Fred. Olsen Cancels HHI Contract

Fred. Olsen has canceled its disputed rig contract with Hyundai Heavy Industries (HHI). Bollsta Dolphin, a Singapore-registered Fred. Olsen subsidiary, has notified (HHI) that it has exercised its contractual right to terminate the order for the building of the Bollsta drilling rig. The contract was worth about $700 million. 

Bollsta is asking for a refund of $186 million plus interest for its first installment. The cancellation comes days after HHI delivered a notice of arbitration to Bollsta Dolphin claiming it owed the Korean shipbuilder more than $167 million. Fred. Olsen said the claim was unfounded.

The rig order was placed in 2012 and it was scheduled to be delivered by 2015’s first quarter. In September, Fred. Olsen stated that the rig still had not been completed. The company was set to being a five-year $1.06 billion contract with Chevron and the contract included an option for an additional rig.

The Bollstar cancellation is the latest blow to HHI, one of the world largest shipbuilders. In August, HHI reported a $2.5 billion Q2 loss. HHI has attributed the majority of its losses to delays in the construction of offshore oil and gas rigs. In 2010, Korean yards began investing heavily in oil and gas rigs in an effort to compete with China. At that time, oil prices were about $100 per barrel and the industry was booming.

In September, HHI lost a contract for the construction of the semi-submersible West Mira rig which was to be delivered to Seadrill. Seadrill, an offshore drilling company managed from London, exercised its cancellation rights citing to the HHI’s inability to deliver the unit within the timeframe stated in the contract. The rig had been ordered in 2012 with delivery scheduled for December 31, 2014. HHI will have to repay $168 million in pre-delivery installments plus interest to Seadrill.