Houston-based ConocoPhillips terminated its order for the recently delivered Ensco DS-9 deepwater drillship in concurrence to its plans to reduce future capital expenditures in deepwater exploration.
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The Ensco DS-9. Image from Ensco. |
The Ensco DS-9 newbuild was scheduled for delivery in the Gulf of Mexico in late 2015 to begin drilling, as part of a three-year contract set for 4Q 2015.
Under the terms of the agreement, ConocoPhillips is subject to a termination fee that represents up to two years of contract day rates. Details of the termination are under discussion, but the company expects to take a special item charge for termination in the 3Q 2015, ConocoPhillips said in a statement.
According to Ensco, ConocoPhillips is obligated to pay Ensco monthly termination fees for two years equal to the operating day rate of approximately US$550,000, which may be partially defrayed should Ensco re-contract the rig within the next two years and/or mitigate certain costs during this time period while the rig is idle and without a contract. ConocoPhillips is also contractually obligated to reimburse certain costs that Ensco incurs due to the termination of the contract for ConocoPhillips’ convenience.
"Since the start of the oil and gas price downturn last year, we have moved decisively to position ConocoPhillips for lower, more volatile prices by exercising capital flexibility and reducing operating costs across our business,” said Ryan Lance, ConocoPhillips chairman and CEO. “Our decision to reduce spending in deepwater will further increase our capital flexibility and reduce expenses without impacting our growth targets. This strengthens our ability to achieve cash flow neutrality in 2017 even if lower commodity prices persist.
ConocoPhillips noted that although the company achieved notable success in its deepwater program in the Gulf of Mexico Lower Tertiary play, as well as offshore Senegal, a reduction would be made in the number of future deepwater exploratory prospects. The company has also decided to reduce exposure to programs with greater resource risk and longer cycle times.
Ensco and ConocoPhillips entered into the three-year contract for the Ensco DS-9 in March 2014. At that time, the drillship was still under construction at the Samsung Heavy Industries Shipyard in South Korea.
The Ensco DS-9 is a Samsung GF12000 hull design, 755ft by 125ft, with DP3 station-keeping capability, featuring retractable thrusters. It is equipped to work in water to 10,000ft water depth, upgradable to 12,000ft, and drill to 40,000ft TD.
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