UNITED STATES

WASHINGTON, D.C. 20549

FORM 20-F

OR

For the fiscal year ended December 31, 20172018

OR

OR

Commission file number 001-35345

PACIFIC DRILLING S.A.

(Exact name of Registrant as specified in its charter)

Not Applicable

(Translation of Registrant’s name into English)

Luxembourg

(Jurisdiction of incorporation or organization)

8-10, Avenue de la Gare

L-1610 Luxembourg

(Address of principal executive offices)

Lisa Manget Buchanan

Senior Vice President, General Counsel and Secretary

11700 Katy Freeway, Suite 175

Houston, Texas 77079

Phone (832) 255-0519

Fax (832) 201-9883

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act. None.

Securities registered or to be registered pursuant to Section 12(g) of the Act. None.

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act. None.

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

As of December 31, 2017,2018, there were 21,338,60275,031,380 shares outstanding.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  ☐  No  ☒

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes  ☐  No  ☒

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes  ☒  No  ☐

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

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, 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. ☐

† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. Item  17  ☐  Item  18  ☐

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in 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 Sections 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  ☐

TABLE OF CONTENTS

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

ThisCertain statements and information contained in this annual report containsconstitute “forward-looking statements” within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements1995, and are generally identifiable by their use of words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “intend,” “may,“our ability to,” “might,“may,” “plan,” “potential,” “predict,” “project,” “will” and“projected,” “should,” “will,” “would,” or other similar terms and phrases,words which are not generally historical in nature, including referencesnature. The forward-looking statements speak only as of the date of this annual report, and we undertake no obligation to assumptions. The assumptions and bases used to makepublicly update or revise any forward-looking statements whileafter 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 future financial and operational performance and cash balances; future 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; expected capital expenditures; projected costs and savings; and the potential impact of our completed Chapter 11 bankruptcy proceedings on our future operations and ability to finance our business.

Although we believe that the assumptions and expectations reflected in our forward-looking statements are reasonable and made in good faith, almost always vary from the actual results,these statements are not guarantees, and the differences between assumed facts or bases and actual results can be material, depending upon the circumstances.

Any forward-looking statements contained in this annual report should not be relied upon as predictions of future events as no assurance can be given that the expectations expressed in any forward-looking statements will prove to be correct. You should thoroughly read this annual report with the understanding that our actual future results may bediffer materially differentdue 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 and worse than what we expect. Some importantthose 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 thoseour expectations include:

All forward-looking statements are, in certain instances, included with such forward-looking statements and Item 3.D., “Risk Factors” in this annual report. Additionally, new riskreport are expressly qualified in their entirety by the cautionary statements in this section and the “Risk Factors” section herein. Additional factors and uncertainties emerge from timeor risks that we currently deem immaterial, that are not presently known to time and it isus, that arise in the future or that are not possible forspecific to us could also cause our management to predict all risk factors and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

Readersour expected results. Given these uncertainties, you are cautioned not to place undue relianceunduly rely on theour forward-looking statements, contained in this annual report, which representspeak only as of the best judgment of our management.date made. We undertake no obligation to update or revise 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.

PART I

As used in this annual report, unless the context otherwise requires, references to “Pacific Drilling,” the “Company,” “we,” “us,” “our” and words of similar import refer to Pacific Drilling S.A. and its subsidiaries. Unless otherwise indicated, all references to “U.S. $” and “$” in this report are to, and amounts are represented in, United States (“U.S.”) dollars.

ITEM 1.     IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

ITEM 2.     OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3.    KEY INFORMATION

A. SELECTED FINANCIAL DATA

OnBackground – Emergence from Bankruptcy Proceedings

By order entered on November 2, 2018 (the “Confirmation Order”), the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”) confirmed the Company’s Modified Fourth Amended Joint Plan of  Reorganization, dated October 31, 2018 (the “Plan”) that had been filed with the Bankruptcy Court in connection with the filing by the Company and certain of its subsidiaries (the “Initial Debtors”) of petitions (the “Bankruptcy Petitions”) on November 12, 2017 (the “Petition Date”), Pacific Drilling S.A. and certain of its subsidiaries (collectively, with the “Debtors”) filed voluntary petitions (the “Bankruptcy Petitions”) forBankruptcy Court seeking relief under Chapter 11 of Title 11 of the United States Code (the “Bankruptcy Code”). During the course of the bankruptcy proceedings, the Initial Debtors continued to operate their businesses as debtors-in-possession.  On November 19, 2018 (the “Plan Effective Date”), the Company and the Initial Debtors other than the Zonda Debtors (described below) (the “Debtors”) emerged from bankruptcy after successfully completing their reorganization pursuant to the Plan.

The Company’s two subsidiaries involved in the United Statesarbitration with Samsung Heavy Industries Co. Ltd. (“SHI”) related to the Pacific Zonda– Pacific Drilling VIII Limited (“PDVIII”) and Pacific Drilling Services, Inc. (“PDSI” and, together with PDVIII, the “Zonda Debtors”) – are not Debtors under the Plan and filed a separate plan of reorganization that was confirmed by order of the Bankruptcy Court on January 30, 2019. On the date the 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 Southern Districtvalue of New Yorktheir claims against SHI) for SHI to recover against on account of its claims.  The Company expects that the Zonda Debtors will emerge from their separate bankruptcy proceedings after the successful resolution of the arbitration related to the vessel known as the Pacific Zonda. If the Company is unsuccessful in the arbitration, the Company expects to liquidate the Zonda Debtors.  For additional information, see Item 4.A. “History and Development of the Company – Zonda Arbitration.”

Prior to our emergence from bankruptcy on November 19, 2018, we had approximately $3.0 billion principal amount of pre-petition indebtedness consisting of amounts outstanding under a 2013 senior secured revolving credit facility (the “Bankruptcy Court”“2013 Revolving Credit Facility”), a senior secured credit facility (the “SSCF”), a 2018 senior secured institutional term loan facility (the “Term Loan B,”), 2017 senior secured notes (the “2017 Notes”) and 2020 senior secured notes (the “2020 Notes”), plus an additional $50 million in post-petition debtor-in-possession financing.  One shareholder, Quantum Pacific Gibraltar Ltd (“QP”), owned approximately 70.3% of our outstanding common shares.

Pursuant to the Plan, we raised approximately $1.5 billion in new capital, before expenses, consisting of approximately $1.0 billion raised through issuance of our 8.375% First Lien Notes due 2023 (the “First Lien Notes”) and 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 to QP and a separate equity rights offering.  We used the net proceeds to repay all of our pre-petition indebtedness that was

not equitized pursuant to the Plan, to repay the post-petition debtor-in-possession financing, and to pay certain fees and expenses.  As a result of these transactions, we believe that on as of March 1, 2019, QP owned approximately 5.1% of our outstanding common shares and seven institutional investors (primarily QP and former holders of our Term Loan B, 2017 Notes and 2020 Notes extinguished pursuant to the Plan) owned in the aggregate approximately 85.7% of our outstanding common shares.

More specifically, upon emergence of the Company from bankruptcy on November 19, 2018 in accordance with the Plan:

Prior to the issuance of the shares described above, the Company effected a 1-for-10,000 reverse stock split (the “Reverse Stock Split”). As a result of the Reverse Stock Split and the issuances of common shares described above, the Company had issued and outstanding on the Plan Effective Date approximately 75.0 million common shares, and approximately 7.5 million shares were reserved for issuance pursuant to the 2018 Stock Plan.

In addition, pursuant to the Plan, on September 26, 2018 bankruptcy-remote subsidiaries of the Company issued, and on November 19, 2018 such subsidiaries merged with the Company and the Company assumed (the “Notes Assumption”):

Concurrent with the Notes Assumption, all of the Company’s subsidiaries other than the Zonda Debtors, certain immaterial subsidiaries and Pacific International Drilling West Africa Limited (“PIDWAL,” a Nigerian limited liability company indirectly 49% owned by the Company) guaranteed on a senior secured basis the First Lien Notes and Second Lien PIK Notes. It is expected that the Zonda Debtors will guarantee the First Lien Notes and Second Lien PIK Notes upon their emergence from bankruptcy pursuant to their separate plan of reorganization after the successful resolution of

the arbitration proceeding involving the Pacific Zonda discussed elsewhere herein. If the Company is unsuccessful in the arbitration, the Company expects to liquidate the Zonda Debtors and the Zonda Debtors would not guarantee the First Lien Notes and Second Lien PIK Notes.

Pursuant to the Plan, the following additional principal transactions and events occurred on the Plan Effective Date:

See Note 2 to our consolidated financial statements for additional information.

Selected Financial Data

On the Plan Effective Date, we adopted and applied the relevant guidance with respect to the accounting and financial reporting for entities that have emerged from bankruptcy proceedings, or “Fresh Start Accounting.”  Under Fresh Start Accounting, our balance sheet on the Plan Effective Date reflects all of our assets and liabilities at fair value.  Our emergence from bankruptcy and the adoption of Fresh Start Accounting resulted in a new reporting entity, referred to herein as the “Successor”, for financial reporting purposes.  To facilitate discussion and analysis of our financial condition and results of operations herein, we refer to the reorganized Debtors as the Successor for periods subsequent to November 19, 2018 and as the “Predecessor” for periods on or prior to November 19, 2018.  As a result of the adoption of Fresh Start Accounting and the effects of the implementation of the Plan, our consolidated financial statements subsequent to November 19, 2018 may not be comparable to our consolidated financial statements prior to November 19, 2018, and as such, “black-line” financial statements are presented to distinguish between the Predecessor and Successor companies.

