The Company noted that without the gains/losses on these construction projects, its results for the quarter would have exceeded the First Call consensus forecast of $.09 per share.
"Although the first of our four deepwater platform rig construction projects is essentially complete and is a technical success and the remaining projects are progressing satisfactorily, construction of several of the projects will result in project costs substantially in excess of revenues," said Paul A. Bragg, President and Chief Executive Officer. "Increased costs have resulted mainly from difficulties we have experienced with the initial shipyard constructing the first two rigs. In response to these difficulties, we have terminated our contract with the shipyard prior to the completion of the first two rigs and commenced arbitration proceedings against the shipyard. As a result, we have incurred substantial unplanned costs in completing the construction of the first unit in connection with its installation on the customer's platform. We also have had to engage another shipyard to complete construction of the second rig. The aggregate costs paid to the initial shipyard and committed to the second shipyard, as well as costs to transfer the rig and components, have greatly exceeded our budgeted expenditures for the project. With respect to the third and fourth deepwater rig projects, we are now utilizing shipyards in the Asia/Pacific region. As a result, the lump sum contracts and anticipated freight costs for these two projects are higher than originally budgeted.
"Pride has an excellent history of managing rig construction projects for its own account. Over the years, we have successfully managed construction of new ultra-deepwater drillships, deepwater semisubmersibles and platform rigs, and we have executed major upgrade projects on many of our jackups, semisubmersibles and land rigs. We have also worked through difficult experiences with shipyards and other vendors and achieved favorable outcomes in concluding several billion dollars of construction projects. We are highly disappointed that we were not able to work through our difficulties with the initial shipyard for the first two deepwater platform rig projects within the budgeted cost structures."
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