Diamond Offshore Is Moving Rig to Egypt on Restrictions in Gulf of Mexico

Diamond Offshore Drilling Inc., the largest U.S. deep-water oil driller, said one of its rigs is moving to Egypt from the Gulf of Mexico, as the company seeks other international contracts after BP Plc’s crude spill.

The Ocean Endeavor, capable of drilling in water as deep as 8,000 feet (2,438 meters), has been hired by an Egyptian company, Diamond Offshore said in a statement today. The rig owner will get about $100 million in revenue for the move, including a $31 million early-termination fee paid by the prior lessee, said Les Van Dyke, a spokesman for Diamond Offshore.

President Barack Obama in May suspended permits for new wells in waters deeper than 500 feet after a BP well blowout on April 20 that led to the nation’s biggest oil spill. The administration has appealed a June 22 court order overturning the ban.

“As a result of the uncertainties surrounding the offshore drilling moratorium, we are actively seeking international opportunities to keep our rigs fully employed,” Larry Dickerson, chief executive officer of Houston-based Diamond Offshore, said in the statement. “We greatly regret the loss of U.S. jobs that will result from this rig relocation.”

Devon Energy Corp. canceled its contract for the rig to drill in the Gulf of Mexico because it has no use for it, Alesha Leemaster, a spokeswoman for the Oklahoma City-based company, said in an interview today.

Devon sold its Gulf of Mexico operations and is exiting other offshore holdings to concentrate on oil and gas production in the U.S. and Canada.

Burullus Gas

The rig has been hired by Cairo-based Burullus Gas Co. through June 2011, when the contract with Devon was due to expire. Burullus Gas is a joint venture of Egyptian General Petroleum Corp., BG Group Plc and Petronas Dagangan Bhd., according to BG’s website. There is an option to extend the contract, Van Dyke said.

Devon was paying about $265,000 a day for the Ocean Endeavor, Van Dyke said. Diamond will get about $285,000 a day by moving the rig to Egypt when the early-termination fee is included, he said.

The termination payment ended costs that would have reached about $100 million by the end of the contract, Leemaster said.

Permits aren’t being issued in the Gulf because of ongoing “confusion” after the BP blowout and a federal moratorium that was rejected by an appeals court, said Geoff Kieburtz, an energy analyst at Weeden & Co. in Greenwich, Connecticut. “Even if permits starting getting issued tomorrow, they have no property to drill,” he said of Devon.

Offshore Rig Decline

The April blowout destroyed the Deepwater Horizon rig, killing 11 crew members and injuring 17 others. BP leased the rig from Transocean Ltd. The well may continue leaking through mid-August, when a permanent plug is scheduled to be completed.

The number of offshore rigs operating in U.S. waters has plunged 71 percent to 16 from 56 before the blowout, according to surveys by Baker Hughes Inc.

Diamond Offshore fell 86 cents, or 1.3 percent, to $64.40 at 4:11 p.m. in New York Stock Exchange composite trading. It has dropped 29 percent since the Deepwater Horizon blowout.

To contact the reporter on this story: Jim Polson in New York at jpolson@bloomberg.net.