2.2.0.7 false Commitments and Contingencies 0210 - Disclosure - Commitments and Contingencies true false false false 1 USD false false USD Standard http://www.xbrl.org/2003/iso4217 USD iso4217 0 Shares Standard http://www.xbrl.org/2003/instance shares xbrli 0 Pure Standard http://www.xbrl.org/2003/instance pure xbrli 0 USDEPS Divide http://www.xbrl.org/2003/iso4217 USD iso4217 http://www.xbrl.org/2003/instance shares xbrli 0 $ 2 Commitments and Contingencies [ Abstract] 0 pde_CommitmentsAndContingenciesAbstract pde false na duration Commitments And Contingencies. false false false false false true false false false false false false 1 false false false false 0 0 false false false xbrli:stringItemType string Commitments And Contingencies. false 3 COMMITMENTS AND CONTINGENCIES 1 us-gaap_CommitmentsAndContingenciesDisclosureTextBlock us-gaap true na duration No definition available. false false false false false false false false false false false verboselabel false 1 false false false false 0 0   <div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; "> <div align="justify" style="font-size: 10pt; margin-top: 10pt"><b>NOTE 10. COMMITMENTS AND CONTINGENCIES</b> </div> <div align="justify" style="font-size: 10pt; margin-top: 10pt"><b><i>FCPA Investigation</i></b> </div> <div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">During the course of an internal audit and investigation relating to certain of our Latin American operations, our management and internal audit department received allegations of improper payments to foreign government officials. In February 2006, the Audit Committee of our Board of Directors assumed direct responsibility over the investigation and retained independent outside counsel to investigate the allegations, as well as corresponding accounting entries and internal control issues, and to advise the Audit Committee. </div> <div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The investigation has found evidence suggesting that payments, which may violate the U.S. Foreign Corrupt Practices Act, were made to government officials in Venezuela and Mexico aggregating less than $1 million. The evidence to date regarding these payments suggests that payments were made beginning in early 2003 through 2005 (a) to vendors with the intent that they would be transferred to government officials for the purpose of extending drilling contracts for two jackup rigs and one semisubmersible rig operating offshore Venezuela; and (b) to one or more government officials, or to vendors with the intent that they would be transferred to government officials, for the purpose of collecting payment for work completed in connection with offshore drilling contracts in Venezuela. In addition, the evidence suggests that other payments were made beginning in 2002 through early 2006 (a) to one or more government officials in Mexico in connection with the clearing of a jackup rig and equipment through customs, the movement of personnel through immigration or the acceptance of a jackup rig under a drilling contract; and (b) with respect to the potentially improper entertainment of government officials in Mexico. </div> <div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The Audit Committee, through independent outside counsel, has undertaken a review of our compliance with the FCPA in certain of our other international operations. This review has found evidence suggesting that during the period from 2001 through 2006 payments were made directly or indirectly to government officials in Saudi Arabia, Kazakhstan, Brazil, Nigeria, Libya, Angola and the Republic of the Congo in connection with clearing rigs or equipment through customs or resolving outstanding issues with customs, immigration, tax, licensing or merchant marine authorities in those countries. In addition, this review has found evidence suggesting that in 2003 payments were made to one or more third parties with the intent that they would be transferred to a government official in India for the purpose of resolving a customs dispute related to the importation of one of our jackup rigs. The evidence suggests that the aggregate amount of payments referred to in this paragraph is less than $2.5 million. </div> <div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The investigation of the matters described above and the Audit Committee’s compliance review are substantially complete. Our management and the Audit Committee of our Board of Directors believe it likely that then members of our senior operations management either were aware, or should have been aware, that improper payments to foreign government officials were made or proposed to be made. Our former Chief Operating Officer resigned as Chief Operating Officer effective on May 31, 2006 and has elected to retire from the company, although he will remain an employee, but not an officer, until the completion of the investigation and related matters to assist us with the investigation and to be available for consultation and to answer questions relating to our business. His retirement benefits will be subject to the determination by our Audit Committee or our Board of Directors that it does not have cause (as defined in his retirement agreement with us) to terminate