Ocean Rig suffers more contract cancellations

Offshore staff

NICOSIA, Cyprus The beleaguered Ocean Rig UDW Inc. has announced that it received termination notices for two contracts in two days.

On Feb. 11, Total E&P Congo notified the company that it was terminating for convenience the long-term contract of the seventh-generation ultra-deepwater drillship Ocean Rig Apollo

Under the contract, Ocean Rig said it is entitled to a termination fee that varies from 50% to 95% of the operating daily rate that will be payable over the balance of the contract. The Ocean Rig Apollo will demobilize from Congo in due course and is available for alternative employment. 

In connection with the contract termination, the company said it has notified the agent under the respective loan agreement and is currently in discussions with its lenders about the consequences of such termination. 

Analyst firm Evercore ISI’s Oilfield Services, Equipment & Drilling group said that it estimated Total E&P Congo’s cancellation reduces Ocean Rig’s backlog by about $450 million. The contract was originally intended to last through March 2018 at a $590,000 day rate. Now, however, the analyst group said it believed that the rig will be cold stacked through 2017 following its demobilization from Congo before working at 50% utilization in 2018 at a reduced $325,000 day rate. 

In the update, Evercore said that, despite Ocean Rig being entitled to a termination fee, it does not yet model any payment, since potential arbitration could hold back funds for a significant period of time.

Eirik Raude

The day after it received Total’s term notice, Premier Oil Plc. terminated its contract with Ocean Rig for Eirik Raude. Earlier this month, Premier served a notice for a breach of material obligations under the drilling contract for the deepwater semisubmersible, which was working offshore the Falkland Islands.

In addition, Ocean Rig said it had the termination for convenience and is entitled to a termination fee of up to $62.9 million. In case Premier Oil contests the payment of such fee, the driller said that it intended to intend to commence arbitration proceedings without any further notice.

While Ocean Rig said that Eirik Raude will demobilize from the Falklands in due course and is available for alternative employment, Evercore ISI expects the semisub to be scrapped.  

The analyst firm said that this recent string of terminations could affect Ocean Rig’s upcoming newbuild deliveries.

“To manage Ocean Rig’s cash balance, we believe delivery of the Ocean Rig Santorini could be postponed further to delay the $259 million payment due this year, while the Ocean Rig Crete and Amorgos are likely to be postponed further, improving the company’s cash flow profile following $715 million in debt maturities due late next year,” the analyst said.


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