Shares of US independent Hyperdynamics soared on Friday after the company announced the settlement of a lawsuit over a well drilled offshore Guinea in 2011 and 2012.
Hyperdynamics, through a subsidiary, will received a gross payment of $17.7 million from a previously established escrow account to settle the litigation.
Shares of Hyperdynamics on the New York Stock Exchange rose more than 25% on Friday in response. The closed at $3.08 per share, which was 16.67% higher than Thursday's close.
The company has been locked in a litigious dispute with Aberdeen-based well management firm AGR since 2012. Hyperdynamics sued AGR for a breach of contract related to the Sabu-1 well drilled off Guinea. Counter-suits by both companies have dragged the case down since then.
The US company had hired AGR to manage the drilling project off West Africa. After months-long delays and sharp price overruns, Hyperdynamics accused AGR of not delivering what it promised.
AGR had said the drilling project at Sabu-1 would take 52 days at a cost of between $45 million and $60 million. It ended up taking 151 days to complete the well, as costs spiked.
"If (AGR) had complied with its contractual obligations, the contractual work could and should have been achieved on time and within budget," Hyperdynamics said in the 2012 lawsuit, adding the AGR "failed to exercise reasonable care and skill, failed to provide the agreed services within a reasonable time, and breached its express contractual obligations".
Hyperdynamics claimed it paid a $107.3 million bill, that equated to $47.3 million overpayment. It sought a repayment of the difference.
The main complaint from the Houston-based company was the condition of the rig AGR selected for the drilling programme.
It hired drillship Jasper Explorer, owned by Jasper Drilling, for the project. According to Hyperdynamics, the rig, which was dry docked in Singapore at the time the contract was signed, arrived on site off Guinea with equipment that "was sub-standard, antiquated, did not properly function, was not adequately prepared and tested... and was not suitable for the work".
AGR "never ensured that the rig was brought up to operational conditions, (which) created substantial impediments to operations at the drilling site", Hyperdynamics claimed.
The rig, with daily charges of about $500,000, was on site for around 151 days, but was operational on only 87 of those days, Hyperdynamics said.
The suit has now been settled, with claims made by Hyperdynamics subsidiary SCS, as well as counterclaims of AGR, "released, and the litigation will be terminated".
"We are pleased to settle this litigation and to have this matter resolved and behind us," said Hyperdynamics chief executive Ray Leonard. The company will get net proceeds of about $15.6 million, with minority partner Dana Petroleum taking the rest.
The ordeal turned all the more sour since the well ended up being non-commerical, despite some oil shows. The well is located about 90 miles south-west of Conakry.
Hyperdynamics ended up selling a 40% stake and operatorship in the Sabu concession to London-listed Tullow Oil and now holds 37%. Dana owns the remaining 23%.
A new well on the prospect was originally planned to be spud by 1 April this year. However, Tullow issued a force majeureon the drilling plans due to a federal US investigation into Hyperdynamics over possible violations of the US Foreign Corrupt Practices Act or anti-money laundering statutes.
Tullow lifted the force majeure earlier this month, but no new drilling schedule has been revealed.