Pursuit of appeal for arbitration ruling regarding two canceled drillships hits a wall

John Frederiksen’s offshore drilling contractor Northern Drilling is contemplating its next steps after its attempts to appeal the court’s arbitration ruling related to canceled orders for two drillships with a South Korean shipbuilder came to naught.

Two newbuild seventh-generation ultra-deepwater drillships, West Aquila and West Libra, 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 canceled the contracts in March 2018 because it went into Chapter 11 protection in September 2017.

Following the cancellation from Seadrill, Northern Drilling struck a deal in May 2018 to buy the two rigs from Daewoo Shipbuilding & Marine Engineering (DSME), now known as Hanwha Ocean. Therefore, the West Aquila and West Libra drillships were slated to be delivered in January and March 2021. The fate of these two rigs was still uncertain in May 2021, as neither was delivered to its new owner.

Once August 2021 rolled in, it became clear that Northern Drilling would not become the new owner of the West Aquila drillship as its subsidiary, West Aquila Inc., canceled the resale contract with DSME due to the delay of delivery as well as a repudiatory breach of contract. The company’s other subsidiary, West Libra Inc., followed suit and canceled the order for West Libra in October 2021.

As a result, Northern Drilling was left with no rigs in its fleet. In response to these cancelations, Hanwha challenged the offshore drilling player’s move and embarked on arbitration proceedings in London, claiming that it was entitled to retain the paid sum of $180 million and apply it against its losses due to the termination.

Once September 2023 came, Northern Drilling confirmed that the arbitration ruling from the tribunal related to the canceled drillship orders was in favor of Hanwha, thus, the claims of the company’s subsidiaries were dismissed. Hanwha’s claims against West Aquila Inc. and West Libra Inc. for losses arising from the terminations, interest, and costs were to be determined at a future hearing.

As the firm’s subsidiaries were disappointed with the tribunal’s ruling, they decided to seek leave to appeal it on a point of law and to challenge it on grounds of serious irregularity. With the appeals process underway, the final ruling concerning whether Northern Drilling would be granted leave to appeal was expected before the end of 2Q 2024. On the other hand, a ruling on the merits, subject to leave being granted, was also anticipated before the end of 2Q 2024.

Following the Technology and Construction Court’s ruling, the offshore drilling contractor has outlined that applications for leave to appeal the ruling on points of law have been refused while the company’s applications challenging the ruling on grounds of serious irregularity have been dismissed. As a result, the firm is in the process of considering the ruling.

Hanwha has already sold the West Aquila drillship to Liquila Ventures, a joint venture formed by one of Transocean’s subsidiaries, Perestroika, and funds managed by Lime Rock Management, for approximately $200 million. These are not the only arbitration proceedings involving Northern Drilling and Hanwha, as another such process is ongoing.

After the offshore drilling firm secured an option to acquire a third drillship, known as West Cobalt, from the South Korean shipbuilder at a purchase price of $350 million, it canceled the resale contract for the drillship in October 2019 on several grounds, citing “repudiatory breach of contract by DSME.”

The shipbuilder challenged the cancellation in court in late November 2019. The case has not yet been resolved and the dispute is – based on the driller’s statements from last year – “still in its early stages.” West Cobalt, previously known as Cobalt Explorer, was originally ordered by Vantage Drilling for scheduled delivery in 2015, but the order was canceled.