Sevan Drilling could cancel rig order

Sevan Drilling, Norwegian provider of offshore drilling rigs of an unconventional, cylindrical design, may be forced to cancel a rig order.

The company has revealed that marketing the Sevan Developer drilling unit continues to be a short term challenge for Sevan Drilling.

In May 2011, Sevan Drilling entered into a contract with COSCO for the construction of Sevan Developer, based on the same design as other Sevan Drilling rigs. According to information on the company’s website, the Sevan Developer, under the original plan, was scheduled for delivery in the third quarter of 2014.

However, in its quarterly results statement Sevan Drilling said that that the soft ultra-deep water market resulting from the pause in spending and subsequent lack of awards from oil companies continues to delay obtaining an operating contract for the rig.

Though the drilling contractor said it was optimistic about the long-term outlook for the ultra-deep water market, “the short-term will continue to be challenging well into 2015.”

Possible cancellation

The significant delay in the delivery of Sevan Developer means that the company may be able to cancel the order under the construction contract, Sevan Drilling’s report reveals.

A cancellation will give the company the right to a refund of instalments paid under the construction contract. Such amount would, likely, be in the area of USD 105 million.

Sevan Drilling also said that it could reach an agreement with the shipyard to make a delay in delivery instead of the cancellation, hoping for an improvement in the market.

However, the drilling company also said that, looking at the current situation in the market, it is “doubtful whether a sufficiently long delay in the delivery date can be agreed on satisfactory terms.”

“Taking delivery with no employment secured will require the rig to be warm stacked until a contract is concluded. This will, necessarily, have a negative impact of the company’s liquidity position.” Sevan Drilling said.

Zacks: Worst still to come

Earlier this week, Zacks, while not mentioning Sevan Drilling specifically, issued a report saying that the latest spate of fleet status reports – with news of low dayrates and contract terminations – provide further evidence that “being an offshore driller is just not fun right now,” and, quoting “some analysts” said that the worst is still to come for offshore drillers.

It also revealed that on an average, just about two-thirds of available deepwater rigs for 2015 have been able to find customers. Even for this year, a number of drilling rigs remain uncontracted.