Noble Drilling Corporation, along with its subsidiaries Noble Drilling Services Inc. and Noble Drilling (U.S.) Inc., has filed suit against Samedan Oil Corporation
and Mariner Energy, Inc. for breach of contract.
In recent years, Noble Drilling has focused on increasing the number of rigs in its fleet capable of deepwater offshore drilling. A principal component of this deepwater strategy has been the conversion and upgrade of rigs to drill in water depths greater than 5,000 ft. Five of the six rigs in this program have been delivered under long-term contracts.
Noble Max Smith was delivered on December 22, 1999 for use by Amerada Hess Corporation. A previously disclosed dispute with Union Pacific Resources concerning its use of Noble Max Smith has been resolved in principle and a drilling contract is in the process of final documentation.
Noble Homer Ferrington, capable of drilling in 6,000 ft. of water, is the sixth rig in the program; and is scheduled for delivery in late February or March 2000. Noble Homer Ferrington remains subject to letter agreements dated February 1998 with Mariner Energy, Inc. and Samedan Oil Corporation, which require Mariner and Samedan to sign drilling contracts totaling five years and a related rig-sharing agreement.
As previously disclosed, Mariner expressed its view in March 1999 its letter agreement had expired, however it further expressed its intention to work toward a mutually acceptable outcome. Noble Drilling is continuing its discussions with Mariner and is hopeful such a mutually acceptable outcome will be reached in the near future.
Also as previously disclosed, Samedan has questioned the extent of its obligations under its letter agreement and expressed concerns about the rig's design criteria. Noble Drilling believes these operators have binding commitments to use the rig, and the rig meets the originally agreed upon design criteria.
Accordingly, the company has filed suit to enforce its rights. If the company is not able to resolve this matter promptly, it could experience delay in finding alternate customers.
While the current market for deepwater rigs has softened, the increases in the price of oil in recent months will stimulate drilling activity over time. In the interim, it is anticipated the unit could be contracted at dayrates lower than those reflected in the existing letter agreements, which would adversely affect the company's future revenues and operating income.
Each $20,000 reduction in dayrate from the letter agreement rate would reduce earnings per share on an annualized basis by approximately $0.036.