Exhibit 10.2

 

SPECIAL STANDBY RATE AND POTENTIAL SUSPENSION AGREEMENT

 

This Special Standby Rate and Potential Suspension Agreement (the “Agreement”)
is made and entered into as of November 9, 2010 (the “Effective Date”), by and
between Cobalt International Energy, L.P. (“Operator”), a Delaware limited
partnership and ENSCO Offshore Company (“Contractor”), a Delaware corporation.
Operator and Contractor may hereinafter be referred to individually as a “Party”
or collectively as the “Parties”.

 

WHEREAS, Operator and Contractor entered into an Offshore Daywork Drilling
Contract on the 5th day of May 2008 addressing utilization of the
dynamically-positioned semi-submersible drilling rig ENSCO 8503 (the “Rig”) to
conduct drilling and associated operations for Operator in federal waters on the
Outer Continental Shelf in the U.S. Gulf of Mexico and otherwise as specified
therein, which contract as heretofore amended is referred to herein as the
“Drilling Contract”; and

 

WHEREAS, construction of the Rig has been completed and the Rig is being
mobilized to the Area of Operations; and

 

WHEREAS, Operator has requested Contractor to consider various scenarios in the
event Operator is unable to commence drilling operations upon the Term
Commencement Date as contemplated in the Drilling Contract, including a
potential extended standby period and/or alternative utilization of the Rig to
engage in operations for another oil and gas company; and

 

WHEREAS, Operator may desire to defer commencement of drilling and associated
operations under the Drilling Contract and to potentially allow for the
deployment of the Rig to work for another oil and gas company under a separate
drilling contract (as an alternative to assignment of the Drilling Contract)
addressing utilization of the Rig by such other oil and gas company; and

 

WHEREAS, Contractor and Operator have entered into this Agreement for purposes
of (i) addressing the possibility that Operator may not be in a position to
commence operations under the Drilling Contract on the Term Commencement Date,
(ii) specifying the manner in which the Parties will proceed to perform their
respective obligations to effect the Term Commencement Date, (iii) agreeing on a
Special Standby Rate to be applicable for certain periods as specified herein,
and (iv) specifying the bases upon which the Drilling Contract may be suspended
for potential Third Party Work as provided herein.

 

NOW, THEREFORE, the Operator and Contractor, for and in consideration of the
mutual obligations, undertakings, premises and covenants herein contained, do
hereby agree as follows:

 

Section 1.              Definitions.

 

A.           The defined terms as contained in Article I and elsewhere of the
Drilling Contract as used herein (including the recitals hereinabove) shall be
applicable to this Agreement with the same meaning.

 

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B.             “Daily Upgrade Fee” has the meaning ascribed to it in the
Drilling Contract as further defined in that certain letter agreement dated
October 29, 2008 and executed by the Parties.

 

C.             “Drilling Mobilization for Operator” shall mean the date and time
that the Rig is underway under tight tow or Rig propulsion to the first drilling
location designated by Operator or its assignee.

 

D.            “Effective Date Regulations” shall mean any U.S. federal or state
laws, rules or regulations applicable to operations under or contemplated by the
Drilling Contract that are in effect as of the Effective Date.

 

E.              “Modification Deadline” shall mean November 30, 2010, unless
Contractor has failed to provide Operator with applicable modification schedules
and cost information sufficiently in advance of November 30, 2010 to enable
Operator to make an informed request for any Rig Modifications or upgrades to
the Rig, in which case “Modification Deadline” shall mean the date that is
fourteen (14) days following receipt of such applicable modification schedules
and cost information.

 

F.              “Rig Modifications” shall mean any modification or upgrade to
the Rig’s blowout preventer and associated equipment, that are (i) requested by
Operator prior to or on the Modification Deadline and/or (ii) required to comply
with the Effective Date Regulations.

 

G.             “Daily Rig Modification Fee” shall have the meaning ascribed to
it in Section 2.C. hereof.

 

H.            “Special Standby Period” shall mean the period of time from the
Term Commencement Date until the earliest to occur of the following: (i) the
date and time that is three hundred sixty five (365) days from the Term
Commencement Date, or (ii) Drilling Mobilization for Operator. The aforesaid
three hundred sixty-five (365) days shall continue to run during any Third Party
Suspension Period.