his employment. Other personnel, including officers, have been terminated or placed on administrative leave or have resigned in connection with the investigation. We have taken and will continue to take disciplinary actions where appropriate and various other corrective action to reinforce our commitment to conducting our business ethically and legally and to instill in our employees our expectation that they uphold the highest levels of honesty, integrity, ethical standards and compliance with the law. </div>   </div>  <div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; "> <div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">We voluntarily disclosed information relating to the initial allegations and other information found in the investigation and compliance review to the U.S. Department of Justice and the SEC, and we have cooperated and continue to cooperate with these authorities. For any violations of the FCPA, we may be subject to fines, civil and criminal penalties, equitable remedies, including profit disgorgement, and injunctive relief. Civil penalties under the antibribery provisions of the FCPA could range up to $10,000 per violation, with a criminal fine up to the greater of $2 million per violation or twice the gross pecuniary gain to us or twice the gross pecuniary loss to others, if larger. Civil penalties under the accounting provisions of the FCPA can range up to $500,000 per violation and a company that knowingly commits a violation can be fined up to $25 million per violation. In addition, both the SEC and the DOJ could assert that conduct extending over a period of time may constitute multiple violations for purposes of assessing the penalty amounts. Often, dispositions for these types of matters result in modifications to business practices and compliance programs and possibly a monitor being appointed to review future business and practices with the goal of ensuring compliance with the FCPA. </div> <div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">We have reached agreements with the DOJ and the SEC to settle these matters. We expect that documents reflecting the settlements could be filed by the DOJ and the SEC within a matter of days in the U.S. District Court for the Southern District of Texas, but the settlements require court approval. Under the terms of the contemplated settlement with the DOJ, it is expected that one of our foreign subsidiaries, Pride Forasol S.A.S., will plead guilty to certain FCPA-related charges. In addition, we will enter into a deferred prosecution agreement, under which FCPA-related charges will be deferred for a period of three years. If we remain in compliance with the terms of the deferred prosecution agreement throughout its term, the charges against us will be dismissed with prejudice. Under the agreement with the DOJ, the total contemplated fines are approximately $32.6 million. The terms of the contemplated settlement of civil FCPA charges with the SEC include an injunction against further violations of the FCPA and the payment of disgorgement and prejudgment interest totaling approximately $23.6 million. Neither of the contemplated settlements with the DOJ and SEC include the appointment of a compliance monitor. There can be no assurance that the court will accept the contemplated settlements or that the ultimate resolution of these matters will not involve fines and penalties that exceed our current estimate of $56.2 million, which we accrued in the fourth quarter of 2009. </div> <div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">We could also face fines, sanctions and other penalties from authorities in the relevant foreign jurisdictions, including prohibition of our participating in or curtailment of business operations in those jurisdictions and the seizure of rigs or other assets. Our customers in those jurisdictions could seek to impose penalties or take other actions adverse to our interests. We could also face other third-party claims by directors, officers, employees, affiliates, advisors, attorneys, agents, stockholders, debt holders, or other interest holders or constituents of our company. For additional information regarding a stockholder demand letter and derivative cases with respect to these matters, please see the discussion below under “—Demand Letter and Derivative Cases.” In addition, disclosure of the subject matter of the investigation could adversely affect our reputation and our ability to obtain new business or retain existing business from our current clients and potential clients, to attract and retain employees and to access the capital markets. While we have made an accrual in anticipation of a possible resolution with the DOJ and SEC as discussed above, no amounts have been accrued related to any potential fines, sanctions, claims or other penalties referenced in this paragraph, which could be material individually or in the aggregate. </div> <div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">We cannot currently predict what actions a court may take regarding the contemplated settlements with the DOJ and the SEC, nor can we predict what, if any, actions may be taken by any other applicable government or other authorities or our customers or other third