Petrobras Looks To Tear Up Further $400m Drilling Contracts

Published at 10:02AM - 15/09/15

Offshore drilling contractors, Paragon Offshore, have hinted that Petrobras are attempting to cancel two contracts held with the firm.

The contracts cover the long term lease of deepwater drillships, Paragon DPDS2 and Paragon DPDS3. 

Paragon revealed the Petrobras move in its monthly ‘Fleet Status Report’, highlighting its comments on Petrobras in red ink.

On the DPDS3, the comment read: ‘Petrobras has indicated to us that it may contest approximately 380 days of the drilling contract backlog. We continue to discuss the matter with Petrobras.

On the DPDS2, the comment read: ‘Petrobras has indicated that it will release the rig in late September 2015. We continue to discuss the matter with Petrobras’

According to Paragon’s September report, both contracts are set to last well into 2017. Further, the report also states that both drillships are now eligible for a 15% performance bonus.

The total backlog loss for Paragon, could well exceed US$400 million, if Petrobras does walk away.

Troubled Petrobras

This is not the first time the troubled Brazilian state run oil and gas company has walked out of legally binding contracts.

Earlier this month, Petrobras took the same move with offshore drillers, Vantage Drilling, terminating a long term contract for the offshore deepwater drillship Titanium Explorer.

As a way of terminating the Vantage contract, Petrobras cited ‘Breech of Contract’, however no explanation to the actual breech was ever given.  The matter is now in the hands of company lawyers.

The Offshore Drilling Industry

As the offshore energy industry continues to struggle, one of the hardest hit areas is by far offshore drilling. 

Rigs have been stacked all over the world, companies are trying to sell brand new state-of-the-art deepwater drillships to drilling companies who are equally trying to sell theirs, whilst a number of offshore drilling firms have already filed for bankruptcy.

The industry can only wait and see what happens next between Paragon, Vantage and Petrobras,

as the outcome will surely set a precedent for future dealings between offshore drillers and offshore explorers.