Rig player believes delays would see it recoup cash paid so far, but delivery still a possibility
Sevan Drilling may axe a rig newbuild contract at China’s Cosco Shipyard following “significant delays”, with the owner believing it could recoup all paid instalments.
The Norwegian contractor, which has rig giant Seadrill as its dominant owner, may also opt to delay delivery of the cylindrical unit Sevan Developer further, but appears unconvinced it can reach a mutually-beneficial agreement with the yard in this respect.
The Developer was due out of Cosco in April, but the latest estimate is October – the delay being caused by a delay in delivery of “critical equipment” to Cosco from sub-contractors.
“Marketing Sevan Developer continues to be a short-term challenge for the company,” Sevan said on Wednesday in its second-quarter result announcement.
“The soft ultra-deepwater 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.”
It continued: “The significant delay in the delivery of Sevan Developer means that the company may be able to cancel the order under the construction contract.
“A cancellation will give the company the right to a refund of instalments paid under the construction contract. Such amount would, likely, be in the area of $105 million.”
This is a turnaround from earlier in the year when Sevan was considering not taking delivery of the unit but would at that time have had to forfeit instalments.
It added on Wednesday, however: “The company 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.”
If the rig came out of the yard with no contract, it would have to be warm-stacked, something that would hit liquidity at the owner.
“The company expects to take a decision as to which option(s) to pursue in respect of Sevan Developer in the short to medium term,” Sevan said.
The company also reiterated that it may move headquarters from Norway to Bermuda, a move that would see it liquidate the parent company and set up a new one, which would then apply for a listing in Oslo. This mooted move is due to Norwegian tax laws and the fact the company has no operations in Norway, and does not see them materialising in the future either.
Sevan posted net profit in the three months to the end of June of $9.2 million, after posting a loss of $35.5 million a year earlier. A key driver was a hike in technical utilisation from 84.7% to 94.7%.
“The company believes the long-term fundamentals of the ultra-deepwater market remain robust, but the short-term will continue to be challenging well into 2015,” it said.