parties or the effect the actions may have on our results of operations, financial condition or cash flows, on our consolidated financial statements or on our business in the countries at issue and other jurisdictions. </div> <div align="justify" style="font-size: 10pt; margin-top: 10pt"><b><i>Arbitration Matter</i></b> </div> <div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">In March 2002, Pride Offshore, Inc. (now Seahawk Drilling, Inc.) entered into contracts with BP America Production Co. to design, engineer, manage construction of and commission, as well as operate the drilling package on, the <i>Mad Dog</i>, a platform owned by BP America in the U.S. Gulf of Mexico. In 2004, the drilling package was accepted by BP America, and Pride Offshore’s work under the operation contract commenced. In September 2008, the drilling package was destroyed and the platform was damaged in Hurricane Ike. In September 2009, BP America and an affiliate, on behalf of itself and its joint venture partners, filed an arbitration notice under the contracts, claiming that Pride Offshore breached its express and implied warranties under the construction contract and is liable for fault and gross fault in performing the contracts. At the time, BP America alleged damages in excess of $10 million, with no further specificity. The parties engaged in mediation of the claims in May 2010. Also in May 2010, BP America claimed damages of $282 million for the loss of the drilling package and $19 million for damage to the platform. BP America also alleged loss of production, without specifying an amount. The parties did not resolve the matter through mediation in May and resumed the arbitration process; however, they have recently stayed the arbitration until November 8, 2010 to again attempt to reach a settlement. </div>   </div>  <div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; "> <div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Under our master separation agreement with Seahawk entered into at the time of the Seahawk spin-off in August 2009, we agreed to assume any obligations arising from the BP America contracts discussed above, which would include potential obligations arising from the construction of the drilling package. Although our insurance underwriters have reserved the right to raise coverage issues, we expect the claims generally to be covered under applicable insurance policies. We believe BP America’s claims will be barred or substantially limited by the limitation of liability and indemnity provisions of the contracts. We intend to continue to defend ourselves vigorously and, based on the information available to us at this time, we do not expect the outcome of this matter to have a material adverse effect on our financial position, results of operations or cash flows; however, there can be no assurance as to the ultimate outcome of this matter. As of September 30, 2010, we have an accrual for potential liability related to this matter and a receivable of approximately the same amount under our insurance policies. We believe that the matter has not adversely affected, and is not likely to adversely affect, our relationship with BP America in any material respect. </div> <div align="justify" style="font-size: 10pt; margin-top: 10pt"><b><i>Environmental Matters</i></b> </div> <div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">We are currently subject to pending notices of assessment issued from 2002 to 2010 pursuant to which governmental authorities in Brazil are seeking fines in an aggregate amount of approximately $1.4 million, based on exchange rates as of September 30, 2010, for releases of drilling fluids from rigs operating offshore Brazil. We are contesting these notices. We intend to defend ourselves vigorously and, based on the information available to us at this time, we do not expect the outcome of these assessments to have a material adverse effect on our financial position, results of operations or cash flows; however, there can be no assurance as to the ultimate outcome of these assessments. As of September 30, 2010, we have an accrual of $1.4 million for potential liability related to these matters. </div> <div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">We are currently subject to a pending administrative proceeding initiated in July 2009 by a governmental authority of Spain pursuant to which such governmental authority is seeking payment in an aggregate amount of approximately $4 million for an alleged environmental spill originating from the <i>Pride North America </i>while it was operating offshore Spain. We expect to be indemnified for any payments resulting from this incident by our client under the terms of the drilling contract. The client has posted guarantees with the Spanish government to cover potential penalties. In addition, a criminal investigation of the incident was initiated by a prosecutor in Tarragona, Spain in July 2010, and the administrative proceedings have been suspended pending the outcome of this investigation.  We do not know at this time what, if any, involvement we may have in this investigation.  