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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