Contract For Construction And Sale of a Drilling Unit

EXHIBIT 10.3


CONTRACT


FOR THE


CONSTRUCTION AND SALE


OF A


SEMI-SUBMERSIBLE DRILLING UNIT


(HULL NO. P.2004)


DATED


11 APRIL 2001


INDEX ARTICLE SUBJECT PAGE - ------- ------- ----


I DESCRIPTION AND CLASSIFICATION 1


II CONTRACT PRICE AND TERMS OF PAYMENT 4


III DELAYS IN PERFORMANCE 8


IV APPROVAL OF PLANS AND DRAWINGS AND
INSPECTION DURING CONSTRUCTION 9


V MODIFICATIONS 12


VI TESTS AND TRIALS 14


VII DELIVERY DATE AND DELIVERY 17


VIII FORCE MAJEURE DELAYS 22


IX OWNER FURNISHED EQUIPMENT DELAYS 23


X WARRANTY OF QUALITY 24


XI CANCELLATION BY BUYER 26


XII SUSPENSION BY BUYER 28


XIII BUYER'S DEFAULT 30


XIV BUILDER'S DEFAULT 32


XV LIABILITIES AND INDEMNITIES 34


XVI INSURANCE 36


XVII DISPUTE RESOLUTION 38


XVIII RIGHTS OF ASSIGNMENT AND VESSEL RECIPIENT
DESIGNATION 39


XIX TAXES AND DUTIES 40


XX PATENTS, TRADEMARKS, COPYRIGHTS, ETC. 40


XXI ADDRESSES 41


XXII NOTICES AND LANGUAGE 42


XXIII EFFECTIVE DATE OF CONTRACT 42


XXIV INTERPRETATION 42


XXV CONFLICT AND AUDIT 43


XXVI PUBLICITY RELEASES 45


EXHIBIT "A" CONTRACT SPECIFICATIONS


EXHIBIT "B" CONTRACT DRAWINGS LIST


EXHIBIT "C" HEALTH, SAFETY & ENVIRONMENTAL MANAGEMENT
SYSTEM REQUIREMENTS


EXHIBIT "D" SCHEDULE OF LABOR AND MATERIAL RATES


EXHIBIT "E" PROTOCOL OF DELIVERY AND ACCEPTANCE


EXHIBIT "F" PERFORMANCE GUARANTEE


EXHIBIT "G" IRREVOCABLE STAND-BY LETTER OF CREDIT


CONTRACT FOR THE CONSTRUCTION AND SALE OF
A SEMI-SUBMERSIBLE DRILLING UNIT
(HULL NO. P.2004)


THIS CONTRACT, made effective this 11th day of April, 2001 by and between PPL Shipyard Pte. Ltd., a company organized and existing under the laws of Singapore, having its principal place of business located at 21 Pandan Road, Singapore 609273 (hereinafter called the "BUILDER") and Santa Fe International Corporation, a corporation organized and existing under the laws of the Cayman Islands, with an office at 5420 LBJ Freeway, Suite 1100, Dallas, Texas 75240, U.S.A. (hereinafter called the "BUYER" or "OWNER").


WITNESSETH:


WHEREAS, the BUILDER agrees to furnish all necessary labor and materials to design, construct, equip, complete and test, at its nominated shipyard located at Tanjong Kling, Singapore (hereinafter called the "Shipyard") and sell and deliver afloat at the Shipyard to the BUYER one (1) Friede and Goldman Millennium ExD semi-submersible drilling unit more fully described in Article I hereof (hereinafter called the "VESSEL); and


WHEREAS, the BUYER agrees to purchase and accept delivery of the VESSEL at the Shipyard from the BUILDER and to pay for the same, all upon the terms and conditions hereinafter set forth.


NOW, THEREFORE, undertaking to perform each party's responsibilities and to exercise each party's rights with good faith in interpreting this Contract and the Specifications, the parties hereby agree, in consideration of the mutual promises and covenants hereinafter contained, as follows:


ARTICLE I - DESCRIPTION AND CLASSIFICATION


1. Description:


The VESSEL shall have the BUILDER's Hull No. P.2004 and shall be designed, constructed, equipped and completed in accordance with the provisions of (i) this Contract, and (ii) the Contract Specifications attached to this Contract as Exhibit "A" and the Contract Drawings attached to this Contract as listed in Exhibit "B" (herein collectively called the "Specifications") signed by each of the parties hereto for identification on even date herewith and incorporated by reference and made an integral part hereof.


