Petrobras sets aside $622M in case it has to pay up for Vantage rig contract termination

Brazilian oil company Petrobras has set aside $622 million plus interest in case it is forced to pay Vantage Drilling for wrongful termination of a 2015 drillship contract.

Vantage Drilling’s Titanium Explorer, a self-propelled, dynamically positioned drillship suited for drilling in remote locations, started its $1.6 billion – $1.8 billion, eight-year contract with Petrobras in December 2012.

On August 31, 2015, Petrobras terminated the drilling contract, claiming Vantage had breached its obligations under the contract. Vantage Drilling then filed the international arbitration claim against Petrobras and its relevant subsidiaries claiming wrongful termination of the drilling contract.

Vantage Drilling was then in July 2018 awarded $622 million in damages by an arbitration court in a case against Petrobras for wrongful termination of the contract. Petrobras at the time said it would challenge the arbitration decision.

Petrobras on Thursday reiterated it would continue to fight the decision, as it believes the drillship contract the two companies had signed back in 2009, was procured by corruption. Petrobras is also hoping the tribunal decision might be nullified on the basis that one arbitrator thought Petrobras had been treated unfairly in the arbitration process.

“Petrobras […] within the scope of its ongoing process of contingency assessment, […] will make a provision for the amount provided in the award issued in the arbitration filed by Vantage Deepwater Company and Vantage Deepwater Drilling Inc. against the Company and other companies of the Petrobras System. The Vantage arbitration arose out of an agreement for drilling services procured by corruption, as revealed by Operation Car Wash,” Petrobras said on Thursday.

The arbitration tribunal, formed by three arbitrators, decided by majority vote, with one dissenting vote, in July said that Petrobras  should pay Vantage the amount of US$ 622.02 million, plus compound interest of 15.2% p.a., as compensation for the early termination of drillship deal and invoices related to the drilling of a well in the Gulf of Mexico.

“The dissenting arbitrator refused to sign the final decision and, in writing, issued his dissenting vote and objection to the arbitration award, stating that “the prehearing, hearing, and posthearing processes that led to the issuance of the Final Award have denied the Respondents in this proceeding the fundamental fairness and due process protections meant to be provided to arbitrating parties…” Petrobras said.

Petrobras in August 2018 filed a motion to vacate the award before a Federal Court in Texas based among other arguments on the dissent vote. Petrobras on Thursday said it continued to vigorously pursue the annulment of the arbitration award in defense of its rights. A final hearing on the case will be held before the Federal Court in Texas on 03/08/2019.

Worth noting, Vantage Drilling was itself a part of an investigation by the U.S. SEC into a potential bribery case related to the drillship deal with Petrobras.

The investigation arose in 2015 from allegations of improper payments by a director of Vantage Drilling company to former officials of Petrobras made in 2009 and 2010 in connection with the contracting of the Titanium Explorer drillship.

According to a document released by SEC in November 2018 (PDF), a Vantage Drilling director, through agents and intermediaries allegedly agreed to pay $31 million in bribes to Petrobras officials and in return, Petrobras in February 2009 awarded an eight-year contract worth $1.8 billion for the Titanium Explorer drillship.

As part of the settlement, Vantage Drilling agreed to pay $5 million, neither admitting nor denying any of the SEC’s allegations.

Offshore Energy Today Staff

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