Keppel and Borr agree on another rig delivery delay

Offshore rig builder Keppel and rig owner Borr Drilling have agreed a further delay for the delivery of five jack-up rigs that Keppel is building for Borr.

This is the second time for the two companies to agree on the deferral of delivery for these five jack-up rigs.

Namely, Keppel and Borr in June 2020 entered into a framework deed to defer the scheduled delivery of five jack-up rigs to Borr Drilling to 2022.

Based on the original delivery schedule, three out of the five rigs were scheduled for delivery by 3Q 2020 and the remaining two rigs by 1Q 2022.

Under the first framework deed, the delivery of one rig was supposed to be deferred to 2Q 2022 while the remaining four rigs were to be delivered by 3Q 2022.

This move to delay the rig deliveries followed Borr’s announcement in May 2020 that it had, in response to the weakening market, entered into discussions with its lenders and shipyards to postpone yard commitments, adjust covenants, and reduce amortisation as well as defer cash interest payment to strengthen its liquidity situation.

By December 2020, Borr Drilling came up with a liquidity improvement plan with the support of creditors as part of its efforts to strengthen its financial footing.

However, it seems that the first delay was not quite enough.

In a new update on Thursday, Keppel said it had entered into a second framework deed with Borr to further defer the scheduled delivery of the five jack-up rigs to 2023, to be delivered progressively with the first delivery in May 2023 and the final delivery in December 2023.

Keppel O&M has the right to sell any of the rigs to a third party provided that it informs Borr first and Borr decides not to use its option to buy that rig.

Three of the rigs which have been delivered to Borr Drilling remain partially financed by Keppel O&M through a seller’s credit arrangement.

The second framework deed further provides that in respect of such seller’s credit arrangement interest accruing up to the third anniversary of the drawdown date be deferred to May 2023 and interest accruing from the third to the fourth anniversary of the drawdown date be payable on the fourth anniversary of the drawdown date and the final maturity date be deferred by one year.

The second deed will become effective upon the satisfaction of certain conditions.

These include the obtaining of key creditor consents by Borr Drilling for, among others, deferral of principal and/or interest payments under certain credit facilities, sale and purchase and construction agreements.

Also on Thursday, Keppel Corporation revealed that its struggling Keppel Offshore & Marine unit would exit the offshore rig building business as the company positions for the global energy transition.

The review has the goal of creating a slimmer, and more competitive Keppel O&M that is well-placed to support the energy transition, even as the company continues to explore inorganic options.

As a result, Keppel O&M will exit the offshore rig building business, after completing the existing rigs under construction.