Sam Fletcher
OGJ Online
Five-year charter and service contracts for two newly built deepwater semisubmersible rigs will effectively resolve a principal part of its troubled Amethyst joint venture, Pride International Inc. officials in Houston told financial analysts Monday.
Under the new contracts with Petroleo Brasileiro SA (Petrobras), Pride will collect higher day rates of $122,000, producing aggregate revenues of more than $500 million over 5 years. In addition, Petrobras now will pay mobilization costs for the two rigs, totaling $16.5 million.
�A year ago even, a number of customers wanted out of their contract obligations because of soft commodity prices,� said Paul A. Bragg, Pride�s president and CEO in a telephone conference with financial analysts Monday. Now with producers looking to reinvest their improved cash flow, he said, rigs are in great demand.
In a separate deal, Pride agreed to buy out its partners in the two rigs via stock deals to obtain sole ownership. Company officials said that would be structured as a tax-free deal for shareholders.
�By entering into new 5-year contracts with Petrobras and acquiring the complete ownership of these two rigs, we have finally resolved the most significant issues and uncertainties relating to our Amethyst project,� Bragg said. �Having recently concluded construction of the rigs and begun transit to Brazil, timing was clearly right for us to take this step.�
The US drilling contractor is buying the 61.7% interest in the rigs from Maritima Petroleo e Engenharia Ltda. for an $85 million note that is convertible into Pride common stock. Pride also will acquire the 11.9% interest held by affiliates of First Reserve Corp. for about 500,000 shares of common stock under the existing agreement governing First Reserve�s investment in the joint venture.
Pride originally had 30% interest in that joint venture, formed to construct, own and operate four Amethyst-class dynamically-positioned semisubmersibles that would work off Brazil for Petrobras. But as Bragg observed Monday, �The Amethyst project has certainly had its share of ups and downs over the last 3 years.�
Contracts for the rigs were let 3 years ago, but construction was delayed because of financing. The partners came out with a bond offering at the time of a general collapse in the energy market. That was followed by devaluation of Brazil�s currency. At one point, Petrobras threatened to cancel its 7-year contracts for the rigs as a result of nondelivery.
Pride officials said Petrobras essentially has torn up the old contracts and signed new ones.
The rigs being obtained by Pride and under new contracts to Petrobras are the former Amethyst 6, renamed Pride Brazil, and the Amethyst 7, now the Pride Carlos Walter, both built in South Korea.
The Pride Carlos Walter is en route to Brazil by way of South Africa, while the Pride Brazil is scheduled to leave South Korea on Feb. 9 along the same route. The rigs are expected to complete acceptance testing and to be ready for work by June or July, officials said.
Pride will wind up with a $225 million investment in the rigs, which would cost $250-270 million to build today, said company officials.
The rigs have associated construction financing arrangements for some $300 million, but Pride officials said they will retire about half of that debt and refinance the remainder at more attractive rates once the rigs are in place and working.
�Transfer of full ownership of the rigs to Pride will allow us the additional opportunity to replace relatively high-cost construction debt associated with the rigs with significantly less costly borrowings, as well as to reduce the total amount of debt associated with the rigs,� Bragg said.
The two new rigs will bring to four the semisubmersibles that Pride will have working off Brazil for Petrobras, enhancing its �critical mass,� he said.
�The deepwater basins offshore Brazil are among the largest and most active in the world, and Petrobras is certainly in a leadership role with respect to deepwater drilling and development. We expect offshore Brazil to remain important to us for many years,� said Bragg.
However, Pride intends to maintain its $20 million �passive� investment�at least for now�in the two other Amethyst rigs under construction in Pascagoula, Miss.; and in Orange, Tex., for year-end delivery. Those rigs are financed through the US Maritime Administration, said Bragg.