LEADING Papua New Guinea petroleum rig operator High Arctic Energy Services has entered into formal and exclusive negotiations to share PNG-based rigs with some of its customers.

Under the agreement High Artic would exchange an equal share of its owned rigs (rigs 102, 115 and 116) for an equal share of the rigs that it has historically managed for its key customer under long term management agreements (rigs 103, and 104) in a company to be jointly owned by High Arctic and its customer.

High Arctic will provide the management of this joint company. As part of the proposed arrangements, High Arctic will operate the rigs under a minimum three year exclusive call rig services agreement.

The company has also committed to reducing operating costs in the joint company. Correspondingly first year rates under the new rig services contract are likely to be approximately 20% to 23% less than under the previous contract.

High Artic said it is contemplated there will be scope within the agreement for rates to rebalance in the event that the commodity environment recovers.

The company added that these rate reductions will not impact the corporation’s existing contracts for rig 116 or High Arctic’s rental equipment in PNG.

High Arctic said it also contemplates that the agreement will include two-way option clauses which would allow or require High Arctic to increase its interest in the proposed joint company over time.

The proposed joint company will focus exclusively on rig ownership and High Arctic will focus on operational efficiencies and optimal rig performance.

The company said its significant business of providing rental equipment (e.g. rig mats, heavy and light equipment, etc.) to its customers in the oil and gas, mining and civil engineering sectors (including the proposed joint company) will continue to be wholly owned by High Arctic and will not be part of the proposed transaction.

High Artic said it is anticipated that the discussion on the joint company could be concluded as soon as year-end. In the interim, the current contracts for the operation of rigs 103 and 104 are expected to be extended for one year at the new rates.

Michael Binnion, High Arctic’s chairman, said the company has been working in PNG for over 10 years and it is a material source of foreign exchange, taxes and employment.

“Our local knowledge, contacts and reputation is well reflected in this recent affirmation of our positive contribution to the country and its people.”

High Arctic’s president International, Mike Maguire, said the joint company is an innovative solution to meeting the company’s key customer’s chief driver of reducing well costs and providing cost efficient drilling solution in PNG.

“The PNG market is an extraordinary long-term energy sector opportunity. High Arctic has become the local domain expert delivering top tier drilling services in a challenging logistics region. We are excited to complete negotiations on this complex transaction, as early as year-end to cement our position as a long term player in this market.”