With its new Liberty rig undergoing a lengthy engineering and design review that began shortly after 2009 delivery to BP on the North Slope, Parker Drilling has suffered another setback in its attempt to resurrect its business in Alaska. On Jan. 17 the Houston-based company said it had received a letter of default from BP on the two new Arctic Alaska Drilling Units, or AADUs, it delivered to the North Slope in August under a five-year contract with the Prudhoe Bay unit operator.
The AADUs, Parker rigs 272 and 273, would be the first rigs in Alaska to bear the Parker logo since the late 1990s, when the company pulled out of the state. (The Liberty rig, designed and built by Parker, is owned by BP and operated by Parker.)
“The unique design for these new, technologically advanced rigs posed engineering, construction and commissioning challenges that have resulted in un-anticipated design modifications, delays and cost increases,” Parker Drilling President and Chief Executive Officer David Mannon said in the Jan. 17 press release. “The actions we are taking are important to meeting the operational and safety objectives we desire.”
The modification work on 272 and 273 will extend the commissioning activities and increase the two rigs’ total cost, resulting in a $171 million impairment charge in the fourth quarter, Parker said.
In a conference call with analysts and the press following its Jan. 17 release, Parker officials said the overall cost of the two rigs was now anticipated to be $385 million, with $340 million of that spent by the end of 2011, including capitalized interest.
In 2012 the company expects to spend another $38 million, plus capitalized interest, making the total impairment about $216 million.
Although Parker offered no timetable for completion of the rigs, which were intended to replace two rigs owned by other drilling companies in the Prudhoe Bay field and be in operation by now, the delay means BP is currently down two rigs.
In 2008, when BP announced it was purchasing the two Parker rigs, there were six drilling rigs working in Prudhoe Bay proper, which excluded satellite rigs. Today only two rigs are working there, Doyon 25 and Nordic 1, although that could change if BP brings Doyon 16 back from Milne Point.
BP says in talks with Parker
What does BP have to say about Parker’s announcement?
Very little, but it appears Parker is still in the game.
A local BP spokeswoman told Petroleum News Jan. 18, “Yes, BP has provided Parker with a notice of default as indicated by Parker. The notice addresses Parker’s obligation to deliver the drilling rigs in compliance with, and within the deadlines established in, the contract. Currently, the rigs are not complete and have not been delivered. BP has not reached a final decision on what action it will take. We are in discussions with Parker to address the matter.”
In the Jan. 17 conference, Parker executives were asked about the implications of BP’s letter of default, specifically “Is there a situation where the contract is null and void altogether?”
Their response was that they don’t believe Parker is in default, and so are “proceeding on with generating solutions to the issues we discovered during rig commissioning” and working with BP on a “revised schedule.”
The AADUs, rigs 272 and 273, Parker said in its release, “represent a new class of drilling rig that incorporates some of the most advanced features available in the global land rig market, including a safety-engineered, state-of-the-art equipment package; a highly automated drilling system; zero-discharge capabilities; and a modular design allowing the entire rig to transport itself in three, fully-enclosed mobile units.”
Parker’s “intent is to deliver to our customer and to Alaska’s North Slope drilling market a more productive drilling rig than what is currently available. We expect the AADUs to establish a new standard of performance for arctic drilling,” Mannon said.
Parker offers “contract drilling solutions, rental tools and project management services to the energy industry, with an international fleet of 25 land rigs and two offshore barge rigs, and a U.S. fleet of 13 barge rigs in the U.S. Gulf of Mexico,” excluding its three non-operational land rigs in Alaska.
Parker first did business in Alaska in the late 1960s, when it was awarded a contract with the U.S. Atomic Energy Commission to drill exceptionally large and deep holes to contain the blast from a nuclear test.
Parker transitioned into oil drilling soon after, bringing several drilling rigs to Prudhoe Bay following its discovery in 1968.
Over the next three decades, the company operated as many as 10 to 12 rigs in Alaska, both on the North Slope and in the Cook Inlet basin, but during a stretch of low oil prices in the late 1990s Parker left the state.
