No more rigs in Northern Drilling’s fleet after second drillship gets cancelled

John Frederiksen’s offshore drilling contractor Northern Drilling has now cancelled resale contracts for both of its newbuild drillships – West Aquila and West Libra – with South Korea’s Daewoo Shipbuilding & Marine Engineering (DSME) over breaches of contract. As a result, Northern Drilling no longer has any rigs in its fleet.

Northern Drilling had two newbuild 7th generation ultra-deepwater drillships being preserved at DSME’s yard in South Korea, waiting for some remaining items and outstanding issues to be completed by the shipyard and their fate to be decided by the two companies.

The two drillships were ordered years ago and John Fredriksen’s other offshore drilling company, Seadrill, was the previous owner of the new vessels, which were never delivered to the company. Namely, Seadrill in 2016 postponed the deliveries of the two rigs for the second quarter of 2018 and the first quarter of 2019 only to cancel the orders in March 2018.

After the cancellation by Seadrill, Northern Drilling entered into agreements to buy the two rigs from DSME in May 2018. These two drillships are said to be among the most sophisticated in the world and the price tag was $296 million each with $90 million paid at contract signing and the remainder at delivery.

The West Aquila and West Libra were supposed to be delivered in January and March 2021, respectively. However, by May 2021, the fate of these two rigs was still uncertain as neither was delivered to its new owner.

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

After 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.

According to the latest update from Northern, the resale contract for the West Libra has now also been cancelled and DSME has already initiated arbitration proceedings over the August 2021 cancellation of the first drillship, West Aquila.

Northern Drilling also said over the weekend that its subsidiary, West Libra Inc., had cancelled the resale contract for the ultra-deepwater drillship West Libra due to delay of delivery as well as a repudiatory breach of contract.

West Libra Inc. has made advance payments totalling approximately $90 million under the resale contract with DSME, and will claim a refund of the instalment paid, plus interest and damages. As with the previous contract, Northern said that, if this claim was disputed, the company would seek an award via London arbitration.

Northern Drilling previously had two harsh-environment semi-submersible drilling rigs, West Mira and West Bollsta, but the company completed a spin-off of these two rigs in February 2020 through its subsidiary Northern Rig Holding. The company was then renamed Northern Ocean Ltd. As both drillships have now been cancelled, Northern Drilling no longer has any rigs in its fleet.

Even as it revealed the cancellation of the first drillship, Northern Drilling in August 2021 had confidence in the long-term fundamentals of the deepwater offshore market.

The company was beginning to see activity in the deepwater increase with new or previously delayed projects being discussed again. Day rates were beginning to break through the $300,000 per day level but still seeing shorter well-based contracts with multiple options versus long-term firm contract commitments that could support take out financing of a newbuild.

“With discipline in contracting and scrapping coupled with a more stable oil price and lowered offshore project costs, the deepwater market is showing signs of strength and there could be potential for demand in multi-year programs in the future,” Northern Drilling said in August.