value
Fair Value Disclosure
Cash and cash equivalents	218,681	278,620
Estimated Fair Value | First Lien Notes
Fair Value Disclosure
Long-term debt	135,000	682,500
Estimated Fair Value | Second Lien PIK Notes
Fair Value Disclosure
Long-term debt	$ 1,632	$ 183,949

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Commitments and Contingencies (Details) $ in Millions	Jan. 15, 2020 USD ($)	Dec. 20, 2018 USD ($)	Oct. 29, 2015 USD ($)	Sep. 30, 2020 USD ($)	Jan. 30, 2019 USD ($)	Nov. 25, 2015 item	Jan. 25, 2013 USD ($)
Construction Contract with SHI | Pending Litigation
Loss Contingencies [Line Items]
Number of arbitrators | item						3
Zonda debtors
Loss Contingencies [Line Items]
Cash					$ 4.6
SHI | Settled litigation
Loss Contingencies [Line Items]
Claim awarded to SHI	$ 320.0
SHI | Pending Litigation
Loss Contingencies [Line Items]
Interest award to be decided	$ 100.0
Drillships and Related Equipment | SHI
Loss Contingencies [Line Items]
Aggregate purchase price of vessels under construction							$ 517.5
Asserted claims		$ 387.4
Property and equipment			$ 75.0
Capital Addition Purchase Commitments | Drillships and Related Equipment | SHI
Loss Contingencies [Line Items]
Carrying value at date of rescission			315.7
Payments of advances on contract to purchase drillship			$ 181.1
Surety Bond
Loss Contingencies [Line Items]
Guarantor Obligation maximum exposure				$ 5.4

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Supplemental Cash Flow information - Additional Information (Details) - USD ($) $ in Millions	9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019
Supplemental Cash Flow Information
Interest paid net of capitalized	$ 33.9	$ 32.3
Income taxes paid	4.0	6.3
Payment of cash for reorganization	0.8	4.5
Increase (decrease) in capital expenditure	$ (5.1)	$ (4.5)

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Subsequent Events (Details) - Subsequent Events - USD ($) $ in Millions	Oct. 30, 2020	Oct. 01, 2020
First Lien Notes
Subsequent Event [Line Items]
Interest payable		$ 31.4
Second Lien PIK Notes
Subsequent Event [Line Items]
Interest payable		$ 19.6
Revolving Credit Facility
Subsequent Event [Line Items]
Repayments of debt	$ 50.0