Daewoo Shipbuilding & Marine Engineering (DSME) has filed a complaint with the London Maritime Arbitrators Association (LMAA) against Norway’s Songa Offshore.
DSME is suing Songa for its refusal to compensate the shipyard for the KRW 1.0tr ($855m) in losses DSME says were incurred by faulty designs, which caused delays to construction of Songa’s four Category-D drillships.
“We incurred nearly a KRW 1.0tr ($855m) loss from the delayed construction of four oil-drilling ships ordered by Songa, due to the Norwegian firm’s faulty design,” a DSME spokesman told Korean press. “However, it has not acknowledged its mistakes and refused to pay compensation. So we had to ask the LMAA to decide on the matter.”
Songa has denied the claims. “The company continues to be of the view that any attempt to recover cost overruns is of no merit and will defend its position vigorously,” Songa said in a filing to the Oslo stock exchange on July 15.
Songa ordered four offshore drilling vessels at the Korean yard between 2011 and 2012 at a combined cost of KRW 2.4 tr ($2.0bn).
All four of the Category D rigs are being specifically built for and contracted to Statoil. DSME said it will complete and deliver the remaining three ships to Songa, regardless of the litigation.
The first of the four rigs Songa Equinox (pictured) was delivered to Songa at the end of June. The rig was originally scheduled for delivery in mid-May, but was delayed by unexpected remedial work that needed to be done after its sea trial.
Needless to say, DSME’s investors are beginning to get worried. One investment firm that owns shares in DSME told Splash today that the shipyard is keeping investors in the dark, especially with regards to this litigation. When the firm approached the shipyard with a query, the yard said it could not respond because “most of the employees are on their summer vacation”.
Meanwhile, DSME’s fortunes are failing. Its quarterly results today show the shipyard’s volume of sales orders during the second quarter 2015 totalled KRW 1.7tr ($1.4bn), down 63.1% on the previous quarter and down 58.2% on the same quarter last year.
During the same period, operating income has fallen by 6,902%, from KRW -43.3bn in the first quarter this year to KRW -3.0tr this past quarter.