Regret canceling the order? Norwegian shipping magnate raises millions to sue Daewoo Shipbuilding

2023-02-08 09:00

As the offshore market gradually recovers, a dispute has arisen again between Northern Drilling, an offshore drilling company under the Norwegian shipping magnate John Fredriksen, and Daewoo Shipbuilding & Marine Engineering (DSME) of South Korea, concerning the cancellation of two drillships.

On February 1, Northern Drilling announced a private placement of new shares and later that day confirmed the allocation of 3,214,806 new shares at a subscription price of 31.00 Norwegian Krone (approximately USD 3.09) per share, raising approximately USD 10 million in gross proceeds.

Northern Drilling stated that the net proceeds from this private placement will be used to cover litigation costs in the ongoing arbitration proceedings concerning claims arising from the termination of the resale contracts for the ultra-deepwater drillships "West Aquila" and "West Libra," and for general corporate purposes.

Northern Drilling cancelled the resale contracts for these two drillships in 2021, citing shipyard delivery delays and breach of contract. Northern Drilling also demanded that DSME return the USD 90 million advance payment for each vessel, along with interest and damages.

Due to the disputed claims, Northern Drilling sought arbitration in London according to industry standard procedures. Subsequently, DSME filed a counterclaim, demanding compensation of KRW 111.5 billion (approximately USD 89 million) from the shipowner.

It is understood that the "West Aquila" and "West Libra" were originally ordered by Seadrill, another subsidiary of John Fredriksen, in July 2013, at a cost of USD 531 million each, with a project cost of approximately USD 600 million per vessel. However, following Seadrill's Chapter 11 bankruptcy filing in September 2017, DSME terminated the construction contract with Seadrill in March 2018, at which time Seadrill's outstanding payments totaled USD 917 million.

Also in 2018, Northern Drilling signed an agreement with DSME to acquire these two seventh-generation drillships at a price of only USD 296 million each, almost half the original construction contract price. Under the terms, Northern Drilling paid a USD 90 million advance payment for each vessel, with the remaining amount payable upon delivery, which was scheduled for January and March 2021, respectively.

However, on August 17, 2021, Northern Drilling announced the cancellation of the resale contract for the "West Aquila"; and on October 16 of the same year, Northern Drilling announced the cancellation of the resale contract for the "West Libra".

Entering 2022, the offshore market gradually recovered, and the "inventory" drillships of DSME also saw a turnaround. In November last year, DSME reached an agreement with Liquila Ventures, a joint venture between DSME and Transocean, for Liquila Ventures to acquire the "West Aquila" for USD 200 million. DSME is expected to deliver the drillship in the third quarter of 2023. Transocean has made a non-controlling investment of USD 15 million in Liquila Ventures and retains exclusive marketing and operating rights to the drillship.

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