as FGH announces problems with rig contracts
Chairman and CEO J.L. Holloway also revealed
that the company faces ongoing problems with four rig construction
projects. Holloway is picking up Dane's title of of president
of the company, which "does not currently anticipate filling
FGH's spin on this is that it is "taking certain steps to minimize the financial and operational impact of problems resulting from four rig construction contracts with two customers and plans to aggressively evaluate all non-strategic assets and operations for divestiture opportunities." The FGH board has approved the retention of an investment banking firm to facilitate the process.
The four rig contracts in question are two for Ocean Rig ASA and two rig for Petrodrill.
FGH says it has has notified Ocean Rig ASA regarding additional construction delays on the Bingo 9000 1 & 2 semisubmersible drilling rigs. FGH asserts that "deficiencies in the owner's design and late deliveries of owner-furnished equipment and owner-furnished information have caused FGH additional delays and cost overruns. The company has not determined feasible delivery dates due to the delays in Ocean Rig's delivery of owner-furnished equipment and owner-furnished information as well as unresolved critical issues regarding Ocean Rig's contractual obligation to commission the rigs."
FGH says that "as a result of Ocean Rig's failure to meet its obligations," it won't t the scheduled delivery dates for the two Bingos of March 31 and June 30, 2000.
FGH had previously announced that it would make a claim for $75 million in compensation for additional costs and delays in an arbitration proceeding slated to begin January 27. Now, it says, it has subsequently increased its claim in the arbitration proceeding to $95 million.
FGH anticipates an arbitration decision by the end of March. It says it believes that it has "additional claims for substantial amounts, in excess of the claims made in the pending arbitration, for additional costs and delay damages relating to the construction of the two rigs." These claims will not be considered as part of the arbitration commencing at the end of January. FGH will assert the additional claims in a subsequent arbitration proceeding, which was initiated by Ocean Rig on January 11, 2000. Ocean Rig has asserted claims against the FGH based on FGH's failure to deliver the rigs on or prior to the contractual delivery dates.
FGH has notified Petrodrill that, "as
a result of ongoing delay, deficiencies and other
"These factors," says FGH, "are causing, and are expected to continue to cause, the company to incur significant additional costs in excess of the company's original anticipated costs. The company has responded by deferring additional fabrication efforts on these projects, and is proceeding with detailed engineering only in order to re-establish proper sequencing. Without the requested time extensions, the company has notified Petrodrill that the existing contract delivery dates cannot be met. In addition, the company has informed Petrodrill that it is entitled to compensation for additional costs and delay damages."
FGH says it "anticipates that Petrodrill will disagree with the company's actions."
"As a result of the continued sluggish
market conditions through the fourth quarter, merger related
costs and the impacts of the Ocean Rig contracts," says
FGH, it "anticipates that it will report a loss for the
quarter ended December 31, 1999. The amount of the loss has not
been determined and is dependent ,in large part, upon the results
of the Ocean Rig arbitration proceedings. The results of those
proceedings could materially impact the company's financial results
for the fourth quarter. However, any costs incurred by the company
in excess of the original contract price on the Petrodrill contracts
will not materially affect the company's income statement because
such amounts will be reflected in the purchase accounting treatment
of the acquisition by Friede Goldman of Halter Marine Group,
Under such accounting treatment, any such excess amount will have the impact of increasing goodwill, which will be amortized over a 25-year period.
"Our decision to become more proactive in protecting our rights and interests on both the Ocean Rig and Petrodrill projects was not arrived at easily," said Holloway. "The Friede Goldman Halter companies have a long history of meeting commitments for virtually every established operator in the offshore energy industry. We are pleased with the status of other projects in our vessel, engineered products and offshore segments."
Finally, the company announced several new construction contracts with a total value of $199 million: