UPDATE 2-Pride, Chevron agree to terminate rig contract

* Agrees with Chevron to terminate a rig contract

* Termination to hurt earnings for the rest of 2009

* Rev loss to hurt backlog by about $140 mln

* Shares fall as much as 7 pct (Adds details, analysts' comments)

By Sakthi Prasad

BANGALORE, May 11 (Reuters) - Pride International Inc (PDE.N) said it agreed with Chevron Corp (CVX.N) to terminate the remaining contract term of a rig in West Africa, after an inspection revealed "unacceptable" levels of corrosion.

Shares of the contract driller were trading down about 7 percent, or $1.61 at $22.39 in morning trade on the New York Stock Exchange.

The rig, Pride Venezuela, was relocated from Chevron's drilling location to Luanda Bay, Angola for planned repairs and a mid-period survey in March, Pride said.

An inspection of a section of the hull revealed an unacceptable level of corrosion, which will require a dry-dock facility to conduct permanent repairs. The rig will have to be moved out of the region as no dry-dock facility exists in Africa for a semisubmersible rig, the company added.

As to why the company delayed this announcement, Jefferies & Co analyst Judson Bailey said, "My guess would be they have been negotiating with Chevron to settle this amicably."

"Its disappointing but it sounds like there are some problems with the rig and Chevron is obviously within their rights to cancel the contract given the extensive nature of the repairs that have to be done," Bailey said.

The company said the repairs will take most of the remaining contract term, which had been expected to conclude in March 2010.

"It is unexpected at this point. The industry has been running hard and unfortunately when that happens some maintenance gets neglected. Perhaps the corrosion is worse than expected," Morgan Keegan & Co analyst Michael Drickamer said by phone.

EARNINGS IMPACT

Loss of revenue resulting from termination of the remaining contract term is expected to reduce Pride's backlog by about $140 million.

The revenue loss is expected to lower second quarter results by an estimated 3 cents a share from its previous forecast of 66 cents to 71 cents a share.

Analysts, on average, are expecting second quarter earnings of 71 cents a share, before items, according to Reuters Estimates.

The third and fourth quarters each are expected to be negatively impacted by about 13 cents per share.

Analysts, on average, are expecting third and fourth quarter earnings of 69 cents a share and 41 cents a share respectively.

Jefferies' Bailey, who has a "buy" rating on the stock, estimated the company's total revenue backlog to be about $8 billion.

Pride sees further impact to the financial results in the second, third and fourth quarters from cost of mobilization and repairs.

"The rig is being idled -- that's lost revenue that will impact the earnings, as well as additional operating costs related to mobilising the rig and repairing the damage," Morgan Keegan's Drickamer, who has a "market perform" rating on the stock, said.

"What they have provided in the press release seems accurate," he added.

(Editing by Pradeep Kurup, Dinesh Nair)