You should read the following selected consolidated financial data in conjunction with Item 5, “Operating Results” and our historical consolidated financial statements and related notes thereto included elsewhere in this annual report. The financial information included in this annual report may not be indicative of our future financial position, results of operations or cash flows.

Pacific Drilling S.A. was formed on March 11, 2011 as a Luxembourg public limited liability company (société anonyme). The financial information relating to the Company and its subsidiaries has been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and is presented in U.S. dollars.

Set forth below are (i) selected historical consolidated financial data as of December 31, 2017 and 2016 and for the years ended December 31, 2017, 2016 and 2015, which have been derived from our audited consolidated financial statements included elsewhere in this annual report, and (ii) selected historical consolidated financial data as of December 31, 2015, 2014 and 2013 and for the years ended December 31, 2014 and 2013, which have been derived from our audited consolidated financial statements not included in this annual report.

Declines in oil and gas prices for an extended period of time, and market expectations of continued lower oil prices, have negatively affected and could continue to negatively affect our business in the offshore drilling sector.business. Sustained periods of low oil prices have resulted in and could continue to result in reduced exploration and drilling. These commodity price declines have an effect on rig demand, and periods of low demand can cause excess rig supply and intensify the competition in the industry, which often results in drilling units of all generations and technical specifications being idle for periods of time. As a result of the low commodity prices, exploration and production companies have significantly reduced capital spending over the last few years, leading to a current oversupply of drilling rigs. These developments have exerted negative pricing pressure on our market.

We cannot accurately predict the future level of demand for our services or future conditions in the oil and gas industry. The decrease inindustry and we cannot assure you that the market will improve. If the market for our offshore contract drilling services does not improve as a result of low oil prices, continued low demand for contract drilling services and/or continued low levels of exploration, development or production expenditures by oil and gas companies, and any further decreases, could lead to further reductions in our revenues could be further reduced and materially harm our business, and results of operations.operations, liquidity and ability to repay or refinance our indebtedness would be materially and adversely affected.

Failure to secure new drilling contracts for our drillships could have a material adverse effect on our financial position, results of operations or cash flows.

We doAs of March 1, 2019, we did not currently have signed drilling contracts for fivefour of our seven drillships, the Pacific Bora, the Pacific Scirocco, the Pacific Meltem,  the Pacific Khamsin or the Pacific Mistralorthe Pacific Khamsin. In addition, the contract for the Pacific Santa Ana is of limited duration. Our ability to obtain drilling contracts for theseour drillships will depend on market conditions and our clients’ drilling programs. We may not be able to secure contracts for these drillships on favorable terms, or at all. TheSome of the new contracts we have recently obtained have been for significantly shorter terms and lower dayrates than our prior drilling contracts, and there is uncertainty as to whether new contracts we may enter into in the prior contracts.future will continue to have comparatively shorter durations or require us to work at depressed dayrates. We may not be able to secure contracts for our drillships on favorable terms, or at all. Our failure to secure drilling contracts for our uncontracted drillships or currently operating drillships after the expiration of existing contracts, or to successfully negotiate and execute definitive contracts and satisfy other conditions precedent to finalizing any letters of intent and letters of award, could have a material adverse effect on our financial position, results of operations or cash flows.

Bora was working under a contract with Nigerian AGIP Exploration Limited, a subsidiary of Eni S.p.A., to operate in Nigeria.  Additionally, another of our drillships, the Pacific Santa Ana is working, was under contract for the second phase of a subsidiary of Petronas.plug and abandonment project for PC Mauritania 1 Pty Ltd. (“Petronas”), expected to commence in third quarter 2019, as well as a contract with Total E&P Senegal for work in Senegal and Mauritania expected to commence in April 2019.

The loss of any one of theseour clients or any potential clients could have a material adverse effect on our financial position, results of operations or cash flows. In addition, our limited number of drillships makes us more susceptible to incremental loss in the event of downtime on any one operating unit. If any one of our drillships becomes inactive for a substantial period of time and is not otherwise earning contractual revenues, it could have a material adverse impact on our financial position, results of operations or cash flows.

Our current backlog of contract drilling revenue may not be fully realized.

As of March 23, 2018, we had aOur contract backlog on the Pacific Santa Ana and the Pacific Sharav of approximately $333.0 million.includes firm commitments only, which are represented by signed 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. The actual amounts of revenues earned and the actual periods during which revenues are earned may differ from the amounts and periods shown in the tables provided in Item 4, “Business Overview—Contract Backlog” of this annual reportcontract backlog amounts we present, due to various factors, including unplanned downtime and maintenance projects and other factors. We may not be able to realize the full amount of our contract backlog due to events beyond our control.control, and accordingly the actual amount of revenues earned may be substantially lower than the backlog reported. In addition, some of our clients may experience liquidity issues, which could worsen if commodity prices remain low or decrease further for an extended period of time. Liquidity issues could lead our clients to seek to repudiate, cancel or renegotiate these agreementscontracts for various reasons, as described below under “—Our drilling contracts may be terminated early in certain circumstances” below.circumstances.” Our inability to realize the full amount of our contract backlog could have a material adverse effect on our financial position, results of operations or cash flows.

We may enter into drilling contracts with less favorable terms that expose us to greater risks than we normally assume.would assume under stronger market conditions.

The current market conditions and oversupply of drilling rigs has impacted and could continue to impact our existing drilling contracts. Our clients may seek to renegotiate dayrates and other terms under our existing contracts and, as a result, we may not be able to preserve current dayrates or utilization and we may not be able to extend contracts with our clients on favorable terms, or at all. For example, our current contract with Chevron for the Pacific Sharav expires in August 2019, and our extension of that contract, as well as our other more recent contracts are at dayrates that are significantly lower than the dayrate of the current Chevron contract. Additionally, our clients may seek to terminate existing contracts prior to the expiration of their terms, as described below in “—Our drilling contracts may be terminated early in certain circumstances.”

We may enter into drilling contracts or amendments to drilling contracts that expose us to greater risks than we normallywould assume under stronger market conditions, such as greater exposure to greater environmental or other liabilities and more onerous termination provisions giving the customerclient a right to terminate without cause or upon little or no notice. Upon termination, these contracts may

periods in which multiple rigs are idle, we may decide to “modified smart stack”maintain the rigs in “modified smart-stack” status, which means the idle rigs are maintained as a group with one rig providing the power source for the other rigs, which have no crew onboard and require a longer time frame for redeployment. As a result of smart stacking

We believe our results for the year ended December 31, 2018 reflect the cost savings we expected to achieve from our smart-stacking and modified smart stacking, our operating expenses are less than if the rig remained active; however, reductions in costssmart-stacking approaches. We may not be immediatecontinue to realize those cost-savings, and, if we are required to idle additional rigs, we may not achieve similar cost savings.

Reactivation of idle rigs may take longer and be able to realize the costs savings anticipated.

Moreover, asmore costly than anticipated and there is limited history of reactivating idle rigs after smart-stacking. As our rigs are mobilized from one geographic location to another, the labor and other operating and maintenance costs can vary significantly. In general, labor costs increase primarily due to higher salary levels and inflation. Equipment maintenance expenses fluctuate depending upon the type of activity the rig is performing and the age and condition of the equipment. Contract preparation expenses vary based on the scope and length of contract preparation required and the duration of the firm contractual period over which such expenditures are amortized. Should rigs be idle for an extended period, we may seek to “cold stack” the rig so as to further reduce costs, which means the rig is stored in a harbor or designated offshore area and the crew is reassigned or dismissed. However, there can be no assurance that we will be successful in reducing our costs in such cases.

Our drilling contracts may be terminated early in certain circumstances.

Our contracts with clients generally may be terminated at the option of the client upon payment of an early termination fee, which is typically a significant percentage of the dayrate or the standby rate under the drilling contract for a specified period of time. During periods of depressed market conditions, we are subject to an increased risk that our clients may seek to terminate our contracts. Early termination payments may not fully compensate us for the loss of the contract. Accordingly, the actual amount of revenues earned may be substantially lower than the backlog reported. Our contracts also generally provide for termination by the client without the payment of any termination fee under various circumstances, typically including, but not limited to, our non-performance,such as sustained unacceptable performance by us, as a result of downtime or impaired performance caused by equipment or operational issues, destruction of a drilling rig, or sustained periods of downtime due to force majeure events.events or otherwise. Many of these events are beyond our control. If our clients terminate some of our contracts, and we are unable to secure new contracts on a timely basis and on substantially similar terms, or if payments due under our contracts are suspended for an extended period of time or if a number of our contracts are renegotiated, our financial position, results of operations or cash flows could be materially adversely affected.

The market value of our current drillships may decrease, which could cause us to take accounting charges or to incur losses if we decide to sell them following a decline in their values.

If the offshore contract drilling industry continues to suffer adverse developments, the fair market values of our drillships may decline. The fair market values of the drillships we currently own or may acquire in the future may increase or decrease depending on a number of factors, many of which are beyond our control, including the general economic and market conditions affecting the oil and gas industry and the possible corresponding adverse effect on the level of offshore drilling activity.

