Petrobras Scraps Another Offshore Drilling Contract

Published at 03:56PM - 06/01/16

Petrobras scraps another offshore drilling contract, in the ongoing turmoil over an increasing debt mountain and deep-rooted corruption throughout the company.

The Brazilian state run oil and gas company has torn up a swathe of contracts held with a host of companies over the last 12 months.

Most of the contracts have been held with offshore drilling firms, including Ocean Rig;  Vantage Drilling and Paragon Offshore Drilling.

However maritime companies supplying Petrobras have been far from immune, with companies including World Wide Supply AS, Siem Offshore and Ultrapetrol Supply Vessels also being hit and loosing millions in the process.

Some estimate have put the combined loss in contracts at around US$1 billion.

Petrobras Scraps Another Offshore Drilling Contract

Petrobras’ latest move has been to tear up a contract it held with offshore drilling giant Ensco for the firms deepwater drillship DS-5.

In a filing to the US Securities And Exchange Commission Wednesday (Jan 6th), Ensco said: “On January 4, 2016, the Company received a notice from Petrobras asserting that Petrobras believes the DS-5 drilling services contract is void effective January 4, 2016.”

The contract for the DS-5 dates back before Ensco acquired the drillship in an acquisition of its then owner Pride International Inc.

Ensco has said that notices received from Petrobras indicate financial irregularities and wrong doing by Pride International, in connection with the DS-5, as a reason for declaring the contract void.

According to Ensco, Petrobras alleges:  “Pride had knowledge that the shipbuilder of DS-5 made improper payments to the former third-party marketing consultant who then shared the improper payments with former employees of Petrobras and that Pride may have assisted in or facilitated these improper payments.”

The offshore drilling contractor has said that they have conducted ‘regular compliance reviews’, and have found no wrong doing in relation to any dealings with Petrobras between either Pride or itself.

Further, Ensco has stated that Petrobras has at no time given any evidence to back up its allegations.

Petrobras Troubles

Petrobras is an oil and gas company in deep troubles.  Prior to the end of the year the company was in the process of selling off around US$19 billion in assets, as it struggles with a growing debt mountain of US$130 billion- the largest debt of any company in the global oil and gas industry.

Debts aside, the company is also being crippled in ongoing corruption scandals and court battles, with some former executives already being jailed in Brazil over financial kickback schemes.

The question is- are the contracts being torn up truly in connection with corruption, or are they a desperate money saving scheme devised by the Brazilian state run company.

Either way, their troubles only seem to be getting escalating through, their actions with industry companies.

Or put in the words of Ensco: “Ensco disagrees with Petrobras’ assertion that the DS-5 drilling services contract is void and intends to assert its legal rights under the drilling services contract.