Marco Polo Marine has unilaterally terminated a rig building order worth US$214.3 million (S$306 million) that it had placed with a subsidiary of Sembcorp Marine.

Marco Polo said in a statement that it issued a notice of termination yesterday, claiming the

SembMarine unit PPL Shipyard had failed to comply with certain "material contractual obligations".

In February last year, Marco Polo's unit MP Drilling inked a deal with PPL Shipyard to supply a turnkey jack-up rig.

The rig, which was scheduled for delivery this quarter, can operate in deeper waters of 400ft and drill high-pressure, high-temperature wells to depths of 30,000ft.

The contract had included an option for two similar jack-up rig units to be exercised by Marco Polo.

"In arriving at this decision to terminate the rig construction contract, MP Drilling has taken into account various factors, including cracks found on all three legs of the new rig during two rounds of tests, notwithstanding repair works carried out by PPL after the first round of tests," Marco Polo said.

Marco Polo said MP Drilling will not take delivery of the rig and it will seek a refund from PPL of the initial amount of 10 per cent of the contract price - about US$21.4 million - already paid.

The termination could set up a legal tussle with SembMarine and comes amid a severe downturn in the offshore industry.

SembMarine reported a 75.7 per cent drop in earnings to $32.1 million for the third quarter ending Sept 30, noting that the immediate operating environment in the offshore rig building industry remained very challenging.

SembMarine shares closed three cents higher at $2.25 yesterday while Marco Polo stock was untraded. The termination was announced after the market closed.