 

I.                 “Special Standby Rate” shall mean a day rate of US$210,000
per 24-hour day which shall be subject to the rate adjustment provisions in
Section 3.2(b), (c), (e) and (f) of the Drilling Contract as respects variations
in cost based on prevailing costs in the Area of Operations following the
Effective Date.

 

J.                “Third Party Suspension Period” shall mean that period of time
from when the Rig commences mobilization to a third party’s designated location
to perform Third Party Work under tight tow or on a heavy-lift carrier until the
time the applicable contract term for such Third Party Work has been completed
and the Rig has demobilized from such third party’s designated location to the
designated anchorage area in Grand Isle Block 105 in the U.S. Gulf of Mexico or
such other location as may be mutually agreed by Operator and Contractor;
provided, however, that the Third Party Suspension Period shall not conclude
unless and until any modifications that were made to the Rig to enable the Third
Party Work have been, if requested by Operator prior to the commencement of Rig
demobilization from the last location of such Third Party Work, satisfactorily
removed and the Rig is otherwise returned to Operator substantially in the same
condition (exclusive of normal wear and tear) as originally delivered to
Operator.

 

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K.            “Third Party Work” shall mean the utilization of the Rig
commencing during the Special Standby Period by an oil and gas company other
than Operator pursuant to a separate drilling contract entered into between
Contractor or Contractor’s affiliate and such other oil and gas company.

 

Section 2.              Compensation.

 

A.           The Special Standby Rate shall be payable by Operator to Contractor
during the Special Standby Period, except during any Third Party Suspension
Period for which a dayrate of zero ($0) shall be payable by Operator to
Contractor. The Special Standby Rate shall be invoiced according to Article IV
of the Drilling Contract.

 

B.             Notwithstanding Section 2.A, the Special Standby Rate shall also
be payable by Operator to Contractor during any period in which Rig Acceptance
Criteria, outstanding sea trials or operations cannot be conducted because the
Rig is waiting to undergo or undergoing Rig Modifications or modifications
required to comply with new laws, rules or regulations applicable to operations
under or contemplated by the Drilling Contract that become effective after the
Effective Date and before the Term Commencement Date (but not new
interpretations of Effective Date Regulations which arise after the Effective
Date). However, any incremental time solely required to perform any other
remedial work necessary to meet the Rig Acceptance Criteria shall be at Zero
Rate. All such time at the Special Standby Rate or Zero Rate that occurs prior
to the Term Commencement Date shall extend the Secondary Delivery Date under the
Drilling Contract.

 

C.             Upon completion of the Rig Modifications or modifications
required to comply with new laws, rules or regulations applicable to operations
under or contemplated by the Drilling Contract that become effective after the
Effective Date and before the Term Commencement Date and any required related
third party certifications, all documented costs incurred by Contractor to
complete all such modifications shall be fully amortized and paid by Operator,
without interest or premium, over a period of time equal to (i) the remaining
Special Standby Period, if any, plus (ii) the two (2) year Primary Term (the
“Daily Rig Modification Fee”). Upon commencement of the Primary Term, the
unrecovered daily amortized amount shall be divided by seven hundred thirty-one
(731) and that adjusted daily amount shall be paid by Operator thereafter for a
maximum of seven hundred thirty-one (731) days. Contractor shall invoice
Operator on a monthly basis for such amortized costs. In the event the Drilling
Contract is terminated at any time prior to completion of the Primary Term for
any reason, the unrecovered portion of any and all such amortized costs shall be
due and payable to Contractor by Operator in a lump sum.

 

D.            Operator shall have the right, during normal business hours, to
audit Contractor’s records with respect to the documented costs incurred by
Contractor to complete the Rig Modifications or modifications required to comply
with new laws, rules or regulations applicable to operations under or
contemplated by the Drilling Contract that become effective after the Effective
Date.

 

E.              Upon completion of any and all Third Party Work, any time spent
performing recertification of the Rig’s blowout preventer and associated
equipment or consumed because the Rig is waiting to undergo or undergoing
uncompleted Rig Modifications,

 

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modifications required to comply with new laws, rules or regulations applicable
to operations under or contemplated by the Drilling Contract that became
effective after the Effective Date and/or normal seal and consumable replacement
that occurs upon completion of Third Party Work shall be performed at the
Special Standby Rate even if the Special Standby Period has elapsed.

