Petrobras cans one, slashes rate for another Sevan Drilling’s rig

Sevan Drilling has received an early contract termination from Petrobras for one of its cylindrical drilling rigs in Brazil, rate reduction for another, and a short-term gig for the terminated rig from Shell.  

According to the company’s statement on Wednesday, Sevan Drilling amended contracts for the Sevan Driller and Sevan Brasil with Petrobras and secured short-term employment for Sevan Driller with Shell in Brazil, starting in the second quarter 2016.

In its fourth quarter earnings release in February, the company reported it was in commercial negotiations with Petrobras regarding the contracts for Sevan Driller and Sevan Brasil. The Sevan Driller contract was suspended effective December 1, 2015 while the negotiations were ongoing. Sevan Drilling reduced manning and operating costs as a result of the suspension.

The offshore driller said on Wednesday that Petrobras now executed an early termination of the Sevan Driller contract and reduction of the contract dayrate on the Sevan Brasil.

“The company determined on balance that this was the preferred alternative to potentially having both contracts terminated and exposing the company to a protracted legal challenge with an uncertain outcome. As a result, the company was able to preserve $220 million of contracted revenue backlog for the Sevan Brasil contract and to allow the Sevan Driller to obtain alternative employment,” Sevan Drilling said.

The Sevan Brasil contract dayrate has been reduced to $250,000 per day effective February 26, 2016 through the remaining term of the contract, ending July 2018 and a portion of the dayrate continues to be denominated in Brasilian Reals.

The Sevan Driller contract was mutually agreed to be cancelled effective from December 1, 2015. The rig was under a six-year contract with Petrobras that started in 2010.

Subsequent to the effective cancellation of the contract for the Sevan Driller, the unit has been awarded a well intervention contract by Shell in Brazil for 60 days with two 30 day options starting in the second quarter of 2016, adding approximately $11 million in revenue backlog. Daily operating cost is expected to be significantly lower as the rig will perform non-drilling activities for Shell, the rig owner said.

As of February 26, 2016, the company’s total contracted revenue backlog is now estimated at $509 million, including the extension of the Sevan Louisiana contract amended in November 2014.

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