2. Dimensions and Characteristics:


The VESSEL is a Friede and Goldman Millennium ExD semi-submersible drilling unit which will bear BUILDER's Hull No. P.2004 of approximate dimensions 98.82


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metres long, 78.68 metres wide and 36.0 metres in height from the keel to main deck level. The details of the above particulars as well as the definitions and method of measurements and calculations are as indicated in the Specifications.


3. Classification, Rules and Regulations:


The VESSEL (including its machinery, equipment and outfitting) shall to the BUYER's reasonable satisfaction be constructed in accordance with good shipbuilding practices and with the American Bureau of Shipping's, (herein called the "Classification Society") Rules for Building and Classing Mobile Offshore Drilling Units (the edition and amendments thereto being in force as of the date of this Contract), the IMO MODU Code 1989, and other such specific requirements as are set out in this Contract and the Specifications. Decisions of the Classification Society as to compliance or non-compliance with the Classification shall be final and binding upon both parties hereto.


The VESSEL shall also meet all requirements of the rules, regulations and requirements of the International Loadline Convention and other regulatory bodies as described in the Specifications in effect as of the date of this Contract. All fees and charges incidental to the classification and with respect to meeting the requirements of the above-referenced rules, regulations and requirements, as well as design fees and/or royalties shall be for the account of BUILDER.


The BUILDER shall perform its services pursuant to this Contract in accordance with the HSEMS requirements set forth in Exhibit "C".


4. Registration:


The VESSEL shall be registered by the BUYER at its own cost and expense under the laws of the Republic of Vanuatu with its home port at Port Vila, or such other place as the BUYER shall designate at the time of its delivery and acceptance hereunder. In addition, the BUYER reserves the right, at its sole discretion, to register the VESSEL under construction at its own cost and expense under the Laws of the Republic of Vanuatu or such other place as the BUYER may deem appropriate, at any time following payment of the first installment of the Contract Price.


5. Subcontracting:


The BUILDER may, with BUYER's written approval, which shall not be unreasonably withheld, at its sole discretion and responsibility subcontract any portion of the construction work of the VESSEL which is to be performed within the Republic of Singapore. Subject to BUYER's written approval, the BUILDER may, at its sole discretion and responsibility, subcontract any portion of the construction work of the VESSEL which is to be performed outside the Republic of Singapore. In any event, BUILDER shall retain full responsibility and liability as if it did the work itself for any subcontracted work, including warranties, guarantees and schedule.


2 6. Permits and Observance of Applicable Laws:


BUILDER warrants that it is duly authorized with all applicable licenses (including but not limited to those required in respect of the Friede and Goldman Millennium ExD design) to construct, equip, complete, sell and perform the entirety of the work covered hereby and to deliver the VESSEL as provided for herein and that it will obtain in a timely manner all necessary permits, licenses, and authorizations required for performing such work and making such delivery. BUILDER further warrants that it and all of its subcontractors will observe all applicable laws, orders, decrees, ordinances, rules and regulations of the country of construction and of its subdivisions and all duly constituted government agencies having jurisdiction.


7. Design Responsibilities


It is expressly agreed and understood that the BUILDER shall be exclusively responsible for all aspects of the design and engineering required in respect of the construction, equipment and completion of the VESSEL in accordance with the provisions of this Contract and the Specifications. The BUILDER shall accordingly be responsible for any additional costs and expenses of construction, equipment and completion of the VESSEL beyond those originally envisaged at the time of signature hereof which result from any deficiency or shortcoming in the Friede and Goldman Millennium ExD design or any design or engineering undertaken to develop the same for the purposes of performance of this Contract.


It is further expressly agreed that the BUILDER shall be responsible for delivering to the BUYER a semi-submersible vessel that has a variable deck load of at least seven thousand (7,000) metric tonnes at the operating draft, a variable deck load of at least seven thousand (7,000) metric tonnes at the survival draft and a total payload of at least six thousand (6,000) metric tonnes with 0.4 meters freeboard on the pontoons at the transit draft, all as defined in Section 2.5 of the Specifications. If, after VESSEL inclining, the weight and center of gravity are such that these figures are not achievable, the BUILDER shall make whatever modifications to the VESSEL are necessary to provide the completed VESSEL with these variable deck load and transit payload figures. Such modifications could include the addition of faired sponsons to the pontoons and/or the stability columns.


