Keppel, SembMarine settle oil-rig claims with Sete Brasil

Keppel O&M is in discussions with Magni Partners on the terms to complete the construction of the drilling rigs Urca (pictured) and Frade.
Keppel O&M is in discussions with Magni Partners on the terms to complete the construction of the drilling rigs Urca (pictured) and Frade.PHOTO: KEPPEL CORP

Keppel Corp and Sembcorp Marine yesterday reached long-awaited settlements with Sete Brasil for oil rig-building contracts worth billions of dollars that were frozen after their once-biggest customer was forced to file for bankruptcy amid a sweeping corruption probe in Brazil.

Keppel, in a stock exchange filing before trading began yesterday morning, said its Keppel Offshore & Marine (Keppel O&M) unit will take control of four uncompleted oil drilling rigs and is in discussions to complete the building of two remaining rigs.

It had received US$1.3 billion (S$1.8 billion) in progress payments from Sete Brasil for the six rig orders, which had a total contract value of about US$4.9 billion, before payments stopped in November 2014. Keppel stopped work on the rigs in late 2015.

For the four rigs, the engineering, procurement and construction contracts and related agreements entered into with Sete Brasil subsidiaries will be deemed to be amicably terminated, with no penalties, refunds and/or any additional amounts being due to any party. Both sides have also waived all rights to any claims.

When the settlement agreement takes effect, Keppel O&M unit Fernvale will have full ownership of the four rigs, and will explore options to extract the best value from these assets, Keppel said.

For the two remaining rig orders, a total sum of close to US$260 million will be recognised as part of the undisputed debt included in Sete Brasil's court-approved restructuring plan.

Fernvale is also discussing with Magni Partners (Bermuda) the terms to complete the construction of the two drilling rigs, which are about 92 per cent and 70 per cent completed, respectively, for Sete Brasil units Urca and Frade. Magni Partners' winning bid to purchase four Sete Brasil subsidiaries, including Urca and Frade, was approved at a meeting of Sete Brasil's creditors last Thursday.

The settlement agreement was also approved at this meeting. Keppel noted that the agreement will become effective only upon the fulfilment of other conditions.

"When the settlement agreement becomes effective, Keppel O&M would be able to resolve a long-outstanding issue related to the six rigs, and look forward to exploring other opportunities to contribute to the oil and gas industry in Brazil," said Keppel.

In a filing at the midday trading break yesterday, SembMarine said its seven rig contracts with Sete Brazil subsidiaries worth US$5.6 billion will be terminated and the parties will mutually release each other from all claims in relation to the contracts.

SembMarine received $2.7 billion in progress payments for the rigs before payments stopped in November 2014.

Keppel had received US$1.3 billion (S$1.8 billion) in progress payments from Sete Brasil for the six rig orders, which had a total contract value of about US$4.9 billion, before payments stopped in November 2014. Keppel stopped work on the rigs in late 2015.

It will keep all works performed for five of the seven rigs. The remaining two have made the most construction progress, and will be split between SembMarine and Sete Brasil in proportion to payments already made by the latter, which has identified a buyer for its units that own the two drillships. The buyer is expected to negotiate with SembMarine for new contracts to complete the drillships.

Following the settlement, the parties will terminate arbitration proceedings for contract claims begun in April 2016.

Following yesterday's settlement announcements, Keppel Corp shares traded up seven cents, or 1.2 per cent, to $5.88 as of 2.30pm, while SembMarine's shares were up one cent, or 0.9 per cent, to $1.19.

A version of this article appeared in the print edition of The Straits Times on October 08, 2019, with the headline 'Keppel, SembMarine settle oil-rig claims with Sete Brasil'. Subscribe