We may experience downtime as a result of repairs or maintenance, human error, defective or failed equipment or delays waiting for replacement parts.

Our operations may be suspended because of machinery breakdowns, human error, abnormal operating conditions, failure of subcontractors to perform or supply goods or services, delays on replacement parts or personnel shortages, which may cause us to experience operational downtime and could have an adverse effect on our results of operations.

In addition, we rely on certain third parties to provide supplies and services necessary for our offshore drilling operations, including, but not limited to, suppliers of drilling equipment and catering and machinery suppliers. Mergers in our industry have reduced the number of available suppliers, resulting in fewer alternatives for sourcing key supplies. Such consolidation combined with a high volume of drilling units under construction, may result in a shortage of supplies and services, potentially inhibiting the ability of suppliers to deliver on time, or at all. These delays may have a material adverse effect on our results of operations and result in downtime, and delays in the repair and maintenance of our drillships.

Our business is subject to numerous governmental laws and regulations, including environmental requirements, that may impose significant costs and liabilities on us.

Our operations are subject to federal, state, local, and foreign orand international laws and regulations that may, among other things, require us to obtain and maintain specific permits or other governmental approvals to control or limit the discharge of oil and other contaminants into the environment or otherwise relatingrelate to environmental protection. Countries where we operate have environmental lawsprotection, and regulations governing our discharge of oil and other contaminants and imposingwhich impose stringent standards on our activities that are protective of the environment. AnyFor example, any operations and activities that we conduct in the United States and its territorial waters are subject to numerous environmental laws, including the Oil Pollution Act of 1990, (“OPA”), the Outer Continental Shelf Lands Act, (“OCSLA”), the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”) and the International Convention for the Prevention of Pollution from Ships (“MARPOL”),(each, as each has been amended from time to time,time), and analogous state laws. Failure to comply with these laws, regulations and treaties may result in the assessment of administrative, civil and criminal penalties, the imposition of remedial obligations, the denial or revocation of permits or other authorizations and the issuance of injunctions that may limit or prohibit some or all of our operations. Laws and regulations protecting the environment have become more stringent in recent years and may in certain circumstances impose strict liability, rendering us liable for environmental and natural resource damages caused by others or for acts that were in compliance with all applicable laws at the time the acts were performed. The application of these laws and regulations, the modification of existing laws or regulations or the adoption of new laws or regulations that curtail exploratory or developmental drilling for oil and natural gas could materially limit future contract drilling opportunities or materially increase our costs, including our capital expenditures.

arrangements. Any future work stoppage or slowdown could, depending on the affected operations and the length of the work stoppage or slowdown, have a material adverse effect on our financial position, results of operations or cash flows. In addition, we could enter new markets where the workforce is represented by unions, which could result in higher operating costs that we are unable to pass along to our clients.

Our global operations may be adversely affected by political and economic circumstances in the countries in which we operate, including as a result of violations of the U.S. Foreign Corrupt Practices Act and similar foreign anti-bribery laws. A significant portion of our business has been, and may in the future be, conducted in West Africa, which exposes us to risks of war, local economic instabilities, corruption, political disruption and civil disturbance in that region.

We operate in oil and natural gas producing areas worldwide. We are subject to a number of risks inherent in any business that operates globally, including: political, social and economic instability, war,instability; war; piracy and acts of terrorism; corruption; potential seizure, expropriation or nationalization of assets; increased operating costs; wage and price controls; imposition or changes in interpretation and enforcement of local content laws; and other forms of government regulation and economic conditions that are beyond our control.

The United States Foreign Corrupt Practices Act (the “FCPA”), the UK Bribery Act 2010, the Nigerian Corrupt Practices and Other Related Offenses Act of 2000, Brazil’s Anti CorruptionAnti-Corruption Law of 2014 and similar worldwide anti-bribery laws generally prohibit companies and their intermediaries from making, offering or authorizing improper payments to government officials for the purpose of obtaining or retaining business. We may operate in countries where strict compliance with anti-bribery laws conflicts with local customs and practices. Violations of, or any non-compliance with, current and future anti-bribery laws (either due to acts or inadvertence by us or our agents) may result in criminal and civil sanctions and could subject us to other liabilities in the U.S. and elsewhere.

In order to effectively compete in some foreign jurisdictions, we utilize local agents and/or establish joint ventures with local operators or strategic partners. Our agents often interact with government officials on our behalf. Even though some of our agents and partners may not themselves be subject to the FCPA or other anti-bribery laws to which we may be subject, if our agents or partners make improper payments to government officials in connection with engagements or partnerships with us, we could be investigated and potentially found liable for violation of such anti-bribery laws and could incur civil and criminal penalties and other sanctions, which could have a material adverse effect on our financial position, results of operations or cash flows.

There may be limits on our ability to mobilize drillships between geographicgeographical areas and the time spent on and costs of such mobilizations may be material tomaterially and adversely affect our business.

The offshore contract drilling market is generally a global market, as drilling units may be mobilized from one area to another. However, the ability to mobilize drilling units can be impacted by several factors including governmental regulation and customs practices, the significant costs to move a drilling unit, weather, political instability, civil unrest, military actions and the technical capability of the drilling units to operate in various environments. Additionally, while a drillship is being mobilized from one geographic market to another, we may not be paid by the client for the time that the drillship is out of service. Also, we may mobilize a drillship to another geographic market without a client contract, which may result in costs that are not reimbursed by future clients.

The loss of some of our key executive officers and employeespersonnel could negatively impact our business.

Our future operational performance depends to a significant degree upon the continued service of key members of our management as well as marketing, sales and operations personnel. The loss of one or more of our key personnel could have a material adverse effect on our business. We believe our future success will also depend in large part upon our ability to attract, retain and further motivate highly skilled management, marketing, sales and operations personnel. We may experience intense competition for personnel, and we may not be able to retain key employees or be successful in attracting, assimilating and retaining personnel in the future. In addition, our ability to attract, recruit and retain key personnel may be negatively impacted by our emergence from bankruptcy and the uncertainties currently facing the industry in which we operate.

Any significant cyber-attack or interruption in network security could materially and adversely disrupt and affect our operations and adversely affect our business.

We have become increasingly dependent upon digital technologies to conduct and support our offshore operations, and we rely on our operational and financial computer systems to conduct almost all aspects of our business. Threats to our information technology systems associated with cybersecurity risks and incidents or attacks continue to grow. Any failure of our computer systems, or those of our customers,clients, vendors or others with whom we do business, could materially disrupt our operations and could result in the corruption of data or unauthorized release of proprietary or confidential data concerning our company,the Company, its business operations and activities, clients or employees. Computers and other digital technologies could become impaired or unavailable due to a variety of causes, including, among others, theft, cyber-attack, design defects, terrorist attacks, utility outages, human error or complications encountered as existing systems are maintained, repaired, replaced or upgraded. Any cyber-attack or interruption could have a material adverse effect on our financial position, results of operations or cash flows, and our reputation.

Our clients may be unable or unwilling to indemnify us.

Consistent with standard industry practice, our clients generally assume, and indemnify us against, well control and subsurface risks underpursuant to our dayrate contracts. These risks are associated with the loss of control of a well, such as blowout or cratering, the cost to regain control or redrillre-drill the well and associated pollution. However, the indemnification provisions in our contracts may not cover all damages, claims or losses to us or third parties, and our clientclients may not have sufficient resources to cover their indemnification obligations or the client may contest their obligation to indemnify us. The indemnification provisions of our contracts may be subject to differing interpretations and the laws or courts of certain jurisdictions may enforce such provisions while other laws or courts may find them unenforceable, void or limited by public policy considerations, including when the cause of the underlying loss or damage is our gross negligence or willful misconduct, when punitive damages are attributable to us or when fines or penalties are imposed directly against us. Also, in the interest of maintaining good relations with our key clients, we may choose not to assert certain indemnification claims. In addition, in certain market conditions, we may be unable to negotiate contracts containing indemnity provisions that obligate our clients to indemnify us for such damages and risks.

We may suffer losses as a result of foreign currency fluctuations.

A significant portion of the contract revenues of our foreign operations will be paid in U.S. dollars; however, some payments are made in foreign currencies. As a result, we are exposed to currency fluctuations and exchange rate risks as a result of our foreign operations. To minimize the financial impact of these risks when we are paid in foreign currency, we attempt to match the currency of operating costs with the currency of contract revenue. If we are unable to substantially match the timing and amounts of these payments, any increase in the value of the U.S. dollar in relation to the value of applicable foreign currencies could adversely affect our operating results when translated into U.S. dollars.results.

Public health threats could have a material adverse effect on our financial position, results of operations or cash flows.

Public health threats, such as Ebola, the H1N1 flu virus, the Zika virus, Severe Acute Respiratory Syndrome, and other highly communicable diseases, outbreaks of which have already occurred in various parts of the world in which we operate, could adversely impact our operations, the operations of our customersclients and the global economy, including the worldwide demand for oil and natural gas and the level of demand for our services. Any quarantine of personnel or inability to access our offices or rigs could adversely affect our operations. Travel restrictions or operational problems in any part of the world in which we operate, or any reduction in the demand for drilling services caused by public health threats in the future, may adversely affect our financial position, results of operations or cash flows.

We may be adversely affected by national, state and foreign or international laws or regulatory initiatives focusing on greenhouse gas (GHG)(“GHG”) reduction.

