Sevan Drilling to Cancel Newbuild at Cosco?

International drilling contractor Sevan Drilling may cancel its order for offshore platform “Sevan Developer” being built at China’s Cosco Shipyard, the company said in its second quarter results.

“The soft ultra-deep water market resulting from the pause in spending and subsequent lack of awards from oil companies continues to delay obtaining an operating contract for the rig. The company believes the long-term fundamentals of the ultra-deep water market remain robust, but the short-term will continue to be challenging well into 2015,” the company said.

Sevan explained that the significant delay in the delivery of Sevan Developer means that the company may be able to cancel the order under the construction contract.

The cancellation would  enable the company to a refund of instalments paid under the construction contract. Such amount would, likely, be in the area of USD 105 million.

Sevan may also negotiate a later date of delivery with Cosco in anticipation of an improvement in the market.

“Given the current market it is, however, doubtful whether a sufficiently long delay in the delivery date can be agreed on satisfactory terms. Taking delivery with no employment secured will require the rig to be warm stacked until a contract is concluded,” Sevan added, explaining that this would affect the company’s liquidity.

Sevan said it would decide on which option(s) to pursue in respect of Sevan Developer in the short to medium term.

Sevan Developer was set for delivery by April 2014, however it has been pushed for October due to delays in the delivery of critical equipment from Cosco’s sub-contractors.