Contract For Construction & Sale jack-Up (hull No. 2002)

CONTRACT


FOR THE


CONSTRUCTION AND SALE


OF A


JACK-UP DRILLING UNIT


(HULL NO. 2002)


DATED


1 FEBRUARY 2001


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INDEX


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


I DESCRIPTION AND CLASSIFICATION 1


II CONTRACT PRICE AND TERMS OF PAYMENT 3


III DELAYS IN PERFORMANCE 8


IV APPROVAL OF PLANS AND DRAWINGS AND
INSPECTION DURING CONSTRUCTION 10


V MODIFICATIONS 13


VI TESTS AND TRIALS 16


VII DELIVERY DATE AND DELIVERY 19


VIII FORCE MAJEURE DELAYS 24


IX OWNER FURNISHED EQUIPMENT DELAYS 25


X WARRANTY OF QUALITY 26


XI CANCELLATION BY BUYER 28


XII SUSPENSION BY BUYER 30


XIII BUYER'S DEFAULT 32


XIV BUILDER'S DEFAULT 34


XV LIABILITIES AND INDEMNITIES 37


XVI INSURANCE 39


XVII DISPUTE AND ARBITRATION 42


XVIII RIGHTS OF ASSIGNMENT AND VESSEL RECIPIENT
DESIGNATION 43


XIX TAXES AND DUTIES 44


XX PATENTS, TRADEMARKS, COPYRIGHTS, ETC. 44


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INDEX


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


XXI ADDRESSES 45


XXII NOTICES AND LANGUAGE 46


XXIII EFFECTIVE DATE OF CONTRACT 46


XXIV INTERPRETATION 46


XXV CONFLICT AND AUDIT 47


XXVI PUBLICITY RELEASES 49


EXHIBIT "A" SCHEDULE OF LABOR AND MATERIAL RATES


EXHIBIT "B" PROTOCOL OF DELIVERY AND ACCEPTANCE


EXHIBIT "C-1" IRREVOCABLE STAND-BY LETTER OF CREDIT


EXHIBIT "C-2" ON DEMAND PERFORMANCE BOND


EXHIBIT "D" CONTRACT SPECIFICATIONS


EXHIBIT "E" CONTRACT DRAWINGS LIST


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CONTRACT FOR THE CONSTRUCTION AND SALE OF
A JACK-UP DRILLING UNIT
(HULL NO. 2002)


THIS CONTRACT, made effective this 1st day of February, 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 shipyard located at 21 Pandan Road, Singapore 609273 (hereinafter called the "Shipyard") and sell and deliver afloat at the Shipyard to the BUYER one (1) Freide and Goldman JU2000 jack-up 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. 2002 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 "D" and the Contract Drawings attached to this Contract as listed in Exhibit "E" (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.


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2. Dimensions and Characteristics:


The VESSEL is a Freide and Goldman JU2000 jack-up drilling unit which will bear BUILDER's Hull No. 2002 of approximate dimensions 231 feet long, 250 feet wide and 31 feet deep at the side. 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 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, and the BUYER's satisfaction. 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.


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


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as if it did the work itself for any subcontracted work, including warranties, guarantees and schedule.


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 Freide and Goldman JU2000 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 Freide and Goldman JU2000 design or any design or engineering undertaken to develop the same for the purposes of performance of this Contract.


However, 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. The BUILDER shall be responsible for not exceeding the weights and heights of the vertical centers of gravity contained in Section 1.5.8 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 1 February 2002 (the "Construction Commencement Date").


