United states securities and exchange commission

 

 

 

78
 

 
 

Report of Independent Registered Publi c Accounting Firm

 

To the Shareholders and Board of Directors

Pacific Drilling S.A.:

 

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Pacific Drilling S.A. (Debtor In Possession) and subsidiaries (the Company) as of December 31, 2017 and 2016, the related consolidated statements of operations, comprehensive income (loss), shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2017, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2017, in conformity with U.S. generally accepted accounting principles.

Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has suffered recurring losses from operations, is in violation of its debt covenants, and is facing risks and uncertainties surrounding its Chapter 11 proceedings that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

/s/ KPMG LLP

We have served as the Company’s auditor since 2008.

Houston, Texas

April 2, 2018

 

 

F-1
 

 

PACIFIC DRILLING S.A. (DEBTOR IN POSSESSION) AND SUBSIDIARIES

Consolidated Statements of Operations

(in thousands, except per share information)

		Years Ended December 31,
		2017			2016			2015
Revenues
Contract drilling		$	319,716		$	769,472		$	1,085,063
Costs and expenses
Operating expenses			(244,089)			(290,038)			(431,261)
General and administrative expenses			(87,134)			(63,379)			(55,511)
Depreciation expense			(278,949)			(275,901)			(243,457)
			(610,172)			(629,318)			(730,229)
Loss from construction contract rescission			—			—			(40,155)
Operating income (loss)			(290,456)			140,154			314,679
Other income (expense)
Interest expense			(178,983)			(189,044)			(156,361)
Write-off of deferred financing costs			(30,846)			—			—
Gain on debt extinguishment			—			36,233			—
Reorganization items			(6,474)			—			—
Other expense			(5,544)			(2,393)			(3,217)
Income (loss) before income taxes			(512,303)			(15,050)			155,101
Income tax expense			(12,863)			(22,107)			(28,871)
Net income (loss)		$	(525,166)		$	(37,157)		$	126,230
Earnings (loss) per common share, basic (Note 10)		$	(24.64)		$	(1.76)		$	5.97
Weighted-average number of common shares, basic (Note 10)			21,315			21,167			21,145
Earnings (loss) per common share, diluted (Note 10)		$	(24.64)		$	(1.76)		$	5.97
Weighted-average number of common shares, diluted (Note 10)			21,315			21,167			21,156

 

See accompanying notes to consolidated financial statements.

F-2
 

 


PACIFIC DRILLING S.A. (DEBTOR IN POSSESSION) AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income (Loss)

(in thousands)

		Years Ended December 31,
		2017			2016			2015
Net income (loss)		$	(525,166)		$	(37,157)		$	126,230
Other comprehensive income (loss):
Unrealized loss on available-for-sale securities			(485)			—			—
Reclassification adjustment for other-than-temporary impairment on available-for-sale securities realized in net income			485			—			—
Unrecognized loss on derivative instruments			(565)			(6,290)			(14,889)
Reclassification adjustment for loss on derivative instruments realized in net income (Note 12)			5,265			8,798			10,440
Reclassification adjustment for loss on derivative instruments realized in property and equipment (Note 12)			—			1,789			1,164
Total other comprehensive income (loss)			4,700			4,297			(3,285)
Total comprehensive income (loss)		$	(520,466)		$	(32,860)		$	122,945