However the variable loads required in the preceding paragraph may be reduced if any of the following conditions are met:


o An item of Owner Furnished Equipment (OFE) is found to be
heavier than the weight contained in the OFE list included in
the Contract Specifications.


o The weight of the Well Activity Centre(TM) (WAC(TM)) as
designed by Hydralift is greater than weight of the WAC(TM)
calculated by Friede & Goldman.


o The review of the global structural analysis by ABS requires
additional steel to be incorporated into the design (note any
such additional steel will have no impact on the Contract
Price).


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The reduction in Payload at the transit draft shall be equal to the increase in weight brought about by any of the above. The reduction in variable deck load at operating and survival drafts shall be the amount of payload at one meter above the maindeck that must be replaced by ballast water at the mid depth of the pontoon in order to maintain the vertical center of gravity of the VESSEL on the required KG curve as a result of the increase in weight brought about by any of the above.


Further, the environmental ratings contained in Section 1.5 of the Specifications may be amended by official letter from ABS following their detailed review of the design. Such amendments, if any, will be deemed to be retroactively incorporated into Section 1.5 of the Specifications.


8. Notwithstanding any other provision of this Contract, specifically including but not limited to the Effective Date as defined in Article XXIII, BUILDER shall not commence construction of the VESSEL under this Contract prior to 12 November 2002 (the "Construction Commencement Date").


ARTICLE II - CONTRACT PRICE AND TERMS OF PAYMENT


1. Contract Price:


The contract price of the VESSEL is Eighty-Six Million One Hundred Eighty Thousand United States Dollars (U.S.$86,180,000), receivable by the BUILDER (herein called the "Contract Price"), subject to upward or downward adjustment, if any, as set forth in this Contract.


2. Currency:


Any and all payments required to be made by either party under this Contract shall be made in United States Dollars. Payments required to be made by BUYER to BUILDER shall be made as follows:


Citibank N.A., New York ` For Account Citibank N.A., Singapore
Favoring: PPL Shipyard Pte. Ltd.
USD Account Number: 0-812872-028


3. Terms of Payment:


The Contract Price shall be paid by the BUYER to the BUILDER in installments as follows:


(a) 1st Installment:


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The sum of Eight Million Six Hundred Eighteen Thousand United States
Dollars (U.S.$8,618,000), equivalent to ten percent (10%) of the
Contract Price shall be paid upon the second banking day next following
the Construction Commencement Date or BUILDER's delivery of the
irrevocable standby letter of credit to the BUYER as required under
Article XI, Paragraph 2, whichever occurs later.


(b) 2nd Installment:


The sum of Twelve Million Nine Hundred Twenty-Seven Thousand United
States Dollars (U.S.$12,927,000), equivalent to fifteen percent (15%)
of the Contract Price shall be paid upon the second banking day next
following the completion of the detailed engineering of the VESSEL,
which shall be deemed to require completion of specific, yet to be
mutually agreed, tasks.


(c) 3rd Installment


The sum of Eight Million Six Hundred Eighteen Thousand United States
Dollars (U.S.$8,618,000), equivalent to ten percent (10%) of the
Contract Price shall be paid upon the second banking day next following
completion of the fabrication of steel for the pontoons, columns and
upper hull of the VESSEL, which shall be deemed to require completion
of specific, yet to be mutually agreed, tasks.


(d) 4th Installment


The sum of Eight Million Six Hundred Eighteen Thousand United States
Dollars (U.S.$8,618,000), equivalent to ten percent (10%) of the
Contract Price shall be paid upon the second banking day next following
the mechanical completion of the Well Activity Center of the VESSEL,
which shall be deemed to require completion of specific, yet to be
mutually agreed, tasks.


(e) 5th Installment


The sum of Eight Million Six Hundred Eighteen Thousand United States
Dollars (U.S.$8,618,000), equivalent to ten percent (10%) of the
Contract Price shall be paid upon the second banking day next following
the mechanical completion of the pontoons, columns and upper hull of
the VESSEL, which shall be deemed to require completion of specific,
yet to be mutually agreed, tasks.


