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Marathon Ends Contract for Noble Deep-Water Rig

HOUSTON—Contract driller Noble Corp. said Monday that Marathon Oil Co. is cancelling a four-year, $752 million contract to lease an ultra-deep-water rig in the U.S. Gulf of Mexico.
Although Marathon said that the condition of the rig, and not its inability to win drilling permits from U.S. regulators, was cause for the cancellation, the move underscores the difficulty energy producers are having getting back to work in the Gulf more than two months after the Obama administration lifted its ban on deep-water drilling.

It also highlights the struggles of drillers, whose customers are increasingly pushing to terminate contracts that often run more than $500,000 a day, even if the rigs aren't operating. Energy companies are still waiting for approval to drill the first new deep-water well in the Gulf and some analysts don't expect permission to come until at least later this year.
As such, producers are claiming that the government's failure to issue drilling permits triggers so-called "force majeure" clauses that allow the termination of contracts due to unforeseen events, such as a natural disaster or war.

Last month Noble said that Marathon planned to terminate the contract regardless of the rig's readiness if the producer couldn't win U.S. government approval to drill new wells by year end.

Marathon spokeswoman Lee Warren said Monday that its lack of drilling permits was a "secondary" issue.
Instead Marathon said Switzerland-based Noble failed to have the recently rebuilt Jim Day rig, which arrived in the Gulf on Sept. 24, ready to drill by a Dec. 31 deadline. Noble contends that an independent party affirmed the rig's readiness and that the Jim Day's safety equipment had won regulators' approval.
Noble is also battling with Anadarko Petroleum Corp. in Houston federal court over an idled Gulf of Mexico rig. Anadarko has claimed that the government's actions should void the companies' contract.

"We are disappointed by Marathon's actions," Noble Chief Executive David W. Williams said in a prepared statement. "Fortunately, the Noble Jim Day is one of the most capable rigs in existence and there are already a number of potential customers interested in a unit of this caliber."

Marathon said Monday that it remains committed to its Gulf of Mexico exploration program "and numerous options are available to access the necessary qualified drilling rigs."

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