Transocean Sedco Forex Inc. revealed yesterday that Marathon Oil has decided to back out of an 18-month drilling deal because it believes Transocean hasn’t lived up to its end of the bargain. The contract is for Transocean’s recently constructed, ultra-deepwater semisubmersible Cajun Express drill ship. Marathon gave notice it wants out of the deal apparently in response to incidents of downtime relating to equipment failures. Transocean said it strongly disputes that Marathon has the right to terminate the contract and intends to “vigorously pursue all available remedies.”

The Cajun Express drill ship is designed to drill in water depths of up to 8,500 feet and is presently on Marathon’s location at Mississippi Canyon 348 in the Gulf of Mexico, but it is expected to be demobilized to a secure location in response to the dispute. Transocean is the world’s largest offshore drilling contractor with more than 170 full or partially owned, chartered and managed mobile offshore drilling units, inland barges and other assets utilized in the support of offshore drilling activities worldwide. The company’s mobile offshore drilling fleet includes 50 semisubmersible rigs, 15 drillships and 55 jackup drilling rigs.

Shares of Transocean (RIG) yesterday dropped to below its 52-week low of $34.38 seen in December. The stock closed at $34.51, down $3.56, or 9%. Analysts said that although the news clearly was negative, the cancellation will have minimal impact on Transocean earnings. However, it is the second cancellation for the three Express class rigs built by the drilling contractor. The contract for Sedco Express was cancelled by Total Fina for late delivery and the rig remains idle in the Canary Islands. A third rig, Sedco Energy is under contract by Texaco in Brazil.

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