(f) 6th Installment


The sum of Eight Million Six Hundred Eighteen Thousand United States
Dollars (U.S.$8,618,000), equivalent to ten percent (10%) of the
Contract Price, shall be paid upon the second banking day next
following completion of the power generation system of the VESSEL,
which shall be deemed to require completion of specific, yet to be
mutually agreed, tasks.


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(g) 7th Installment


The sum of Twelve Million Nine Hundred Twenty-Seven Thousand United
States Dollars (U.S.$12,927,000), equivalent to fifteen percent (15%)
of the Contract Price, shall be paid upon the second banking day next
following completion of the commissioning of the Well Activity Center
of the VESSEL, which shall be deemed to require completion of specific,
yet to be mutually agreed, tasks.


(h) 8th Installment


The sum of Eight Million Six Hundred Eighteen Thousand United States
Dollars (U.S.$8,618,000), equivalent to ten percent (10%) of the
Contract Price, shall be paid upon the second banking day next
following completion of the hotel facilities of the VESSEL, which shall
be deemed to require completion of specific, yet to be mutually agreed,
tasks.


(i) 9th Installment


The sum of Eight Million Six Hundred Eighteen Thousand United States
Dollars (U.S.$8,618,000), equivalent to ten percent (10%) of the
Contract Price, plus any increase or minus any decrease due to
adjustments of the Contract Price hereunder, shall be paid upon the
second banking day next following completion of all trials and
punchlists, issuance of all classification documents and completion of
all tasks necessary to make the VESSEL ready for ocean or dry tow,
which shall be deemed to require completion of specific, yet to be
mutually agreed, tasks,


and execution by the parties of the PROTOCOL OF DELIVERY AND ACCEPTANCE
pursuant to Article VII (2) hereof.


For purposes of implementing each of the above-described payment milestone events, they shall not be deemed to have been attained until such time as all tasks and activities that precede such milestone as described on the BUILDER's Construction Schedule have been fully completed.


Notwithstanding the foregoing, BUYER's obligation to make payment of the second (2nd) and subsequent installments shall be subject to the parties having reached written agreement on the detailed tasks and activities to be completed in association with each of the remaining installment payments. Such tasks and activities shall relate to BUYER's approved version of the BUILDER's Construction Schedule.


As used herein, the term "banking day" shall mean any day in which commercial banks are open for business in Texas or New York and Singapore.


At least two (2) banking days in advance of the due date of each installment payment, BUILDER shall give both the BUYER and the BUYER's Representative written notice by facsimile or registered mail. Each installment notice shall state: (i)


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the stage of work achieved as defined by the BUILDER's Construction Schedule as defined in Article IV, Paragraph 1(c); (ii) that the work completed complies with the Plans, Specifications and this Contract; and (iii) that there are no liens or claims upon the VESSEL. Each installment notice shall be executed by an officer of the BUILDER. If BUILDER has any outstanding liens on the VESSEL, BUYER shall not be obligated to make such payments until the liens are resolved.


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ARTICLE III - DELAYS IN PERFORMANCE


1. Delivery:


(a) If any delay in construction of the VESSEL, excepting only Permissible
Delays, should continue for a period of one hundred eighty (180)
calendar days during construction (as determined by reference to the
BUILDER's Construction Schedule defined in Article IV, Paragraph 1(c)),
then in such event, the BUYER may at its option cancel this Contract at
any time thereafter in accordance with the provisions of Article XI
hereof. The BUILDER may, at any time after the expiration of the
aforementioned one hundred eighty (180) calendar days of delay during
construction, if the BUYER has not served notice of cancellation as
provided in Article XI hereof, demand in writing that the BUYER shall
make an election, in which case the BUYER shall, within thirty (30)
calendar days after such demand is delivered to the BUYER, notify the
BUILDER of its intention either to cancel this Contract or to consent
to the acceptance of the VESSEL at an agreed future date; it being
understood by the parties hereto that, if the VESSEL is not delivered
by such future date or if construction is again delayed for one hundred
eighty (180) calendar days or more (as determined by reference to the
BUILDER's Construction Schedule defined at Article IV, Paragraph 1(c)),
the BUYER shall have the same right of cancellation upon the same terms
and conditions as hereinabove provided.