 

F.              The Daily Upgrade Fee and Daily Rig Modification Fee shall
become payable by Operator to Contractor beginning on the Term Commencement Date
or, in the case of any Rig Modifications that are in progress or occur
thereafter, on the later date of completion and certification, as the case may
be, and continuing until the expiration of the Primary Term, including during
the Special Standby Period or any Third Party Suspension Period.  If the Special
Standby Period is less than three hundred sixty five (365) days from the Term
Commencement Date, the Daily Upgrade Fee shall be adjusted accordingly with
effect upon the beginning of the Primary Term as specified in Annex A hereof. 
Notwithstanding anything in this Agreement or the Drilling Contract to the
contrary, in the event of a termination of the Drilling Contract at any time
prior to completion of the Primary Term for any reason, Operator shall pay
Contractor a lump sum fee to reflect the unrecovered portion of the Daily
Upgrade Fee calculated in the manner specified in Annex A hereto.

 

G.             During the Special Standby Period and the Third Party Suspension
Period, if any, the rate adjustment provisions in Section 3.2(b), (c), (e) and
(f) of the Drilling Contract shall continue to be applicable based upon
prevailing costs in the Area of Operations.

 

Section 3.              Rig Acceptance.

 

Following arrival of the Rig in the U.S. Gulf of Mexico the Parties shall
diligently proceed with their respective obligations under the Drilling Contract
related to acceptance of the Rig including performance of the Rig Acceptance
Criteria, and shall provide all personnel, services, and facilities associated
therewith as contemplated in the Drilling Contract on a timely basis.  Upon
completion of the Rig Acceptance Criteria and any outstanding deep sea trials,
the Term Commencement Date shall commence notwithstanding anything to the
contrary contained in the Drilling Contract.

 

Section 4.              Potential Suspension of the Drilling Contract

 

A.           Contractor shall inform Operator as soon as reasonably practicable
of any proposed Third Party Work and the terms thereof, including, without
limitation, the duration and location of such proposed Third Party Work and
whether any permanent modifications to the Rig are required by such proposed
Third Party Work.  Any proposed Third Party Work shall be subject to the prior
written consent of Operator, which shall promptly be granted or denied.  Any
material amendments or changes to the aforementioned terms of any Third Party
Work previously consented to by Operator shall also be subject to the prior
written consent of Operator, which shall promptly be granted or denied.

 

B.             Subject to the applicable third party’s willingness to grant
access to the Rig, Operator personnel shall have the right to inspect the Rig
during the Third Party Suspension Period(s), if any, in which case the
provisions of Articles 8.9 and 8.10 of the Drilling Contract shall be applicable
between Operator and Contractor notwithstanding Section 4.C. hereof.

 

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C.             Except as specifically stated otherwise herein, the Drilling
Contract shall be suspended with effect during any Third Party Suspension
Period.

 

D.            It is expressly agreed that the provisions of this Agreement
addressing the potential Third Party Work and the other provisions of this
Agreement are mutually exclusive and not dependent upon one another.

 

Section 5.              Preservation of the Primary Term of the Drilling
Contract.

 

A.           Operator and Contractor expressly agree that neither the Special
Standby Period, any rig time paid at the Special Standby Rate, or the Third
Party Suspension Period, if any, shall reduce the Primary Term of the Drilling
Contract, which shall be preserved in its entirety and shall commence upon the
conclusion of the Special Standby Period, any rig time paid at the Special
Standby Rate or the Third Party Suspension Period(s), if any, whichever occurs
last.

 

B.             Notwithstanding anything to the contrary in this Agreement,
Operator may elect by submission of written notice to Contractor at any time and
for any reason to commence the Primary Term of the Drilling Contract and to
thereafter pay the applicable rates under the Drilling Contract, at which time
the Special Standby Rate shall cease to be applicable.

 

Section 6.              Miscellaneous.

 

A.           From and after the Term Commencement Date, all Rig service
obligations shall be for Operator’s account as specified in Appendix D of the
Drilling Contract, except during any Third Party Suspension Period(s).

 

B.             Within thirty (30) days from the Effective Date, Contractor,
Operator and JP Morgan Chase Bank, National Association shall enter into an
amendment of the Escrow Agreement entered into as of 9 December 2009 as may be
agreed to and necessary to reflect the terms, conditions and impact of this
Agreement which shall incorporate the principles listed in Annex B hereto.

