Shanchuan Heavy Industries' largest-ever order has been cancelled.

Photo: July 15, 2016, Shanhaiguan Shipbuilding Industry the first CJ50 type platform built was successfully launched.

3 jack-up rigs built by Shanhaiguan Shipbuilding Industry for Singapore's Falcon Energy drilling platforms were recently cancelled, with a total value of US$654 million, equivalent to RMB 4.45 billion. This order was the largest in terms of engineering volume and amount in Shanhaiguan Shipbuilding Industry's history. As a DSIC Group subsidiary, Shanhaiguan Shipbuilding Industry's recent cancellation clearly also "innocently" implicated DSIC Group. It also shows that the impact on the offshore market is far from over, and Chinese shipyards will still face huge financial risks in the offshore market in the future.

Total price of 4 jack-up drilling platforms: US$872 million

Falcon Energy recently announced that 3 of the 4 CJ50 type jack-up drilling platforms ordered from Shanhaiguan Shipbuilding Industry have been confirmed cancelled, and the order for the 4th jack-up drilling platform is currently under negotiation, with a conclusion expected soon.

Falcon Energy's affiliate, FTS Derricks, placed an order for these 4 jack-up drilling platforms with Shanhaiguan Shipbuilding Industry in 2013, with a total contract value of US$872 million, equivalent to RMB 5.388 billion in that year, and each jack-up drilling platform priced at approximately US$218 million.

Falcon Energy provided 4 performance guarantees for this order, totaling US$784.8 million, which is equivalent to the full outstanding balance FTS Derricks would need to pay upon delivery of the 4 jack-up drilling platforms.

However, Falcon Energy stated that since Shanhaiguan Shipbuilding Industry and FTS Derricks have separately exercised their rights to terminate the orders for 3 of the jack-up drilling platforms, the performance guarantees provided by Falcon Energy for these 3 jack-up drilling platforms will no longer be valid. These 3 performance guarantees are valued at approximately US$588.6 million.

Shanhaiguan Shipbuilding Industry's largest order to enter the offshore market

In July 2013, Shanhaiguan Shipbuilding Industry signed a contract with Singapore's FTS Derricks for the construction of 2+2 CJ50-X120-D Rig (CJ50-01/02/03/04) jack-up drilling platforms. The total contract value reached US$872 million, equivalent to RMB 5.388 billion. The platform measures 70 meters in length, 68 meters in width, and 9.5 meters in depth, with leg lengths of 165 meters. It has a living quarter capacity of 150 people, features full automatic control, can drill 56 wells in a single position, operates normally at temperatures down to -10 degrees Celsius, can drill to depths of over 9,000 meters, and can operate in global waters up to 122 meters deep.

It is understood that this order marks Shanhaiguan Shipbuilding Industry's first time undertaking the construction of a CJ50 type platform, and it is also the first time such a new type of platform has been undertaken domestically, featuring full automatic control and possessing international leading standards. Both the engineering volume and contract amount of this project are the largest in Shanhaiguan Shipbuilding Industry's history, representing a significant business achievement in its structural adjustment and accelerated industrial upgrading. The successful commencement of this project has opened a new page for Shanhaiguan Shipbuilding Industry's entry into the offshore engineering field, marking Shanhaiguan Shipbuilding Industry's formal entry into the mainstream international market for high-end offshore engineering equipment, and holds milestone significance for the development of Shanhaiguan Shipbuilding Industry's offshore engineering business.

In November 2013, Shanhaiguan Shipbuilding Industry officially started construction on its first CJ50 type jack-up drilling platform. On July 15, 2016, the platform was successfully launched. The platform has a lightship weight of 16,000 tons. The method of sliding such a heavy platform onto a barge and then separating it for launch is a first in China.

In fact, Shanhaiguan Shipbuilding Industry is currently a wholly-owned subsidiary of DSIC Group. To cope with the sustained downturn in the civilian shipbuilding industry, in 2016, CSIC conducted structural adjustments and capacity reduction through the integration of its subsidiaries DSIC Group and Shanhaiguan Shipbuilding Industry, Wuchang Shipbuilding Industry and Beihai Shipbuilding Heavy Industry and other measures to adjust structure and reduce capacity, promoting military-civilian integration through resource reorganization. CSIC transferred all its equity in Shanhaiguan Shipbuilding Industry Co., Ltd. to Dalian Shipbuilding Industry Group Co., Ltd., making Shanhaiguan Shipbuilding Industry a wholly-owned subsidiary of DSIC Group. The recent cancellation for Shanhaiguan Shipbuilding Industry evidently also "innocently" implicated DSIC Group's already struggling offshore business.