(b) If the VESSEL is not delivered by the thirty-first (31st) calendar day
after the Delivery Date (as such term is defined in Article VII,
Paragraph 1(a)) for any reason, excepting only force majeure delays (as
defined in Article VIII) and Permissible Delays as defined in Paragraph
2, below, then in such event, the BUYER may at its option cancel this
Contract at any time thereafter in accordance with the provisions of
Article XI hereof.


(c) If delivery of the VESSEL is delayed more than thirty-one (31) calendar
days after the Delivery Date as defined in Article VII below, then, in
such event, beginning at twelve o'clock midnight of the thirty-first
(31st) calendar day after the Delivery Date, the amount otherwise due
as the final installment shall be reduced by deducting therefrom the
sum of Seventy-Five Thousand United States Dollars (U.S.$ 75,000) per
calendar day, provided that the amount of such reduction shall not
exceed five percent (5%) of the Contract Price, including any change
orders. In the event the amount of reduction as aforesaid exceeds the
sum due as the final installment, the excess portion shall be paid to
BUYER by BUILDER on the actual delivery date of the VESSEL by BUILDER
to BUYER (it being understood by both parties that any such reduction
of payment by BUYER is by way of liquidated damages and not by way of
penalty).


2. Definition of Permissible Delay:


Only such delays as are specifically defined in Article V, Paragraphs 1, 2 and 3, Article VI, Paragraph 2, Article IX, Article XII, Paragraph 2, and Article XIII, Paragraph 1


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of this Contract shall be "Permissible Delays". Notwithstanding any provision to the contrary in this Contract, if any Permissible Delay would not have come about but for the prolongation of the work of construction due to any previous unauthorized delays (or accumulation thereof), then the latter delay shall not be deemed to be a Permissible Delay.


3. Effect of Cancellation:


It is expressly understood and agreed by the parties hereto that in any case, if the BUYER cancels this Contract under this Article, the BUYER shall not be entitled to any liquidated damages.


ARTICLE IV - APPROVAL OF PLANS AND DRAWINGS
AND INSPECTION DURING CONSTRUCTION


1. Approval of Plans, Drawings and BUILDER's Construction Schedule:


(a) The BUILDER shall submit to either the BUYER or its Representative (as
defined in Article IV, Paragraph 2) four (4) copies each of the plans
and drawings for BUYER's approval. The BUILDER shall simultaneously
submit to the Classification Society and other applicable agencies the
plans and drawings which require their approval. The BUYER or its
Representative shall, within ten (10) working days after receipt
thereof, return to the BUILDER one (1) copy of such plans and drawings
with the BUYER's approval or comments, if any, written thereon. If
comments are received the BUILDER shall modify the plans and drawings
in accordance with the BUYER's comments and resubmit same to the BUYER.
Final approval or additional comments for such revised plans or
drawings must be given within ten (10) working days after receipt by
the BUYER or its Representative of the BUILDER's revised plans and
drawings. A list of the plans and drawings to be submitted to the BUYER
or its Representative by BUILDER, as aforesaid, and a schedule for
submission of plans and drawings to BUYER for approval shall be
mutually agreed upon between the parties hereto within thirty (30)
calendar days of the Construction Commencement Date.


(b) When and if the BUYER's Representative shall have arrived at the
Shipyard in accordance with Paragraph 2 of this Article, the BUILDER
may submit the remainder, if any, of the plans and drawings in the
agreed list in accordance with the agreed schedule, to the
Representative for his approval upon mutual written agreement between
the parties hereto. The Representative shall, within ten (10) working
days after receipt thereof, return to the BUILDER one (1) copy of such
plans and drawings with his approval or comments, if any, written
thereon. Approval by the Representative of the plans and drawings duly
submitted to him shall be deemed to be approved by the BUYER for all
purposes of this Contract.


(c) The BUILDER shall, within thirty (30) calendar days after the
Construction Commencement Date, furnish the BUYER or the Representative
a detailed key


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event construction schedule showing planned construction progress of
the VESSEL. After approval of the construction schedule by the BUYER or
the Representative within ten (10) working days after receipt thereof,
the construction schedule (herein called either the "BUILDER's
Construction Schedule" or the "Production Construction Schedule") shall
be the basis of int ...