We intend to defend ourselves vigorously in the administrative proceeding and any criminal investigation of us and, based on the information available to us at this time, we do not expect the outcome of the proceedings to have a material adverse effect on our financial position, results of operations or cash flows; however, there can be no assurance as to the ultimate outcome of the proceedings. </div> <div align="justify" style="font-size: 10pt; margin-top: 10pt"><b><i>Demand Letter and Derivative Cases</i></b> </div> <div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">In June 2009, we received a demand letter from counsel representing Kyle Arnold. The letter states that Mr. Arnold is one of our stockholders and that he believes that certain of our current and former officers and directors violated their fiduciary duties related to the issues described above under “—FCPA Investigation.” The letter requests that our Board of Directors take appropriate action against the individuals in question. In September 2009, in response to this letter, the Board formed a special committee, which retained independent counsel to advise it. The committee commenced an evaluation of the issues raised by the letter in an effort to determine a course of action for the company. </div> <div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Subsequent to the receipt of the demand letter, on October 14, 2009, Mr. Arnold filed suit in the state court of Harris County, Texas against us and certain of our current and former officers and directors. The lawsuit, like the demand letter, alleged that the individual defendants breached their fiduciary duties to us related to the issues described above under “—FCPA Investigation.” Among other remedies, the lawsuit sought damages in an unspecified amount and equitable relief against the individual defendants, along with an award of attorney fees and other costs and expenses to the plaintiff. On October 16, 2009, the plaintiff dismissed the lawsuit without prejudice, but the demand letter referenced above remains in effect. </div>   </div>  <div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; "> <div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">On April 14, 2010, Edward Ferguson, a purported stockholder of Pride, filed a derivative action in the state court of Harris County, Texas against all of our current directors and us, as nominal defendant. The lawsuit alleges that the individual defendants breached their fiduciary duties to us related to the issues described above under “—FCPA Investigation.” Among other remedies, the lawsuit seeks damages in an unspecified amount and equitable relief against the individual defendants, along with an award of attorney fees and other costs and expenses to the plaintiff. On April 15, 2010, Lawrence Dixon, another purported stockholder, filed a substantially similar lawsuit in the state court of Harris County, Texas against the same defendants. These two lawsuits have been consolidated, and the parties agreed on a deferral of the matter of up to 120 days to await further developments in the FCPA investigation. That deferral has now expired. The parties are negotiating a further deferral and plan to report to the state court regarding their positions on such further deferral of the lawsuits. </div> <div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The special committee of the board is continuing to evaluate the issues raised by the demand letter and derivative suits, with the advice of independent counsel. </div> <div align="justify" style="font-size: 10pt; margin-top: 10pt"><b><i>Loss of Pride Wyoming</i></b> </div> <div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">In September 2008, the <i>Pride Wyoming</i>, a 250-foot slot-type jackup rig owned by Seahawk and operating in the U.S. Gulf of Mexico, was deemed a total loss for insurance purposes after it was severely damaged and sank as a result of Hurricane Ike. All proceeds related to the insured value of the rig were received in 2008. Costs for removal of the wreckage have been and are expected to continue to be covered by our insurance. Under the master separation agreement between us and Seahawk, Seahawk will be responsible for any removal costs, legal settlements and legal costs associated with the <i>Pride Wyoming </i>not covered by insurance. At Seahawk’s request, we will be required to finance, on a revolving basis, some or all of the costs for removal of the wreckage and salvage operations until receipt of insurance proceeds. In May 2010, Seahawk requested that we pay an invoice in the amount of $6.8 million for a portion of the removal of the wreckage. We paid the invoice and were reimbursed for the entire amount under our insurance policies in the third quarter of 2010. In September 2010, at Seahawk’s request, we paid another invoice in the amount of $831,000 related to the removal of the wreckage, which we have recorded as a receivable based on a claim of the same amount that we made under our insurance policies. </div> <div align="justify" style="font-size: 10pt; margin-top: 10pt"><b><i>Seahawk Tax-Related Credit Support</i></b> </div> <div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">In 2006, 2007 and 2009, Seahawk received tax assessments from the Mexican government related to the operations of certain of Seahawk’s subsidiaries. Seahawk