Amidst its international corruption investigation, Petrobras terminated its US$1.6 billion contract with Vantage Drilling for the use of the Titanium Explorer ultra deepwater drillship citing a breach in Vantage’s obligations under the contract, which the drilling company strongly disagrees with.
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The Titanium Explorer ultra deepwater drillship. Image from Vantage. |
The notice, received on Monday (31 August) from Petrobras America, Inc. (PAI) and Petrobras Venezuela Investments & Services B.V. (PVIS) did not provide an explanation about a breach by Vantage and its obligations under the drilling contract.
“Vantage strongly disagrees with the allegations of contractual breaches made by PAI and PVIS in the notice. Vantage has filed for arbitration to challenge the assertions made in the notice and to assert that the notice is a wrongful attempt to terminate the drilling contract. Vantage believes that it is in compliance with all of its obligations under the drilling contract,” Vantage said in a statement.
The Titanium Explorer was under a $1.6 billion eight-year drilling contract between PVIS and Vantage Deepwater Drilling Co. dated 4 February 2009. The drillship was mobilized to the US Gulf of Mexico in 3Q 2011, however, Petrobras reserved the right to relocate and utilize the drillship on a worldwide basis.
In July, Vantage announced it was aware that its agent used in contract negotiations with Petrobras, Hamylton Padilha, was cooperating with, and made statements to Brazilian authorities that were investigating the Lava Jato scandal.
“We have not been able to confirm these statements. Mr. Padilha has acted as an agent representing numerous international companies in connection with their drilling contracts in Brazil over a period of many years. Furthermore, if Mr. Padilha committed any illegal acts, he was not acting on our behalf or upon any instructions from the company. While we have not been contacted by any governmental authority investigating these matters, Vantage supports cooperation with the Brazilian authorities and remains committed to conducting our operations in accordance with the highest standards of business ethics,” Vantage said in a 30 July statement.
A few days later on 4 August, Vantage said in a regulatory filing that Padilha had entered into a plea arrangement with the Brazilian authorities in connection with the agent’s role in obtaining bribes on behalf of former Petrobras executives.
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The Titanium Explorer ultra deepwater drillship. Image from Vantage. |
“We have since confirmed that our agent, who has represented multiple international companies in their contracts with Petrobras, has entered into such discussions and provided evidence to the Brazilian authorities of an alleged bribery scheme between the former Petrobras executives and a former director of Vantage,” Vantage said in the 4 August regulatory filing.
Vantage former director, Nobu Su, was the sole owner of the company that owned the Titanium Explorer at the time the alleged bribe was paid. As of this month, Vantage has not been contacted by any governmental authority in connection with the Petrobras allegations, but voluntarily contacted the SEC and the US Department of Justice (DOJ) to advise of the recent developments.
“We continue to investigate the matter, but as of now, our internal and independent investigations have found no evidence of wrongdoing by our employees or participation in any manner with the inappropriate acts alleged to have been conducted by the agent,” Vantage said.
Vantage financial issues
In late June, Vantage Drilling Co. retained Lazard Freres & Co. to evaluate financing opportunities, strengthen and expand management's analysis of the changing marketplace and provide an independent resource for evaluating the company's strategic plans.
"Over the past year and a half, our strong operating performance has allowed us to maintain our commitment to the retirement of debt, resulting in the repayment of over $300 million of outstanding debt. In accordance with this strategy, we have continued to retire debt during the second quarter, and anticipate that we will continue to opportunistically repurchase debt going forward. Given that our debt continues to trade well below its face value, we have retained Lazard to explore alternatives to take advantage of what we view as a current market opportunity for the near and long term benefit of the company," Paul Bragg, Vantage chairman and CEO said in June.
Vantage, owns a fleet of three ultra deepwater drillships: the Platinum Explorer, Titanium Explorer and Tungsten Explorer, in addition to and four ultra premium jackup drilling rigs.
Vantage's primary business is to contract drilling units, related equipment and work crews primarily on a day rate basis to drill oil and natural gas wells.
Lava Jato scandal
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Brazilian federal police. Image from Mayer Brown. |
First revealed in 2009, the Petrobras Lava Jato scandal has broadened its reach from Brazil to worldwide.
The scandal consists of large-scale bribery of government officials and money laundering by illegal money brokers. In 2014, Brazilian federal police uncovered a $2.9 billion (BRL $10 billion) embezzlement and money-laundering scheme led by money changers, and issued 130 judicial warrants. This has led to a domino effect of warrants, arrests and convictions on a global scale, with worldwide collaboration to investigate those involved in Lava Jato.
As US-based global energy law firm Mayer Brown call it: “the largest corruption investigation in the world,” the scandal has left Petrobras’ audited financial reports reflecting a US$2.1 billion write down for corruption, and a $14.8 billion impairment. The Brazilian giant has no choice but to divest assets, which are creating opportunities for other companies in Brazil’s oil and gas business.
Read more:
Brazilian scandal creates business opportunities
Petrobras scandal reaches Asia
Odebrecht CEO arrested in Petrobras scandal
Vantage hires Lazard to review options
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