Due to concern over the risk of climate change, there has been a broad range of proposed or promulgated initiatives regarding GHG reduction. Regulatory frameworks adopted, or being considered for adoption, to reduce GHG emissions include cap and trade regimes, carbon taxes, restrictive permitting, increased efficiency standards, and incentives or mandates for renewable energy. Although it is not possible at this time to predict how new legislation or new regulations that may be adopted to address GHG emissions in the United States would impact our business, any such

proceedings relating to the vessel known as the Pacific Zonda, as described elsewhere herein (the “Zonda Arbitration”), and as of December 31, 2018 we have recorded a receivable from unconsolidated subsidiaries of $204.7 million related to the arbitration. For additional information, see Note 7 to our consolidated financial statements. While we expect to prevail in the Zonda Arbitration, we cannot assure you that we will do so.

Risks Related to Our Emergence from Bankruptcy

We experienced a change of control in connection with our emergence from bankruptcy and our new board of directors may change our business strategy and has changed and may continue to change key personnel.

As a result of the issuances of common shares, change in the composition of our board of directors, amendments to our Articles and execution and delivery of the Governance Agreement discussed elsewhere in this annual report, a change in control of the Company occurred on the Plan Effective Date in connection with the Company’s emergence from the Chapter 11 bankruptcy proceedings. Pursuant to the Governance Agreement, until the “Nomination Termination Time” (as defined therein), certain of our shareholders have the right to appoint our Class B directors, constituting three of our seven directors. As of the Plan Effective Date and March 1, 2019, only a few of our shareholders, if they were to act in concert, could control the election of our remaining four Class A directors.

Pursuant to our Articles and the Governance Agreement, prior to the Nomination Termination Time, any two Class B directors acting in their capacities as such (a “Class B Majority”) have broad authority to act on the Company’s behalf in connection with any Acquisition Proposal or Acquisition (as such terms are defined in the Articles), including but not limited to the authority to solicit prospective Acquisition Proposals, to retain, at the Company’s expense such consultants, legal counsel and other advisors as a Class B Majority may from time to time deem appropriate to assist the Class B directors in the performance of their duties with respect to Acquisition Proposals, and subject to specified conditions, to execute and deliver on behalf of the Company definitive documentation providing for the consummation of an Acquisition. For additional information, see Item 10.B. “Additional Information - Memorandum and Articles of Association.”

Our post-emergence board of directors may change our business strategy, including but not limited to changing our operating strategy or soliciting Acquisition Proposals. On the Plan Effective Date, our new board of directors appointed a new chief executive officer and has made and may make other changes in key personnel. These or potential future changes may not be successful and may be disruptive to our business and relationships with clients, vendors, suppliers, service providers, other third parties and employees.

We remain subject to risks and uncertainties associated with our emergence from bankruptcy.

Notwithstanding our emergence from bankruptcy on November 19, 2018, our operations and liquidity remain subject to a number of risks and uncertainties related to the fact that we operated under Bankruptcy Court protection for approximately one year. These risks and uncertainties include the following:

Our operating results may be adversely affected by the possible reluctance of third parties to do business with a company that recently emerged from Chapter 11 bankruptcy proceedings. For example, third parties could require that we provide additional financial assurances, which could be costly. In addition, failure to retain or attract and maintain key personnel or erosion of employee morale could have a material adverse effect on our ability to meet client expectations, obtain new contracts and effectively operate our business, thereby adversely affecting our results of operations and financial condition. We cannot accurately predict or quantify the ultimate impact that our emergence from bankruptcy may have on our business, results of operations and financial condition.

The Plan was based in large part upon assumptions and analyses developed by us. If these assumptions and analyses prove to be incorrect, our results of operations, liquidity and financial condition may be materially and adversely affected.

As a part of the Plan process, we were required to prepare projected financial information to demonstrate to the Bankruptcy Court the feasibility of the Plan and our ability to continue operations upon emergence from bankruptcy. The Plan, and these projections, were reflective of assumptions and analyses based on our experience and perception of historical trends, prevailing conditions and expected future developments, as well as other factors that we considered at the time to be appropriate under the circumstances. Whether actual future results and developments will be consistent with our expectations and assumptions reflected in the Plan depends on a number of factors, including but not limited to: (i) our ability to maintain our clients’ confidence in our viability as a continuing entity and to attract and retain sufficient business from them, (ii) our ability to retain or attract and retain key employees, (iii) 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 and (iv) our ability to make required interest payments on and ultimately pay or refinance our debt. Any of these factors could materially adversely affect the success of our reorganized business.

In addition, the Plan was developed in reliance upon financial projections, and these projections are not part of this annual report, have not been and are not expected to be updated and should not be relied upon in connection with the purchase of our common shares. 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 connection with our emergence from bankruptcy, our historical financial information may not be indicative of our future financial performance.

In connection with our emergence from bankruptcy, we have adopted Fresh Start Accounting in accordance with provisions of ASC 852, Reorganizations, which resulted in the Company becoming a new entity for financial reporting purposes on November 19, 2018, the effective date of emergence. Fresh Start Accounting results in the Company’s assets and liabilities being recorded at fair value as of the Plan Effective Date. As a result of the adoption of Fresh Start Accounting, the Company’s consolidated financial statements subsequent to November 19, 2018 will not be comparable to its consolidated financial statements on and prior to that date. The lack of comparable historical information may discourage investors from purchasing our common shares.

Our pre-emergence net operating losses may be significantly reduced and/or limited under Luxembourg income tax law.

From a Luxembourg Generally Accepted Accounting Principles (the “Lux GAAP”) standpoint, debt forgiveness resulting from the Chapter 11 bankruptcy proceedings would lead to an increase of the net asset value of the Luxembourg debtor benefitting from the forgiveness. Such an increase would correspond to the amount of the debt that is forgiven for no consideration. The increase of the net asset value would also be reflected in the Lux GAAP profit and loss through recognition of cancellation of debt income (“COD Income”) corresponding to the amount of the debt forgiven for no consideration. Based on the principle of “accrochement du bilan fiscal au bilan commercial” (translated as “tax follows book”) provided in article 40 of the Luxembourg Income Tax Law (the “Luxembourg ITL”) (which is considered as the general rule), any COD Income realized upon the cancellation of a debt from a Lux GAAP standpoint should also increase the net asset value of the debtor for Luxembourg tax purposes.

Article 52 of the Luxembourg ITL relates specifically to gains derived by a Luxembourg corporate debtor upon total or partial debt forgiveness occurring in the context of a financial reorganization aimed at the financial recovery of the debtor (i.e., “gain d’assainissement” or “reorganization profit”). This article provides that the increase in the net asset value of a Luxembourg corporate debtor resulting from a gain d’assainissement / reorganization profit is eliminated from the positive taxable result of the Luxembourg debtor only to the extent of that result. In other words, the tax exemption applies only to the portion of net gain d’assainissement / reorganization profit exceeding existing tax losses available during the year of the debt forgiveness.

Considering the above, we may benefit from an exemption of COD Income pursuant to article 52 of the Luxembourg ITL upon cancellation of our debts. Based on article 52 of the Luxembourg ITL and article 114(2)1 of the Luxembourg ITL, COD Income derived by us upon cancellation of our debts should first be offset with existing tax losses carry forwards and be exempt based on article 52 of the Luxembourg ITL for the remainder.

Luxembourg tax law allows tax losses to offset taxable profits unless it is determined that a change of shareholders results in tax abuse. Luxembourg jurisprudence uses a “facts and circumstances” analysis that indicates an abuse of law could be found where the loss-generating activity is discontinued following a change in ownership and a new profitable business is begun. However, a finding of valid commercial reasons reflecting the economic reality should be sufficient to avoid the perception of abuse of law. Also, after a corporate restructuring, utilizing accumulated tax losses within the same group should not be suspect if there are economic reasons beyond using the losses. Finally, the mere conversion of our legal form may, in certain situations, not prevent our use of the losses to offset future profits. Similarly, a mere change in shareholders should not result in loss of the deductibility of the tax losses. However, a change in shareholders together with a change of activity (such as disposition of the loss generating assets and the beginning of a completely new activity by the loss company) would significantly increase the risk of characterization of the transaction as tax abusive and jeopardize the deductibility of the tax losses.

There is uncertainty regarding whether courts outside the United States will recognize the Confirmation Order.

Our parent company, Pacific Drilling S.A., is incorporated pursuant to, and the rights attaching to its shares are governed by, the laws of Luxembourg. Additionally, many of our subsidiaries which were Debtors under the Plan are incorporated under, and their interests are governed by, the laws of foreign jurisdictions other than the United States. Although we intend to make commercially reasonable efforts to ensure that the Confirmation Order and the steps we took to implement the restructuring thereunder are effective in all applicable jurisdictions, it is possible that if a creditor or stakeholder were to challenge the restructuring, a foreign court may refuse to recognize the effect of the Confirmation Order.

Risks Related to Our Indebtedness

We have substantial indebtedness.

As of December 31, 2018, we have total long-term debt of $1.0 billion. Our substantial debt could have important consequences to our debt and equity holders, including, but not limited to:

Our ability to service our debt obligations and fund any working capital needs and capital expenditures will depend, among other things, on our future operating results, which could be affected by market, economic, financial, competitive and other factors beyond our control. We may not be able to generate sufficient cash flows or obtain other capital resources to service our debt obligations. If our cash flows and capital resources are insufficient to fund our debt service obligations and other cash requirements, we may be forced to reduce or eliminate our share repurchase program, sell assets, seek additional capital or seek to restructure or refinance our indebtedness. These alternative measures may not be successful and may not permit us to meet our debt service obligations and fund other cash requirements.

