SembMarine says rig order termination by Marco Polo Marine is breach of contract

The Sembcorp Marine logo.
The Sembcorp Marine logo. PHOTO: BLOOMBERG

SINGAPORE - Sembcorp marine (SembMarine) announced early morning on Wednesday (Nov 18) that its subsidiary, PPL Shipyard, will regard the termination by Marco Polo Drilling of a US$214.3 million (S$306 million) order to build a rig as "repudiatory breach of the contract".

In a filing with the Singapore Exchange around 1am morning, SembMarine said PPL Shipyard had not received any notice of termination of the construction contract at the time that they learnt of the announcement.

Marco Polo Marine, of which MP Drilling is an indirect wholly-owned subsidiary, announced on Tuesday in an SGX filing that it will unilaterally terminate the contract for the jack-up rig under construction at PPL Shipyard. In its statement on Tuesday, Marco Polo said that PPL Shipyard had failed to comply with certain "material contractual obligations".

"PPL Shipyard disagrees with the allegations in the announcement and will regard this as repudiatory breach of the contract, and will terminate the contract and claim amounts due under the contract against MP Drilling and its guarantor Marco Polo Marine Ltd," SembMarine said in statement on Wednesday.

"PPL Shipyard will take the necessary steps to enforce its rights and will provide the update when required," it added.

SembMarine shares were trading down 4 cents or 1.8 per cent at S$2.21 while Marco Polo Marine counter was 1.3 cents or 6.2 per cent lower at 19.7 Singapore cents, as at around 10:20am on Wednesday. The Straits Times Index was down about 0.8 per cent.

Marco Polo said on Tuesday that 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 legal tussle comes amid a a severe downturn in the offshore oil & gas industry.

The rig order was signed in February last year, with delivery scheduled for this quarter. 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 on Tuesday.

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