$10 million raised to cover ongoing arbitration costs regarding two cancelled drillships

John Frederiksen’s offshore drilling contractor Northern Drilling has carried out a private placement of new shares in the company to raise $10 million for litigation costs arising from the ongoing arbitration pertaining to cancelled orders for two drillships with the South Korean shipbuilder, Daewoo Shipbuilding & Marine Engineering (DSME).

Northern Drilling revealed its intention to undertake a private placement of new shares in the company on 1 February 2023. Following up on this later that same day, the firm confirmed that 3,214,806 new shares at a subscription price per new share of NOK 31.00 ($3.09) were allocated, raising approximately $10 million in gross proceeds.

As explained by the company, the net proceeds from this private placement will be used to cover litigation costs for the ongoing arbitration proceedings relating to claims arising from the termination of resale shipbuilding contracts for the West Aquila and West Libra drillships and for general corporate purposes.

As a reminder, these two newbuild seventh-generation ultra-deepwater drillships were originally ordered in 2013 by Seadrill. The deliveries of these two rigs were postponed in 2016 for the second quarter of 2018 and the first quarter of 2019. However, the offshore driller cancelled the contracts in March 2018 because it went into Chapter 11 protection in September 2017.

After the cancellation by Seadrill, Northern Drilling entered into agreements to buy the two rigs from DSME in May 2018. Thanks to this, the West Aquila and West Libra were supposed to be delivered in January and March 2021, respectively. However, the fate of these two rigs was still uncertain in May 2021, as neither was delivered to its new owner.

Come August 2021, it became clear that Northern Drilling would not become the new owner of the West Aquila drillship as its subsidiary, West Aquila Inc., cancelled the resale contract with DSME due to the delay of delivery as well as a repudiatory breach of contract.

Following the cancellation, Northern said it would claim a refund of the instalment paid, plus interest and damages and would seek an award via London arbitration while DSME initiated arbitration proceedings over the August 2021 order cancellation for this drillship.

As Northern Drilling’s other subsidiary, West Libra Inc., also cancelled the order for the second drillship, West Libra, in October 2021, the firm was left with no rigs in its fleet. As with the previous contract, Northern Drilling said that it intended to claim a refund of the instalment paid, plus interest and damages, planning to seek an award via London arbitration, if the claim was disputed.

In response, DSME challenged Northern Drilling’s move and kicked off arbitration proceedings in London, claiming that it was entitled to retain the paid sum of $180 million and apply it against its losses as a result of the termination.

Regarding the West Aquila drillship, DSME reached an agreement in November 2022 with Liquila Ventures, a joint venture formed by one of Transocean’s subsidiaries together with Perestroika and funds managed by Lime Rock Management, to sell the drillship for approximately $200 million.

The drillship will be renamed Hull 3623 and is expected to be delivered from DSME in the third quarter of 2023.