Keppel cancels Awilco Drilling rig contract. Slaps another arbitration notice
Singapore-based offshore drilling rig builder Keppel has terminated a construction contract with Awilco Drilling for the Nordic Spring semi-submersible drilling rig and served Awilco with a notice of arbitration.
As previously reported, Awilco – an owner of two 1980s-built drilling rigs – ordered two semi-submersible drilling rigs from Keppel back in March of 2018 and 2019. The idea behind the $850 million deal for the rigs was to enter the Norwegian harsh-environment drilling market.
At the time of the signing of the two deals, the first rig – named Nordic Winter – was supposed to be delivered in April 2021. The second – the Nordic Spring – had a scheduled delivery date in March 2022.
In a plot twist, which is a very frequent thing this year in the offshore drilling world, Awilco terminated the order for the Nordic Winter in June 2020. According to the offshore driller, the termination order was served due to a breach of contract. Awilco also asked for a refund of instalments paid up to that point – $54,720,985 plus interest.
Keppel denied all such allegations and stated at the time that the notice of termination came shortly before the next payment instalment of $31.8 million due from Awilco. An instalment which was previously deferred in March 2020 at the driller’s request.
As Awilco was adamant that Keppel had to return what was previously paid to them, the rig builder opted to start an arbitration process to resolve the dispute.
Regardless of the dispute over the first rig, work on the Nordic Spring carried on as planned and first steel for the rig was cut in the third quarter of 2019.
Then, in August 2020, the offshore driller started looking into ways to finance its remaining commitments for the Nordic Spring, keeping in mind that there was an option to delay the delivery and the next payment by up to a year.
Also, the situation at Keppel was uncertain at this time due to Covid-19 which caused unquantifiable delays in construction.
Keppel wants the other deal nixed
Now, in another table turn, Keppel decided to terminate the contract for the Nordic Spring citing Awilco’s inability to pay for an upcoming instalment as the reason for the termination.
The rig builder said in a statement from last week that it assessed that Awilco would be unable to pay the second instalment under the contract for the second rig. Based on this, it issued a notice of termination of the contract, has started arbitration to enforce its rights against Awilco.
“Keppel FELS reserved all its rights against Awilco, including the right to retain the amounts already paid by Awilco to date – around $43 million – and seek reimbursement of Keppel’s costs of the project up to the date of termination“, the company stated.
In its response, Awilco said Keppel’s notice followed a letter sent by Awilco to Keppel “raising concerns about the status of the project”.
As was the case with the previous spat between the two, the other claims it did nothing wrong. Namely, Awilco “vigorously” denied the allegations by Keppel FELS in the notice and considered the vessel construction contract to be “intact”.
As for the rig, the Nordic Spring is a semi-submersible drilling rig of Moss Maritime CS60 Eco MW design FELS. It is worth noting that a subsidiary of Awilco has an option for one further rig of the same design.
The driller also had its third-quarter presentation last week, and stated that there was “a substantial delay of new build rig [Nordic Spring] predominantly due to Covid-19“, and that it was “not possible at this stage to give a definitive prediction of when delivery may take place“.
The remaining capital commitments at the end of the third quarter in respect of the Nordic Spring rig were $382.3 million, with the next instalment of $42 million scheduled for March 2021.
Awilco’s cash balance at end of the third quarter was $16.0 million. Awilco last week said that the funding for the second instalment for the Nordic Spring and the remaining balance at delivery will be required by a combination of additional equity and debt.
It also stated in its presentation that the decision to defer payment and delivery by one year would be taken at a later date.