Firm says Jurong Shipyard's termination of contract improper
By VINCENT WEE
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SEMBCORP Marine's US$454 million semi-submersible rig deal with Petromena subsidiary PetroRig I Pte Ltd, which it terminated last month due to a payment default, has turned nasty as PetroRig I has reportedly sued the rigbuilder for breach of contract.
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This development comes amid reports yesterday that PetroRig I and sister companies PetroRig II and PetroRig III have on Sunday filed for bankruptcy protection in the United States. All three are subsidiaries of PetroMena, a troubled Norwegian oil services group.
According to a Reuters report, PetroRig I alleged that SembMarine's Jurong Shipyard unit had made an 'improper attempt to terminate the construction contract' and said that SembMarine subsequently tried to sell the rig at a below-market price.
'The filing did not say how much damages PetroRig was seeking,' said the Reuters report.
Responding to this report, SembMarine said in a statement that it 'is not aware of such an action'. 'Jurong Shipyard has not received any official notice of such US proceedings. If there is any such action, Jurong Shipyard will defend it vigorously as Jurong Shipyard believes that it has acted properly under the terms of the construction contract,' it added.
The contract to build the ultra-deepwater semi-submersible Friede & Goldman Ex-D design rig was sealed in October 2005 and gave Jurong Shipyard the right to sell the rig in the event of payment default.
'We are surprised that PetroRig I Pte Ltd, a Singapore incorporated company, should go to the US courts to commence such proceedings when the contract is governed by English laws and any dispute is to be resolved in Singapore by arbitration under UNCITRAL arbitration rules,' SembMarine said.
'As of today (May 18), Jurong Shipyard is not aware of any injunction of any kind restraining it from proceeding with the sale. The sale of PetroRig I will proceed as advertised with bids closing at noon on May 20, 2009,' SembMarine added.
'Based on best known information, Jurong Shipyard is confident that it will be able to sell the rig and to recover all outstanding amounts owed to the shipyard. The event will not have any material impact on Sembcorp Marine,' the rig builder reiterated.
A previous report said that PetroMena was believed to have recently signed a memorandum of understanding to sell the rig to an international buyer for US$450 million.
A Bloomberg report yesterday said: 'PetroMena is basing the subsidiaries' bankruptcy in the US on US$20 million of equipment in storage in Texas and unused retainers being held by its attorneys in New York.'
According to Reuters, the three subsidiaries had agreements to build three ultra-deepwater semi-submersible rigs with Sembcorp Marine.
PetroMena put the three subsidiaries into Chapter 11 to prevent the loss of what the company described as three uncompleted rigs, said Bloomberg. 'The rigs are being constructed by Jurong Shipyard in Singapore at a total cost of almost US$1.5 billion,' Bloomberg said, adding: 'Almost US$750 million remains unpaid on the construction contracts.'
Besides the disputed rig, the other two rigs on order with SembMarine are due for delivery later this year and early next year respectively.
PetroMena has been caught in a liquidity crunch from bondholders for several months despite having firm contracts to start work with Petrobras America in the Gulf of Mexico.
Contract cancellations and other contractual hiccups continue to plague rig builders as the credit environment remains weak.
'Additional earnings risks from Cosco Corp, contract cancellations and rig prices are not insubstantial,' warned Credit Suisse's Haider Ali in a recent research report.
'Valuation is well ahead of fundamentals here. We maintain our underperform rating,' added Mr Ali.
SembMarine shares closed seven cents higher at $2.55 yesterday.
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