Keppel Corporation has launched arbitration proceedings against offshore drilling company Awilco Drilling over the latter's recent move to terminate a semi-submersible rig construction contract worth about $425 million.
Awilco earlier in June said its subsidiary Awilco Rig 1 (AR1) had notified Singapore-based Keppel FELS that it had exercised its contractual termination right under a newbuilding contract between KFELS and AR1 for the construction of a semi-submersible drilling rig, Nordic Winter, "as a result of breaches under the Vessel Construction Contract." Awilco then also said it was entitled to a refund of the installments paid to KFELS of $54,720,985 plus accrued interest.
Keppel denied the allegations by Awilco, rejected the termination of the contract, and said it was considering its legal options.
In a statement on Monday, May 22, Keppel said Awilco had given it further notices "purporting to terminate the Contract and exercise its alleged right to the return of payments already made to Keppel FELS," which Keppel FELS again rejected.
Keppel said: "...Keppel FELS refutes the allegations by Awilco in the Notice and had rejected the purported termination of the Contract. Keppel FELS has continued to perform its obligations under the Contract. Awilco has however failed to pay the installment due on 9 June 2020."
Awilco Drilling's Awilco Rig 1 subsidiary was due to pay $31.9 million to Keppel in June as part of the balance of the second installment for the first newbuild rig.
"Non-payment of any installment by Awilco is a default in accordance with the contract, entitling Keppel FELS to terminate the contract, retain all payments received to date (approximately US$54 million), seek compensation for the work done to date and claim ownership of the rig," Keppel said Monday.
"Keppel FELS has accordingly issued a notice of termination of the contract to Awilco and has commenced arbitration to enforce its rights against Awilco," Keppel said.
Responding to Keppel's statement, Awilco Drilling said:"KFELS has disputed that AR1 had the right to terminate. Today AR1 has received a notice from KFELS purporting to terminate for failure to pay the next installment due, and notice that KFELS has commenced arbitration to resolve the disputes concerning termination and its consequences."
"AR1 maintains its position that it validly terminated the contract and maintains its entitlement to the installments.
Awilco Drilling in 2018 ordered the harsh environment semi-submersible drilling rig from Keppel. This was followed by another newbuild order of the same type and with Keppel in 2019. These were first such orders after the previous oil price collapse.
The first rig - the Nordic Winter - was expected to be delivered in April 2021, with the second one - the Nordic Spring - scheduled delivery in March 2022. Remaining capital commitments at the end of the first quarter of 2020 in respect of the two new-build rigs totaled $757.6 million.