Red ink for Songa Offshore

Songa Offshore, an offshore drilling contractor, has recorded a net loss of $317 million for the third quarter 2015 versus $1 million profit in the same period last year. According to the company, the drilling market is facing challenging times over the next two years. 

According to its 3Q 2015 report on Friday, following further developments in the Norwegian Continental Shelf drilling market during the quarter, the company performed an impairment test of its rigs, resulting in the recognition of an impairment for the third quarter 2015 of $328.3 million related to Songa Dee, Songa Delta and Songa Trym.

Songa Offshore posted higher revenue for the third quarter 2015 of $124 million when compared to $110 million in the corresponding period last year.

EBITDA was also higher in the third quarter of 2015 and amounted to $64 million, versus $42 million in the third quarter 2014.

Operating revenue in the third quarter 2015 was $99.7 million, compared to $91.1 million in the third quarter 2014. Songa says the increase is primarily due to higher revenue contribution from Songa Dee as the rig was partly in yard for its Special Periodic Survey (SPS) in the third quarter 2014.

The firm contract revenue backlog as of September 30, 2015 is $5.7 billion, with another $7.8 billion worth of options.

Cat D newbuilds

Songa’s first Cat D rig, Songa Equinox, which arrived in Fensfjorden, Norway in October, is currently carrying out the client’s Acceptance Test Program prior to starting the contract. According to the company’s 3Q report on Friday, the start of contract is targeted for end November 2015.

The drilling contractor’s second Cat D rig, Songa Endurance, has completed the third leg of its transit from Korea to Norway and is currently in transit from Walvis Bay to Las Palmas. Songa says the rig is expected to arrive in Norway late November 2015. All third party equipment will be installed on the rig before it arrives in Norway. Upon arrival in Norway, the Songa Endurance will carry out the same acceptance tests as Songa Equinox.

The application for Acknowledgement of Compliance (AoC) for Songa Equinox was submitted to Petroleum Safety Authorities Norway in early March 2015, and the Songa Endurance’s application was submitted early August 2015. PSA audit and inspections have taken place at DSME with final verifications to take place shortly after rig arrival in Norway.

According to Songa’s report, the construction progress for Songa Encourage and Songa Enabler as per end of September 2015 was 92.2% and 79.6% respectively. Delivery of Songa Encourage is scheduled in late November 2015, while Songa Enabler is targeted to be delivered in the first half of the first quarter 2016.

Dispute with DSME

In relation to DSME’s arbitration claim against Songa, the drilling contractor said that, since announcing the arbitration, DSME has not presented neither amount nor details of its claim. DSME has previously alleged that the design documents (often referred to as the FEED package) contained inherent errors and omissions, which, in turn, DSME asserted to have caused it to undertake extra work resulting in delays and cost overruns. DSME considers that those delays and cost overruns are the responsibility of Songa Offshore.

Songa says it is of the view that DSME is responsible for the delays and any attempt to recover cost overruns is of no merit due to the “turn-key” nature of the construction contracts.

Outlook

The Brent Crude Oil has continued to trend around $50 per barrel. According to Songa, the North Sea drilling market is still very challenging with only a few short-term contacts in the market, both on the NCS and in the UK. As a result, several rigs have come off contract and been stacked during the quarter.

Songa says that visibility is still low and the competition for the few tenders in the market is fierce. The drilling contractor concluded that 2016 and 2017 would be two challenging years for the industry.

Offshore Energy Today Staff