The indentures governing our First Lien Notes and Second Lien PIK Notes contain restrictive covenants that may limit our ability to pursue business opportunities, change our capital structure or respond to changes in market conditions.

The indentures governing our First Lien Notes and Second Lien PIK Notes contain restrictive covenants that may limit our ability to pursue business opportunities, change our capital structure or respond to changes in market conditions. For example, the indentures contain covenants that limit our ability, and the ability of our “restricted subsidiaries” (as defined therein), to:

These limitations may adversely affect our ability to take actions that we would choose to take in the absence of such restrictions, such as pursue certain business opportunities, obtain certain financing, pay dividends, redeem shares, sell assets or fund capital expenditures, and may adversely affect our ability to react to changes in market or competitive conditions or withstand a downturn in our business.

We and our subsidiaries may incur significant amounts of additional debt.

We and our subsidiaries may incur significant amounts of additional debt in the future, including additional first lien secured debt (up to $50 million of which may be superpriority first lien debt), subject to the limitations in the indentures governing our First Lien Notes and Second Lien PIK Notes. If we incur additional debt, the risks related to our capital structure and outstanding indebtedness could be exacerbated, and we may not be able to meet all of our debt obligations.

We cannot assure you that we will ever pay cash interest on the Second Lien PIK Notes, and the payment of PIK interest will increase our indebtedness and the risks associated therewith.

The indenture governing the Second Lien PIK Notes provides that we are permitted to pay all or a portion of the interest on such notes in cash in lieu of payment in-kind (“PIK”) interest. However, our ability to pay cash interest on the Second Lien PIK Notes will depend on available restricted payment capacity under the indenture governing the First Lien Notes. We cannot assure you that we will have available capacity or, if we do have available capacity, that we will use that capacity to pay cash interest on the Second Lien PIK Notes. As a result, holders of the Second Lien PIK Notes could potentially receive no cash interest on such notes. In addition, the payment of PIK interest will increase our indebtedness, related interest obligations, and the risks associated therewith. For additional information regarding our Second Lien PIK Notes, see Note 8 to our consolidated financial statements.

Default under the terms of the indentures governing our First Lien Notes and Second Lien PIK Notes could result in an acceleration of our indebtedness.

If we are unable to make required payments of principal and interest on our debt or to comply with the other covenants and restrictions in the indentures governing our First Lien Notes and Second Lien PIK Notes, or other debt agreements we may enter into in the future, there could be a default under the terms of these debt instruments. Our ability to make such payments and to comply with other covenants and restrictions may be affected by events beyond our control. As a result, we cannot assure you that we will be able to make such payments and to comply with the other covenants and restrictions.

If an event of default under the indentures governing our Notes occurs, the holders of the Notes may accelerate the Notes and declare all amounts outstanding due and payable. Borrowings under other future debt instruments that contain cross-acceleration or cross-default provisions may also be accelerated and become due and payable. If any of these events occurs, our assets might not be sufficient to repay in full all of our outstanding indebtedness and we may be unable to find alternative financing. Even if we could obtain alternative financing, it might not be on terms that are favorable or acceptable to us.

We are a holding company and will depend on cash flow from our operating subsidiaries to meet required payments on our debt.

We conduct our operations through, and most of our assets are owned by, our subsidiaries. Our operating income and cash flow are generated by our subsidiaries. As a result, the principal source of funds necessary to meet our obligations in respect of our indebtedness will be cash we obtain from our subsidiaries. Contractual provisions or laws, as well as our subsidiaries’ financial condition, operating requirements and debt requirements, may limit our ability to obtain cash from our subsidiaries to meet our debt service obligations. Our inability to obtain cash from our subsidiaries may mean that, even though we may have sufficient resources on a consolidated basis to meet our obligations, we may not be able to pay our debts or meet our other obligations. In addition, applicable tax laws may subject such subsidiaries’ distributions to us to further taxation.

We may not be able to satisfy our obligations to holders of our First Lien Notes and Second Lien PIK Notes upon a change of control.

The indentures governing the Notes contain provisions relating to certain events constituting a “change of control” (as defined therein). Upon a change of control, holders of the Notes will have the right to require us to repurchase the Notes at 101% of their principal amount, plus accrued and unpaid interest. Our ability to repurchase Notes upon a change of control would be limited by our access to funds at the time of the repurchase and the terms of our then-outstanding debt agreements, which could restrict or prohibit such a repurchase. A change of control may also result in a default under other future debt instruments, giving the holders of such obligations the right to accelerate payment thereunder. We cannot assure you that we will have sufficient funds available upon a change of control to make any required repurchases of Notes or to make any other required repayments of debt.

Risks Related to Our Common Shares

TheOur common shares were relisted and began trading on the New York Stock Exchange has delisted(the “NYSE”) on December 18, 2018; however, an active, liquid and orderly market for our common shares which are currently traded inmay not develop or be sustained. Investors may be unable to sell common shares at or above the over-the-counter market. This has negatively affected our share price they bought them for.

Our common shares were relisted and liquidity. Trading in our securities duringbegan trading on the pendency of our Chapter 11 proceedings poses substantial risks.

The New York Stock Exchange (“NYSE”) has delistedNYSE on December 18, 2018. We can give no assurances that an active, liquid and orderly trading market for our common shares andwill be developed or will be sustained. We believe that as of March 1, 2019, approximately 85.7% of our outstanding common shares currently trade in the “Pink Sheets” of OTC Pink, under the symbol “PACDQ.” The OTC Pink is a significantly more limited market than the NYSE, and quotation on the OTC Pink 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 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 could impair our ability to raise additional capital through equity or debt financing and our ability to attract and retain employeeswere controlled by means of equity compensation.approximately seven principal shareholders. There can be no assurance that any of our existing shareholders will sell any or all of their common shares. There may be a lack of supply of, or demand for, our common shares will continue to trade on OTC Pink or that any public market for the common shares will existNYSE, and in the future, whether broker-dealers will continue to provide public quotes of the common shares on this market, whethersuch case, the trading volumeprices of the common shares will be sufficient to provide for an efficient trading market, whether quotes for theour common shares may be blocked in the future, or that we willparticularly volatile, and a holder of common shares may not be able to relistsell the number of shares such holder wants to sell at the desired price. From September 13, 2017 to December 17, 2018, our common shares were traded on the over-the-counter market and from November 11, 2011 to September 12, 2017 our common shares were traded on the NYSE; however, our capital structure, business and market conditions have changed substantially during that time and as a national securities exchange. Dueresult investors should not rely on our historical trading prices.

Sales of our common shares by existing shareholders, or the perception that these sales may occur, may depress the trading price of our common shares or cause the trading price of our common shares to thesedecline.

Pursuant to our obligations under the Registration Rights Agreement that we entered into as of the Plan Effective Date with certain of our shareholders, we filed a registration statement with the Securities and Exchange Commission (the “SEC”) to register for resale certain of the shares held by those shareholders, and are generally required to maintain the registration statement for use by those shareholders, subject to exceptions and limitations in the Registration Rights Agreement. Up to approximately 54.8 million of our common shares may be sold pursuant to the registration statement by the selling shareholders, which represents approximately 73% of our issued and outstanding common shares as of March 1, 2019. We cannot predict the timing or amount of future sales of our common shares by selling shareholders, but such sales, or the perception that such sales could occur, may adversely affect prevailing trading prices for our common shares.

We may pay little or no dividends on our common shares.

We do not expect to pay dividends on our common shares for the foreseeable future. The payment of any future dividends to our shareholders will depend on decisions that will be made by our board of directors and will depend on then-existing conditions, including our operating results, financial condition, business prospects, Luxembourg corporate law restrictions, and restrictions under the indentures governing our Notes and under any future debt agreements or contracts.

We cannot guarantee that our share repurchase program will be fully implemented or that it will enhance long-term shareholder value.  Repurchases of our common shares could also increase the volatility of the trading price of our common shares and will diminish our cash reserves.

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. The share repurchase program does not obligate the Company to repurchase a specific number or dollar value of our common shares and may be suspended or discontinued at any time, which could result in a decrease in the trading price of our common shares. We cannot guarantee that the program will be fully consummated or that it will enhance long-term shareholder value. The share repurchase program will diminish our cash reserves. In addition, repurchases of our common shares through the program could affect the trading price of our common shares and increase volatility. The existence of a share repurchase program could cause the price of our common shares to be higher than it would be absent such a program and could potentially reduce the market liquidity for our common shares.  

Certain shareholders have the right to appoint directors to our board of directors, and have the ability to influence other corporate matters, and their interests may not coincide with yours.

Our Articles establish a board of directors of seven directors, with three Class B directors and four Class A directors. Pursuant to the Governance Agreement, until the “Nomination Termination Time” (as defined therein), certain funds affiliated with Avenue Capital Management II, L.P. (collectively, the “Avenue Parties”) have the right to nominate one Class B director, certain affiliates of Strategic Value Partners, LLC (collectively, the “SVP Parties”) have the right to nominate one Class B director and the other parties to the Governance Agreement (defined therein collectively as the “Other Lenders”) have the right to nominate one Class B director. From and after the Nomination Termination Time, the board of directors will cease to be classified.