ARTICLE II - CONTRACT PRICE AND TERMS OF PAYMENT


1. Contract Price:


The contract price of the VESSEL is Seventy Million Eight Hundred Ninety-Seven Thousand United States Dollars (U.S. $70,897,000), receivable by


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the BUILDER (herein called the "Contract Price"), subject to upward or downward adjustment, if any, as set forth in this Contract. Provided, however, that the Contract Price shall be reduced by One Million Four Hundred Fifty-Two Thousand United States Dollars (U.S.$1,452,000) if the BUYER elects to reduce the VESSEL's leg length by fifty-six (56) feet should BUYER give notice of such election to BUILDER no later than ninety-one (91) calendar days after the Construction Commencement Date. Should BUYER give BUILDER later notice at any time up until the last fifty-six (56) feet of the leg sections begin to be installed on the VESSEL, then the Contract Price shall be reduced by Seven Hundred Two Thousand United States Dollars (U.S.$702,000) and BUYER shall have ownership of the leg chord material with BUILDER having ownership of the leg bracing material.


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:


The sum of Seven Million Eighty-Nine Thousand Seven Hundred United States
Dollars (U.S.$7,089,700), 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 both the
irrevocable standby letter of credit and the on demand performance bond to
the BUYER as required under Article XI, Paragraph 2, whichever occurs
later.


(b) 2nd Installment:


The sum of Fourteen Million One Hundred Seventy-Nine Thousand Four Hundred
United States Dollars (U.S.$14,179,400), equivalent to twenty percent (20%)
of the Contract Price shall be paid upon the second banking day next
following laying the keel of the VESSEL, which shall be deemed to require
completion of the following tasks:


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o Erection of completed inner bottom blocks 1C1 and 1C2 and associated
piping, 100% complete including successful NDT, and:


o Complete procurement of all main hull structure steel.


o Completion of fabrication / assembly of bulkheads for blocks 1C1
and 1C2, 100% complete including successful NDT.


o Completion of fabrication / assembly of inner bottom block panels
1C3, 100% complete including successful NDT.


o Completion fabrication / assembly of bulkheads for block 1C3,
100% complete including successful NDT.


(c) 3rd Installment


The sum of Fourteen Million One Hundred Seventy-Nine Thousand Four Hundred
United States Dollars (U.S.$14,179,400), equivalent to twenty percent (20%)
of the Contract Price shall be paid upon the second banking day next
following completion of the three leg well modules, which shall be deemed
to require completion of the following tasks:


o Completion of fabrication / assembly of the three leg well blocks 5, 6
and 7, 100% complete including successful NDT, including:


o Completion of fabrication / assembly of the three spud cans, 100%
complete including successful NDT.


o Completion of fabrication / assembly of inner bottom blocks 1FS,
1AS, 1FP and 1AP, 100% complete including successful NDT.


o Completion fabrication / assembly of bulkheads for blocks 1FS,
1AS, 1FP and 1AP, 100% complete including successful NDT.


o Completion of erection of center block 1C1/1C2, 1C3, 100%
complete including successful NDT.


o Completion of fabrication / assembly of inner bottom blocks 8, 9,
11 and 12, 100% complete including successful NDT.


o Completion fabrication / assembly of bulkheads for blocks 8, 9,
11 and 12, 100% complete including successful NDT.


o 100% completion of detailed engineering drawings for
architectural outfitting and 60% of completion of mechanical
drawings.


(d) 4th Installment


The sum of Ten Million Six Hundred Thirty-Four Thousand Five Hundred Fifty
United States Dollars (U.S.$10,634,550), equivalent to fifteen percent
(15%) of the Contract Price shall be paid upon the second banking day next
following installation of the first section of all three (3) legs on the


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VESSEL, which shall be deemed to require completion of the following tasks:


o Completion of erection and weld out of all three 1st leg rounds to the
completed spud cans, 100% complete including successful NDT sign off
of the connection Work, and:


o Completion fabrication / assembly /machine / erection jack
foundations and bracing all three leg wells, 100% complete
including successful NDT.


o Completion fabrication / assembly / erection accommodation
blocks, 100% complete including successful NDT.


o Completion fabrication / assembly helicopter deck and support
structure, 100% complete including successful NDT.


o Completion fabrication / paint / installation steel outfitting
below main deck, 100% complete including successful NDT.


o Complete blast and paint quarters.


o Completion erection of all remaining inner bottoms and bulkheads,
100% complete including successful NDT.


o 100% completion of detailed engineering drawings for structural,
70% completion for steel outfitting, piping and electrical.


o Complete installation electrical cable ways hull, quarters.


