After 10 years of construction and 2 cancellations! Daewoo Shipbuilding painfully sells off

2022-11-21 09:00

Nearly 10 years after the order was placed, the cost has increased to US\$600 million. After being canceled twice, the ultra-deepwater drillship "West Aquila" may be sold at a "rock-bottom price" of US\$200 million, and Daewoo Shipbuilding & Marine Engineering (DSME) may finally be able to escape its "offshore nightmare."

On November 17, offshore drilling company Transocean announced that its subsidiary, together with funds managed by Perestroika A.S. and Lime Rock Management, had formed a joint venture, Liquila Ventures. This joint venture has reached an agreement with Daewoo Shipbuilding & Marine Engineering to acquire the "West Aquila" (hull number 3623) for approximately US\$200 million.

"West Aquila" is a high-specification ultra-deepwater hook-type drillship with a large deck space and high load capacity. Daewoo Shipbuilding & Marine Engineering is expected to deliver the drillship in the third quarter of 2023. Transocean has made a non-controlling investment of US\$15 million in Liquila Ventures and retains exclusive marketing and operating rights to the drillship.

According to International Ship Network, "West Aquila" was one of two drillships ordered by Seadrill, a subsidiary of Norwegian shipping magnate John Fredriksen, in July 2013. Each drillship cost US\$531 million, with a project cost of approximately US\$600 million per drillship. However, with Seadrill filing for Chapter 11 bankruptcy protection in September 2017, Daewoo Shipbuilding & Marine Engineering terminated its construction contract with Seadrill in March 2018. As of 2018, Seadrill's outstanding payments totaled US\$917 million.

After the termination of Seadrill's contract, Daewoo Shipbuilding & Marine Engineering signed an agreement in 2018 with Northern Drilling, another drilling company under Fredriksen, to sell Seadrill's two drillships at a price of US\$296 million each. Under the terms, Northern Drilling paid a US\$90 million advance payment for each ship, with the remaining amount payable upon delivery. The delivery dates were set for January and March 2021, respectively.

However, Northern Drilling canceled the resale contracts for "West Aquila" and its sister ship in August and October last year, citing delays in delivery and breach of contract by the shipyard, and demanded that Daewoo Shipbuilding & Marine Engineering return the approximately US\$90 million advance payment for each ship. In February this year, Daewoo Shipbuilding & Marine Engineering filed a counterclaim against Northern Drilling for the cancellation of the "West Aquila" contract and demanded US\$93 million from the shipowner.

For Daewoo Shipbuilding & Marine Engineering, which is continuously losing money, the cancellation of the drillship is undoubtedly adding insult to injury. Daewoo Shipbuilding & Marine Engineering originally planned to improve its cash flow by reselling the drillship inventory, but it encountered a second cancellation and claim from Northern Drilling.

After reaching an agreement with Transocean, "West Aquila" has seen a glimmer of hope. However, Transocean's acquisition price is lower than that of Northern Drilling, at only US\$200 million, which is one-third of the project cost of approximately US\$600 million.

Transocean is a leading global offshore drilling company with one of the world's most advanced fleets of floating drilling rigs, including 28 ultra-deepwater floating drilling rigs and 10 harsh-environment drilling rigs. It is worth mentioning that in June this year, Transocean finally received the world's first eighth-generation ultra-deepwater drillship, "Deepwater Atlas," built by Sembcorp Marine in Singapore, after a five-year delay. Next year, it will also receive its sister ship, "Deepwater Titan."

In August this year, Transocean secured long-term contracts worth US\$1.42 billion for its two ultra-deepwater drillships, "Petrobras 10000" and "Deepwater Conqueror." At the time, the company pointed out that while the past eight years have been extremely challenging for the industry, it is clear that the offshore drilling market is experiencing a recovery, with chartering activity, utilization of high-specification ultra-deepwater and harsh-environment drilling assets, and day rates all continuing to rise. This momentum is expected to continue into the foreseeable future.

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