 

C.             The Drilling Contract, as amended, shall be and is hereby deemed
to be further amended to comport with the provisions of this Agreement and shall
otherwise remain in full force and effect. Except as expressly amended hereby,
the terms and conditions of the Drilling Contract shall otherwise be applicable
to this Agreement.  In the event the terms and conditions of this Agreement
conflict with the terms and conditions of the Drilling Contract, as amended, the
terms of this Agreement shall prevail.

 

D.            This Agreement may be executed in counterparts via facsimile or
electronically transmitted signature, each of which will be considered an
original and all of which together will constitute one and the same agreement. 
At the request of a Party, the other Party will confirm its facsimile or
electronically transmitted signature page by delivering an original signature
page to the requesting Party.

 

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IN WITNESS WHEREOF, the Parties hereto have executed this Special Standby Rate
and Potential Suspension Agreement by their duly authorized officers or
representatives as of the Effective Date.

 

 

OPERATOR:

 

 

 

COBALT INTERNATIONAL ENERGY, L.P.

 

 

 

 

 

By:

/s/ Van P. Whitfield

 

Name:

Van P. Whitfield

 

Title:

Executive Vice President, Operations and Development

 

 

 

 

 

CONTRACTOR:

 

 

 

ENSCO OFFSHORE COMPANY

 

 

 

 

 

By:

/s/ Tom L. Rhoades

 

Name:

Tom L. Rhoades

 

Title:

Vice President

 

 

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ANNEX A

 

The following principles shall be applied in administering the Daily Upgrade
Fee:

 

DAILY UPGRADE FEE

The Daily Upgrade Fee shall reflect the intention of Article 3 of the Drilling
Contract as amended by Amendment #1, dated October 29, 2008.  The fee is based
on Contractor receiving a 12% return on payments amortized over the term of the
Drilling Contract.   The Daily Upgrade Fee is a factor of the Rig Upgrade Cost
divided by the number of days of anticipated term then multiplied by an Upgrade
Premium factor.  The Upgrade Premium factor is calculated by determining the
multiplier required to produce a 12% Internal Rate of Return (IRR) over the
anticipated payment period.

 

The following examples show how the Daily Upgrade Fee is calculated for two term
periods.

 

Term — 1096 days (12 months Special Standby Period plus two year Primary Term)

 

Rig Upgrade Cost

 

$

10,867,652.00

 

(current estimate, not final)

 

Upgrade Premium to provide 12% IRR

 

1.185

 

 

 

Total Upgrade Fee

 

$

12,878,167.62

 

 

 

 

 

 

 

 

 

Daily Upgrade Fee

 

$

11,761.00

 

 

 

 

Term — 913 days (6 months Special Standby Period plus two year Primary Term)

 

Rig Upgrade Cost

 

$

10,867,652.00

 

(current estimate, not final)

 

Upgrade Premium to provide 12% IRR

 

1.153

 

 

 

Total upgrade fee

 

$

12,530,402.76

 

 

 

 

 

 

 

 

 

Daily Upgrade Fee

 

$

13,724.00

 

 

 

 

For the purpose of this Agreement, the Daily Upgrade Fee shall initially be set
assuming the term of payment is 1096 days (12 months Special Standby Period plus
two year Primary Term) and the current estimate of the Total Upgrade Cost,
$10,867,652, resulting in a Daily Upgrade Fee of $11,761.  If, at a later date,
the payment term is altered, as would be the case if the Special Standby Period
is less than or greater than 365 days, the Daily Upgrade Fee shall be
recalculated to maintain a 12% IRR and full repayment of the Rig Upgrade Cost
over the new anticipated term.

 

The provisions of Article 3.3 of the Drilling Contract shall apply in the event
of termination prior to completion of term.

 

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ANNEX B

 

With respect to Section 6.C. of the Contract Amendment and Potential Suspension
Agreement, the principal aspects of the contemplated amendment to the Escrow
Agreement entered into on 9 December 2009 are as follows:

 

·                  Invoices for Special Standby Rate shall be paid from the
escrow account following submission to Operator, subject to a maximum draw of
$62MM. Operator to pay Company directly for all other invoices during the
Special Standby Period, including but not limited to accruals for Rig Upgrades,
Rig Modifications, reimbursables, etc.

 

·                  The remaining escrow balance continues until the first
anniversary of the Primary Term, at which time 50% of the remaining escrow fund
shall be released to Operator minus any prior escrow draw-downs due to
Operator’s default in payments.

 

·                  The remaining balance of escrow account shall be released to
Operator upon termination of the Drilling Contract.

 

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