Freeport-McMoRan To Pay Noble 540 Million To Terminate Drilling Contracts

Source: Houston Business Journal

Stacking drillships Noble Sam Croft and Noble Tom Madden 

Phoenix-based Freeport-McMoRan Inc., which has been making substantial cuts in its Houston-based oil and gas division, will pay $540 million to terminate drilling contracts with London-based Noble Corporation PLC.

The contracts for the drillships Noble Sam Croft and Noble Tom Madden originally were scheduled to terminate in July and November 2017, respectively, Noble said in a May 10 statement. Freeport might also pay Noble additional contingent payments of $25 million and $50 million, respectively, depending on the average price of oil over a 12-month period.

Freeport can make the $540 million payment through a combination of cash, Freeport shares and up to $200 million in near-term Noble bonds.

The drillships’ operations will end as soon as possible. The crew reductions and stacking procedures will result in more than $100 million in direct cost savings for Noble, which has its main U.S. office in Sugar Land.

"By accelerating the contract value and removing counterparty risk and potential downtime exposure over the remaining term of the contracts, Noble will be able to secure the economic benefit of these contracts, particularly when factoring in the significant cost savings available,” David Williams, chairman, president and CEO of Noble, said in the company's statement. “Given the financial headwinds facing our client, we are pleased to have resolved this matter in this manner, thus protecting our margins, monetizing the remaining term under the contracts and increasing our already robust financial flexibility."

Freeport-McMoRan Oil & Gas, the entity which had the contracts with Noble, has been struggling amid the oil slump. In early April, Freeport-McMoRan said it would restructure the Houston-based subsidiary into an operating division and eliminate its executive positions. It then announced a 25 percent cut to the division’s workforce.

Freeport-McMoRan also has been evaluating potential deals to sell certain FM O&G assets. FM O&G had been a major player in the deepwater Gulf of Mexico, in part due to assets it bought from Apache Corp. in 2014. Freeport-McMoRan acquired FM O&G’s predecessor, Houston-based Plains Exploration & Production Co., in 2013 for $6.9 billion.

Just a few days earlier, Luxembourg-based Pacific Drilling SA announced that France-based Total SA also canceled a drillship contract, Seeking Alpha reports. With that contract canceled, Pacific Drilling will have warm-stacked four drillships, bringing its number of working rigs down to three.

The company, which has its main operations in Houston, should have had eight total rigs by now, but work on an additional drillship halted in October 2015 due to another canceled contract, according to Seeking Alpha.