Pursuant to our Articles and the Governance Agreement, prior to the Nomination Termination Time, any two Class B directors acting in their capacities as such (a “Class B Majority”) have broad authority to act on the Company’s behalf in connection with any Acquisition Proposal or Acquisition (as such terms are defined in the Articles), including but not limited to the authority to solicit prospective Acquisition Proposals, to retain, at the Company’s expense such consultants, legal counsel and other risks describedadvisors as a Class B Majority may from time to time deem appropriate to assist the Class B directors in this annual report, trading in our securities during the pendencyperformance of their duties with respect to Acquisition Proposals, and subject to specified conditions, to execute and deliver on behalf of the Company definitive documentation providing for the consummation of an Acquisition. For additional information, see Item 10.B. “Additional Information - Memorandum and Articles of Association.”

In addition, as of March 1, 2019, only a few of our Chapter 11 proceedings poses substantial risks.shareholders, if they were to act in concert, could control the election of our four Class A directors. As a result of the nomination rights in the Governance Agreement and the

concentration of ownership of our common shares, a relatively few number of shareholders are able to influence the composition of our board of directors and thereby our management and business strategy. Further, as of the Plan Effective Date, only a few of our shareholders, if they were to act in concert, could determine the outcome of a shareholder vote on significant corporate matters. The interests of these shareholders may not coincide with your interests.

As a “foreign private issuer,” we are exempt from most of the NYSE corporate governance standards applicable to U.S. public companies, except for the requirement to have an independent audit committee.

We are a “foreign private issuer” under the securities laws of the United States and the rules of the NYSE. Under the NYSE rules, a “foreign private issuer” is subject to less stringent corporate governance requirements than a domestic issuer. Subject to certain exceptions, the rules of the NYSE permit a “foreign private issuer” to follow its home country practice in lieu of the listing requirements of the NYSE. Based on the foregoing we may elect not to comply with certain NYSE corporate governance requirements, including (i) the requirement that a majority of the board of directors consist of independent directors, (ii) the requirement that all independent directors meet in executive session at least once a year, (iii) the requirement that the nominating/corporate governance committee be composed entirely of independent directors and have a written charter addressing the committee’s purpose and responsibilities, (iv) the requirement that the compensation committee be composed entirely of independent directors and have a written charter addressing the committee’s purpose and responsibilities and (v) the requirement to adopt corporate governance guidelines. We are required to have, and do have, an audit committee composed entirely of independent directors. Accordingly, investors may not have the same protections afforded to stockholders of companies that are subject to all of the NYSE corporate governance requirements.

As a “foreign private issuer,” we are exempt from a number of rules under the U.S. securities laws and are permitted to file less information with the SEC than U.S. public companies. This may limit the information available to holders of our common shares.    

As a “foreign private issuer,” we are not subject to all of the disclosure requirements applicable to companies organized within the United States. For example, we are exempt from certain rules under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that regulate disclosure obligations and procedural requirements related to the solicitation of proxies, consents or authorizations applicable to a security registered under the Exchange Act. In addition, our officers and directors are exempt from the reporting and “short-swing” profit recovery provisions of Section 16 of the Exchange Act. Moreover, we are not required to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. public companies. Accordingly, there may be less publicly available information concerning our Company than there is for U.S. public companies.

The rights of our shareholders and responsibilities of our shareholdersdirectors and officers are governed by Luxembourg law and differ in some respects from the rights and responsibilities of shareholders under other jurisdictions, including jurisdictions in the United States, and shareholder rights under Luxembourg law may not be as clearly established as shareholder rights under the laws of other jurisdictions.States.

Our corporate affairs are governed by our articles of association, as amended from time to time (our “Articles”),Articles, and by the laws governing companies incorporated in Luxembourg.Luxembourg, including the Luxembourg Company Law ( loi du 10 août 1915 concernant les sociétés commerciales ). The rights of our shareholders and the responsibilities of our Board of Directorsdirectors and officers under Luxembourg law differ in some respects from those of a company incorporated under other jurisdictions, including jurisdictions in the United States. Corporate laws governing Luxembourg companies may not be as clearly establishedextensive as shareholder rights underthose in effect in U.S. jurisdictions and the lawsLuxembourg Company Law (as defined above) in respect of other jurisdictions. Wecorporate governance matters might not be as protective of shareholders as the corporate law and court decisions interpreting the corporate law in Delaware, where the majority of U.S. public companies are incorporated. In addition, we anticipate that all of our shareholder meetings will take place in Luxembourg.

In addition, the rights of Our shareholders as they relate to, for example, the exercise of shareholder rights are governed by Luxembourg law and our Articles and differ from the rights of shareholders under other jurisdictions, including the United States. The holders of our common shares may have more difficulty in protecting their interests in the faceconnection with actions taken by our directors and officers or our principal shareholders than they would as shareholders of actions by the Board of Directors than if we werea corporation incorporated in a jurisdiction in the United States.

Because we are incorporated under the laws of Luxembourg, shareholders may face difficulty protecting their interests, and their ability to protect their rightsobtain and enforce judgments through other international courts, including courts in the United States, may be limited.

We are a public limited liability company incorporated under the laws of Luxembourg, and as a result, it may be difficult for investors to effect service of process within the United States upon us or to enforce both in the United States and outside the United States judgments against us obtained in U.S. courts in any action, including actions predicated uponbased on the civil liability provisions of the federal securities laws of the United States. In addition, a majority of our directors are residents of jurisdictions other than the United States, and all or a substantial portion of theour assets of those persons are or may be located outside the United States. As a result, it may be difficult for investors to effect service of process within the United States on certain of our directors or to enforce against them judgments obtained in U.S. courts, including judgments predicated upon the civil liability provisions of the federal securities laws of the United States.

There is uncertainty as to whether the courts of Luxembourg would (i) enforce final judgments of U.S.United States courts obtained against us predicated upon the civil liability provisions of the federal securities laws of the United States or (ii) entertain

Based on our operations as of the date of this annual report, we believe that we arewill not be a PFIC forin the current taxable year and that we will not bebecome a PFIC duringin any future taxable year. Based on our operations described herein, all or a substantial portion of our income from offshore contract drilling services should be treated as services income and not as passive income, and thus all or a substantial portion of the assets that we own and operate in connection with the production of that income should not constitute passive assets, for purposes of determining whether we are a PFIC. However, this involves a facts and circumstances analysis and it is possible that the IRS would not agree with this conclusion. SeeFurther, the determination of whether a corporation is a PFIC is made annually and thus may be subject to change. Therefore, we can give investors no assurance as to our PFIC status. Investors are encouraged to consult their own independent tax advisors about the PFIC rules, including the availability of certain elections and reporting requirements. For additional information see Item 10,10.E. “Taxation—Material U.S. Federal Income Tax ConsiderationsConsiderations.”

We may become a controlled foreign corporation in the future.

While we do not believe that we are currently a controlled foreign corporation (“CFC”), we will become a CFC if U.S. persons, who own (or are considered to own, as a result of the attribution rules) 10% or more of the voting power of our stock (each a “10% U.S. shareholder”), collectively own more than 50% of either the total combined voting power of all classes of our voting stock or the total value of our stock.

If we become a CFC, each U.S. Holder that is a 10% U.S. shareholder may be required to include in income its allocable share of our “Subpart F” income reported. Subpart F income generally includes dividends, interest, net gain from the sale or disposition of securities, non-actively managed rents and certain other generally passive types of income. The aggregate Subpart F income inclusions in any taxable year relating to a particular CFC are limited to such entity’s current earnings and profits (as determined for U.S. federal income tax purposes). These inclusions are treated as ordinary income (whether or not such inclusions are attributable to net capital gains). Thus, if we become a CFC, a 10% U.S. shareholder may be required to report as ordinary income its allocable share of our Subpart F income without corresponding receipts of cash.

Further, if we become a CFC, the tax basis of a 10% U.S. shareholder shares will be increased to reflect any required Subpart F income inclusions. Such income may be treated as income from sources within the United States, for certain foreign tax credit purposes, to the extent derived by us from U.S. sources. Such income will not be eligible for the reduced rate of tax applicable to “qualified dividend income” for individual U.S. persons.

Regardless of whether we have any Subpart F income, if we become a CFC, any gain recognized by a 10% U.S. shareholder from the disposition of our stock will be treated as ordinary income to the extent of such holder’s allocable share of our current and/or accumulated earnings and profits. In this regard, earnings would not include any amounts previously taxed pursuant to the CFC rules.

If we are classified as both a CFC and a PFIC, a 10% U.S. shareholder will be required to include amounts in income as described this subheading, and the consequences described under the above risk factor entitled “U.S. tax authorities could treat us as a ‘passive foreign investment company,’ which could have adverse U.S. federal income tax consequences to U.S. holders of our common shares” above will not apply. The interaction of these rules is complex. U.S. Holders should consult their own advisers as to the consequences of Common Shares—the CFC and PFIC rules in their individual circumstances.

Changes in our U.S. Holders—Passive Foreign Investmentfederal income tax classification, or that of our subsidiaries, could result in adverse tax consequences to our 10% or greater U.S. shareholders.

