Ensco in arbitration against Petrobras and Samsung Heavy

UK-based offshore drilling contractor Ensco has initiated arbitration proceedings against Brazilian oil company Petrobras and South Korean shipbuilder Samsung Heavy Industries in connection with a drilling contract for Ensco’s drillship DS-5.  

In January 2016, Petrobras cancelled its contract with Ensco for the drillship DS-5 over corruption charges.

Petrobras asserted that the Ensco DS-5 drilling services contract is void based on an allegation that Ensco’s subsidiary Pride had knowledge of and assisted a former third-party marketing consultant that procured and received improper payments from Samsung Heavy Industries, the shipbuilder of Ensco DS-5 drillship, that were then paid to employees of Petrobras.

In its SEC Filing on Monday, Ensco said: “We disagree with Petrobras’ assertions and have initiated arbitration proceedings in the UK against Petrobras and Samsung Heavy Industries in connection with the foregoing.”

To remind, Pride International, a company Ensco acquired in 2011, started drilling operations in Brazil in 2001. In 2008, Pride entered into a drilling services agreement with Petrobras for Ensco DS-5, a drillship ordered from Samsung Heavy Industries, a shipyard in South Korea (SHI).

Beginning in 2006, Pride conducted periodic compliance reviews of its business with Petrobras, and, after the acquisition of Pride, Ensco stated it conducted similar compliance reviews, the most recent of which started in early 2015 after media reports were released regarding ongoing investigations of various kickback and bribery schemes in Brazil involving Petrobras.

Ensco said it became aware of an internal audit report by Petrobras alleging irregularities in relation to a drilling services agreement Pride entered into for Ensco DS-5 in 2015.

Upon learning of the Petrobras internal audit report, Ensco’s Audit Committee appointed independent counsel to lead an investigation into the alleged irregularities.

According to the drilling contractor, to date, the company’s Audit Committee has found no evidence that Pride or Ensco or any of their current or former employees were aware of or involved in any wrongdoing, and the Audit Committee has found no evidence linking Ensco or Pride to any illegal acts committed by the company’s former marketing consultant.

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