Contract terminations for two Noble drillships

Offshore driller Noble Corporation will see drilling rig contracts it has with Freeport-McMoRan terminated earlier than planned, however for a fee of half a billion U.S. dollars.

The company on Tuesday said it reached a deal with Freeport-McMoRan in connection with the drilling contracts for the drillships Noble Sam Croft and Noble Tom Madden, which were scheduled to terminate in July and November 2017, respectively.

Under the new arrangement, the contracts will be terminated, with operations ceasing as soon as practicable, and Freeport will make a payment to Noble of $540 million.

In addition, Noble said it can receive additional contingent payments from Freeport of $25 million and $50 million, respectively, depending upon the average price of oil over a 12 month period.

Noble also said it expects to realize over $100 million in direct cost savings as a result of the contract terminations through crew reductions and stacking procedures. The company did not say how many jobs would be affected.

Freeport in January said it would idle three drillships in the Gulf of Mexico in order to cut costs. The company said would defer of exploration and development activities by idling the rigs.

In a statement on Tuesday, Noble’s CEO David W. Williams said the deal with Freeport McMoRan represents a favorable resolution for Noble shareholders.

He said: “By accelerating the contract value and removing counterparty risk and potential downtime exposure over the remaining term of the contracts, Noble will be able to secure the economic benefit of these contracts, particularly when factoring in the significant cost savings available. Given the financial headwinds facing our client, we are pleased to have resolved this matter in this manner, thus protecting our margins, monetizing the remaining term under the contracts and increasing our already robust financial flexibility.”

Freeport can make the $540 million payment through a combination of cash, Freeport shares and up to $200 million in near-term Noble bonds. Through this arrangement, Noble said it expects to realize the full value of such payment.