(e) 5th Installment


The sum of Ten Million Six Hundred Thirty-Four Thousand Five Hundred Fifty
United States Dollars (U.S.$10,634,550), equivalent to fifteen percent
(15%) of the Contract Price shall be paid upon the second banking day next
following launching of the VESSEL which shall be deemed to require
completion of undocking and jackup the VESSEL along side of wharf,
including:


o Complete consolidation of vesseL hull, proven integrity of hull
compartments.


o Complete installation quarters equipment.


o Completion fabrication / assembly cantilever structure, 100%
complete including successful NDT.


o Completion fabrication / assembly / erection drill floor /
substructure, drawworks shelter / windwall and lower derrick.


o Complete fabrication / assembly 2nd and 3rd round of legs.


o Complete fabrication / paint / installation of steel outfitting
and piping helideck, quarters.


o Complete installation machinery deck, intermediate deck and
jacking equipment.


o Complete fabrication / installation of HVAC ducting in hull.


o Complete fabrication / paint / installation piping systems above
/ below main deck, quarters.


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o Complete hydro test / flushing hull and quarters piping systems.


o Complete fabrication / installation HVAC ducting in accommodation
blocks.


(f) 6th Installment


The sum of Seven Million Eighty-Nine Thousand Seven Hundred United States
Dollars (U.S.$7,089,700), equivalent to ten percent (10%) of the Contract
Price shall be paid upon the second banking day next following installation
of the legs on the VESSEL which shall be deemed to require completion of
the following tasks:


o Complete fabrication / assembly and erection of 2nd, 3rd, 4th, 5th and
6th leg rounds for all 3 legs, 100% complete including successful NDT
sign off of the connection Work, including:


o Complete erection derrick.


o Complete erection helideck, cantilever, drill floor on main hull.


o Complete installation helideck, drill floor and cantilever
equipment.


o Complete hydro test deep tanks.


o Complete installation maindeck equipment.


o Complete blast and paint cantilever, drill floor.


o Complete hull installation hull and accommodation architectural
outfitting.


o Complete mechanical completion, test and commissioning Marine
systems.


o Complete fabrication / paint / installation piping systems
cantilever and drill floor piping systems.


o Complete installation electrical cable ways helideck, cantilever
and drill floor.


o Complete blast and paint drill floor, helideck and cantilever.


o Complete fabrication / paint / installation steel outfitting at
maindeck and drill floor.


o Complete fabrication / installation / hydro test piping systems
in spud cans, legs.


o Complete hydro test flushing helideck, cantilever and drill floor
piping systems.


(g) 7th Installment


The sum of Seven Million Eighty-Nine Thousand Seven Hundred United States
Dollars (U.S.$7,089,700), 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 the following tasks:


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o Complete install / terminate entire vessel electrical cables.


o Complete test and commissioning drilling systems, jacking trials and
incline experiment.


o Completion of compartment closeout and all the VESSEL works.


o Completion of all commissioning, tests and trials.


o Completion of all discrepancy punch lists.


o Completion of all certification and documentation.


o Complete VESSEL preparations necessary for load out.


o Complete loading of all VESSEL materials and warehouse.


o Completion and delivery of all Delivery Documentation.


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


For avoidance of doubt and for purposes of satisfying the intent of each of the above-described payment milestone events, they shall not be deemed to have been fulfilled until such time as all prerequisite tasks and activities associated with such milestone as described on the BUILDER's Construction Schedule have been fully completed.


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) 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; (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.


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


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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 Thirty
Thousand United States Dollars (U.S.$30,000) per calendar day, provided
that the amount of such reduction shall not exceed One Million Eight
Hundred Thousand United States Dollars (U.S.$1,800,000). 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 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.


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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 O ...