Transocean (NYSE:RIG) came to an agreement late last week with Royal Dutch Shell (NYSE:RDS-A) and BHP Billiton Ltd. (NYSE:BHP) to reduce the day rate on oil rigs operating in the Gulf of Mexico, in light of the misguided moratorium by the Obama administration.
The two companies will pay what is described as a "special standby rate that is lower than the regular contract day rate." As a result, the two companies won't be allowed to declare "force majeure," and instead will have their contracts extended by one day for each day they aren't allowed to drill in the Gulf because of the moratorium.
Force majeure allows companies from having to fulfill their contract obligations under extreme circumstances like faced in the Gulf oil spill.
On the part of BHP, if they aren't able to secure a drilling permit after November 30, when the moratorium ends, they can end the contract or continue paying the special rate. When operations resume, Shell and BHP will begin paying the regular rates again.
Eni SpA (NYSE: E) and Chevron Corp. (NYSE:CVX) have already declared force majeure on several rigs on drillships provided by Transocean.
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