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The Petrodrill Saga Continues

The

Petrodrill

saga grows more curious each day.

Petrodrill, a 70/30 joint venture of Brazil's

Maritima

and Houston-based

Pride International

(PDE)

, has struggled for more than a month to come up with $1 billion in financing for its

rig construction program.

Then it became mired in a dispute between

Dominion Bridge

(DBCQE)

, an engineering and construction firm that in August filed for bankruptcy protection, and the Quebec government. Dominion is the parent of the Canadian shipyard building two rigs for Petrodrill. It now has until Oct. 26 to submit a second restructuring plan.

The latest twist came via a press release late Tuesday. Dominion announced that its

Davie Industries

subsidiary may build four Petrodrill rigs, not two, at its Quebec shipyard.

But the release is untrue, according to Pride.

Paul Bragg, Pride's president, was asked if he would consider awarding Davie additional work, said Earl McNiel, Pride's chief financial officer. "Paul responded that if we had the need to build additional rigs, then yes, we would certainly consider giving it to them if and when we had the work," an answer reflective of Pride and Petrodrill's confidence in the abilities of the Davie yard, McNiel said.

A Dominion spokeswoman said that the release didn't relate to specific contract additions. Rather, Dominion wanted to show the government that the possibility of further work was available for the shipyard.

Petrodrill has contracted with three shipyards to build six rigs. Its contracts with

TDI Halter

in Mississippi, a unit of

Halter Marine

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, and

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in South Korea remain firm, McNiel said.

Amid this uncertainty, Pride's management assured investors Monday at

Morgan Keegan's

energy conference in New York that it was determined to see the rig construction project through and believes it will reap the benefits of the long-term contracts Petrodrill has with

Petrobras

of Brazil.

"Petrobras has fallen in love with this rig," McNiel said in his presentation at the conference. "They are taking that design and making it the foundation of their deep-water work." McNiel was referring to the

Amethyst I

, the first semisubmersible of a class and design similar to the six new rigs that Petrobras has contracted from Pride.

Analysts are confident Pride's management will secure the financing. Still, Petrodrill is racing against time. Late delivery on a rig means fines and penalties, and in the case of the Petrobras contracts, the possibility of cancellation if the rigs are delivered more than 540 days late. Right now, the rigs are about 280 days late, due to modifications in the original design, and are scheduled for delivery in late 1999 or early 2000.

McNiel said the Canadian rigs will be fine if the shipyard opens in the next seven to 10 days, but Petrodrill may actually move the Canadian steel out of the Davie shipyard if the dispute drags on much further, adding months to the construction schedule. Pride is also is negotiations with Petrobras to amend the contract for the two Canadian rigs, allowing for more time with no penalty. (This was in the works before the trouble in Canada began.)

Although analysts have not yet factored the Petrobras rigs into their Pride earnings models, investors are sure to balk at announcements of further delays. If the worst-case scenario happens and the Petrobras contracts are canceled, investors' confidence in Pride is sure to drop.

Due to market conditions and investor skittishness toward energy and emerging markets, Petrodrill failed last month to float its high-yield bond offering. Petrodrill is now pursuing "four of five different

financing alternatives," McNiel told investors in a breakout session after his presentation Monday. He added that one option may be to secure financing in packages for one or two rigs at a time. The trade newspaper

Upstream

reported Friday that financing for the four rigs being built outside of Canada is "in the final stage of talks with a consortium of Japanese trading houses."

McNiel said Wednesday that Pride had been in contact with a Canadian financial institution as well as the Quebec government, but again declined to discuss specifics on the finances "until something is signed and finalized."

Except for engineering and procurement work, all construction on the two rigs in Canada has stopped. Dominion shut down its Davie shipyard Sept. 3 after a restructuring plan filed with the Quebec government was rejected.

Adding to the confusion was an announcement Thursday by

American Eco

(ECGOF)

, a specialty fabrication company with offices in Houston and Toronto. American Eco is involved in Petrodrill's construction contracts in Canada, and is in a joint venture with Davie. Last week it announced that it was in negotiations to acquire Davie from Dominion. In a press release, it said its acquisition would be contingent on financing being put in place for the Petrodrill rig project.

And now, American Eco may not be the only bidder for the Davie shipyard, said Tom Marsh, a drilling analyst and editor at

Offshore Data Services

in Houston, which tracks the rig markets. He said he has heard there are at least two potential buyers in addition to American Eco. And those buyers, although interested in the Davie facility, are interested neither in Davie's current contracts nor in rig builders, which would force Petrodrill to seek another shipyard and move the steel.

The six rigs, which Petrodrill has said could feasibly remain in Brazil's deep-water market for years after the completion their initial contracts, could end up to be extremely profitable for the venture, if the problems which have plagued the project from its outset could be solved.