The Tax Cuts and Jobs Act (the “2017 Act”) signed on December 22, 2017 may have changed the consequences to U.S. shareholders that own, or are considered to own, as a result of the attribution rules, 10% or more of the voting power or value of the stock of a non-U.S. corporation (a “10% U.S. shareholder”) under the U.S. federal income tax laws applicable to owners of U.S. controlled foreign corporations (“CFCs”).

The 2017 Act repealed Section 958(b)(4) of the Internal Revenue Code of 1986, as amended (the “Code”), which, unless clarified in future regulations or other guidance, may result in classification of certain of the Company’s foreign subsidiaries as CFCs with respect to any single 10% U.S. shareholder. This may be the result without regard to whether 10% U.S. shareholders together own, directly or indirectly, more than 50% of the voting power or value of the Company Rules.as was the case under prior rules. The repeal is effective as of the last taxable year of CFCs beginning before January 1, 2018 and for the taxable year of 10% U.S. shareholders in which the CFCs’ taxable year ends. Additional tax consequences to 10% U.S. shareholders of a CFC may result from other provisions of the 2017 Act. For example, the 2017 Act added Section 951A of the Code which requires a 10% U.S. shareholder of a CFC to include in income its pro-

rata share of the global intangible low-taxed income (GILTI) of the CFC. The 2017 Act also eliminated the requirement in Section 951(a) of the Code necessitating that a foreign corporation be considered a CFC for an uninterrupted period of at least 30 days in order for a 10% U.S. shareholder to have a current income inclusion.

From time to time, the Company may elect to employ measures such as the share repurchase program approved by the Company’s shareholders on February 22, 2019 that could inadvertently create additional 10% U.S. shareholders or result in the Company itself becoming a CFC, and thus trigger adverse tax consequences for those shareholders as described above. We urge shareholders to consult their individual tax advisers for advice regarding the 2017 Act revisions to the U.S. Federal income tax laws applicable to owners of CFCs given the current uncertainty regarding their scope of applicability.

If a U.S. Person is treated as owning at least 10% of our common shares, such holder may be subject to adverse U.S. federal income tax consequences.

If a U.S. person is treated as owning (directly, indirectly, or constructively) at least 10% of the value or voting power of our common shares, such person may be treated as a “U.S. shareholder” with respect to each “controlled foreign corporation” in our group (if any). Because our group includes one or more U.S. subsidiaries, certain of our non-U.S. subsidiaries could be treated as controlled foreign corporations, regardless of whether or not we are treated as a controlled foreign corporation. A U.S. shareholder of a controlled foreign corporation may be required to report annually and include in its U.S. taxable income its pro rata share of “Subpart F income,” “global intangible low-taxed income,” and investments in U.S. property by controlled foreign corporations, regardless of whether we make any distributions. Failure to comply with these reporting obligations may subject a U.S. shareholder to significant monetary penalties and may prevent the statute of limitations with respect to such shareholder’s U.S. federal income tax return for the year for which reporting was due from starting. An individual who is a U.S. shareholder with respect to a controlled foreign corporation generally would not be allowed certain tax deductions or foreign tax credits that would be allowed to a U.S. shareholder that is a U.S. corporation. We cannot provide any assurances that we will assist investors in determining whether any of our non-U.S. subsidiaries is treated as a controlled foreign corporation or whether any investor is treated as a U.S. shareholder with respect to any such controlled foreign corporation or furnish to any U.S. shareholders information that may be necessary to comply with the aforementioned reporting and tax paying obligations. A U.S. investor should consult its advisors regarding the potential application of these rules to an investment in our common shares.

ITEM 4.    INFORMATION ON THE COMPANY

A. HISTORY AND DEVELOPMENT OF THE COMPANY

The Company

Pacific Drilling S.A. was formed on March 11, 2011, as a Luxembourg public limited liability company (société anonyme) under the Luxembourg law of 10 August 1915 on commercial companies, as amended, to act as an indirect holding company for our predecessor company, Pacific Drilling Limited (our “Predecessor”). Our common shares were listed on the Norwegian OTC List from April 2011 to October 2016 and on the NYSE from November 2011 to September 2017.amended. Our principal executive offices are located at 8-10, Avenue de la Gare, L-1610 Luxembourg and our telephone number is +352 27 85 81 35. Our registered agent in Luxembourg is Centralis S.A, which is located at 8-10, Avenue de la Gare, L-1610 Luxembourg.  The operational headquarters of our Company is located at 11700 Katy Freeway, Suite 175, Houston Texas 77079.  Our telephone number at this address is 713-334-6662.

Our common shares were listed on the Norwegian OTC List from April 2011 to October 2016 and on the NYSE from November 11, 2011 to September 12, 2017. From September 13, 2017 to November 19, 2018 and from November 20, 2018 to December 17, 2018, our common shares were traded on the over-the-counter market under the ticker symbols “PACDQ” and “PACDD,” respectively. Our common shares were relisted on the NYSE on December 18, 2018 and currently trade under the symbol “PACD.”

Background—Emergence from Bankruptcy Proceedings

On November 2, 2018, the Petition Date,Bankruptcy Court issued the Confirmation Order approving the Plan and on November 19, 2018, the Plan became effective pursuant to its terms and the Debtors emerged from their Chapter 11 bankruptcy proceedings. The Debtors had filed the Bankruptcy Petitions for relief under Chapter 11 ofPlan with the Bankruptcy CodeCourt in the Bankruptcy Court. See Note 2 to our consolidated financial statements for additional information.

History and Business Development

Our Predecessor was formed in Liberia in 2006 as an independent operating subsidiary of a predecessor to the Quantum Pacific Group. The principals of the Quantum Pacific Group have significant holdings in various global industries such as energy, oil refining, transportation and commodities.

Our initial investment in the high-specification offshore drilling contractor industry was through the purchase in 2006 of a drillship under construction by Samsung Heavy Industries Co., Ltd. (“SHI”) and the later exercise of an option for a second drillship.

In 2007, we formed a joint venture, Transocean Pacific Drilling, Inc. (“TPDI”)connection with Transocean Ltd., and the two drillships then under construction were transferred into TPDI. We formed a construction management team to oversee activities in the SHI shipyard that was then seconded to Transocean Ltd., who assumed responsibility for management of construction and operation of the two TPDI drillships through a contract with TPDI.

In 2007, we entered into additional construction contracts with SHI to construct two high-specification drillships, the Pacific Bora and the Pacific Mistral, which were not included in TDPI, and in 2008, management decided to expand our activities in the high-specification offshore floating rig segment to include operation and marketing of drilling services for the two drillships. As part of this strategy, we then entered into additional contracts with SHI to construct two more high-specification drillships, the Pacific Scirocco and the Pacific Santa Ana.

In 2011, we reincorporated in Luxembourg, completed a restructuring pursuant to which our Predecessor was contributed to a wholly-owned subsidiary of Pacific Drilling, S.A., and determined that it was in our best interest to focus on the operation and marketing of our wholly-owned fleet. On March 30, 2011, we completed a transfer of all of our equity interest in TPDI to a wholly-owned subsidiary of the Quantum Pacific Group for no consideration. As a result, neither we nor any of our subsidiaries currently own any interest in TPDI.

their voluntary

petitions for relief under Chapter 11 of Title 11 of the United States Code, initially filed on November 12, 2017, which were jointly administered under the caption In re Pacific Drilling S.A., et al., Case No. 17-13193 (MEW).

We currently have seven drillshipsThe Zonda Debtors are not Debtors under the Plan and filed a separate plan of reorganization, which was confirmed by order of the Bankruptcy Court on January 30, 2019. On the date the plan was confirmed, the Zonda Debtors had $4.6 million in our fleet. For more informationcash 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 our fleet and drilling contracts, see Item 4, “Business Overview—Contract Backlog” and “Property, Plant and Equipment—Our Fleet.”account of its claims. The Company expects that the Zonda Debtors will emerge from their separate bankruptcy proceedings after the successful resolution of the Zonda Arbitration. If the Company is unsuccessful in the arbitration, the Company expects to liquidate the Zonda Debtors. 

Debt and Equity FinancingsReorganization Transactions Relating to Capital Structure

In April 2011,Pursuant to the Plan, we completed the 2011 Private Placement of 60.0 million common shares for net proceedsraised approximately $1.5 billion in new capital, before expenses, consisting of approximately $575.5 million.

In November 2011, we completed an initial public offering$1.0 billion raised through issuance of 6.0our First Lien Notes and Second Lien PIK Notes and $500.0 million common shares. In December 2011, the underwriters purchased an additional 0.9 millionraised through issuance of new common shares pursuant to the full exercise of an over-allotment option. The initial publicequity rights offering resulted in net proceeds of approximately $50.3 million. As a result of this offering, our common shares began trading on the NYSE on November 11, 2011 under the ticker symbol “PACD.” As of September 13, 2017, our common shares have been delisted from the NYSE and have commenced trading in the “Pink Sheets” of OTC Pink, currently under the ticker symbol “PACDQ.”

In November 2012, we completed a private placement of $500.0 million in aggregate principal amount of 7.25% senior secured notes due 2017 (the “2017 Senior Secured Notes”) to fund the final construction costs related to the Pacific Khamsin. In connection with this private placement, we listed the 2017 Senior Secured Notes on the Global Exchange Market of the Irish Stock Exchange. On May 26, 2017, we delisted the 2017 Senior Secured Notes from the Irish Stock Exchange.

