Pride Ups Stake in Two Semisubs
Pride International has acquired its partner's interest in the joint venture companies that own the two deepwater semisubmersibles Pride Rio de Janeiro and Pride Portland. The transaction increases the Company's interest in these two units from 30% to 100%. Constructed in 2004, the Pride Rio de Janeiro and the Pride Portland are both dynamically positioned and capable of operating in water depths of up to 5,600 feet. Currently, both units are operating in Brazil under contracts that expire in 2010.
Total cash consideration of $215 million was paid with cash on hand and funds available under the Company's existing credit facility. In addition, the transaction contemplates contingent payments commencing during the six- year period after the current contracts are completed, but only to the extent of 30% of the portion of future dayrates on these rigs in excess of today's leading edge rates, adjusted for cost increases and certain capital additions.
As a result of the transaction, the operation, which is currently accounted for as an equity investment, will be consolidated in the Company's financial statements, resulting in the addition of approximately $283 million of debt (representing 100% of the joint venture's debt) to the Company's consolidated balance sheet. The debt, which is guaranteed by the U.S. Maritime Administration, matures in 2012 and is pre-payable, in whole or in part, at any time. The Company expects the transaction to be slightly accretive to its 2007 earnings, before considering potential purchase accounting adjustments still under review relating to the valuation of the existing below-market contracts, which could result in further increases in expected accretion and could be material.
In a related transaction, the Company also reached agreement for the cancellation of future obligations under certain existing agency relationships related to five offshore rigs the Company operates in Brazil, including the two joint venture rigs. The agreement provided for the payment of $15 million in cash, which the Company expects to expense during the fourth quarter 2006.
Louis A. Raspino, President and Chief Executive Officer, commented, "This acquisition represents an important step in executing our stated strategy to increase our exposure in deepwater and to take advantage of close-in acquisition opportunities. With this transaction, we were able to grow our deepwater fleet in a core market, without additional construction or operational risk, at a significant discount to estimated replacement cost, and at an attractive rate of return. In addition, we are exposed to significant upside leverage to increased dayrates when the current below-market contracts on these two rigs expire. We continue to expect prospects in the deepwater market to remain strong well into the next decade, and we intend to pursue additional opportunities to expand our presence in deepwater."