Petrobras gives Sete Brasil more time to fulfill settlement terms

Brazilian oil major Petrobras has prolonged the deadline for certain conditions of an agreement and settlement with Sete Brasil related to a charter of four and termination of contracts for 24 drilling rigs.

Petrobras
said on Wednesday that its executive board pushed back the deadline for the
agreement between the two companies from 30 June 2020 to 30 September 2020.

To remind,
Sete Brasil was created in 2011 to build, own, and operate a fleet of
ultra-deepwater drillships and semi-submersibles to develop the
Petrobras-operated pre-salt oil fields offshore Brazil.

This was
supposed to be a 28-rig project worth about $90 billion in revenues. However, a
widespread corruption scandal emerged in Brazil which involved both Sete and
Petrobras.

Sete failed
to obtain the funds needed to pay for the rigs it had ordered from Sembcorp
Marine and Keppel. Petrobras also refused to commit to the whole rig contract
package.

In April
2016, Sete Brazil was forced into bankruptcy protection due to Petrobras’
hesitation to sign the contracts for the ordered rigs.

To better
understand this decision by the Brazilian company, it is necessary to clarify
what the agreement is.

Namely, Petrobras reached a possible settlement with its compatriot Sete Brasil to charter four and terminate contracts for other 24 drilling rigs back in February 2018.

However, the deal was subject to approval by both companies. In late December of 2019, Petrobras approved the final terms of the agreement with Sete Brasil, subject to the fulfilment of the preceding conditions.

The approved
agreement maintained the previously agreed and disclosed terms, including
maintenance of charter and operating contracts for four rigs, effective for ten
years and a daily rate of $299,000.

It also
involved the termination of contracts entered into for the other 24 rigs, the
removal of Petrobras and its subsidiaries from the shareholding structure of
the companies of Sete Brasil and FIP Sondas, as well as the consequent termination
of contracts not compatible with the terms of the agreement.

FIP Sondas
is a private equity fund from Brazil, which holds a 95 per cent interest in
Sete Brasil. The remaining 5 per cent is held by Petrobras.

Furthermore,
Magni Partners, the winner of the auction under the judicial reorganization of
Sete Brasil, in association with Etesco, will charter and operate the remaining
four rigs, still under construction.

At the time
of the approval, Petrobras stated that the signing of the contracts would formalize
the agreement but that it depended on compliance with the governance rules of
Sete Brasil and other companies involved.

As a result, the effectiveness of the agreement and other contracts depended on the fulfilment of conditions that must occur over time, and the latter was supposed to be implemented by 30 June 2020.

The deadline has now been moved back by a couple of months.

Sete Brasil in October 2019 also reached agreements with Singapore’s rig builders Keppel Offshore & Marine and Sembcorp Marine related to contracts for the construction of six semi-submersible rigs and seven drillships, respectively.

The
agreement with Keppel entailed a settlement agreement concerning the
engineering, procurement and construction contracts for the construction of six
semi-submersible drilling rigs for six Sete Brasil subsidiaries.

Separately,
Sembcorp Marine reached an agreement with Sete Brasil regarding a total of
seven drillship contracts secured from Sete Brasil’s various subsidiaries.

Under the
settlement, all seven contracts were agreed to be terminated and the parties
agreed to mutually release each other from all claims in relation to the
contracts.

For five of the seven drillships, Sembcorp Marine would keep all works performed. In respect of two of the seven drillships, which had the most advanced construction progress, the titles to such works would be apportioned between the shipyard and Sete Brasil in proportion to made payments.