Ocean Endeavor to leave Gulf of Mexico for work off Egypt

Diamond Offshore Drilling Inc. has made the first announcement of a deepwater drilling rig leaving the Gulf of Mexico in response to the federal moratorium on work in more than 500 ft of water.

July 9, 2010

2 min read

By OGJ editors
HOUSTON, July 9 -- Diamond Offshore Drilling Inc. has made the first announcement of a deepwater drilling rig leaving the Gulf of Mexico in response to the federal moratorium on work in more than 500 ft of water.

The Ocean Endeavor semisubmersible will move to Egypt under contract to Burullus Gas Co., a joint venture of BG Group, Petronas, and Egyptian General Petroleum Corp. Burullus holds the West Delta Deep Marine concession.

The Ocean Endeavor had been working under a contract in effect since July 2007 with Devon Energy Corp., which declared force majeure.

Devon argued that the moratorium, imposed by the Department of the Interior May 30 in response to the Apr. 20 explosion on the Transocean Deepwater Horizon semi and consequent spill, prevented it from drilling in the gulf. Other operators have declared force majeure on gulf drilling contracts with Diamond Offshore and other drilling contractors.

Court challenges to the moratorium have been successful and are under appeal. Deepwater drilling in the gulf remains suspended.

“With new contracting severely restricted in the Gulf of Mexico as a result of the uncertainties surrounding the offshore drilling moratorium, we are actively seeking international opportunities to keep our rigs fully employed,” Diamond Offshore Pres. and Chief Executive Officer Larry Dickerson said in a prepared statement.

“The new contract for the Endeavor will help us preserve backlog and will allow the previous operator of the rig to satisfy its contractual obligations, which extended until June 30, 2011,” he said. “We greatly regret the loss of US jobs that will result from this rig relocation.”

Devon will pay a $31 million early-termination fee. Dickerson estimated that the new contract and termination fee would generate combined maximum total revenue of $100 million.

UBS Investment Research said the dayrate would decline to $225,000/day from $267,000/day with Devon. With the termination fee, however, the realized dayrate will be $285,000/day, the firm said.