In February 2013, we entered into a $1.0 billion senior secured credit facility agreement (as amended and restated, the “SSCF”) with a group of lenders to finance the construction, operation and expenses associated with the Pacific Sharav and the Pacific Meltem. In 2015, we completed the final drawdown under the SSCF. As of March 23, 2018, we had borrowings of $661.5 million outstanding under the SSCF and no undrawn capacity.

In June 2013, we completed three financing transactions totaling $2.0 billion, consisting of (i) the $750.0 million private placement of 5.375% senior secured notes due 2020 (the “2020 Senior Secured Notes”), (ii) the $750.0 million senior secured institutional term loan maturing 2018 (the “Senior Secured Term Loan B”) and (iii) the $500.0 million senior secured revolving credit facility maturing 2018 (as amended, the “2013 Revolving Credit Facility”). A portion ofplacement. We used the net proceeds fromto repay all of our pre-petition indebtedness that was not equitized pursuant to the 2020 Senior Secured NotesPlan, to repay post-petition indebtedness incurred under our debtor-in-possession financing, and to pay certain fees and expenses. We intend to use the Senior Secured Term Loan B was used to fully repay the outstanding borrowings under a credit facility used to finance construction of the Pacific Bora, the Pacific Mistral, the Pacific Scirocco and the Pacific Santa Ana. As amended, the 2013 Revolving Credit Facility permitted loans to be extended up to a maximum limit of $475.0 million and permitted letters of credit to be issued up to a maximum sublimit of $300.0 million, subject to a $475.0 million overall facility limit. As of March 23, 2018, we had borrowings of $475.0 million outstanding under the 2013 Revolving Credit Facility, and no undrawn capacity.

In October 2014, we entered into a $500.0 million revolving credit facilityremaining balance for pre-delivery, delivery and post-delivery financing of an eighth drillship, the Pacific Zonda, and for other general corporate purposes (the “2014 Revolving Credit Facility”). On October 26, 2015, we repaid all amounts outstanding underpurposes. More specifically, pursuant to the 2014 Revolving Credit Facility,Plan, the following principal transactions and in connection with our rescission ofevents occurred on the construction contract forPlan Effective Date relating to thePacific Zonda, the 2014 Revolving Credit Facility was terminated as of October 30, 2015.

Capital Expenditures

During the three most recent fiscal years, our Company’s capital expenditures were $270.7 million. For more information on our capital expenditures and requirements, see Item 5.B., “Liquidity and Capital Resources.”

B. BUSINESS OVERVIEW

Our primary business is to contract our fleet of rigs to drill wells for our clients. We are focused on the high-specification segment of the floating rig market. 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 floating rigs capable of drilling in water depths of more than 7,500 feet or projects requiring advanced operating capabilities, such as high hook-loads (>1,000 tons), large accommodations (200+ beds), increased mud storage and pumping capacity, and high deck-load and space capabilities.

For additional information, see Item 10.B. “Additional Information - Memorandum and Articles of Association” and Item 6.A. “Directors and Senior Management.”

Zonda Arbitration

In January 2013, weour subsidiary PDVIII entered into, and our subsidiary PDSI guaranteed, a contract with SHI for the construction of an eighth drillship, 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, we exercised our right to rescind the Construction Contract due to SHI’s failure to timely deliver the vesseldrillship in accordance with the specificationscontractual specifications. SHI rejected our rescission, and on November 25, 2015, formally commenced an arbitration proceeding against us in London under the Arbitration Act 1996 before a tribunal of three arbitrators (as specified in the Construction Contract) (the “Tribunal”). SHI claims that we wrongfully rejected their tendered delivery of the drillship and seeks the final installment of the purchase price under the Construction Contract. See Note 14On November 30, 2015, we made demand under the third-party refund guarantee accompanying the Construction Contract for the amount of our advance payments made under the Construction Contract of approximately $181.1 million, plus interest. Any payment under the refund guarantee is suspended until an award under the arbitration is obtained. In addition to seeking repayment of our consolidatedadvance payments made under the Construction Contract, we have made a counterclaim for the return of our purchased equipment, or the value of such equipment, and damages for our wasted expenditures. We own $75.0 million in purchased equipment for the Pacific Zonda, a majority of which remains 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 August 2018. We expect the Tribunal to render its award within the next several months.

Based on our assessment of the facts and circumstances of the rescission, we believe the estimated fair value of our assets related to the Zonda Arbitration was $204.7 million on the Plan Effective Date. We do not believe that the ultimate outcome resulting from this arbitration will have a material adverse effect on our financial statementsposition, results of operations or cash flows.

As part of our “first day” relief sought in the Chapter 11 bankruptcy proceedings, the Bankruptcy Court granted us a modification of the automatic stay provisions of the Bankruptcy Code to allow the arbitration to proceed. In our bankruptcy proceedings, SHI asserted claims against PDVIII and PDSI, secured by the Pacific Zonda, for approximately $387.4 million, for the remaining unpaid purchase price, interest and costs. Subsequent to the initial plan of reorganization filed by the Debtors and the Zonda Debtors with the Bankruptcy Court, the Company filed an amended plan of reorganization that removed the Zonda Debtors from the Plan. The Zonda Debtors are not Debtors under the Plan and filed a discussionseparate plan of a relatedreorganization that was confirmed by order of the Bankruptcy Court on January 30, 2019. On the date the plan was confirmed, PDVIII and PDSI 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. The Company expects that the Zonda Debtors will emerge from their separate bankruptcy proceedings after the successful resolution of the arbitration. If the Company is unsuccessful in the arbitration, proceeding.the Company expects to liquidate the Zonda Debtors.

DuringIf the years endedCompany is successful in the arbitration and the Zonda Debtors emerge from their separate plan of reorganization, the Zonda Debtors will guarantee the First Lien Notes and Second Lien PIK Notes. In addition, the Company will be required to offer to purchase First Lien Notes at 100.0% of the principal amount thereof, plus accrued and unpaid interest, with any cash proceeds from a settlement or award in connection with the arbitration, with such offer to be for an aggregate principal amount of First Lien Notes equal to the lesser of (x) 50.0% of such cash proceeds and (y) $75.0 million. The Company will also be required to offer to purchase Second Lien PIK Notes at 100.0% of the principal amount thereof, plus accrued and unpaid interest, with the portion of such cash proceeds, if any, that has been declined by the holders of First Lien Notes.

Capital Expenditures

We have no material commitments for capital expenditures related to the construction of a newbuild drillship.  As of December 31, 2017, 20162018, we had commitments for capital expendituresrelated to rig enhancements of $20.8 million. We also expect to incur capital expenditures for purchases in the ordinary course of business. Such capital expenditure commitments are included in purchase obligations presented in Item 5.F. “Tabular Disclosure of Contractual Obligations.”

Available Information

We file annual and 2015,special reports and other information with the percentageSEC.  The SEC maintains a website at www.sec.gov, which contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC.  In addition, we post these documents on our website at www.pacificdrilling.com in the Investor Relations section.

B. BUSINESS OVERVIEW

We are an international offshore drilling contractor providing offshore drilling services to the oil and gas industry through the use of revenues earned by geographic area, based onhigh-specification floating rigs. Our primary business is to contract our fleet of rigs to drill wells for our clients. 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 location, is as follows:

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 Business Strategies and Company Strengths

Our principal business objective is to be the preferred provider of high-specification, floating rig drilling services to the oil and natural gas industry. ToOur operating strategy is designed to enable us to provide high quality, safe and cost-competitive services and to maintain and deploy our assets to position us to benefit from an expected increase in demand for deepwater offshore drilling and increase our cash flow and profits.  Specifically, we expect to achieve this objective we focus on safety, operational excellence, cost management and developing strategic relationships with high-quality clients.our business objectives through the following strategies:

We have a number of strengths that help us achieve our business strategies, including our high-specification, technologically advanced drillship fleet, which represents a uniformity of assets that supports a competitive cost structure and optimal revenue capture. Our fleet is comprised of some of the newest and most technologically advanced drillships in the world. Each of our high-specification drillships is designed to operate in water depths of up to 12,000 feet. Furthermore, our high-specification drillships are self-propelled, dynamically positioned and suitable for drilling in remote locations. Our drillships are expected to achieve faster drilling and shorter transportation times between locations relative to older units in the market. The uniformity of our assets enables efficient and streamlined labor, maintenance, supply chain and operating support systems, which we believe will allow us to develop and maintain a competitive cost structure and maximize our revenue capture. Additionally, our drillships’ consistent technical specifications and equipment make spare parts and maintenance processes interchangeable, which reduces the capital requirements associated with keeping spare parts in stock, lowering maintenance and supply chain costs.

Risks

We face a number of risks associated with our business and industry in implementing our business strategies. These risks relate to, among others, changes in the offshore contract drilling industry, including supply and demand, utilization rates, dayrates, client drilling programs and commodity prices; a downturn in the global economy; hazards inherent in our industry and operations resulting in liability for personal injury or loss of life, damage to or destruction of property and equipment, pollution or environmental damage; inability to finance capital projects; and inability to successfully enter into drilling contracts and employ our drillships.

Readers should carefully consider the following risks, those other risks described in Item 3.D., “Risk Factors” and the other information in this annual report:

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.

The actual amounts of revenues earned and the actual periods during which revenues are earned may differ from the amounts 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.