Keppel Hits Awilco with Another Arbitration Notice, Rig Contract Cancellation

Image Credit: Awilco Drilling
Image Credit: Awilco Drilling

Singapore-based offshore drilling rig builder Keppel has terminated a construction contract with Awilco Drilling for the Nordic Spring semi-submersible drilling rig and served Awilco with a notice of arbitration.

Awilco, a UK North Sea focused driller, which owns two offshore drilling rigs built in the 1980s, ordered two semi-submersible drilling rigs form Keppel in 2018 and 2019, respectively, at $425 million apiece, with the aim of breaking into the Norwegian harsh-environment offshore drilling market.

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. 

Awilco, however, in June this year said it had terminated the order for the Nordic Winter, citing a breach of contract by Keppel, and asking Keppel a refund of the installments paid of $54,720,985 plus accrued interest.

Keppel rejected the allegations and then reverted by terminating the contract as well, citing Awilco's non-payment of a $31.9 million installment for the rig construction. Keppel also launched an arbitration. Awilco at the time told Offshore Engineer that the construction of the second rig, the Nordic Spring, "continues according to contract."

Nordic Spring terminated

Come Friday, Keppel decided to terminate the contract for the second rig, the Nordic Spring, citing Awilco's inability to pay for an upcoming installment

"Based on the information available, Keppel FELS has assessed that [...] Awilco Drilling PLC that is the contracting party to the [Nordic Spring rig contract ], will not be able to make payment of the second installment under the [contract], which is due and payable in March 2021," Keppel said.

The company said it has, based on this, issued a notice of termination of the contract, has started arbitration to enforce its rights against Awilco. 

"Keppel FELS reserved all its rights against Awilco, including the right to retain the amounts already paid by Awilco to date (approximately US$43 million) and seek reimbursement of Keppel FELS’ costs of the project up to the date of termination," Keppel said.

Responding, Awilco said Keppel's notice followed a letter sent by Awilco to Keppel "raising concerns about the status of the project."

"[Awilco] vigorously denies the allegations by Keppel FELS in the notice and considers the vessel construction contract to be intact. The company will provide further information in due course," Awilco said.

The Nordic Spring is a semi-submersible drilling rig of Moss Maritime CS60 Eco MW design FELS. In addition, Awilco said, that through a separate Awilco Drilling subsidiary it has an option for one further rig of the same design.

In its third-quarter presentation last week, Awilco said there was "a substantial delay of new build Rig 2 (Nordic Spring) predominantly due to Covid-19," and that it was "not possible at this stage to give a definitive prediction of when delivery may take place."

The remaining capital commitments at the end of the third quarter in respect of the Nordic Spring rig were USD 382.3 million, with the next installment of $42 million scheduled for March 2021.

Awilco's cash balance at end of the third quarter was USD 16.0 million. Awilco last week said that "funding for the second installment [for the Nordic Spring] and the remaining balance at delivery will be required, by a combination of additional equity and debt. 

"There is also the option to defer the delivery of the rig, and the related payment, by up to one year. This decision will be taken at a later date," the company said in its quarterly report.

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