Another Sembcorp Marine rig- building project has hit turbulent waters as the oil industry downturn continues to bite.
The firm announced yesterday that its Jurong Shipyard unit had reached a so-called "standstill" agreement with North Atlantic Drilling to defer delivery of a rig until next June.
United States-based North Atlantic will continue to look for a drilling contract for the rig while Jurong Shipyard will have the right to sell the vessel in this period, SembMarine said. The rig will stay at the shipyard here. If North Atlantic cannot secure a drilling contract and no alternative buyer is found by next June, both firms will form a company to jointly own the rig.
North Atlantic, which is listed on the New York Stock Exchange, will own 23 per cent of this entity and Jurong Shipyard, 77 per cent.
Yesterday's announcement comes on the heels of a contractual dispute between SembMarine and Marco Polo over a US$214.3 million (S$302 million) project.
The problems over the rig contracts point to the tough times facing the oilfield services sector.
North Atlantic said in its latest earnings report that the sector has seen "limited contracting activity as oil companies remain focused on cost reduction".
"Customer conversations continue to remain focused on extending existing contracted assets, or trade-offs between existing assets and newer assets, rather than contracting new units," it added.
OCBC Investment Research, which maintained a sell call on SembMarine, said the standstill agreement is likely "not a surprise to the street as there was already talk of North Atlantic re-evaluating delivery of this rig".
SembMarine issued a fourth-quarter profit warning on Tuesday due in part to the challenging operating environment and customers deferring or seeking to defer rig orders.
OCBC added that it believes this could be partly due to "a profit reversal from the jack-up rig dispute with Marco Polo Marine".
The SembMarine unit, PPL Shipyard, is going to court to try to force Marco Polo Marine to fulfil its obligations as guarantor of the contract. PPL served a contract termination notice on Marco Polo's unit, Marco Polo Drilling, on Tuesday after it failed to make a second payment of US$21.43 million by the Nov 30 deadline.
Shortly after SembMarine's announcement, Marco Polo stated that "under the terms of the guarantee, PPL has no basis to commence legal action against the company in the Singapore courts".
Marco Polo Marine chief executive Sean Lee told The Straits Times yesterday: "We have made our position very clear to PPL, that the nature and number of cracks and other defects found on all three legs of the new rig at this late stage of construction (are) wholly unacceptable.
"We can only reiterate that neither Marco Polo Marine nor Marco Polo Drilling is under any obligation to make the payments claimed by PPL."