is responsible for these assessments following the spin-off. Pursuant to local statutory requirements, Seahawk has provided and may provide additional surety bonds, letters of credit, or other suitable collateral to contest these assessments. Pursuant to a tax support agreement between us and Seahawk, we have agreed, at Seahawk’s request, to guarantee or indemnify the issuer of any such surety bonds, letters of credit, or other collateral issued for Seahawk’s account in respect of such Mexican tax assessments made prior to the spin-off date. The amount of such collateral could total up to approximately $156.5 million, based on exchange rates as of September 30, 2010. Beginning on July 31, 2012, on each subsequent anniversary thereafter, and on August 24, 2015, Seahawk will be required to provide substitute credit support for a portion of the collateral guaranteed or indemnified by us, so that our obligations are terminated in their entirety by August 24, 2015. Pursuant to the tax support agreement, Seahawk is required to pay us a fee based on the actual credit support provided. On September 15, 2010, Seahawk requested that we provide credit support for four letters of credit issued for the appeals of four of Seahawk’s tax assessments. The amount of the request totaled approximately $48.1 million, based on exchange rates as of September 30, 2010. On October 28, 2010, we provided credit support in satisfaction of this request. </div>   </div>  <div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; "> <div align="justify" style="font-size: 10pt; margin-top: 10pt"><b><i>Former Amethyst Joint Venture Litigation</i></b> </div> <div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Prior to March 2001, we had an approximately 30% interest in joint venture companies organized to construct, own and operate four deepwater semisubmersible drilling rigs, later named the <i>Pride Carlos Walter</i>, <i>Pride Brazil</i>, <i>Pride Portland </i>and <i>Pride Rio de Janeiro</i>. In January 2000, the joint venture partner commenced litigation against Petróleo Brasileiro S.A. through various controlled companies, including the four rig-owning joint venture companies, challenging the cancellation of certain drilling contracts related to six rigs, including the four rigs listed above. We acquired our former joint venture partner’s interest in certain of the joint venture companies, including the four rig-owning companies, in separate transactions in March 2001 and November 2006. During this period and at the time of the November 2006 acquisition, we assigned all of our rights and interests in the Petrobras litigation to the joint venture partner, and the joint venture partner agreed (i) to indemnify us for any liability arising from the litigation and (ii) to cause our subsidiaries to be removed from the litigation if, and as soon as, such removal was possible without materially adversely affecting, in the partner’s reasonable opinion, the partner’s profile for recovery of damages under such litigation. In August 2010, we entered into an agreement to transfer for a nominal amount our interests in the four subsidiaries that are parties to the litigation. The transfer of two of the subsidiaries was consummated in September 2010, and the transfer of the remaining two subsidiaries was consummated in November 2010. At the time of transfer, the subsidiaries had no ownership interest in the rigs or any other material assets. After completion of the transfers, we no longer are parties to the litigation. No amounts have been accrued related to the matter. Because the litigation is being pursued by the former joint venture partner and not by us, we believe that it has not adversely affected, and is not likely to adversely affect, our relationship with Petrobras in any material respect. We currently have eight rigs contracted to Petrobras, including the four rigs named above. </div> <div align="justify" style="font-size: 10pt; margin-top: 10pt"><b><i>Other</i></b> </div> <div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">We are routinely involved in other litigation, claims and disputes incidental to our business, which at times involve claims for significant monetary amounts, some of which would not be covered by insurance. In the opinion of management, none of the existing litigation will have a material adverse effect on our financial position, results of operations or cash flows. However, a substantial settlement payment or judgment in excess of our accruals could have a material adverse effect on our financial position, results of operations or cash flows. </div> <div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">In the normal course of business with customers, vendors and others, we have entered into letters of credit and surety bonds as security for certain performance obligations that totaled approximately $487.1 million at September 30, 2010. These letters of credit and surety bonds are issued under a number of facilities provided by several banks and other financial institutions. </div> </div>  <!-- Begin Block Tagged Note false false false us-types:textBlockItemType textblock Includes disclosure of commitments and contingencies. 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