John Fredriksen-backed Northern Drilling has cancelled the resale contract of a drillship on order at Daewoo Shipbuilding & Marine Engineering.
The Oslo-listed company said it had taken the action due to a delay in its delivery from the South Korean shipyard as well as a repudiatory breach of contract.
Northern Drilling said it made advance payments totalling around $90m for the West Aquila under the contract, and will claim a refund of the instalment paid, plus interest and damages.
“If this claim is disputed, we will seek an award via London arbitration in accordance with industry standard procedures and timescales,” the company said.
However, arbitration has proven a mixed blessing for shipyards and owners with decisions often going either way.
In March, Samsung Heavy Industries was ordered to pay Stena Drilling $411m after it lost an arbitration tribunal over a cancelled drillship order.
But SHI was on the winning side in October 2020 in a similar arbitration over Pacific Drilling’s disputed cancellation of its drillship newbuilding.
Northern Drilling agreed to acquire the West Aquila and its sister rig West Libra in May 2018 for $296m per unit, with $90m paid at the contract signing.
The initial contract had delivery dates of January and March 2021. However, the two parties agreed to a flexible delivery schedule.
The pair were originally ordered by Fredriksen’s Seadrill in July 2013 for KRW 1.25trn ($1.16bn) but were later cancelled due to its restructuring.
Northern Drilling was set up in March 2017 for the purpose of ownership of offshore drilling rigs for operations in benign and harsh environments worldwide, including ultra-deep-water environments.
The company's strategy is to be a distressed asset play on a recovery in the offshore drilling market. It said it has an opportunistic growth strategy and is targeting acquisitions of any offshore drilling rig that represents an attractive purchase price compared to replacement cost and future earnings capacity.
DSME is also looking to find a solution for two drilling rigs ordered by Valaris, the world’s largest offshore drilling contractor, in 2013 at a cost of $1.2bn.
Earlier this year, the two companies reportedly agreed to push back the delivery deadline for the two rigs to the end of 2023 from September this year.
Offshore drilling has been in a slump since 2015 due to a slide in oil prices, leading to a string of cancellations of contracts that continue to haunt the South Korean shipbuilding industry to this day.
However, South Korean shipyards have been able to shift assets off their books with the use of a little creativity as recently seen with SHI.
In July, it managed to secure a two-year bareboat charter with purchase option for a cancelled drillship newbuilding in a deal with Italy’s Saipem.
An SHI official said positive sentiment tied to the post-pandemic economic recovery, alongside rising oil prices, had stimulated demand for offshore development.
