Vantage Drilling has cancelled its order with Daewoo Shipbuilding Marine Engineering (DSME) for the Cobalt Explorer, the ultra-deepwater drillship it ordered from the South Korean yard in July 2013.
DSME said in an exchange filing today that the KRW 703bn ($593m) order was deleted after Vantage failed to make its second payment installment, which DSME said is a breach of contract.
The Cobalt Explorer may be sold in order to claim back any losses and litigation may follow, the shipyard said.
The vessel was scheduled for delivery in the first quarter of 2016, but Vantage said it terminated the contract on August 13. DSME responded today by saying that the shipowner has no legal basis for the cancellation.
Vantage said it intends to recover all funds paid to the shipyard, which is around $59.5m plus contractual interest and other costs.
“The company anticipates recognizing a non-cash charge of approximately $27m to $30m for the write-off of development costs and capitalized interest for the Cobalt Explorer project incurred over the last three years,” Vantage said in a filing to the US SEC on August 18.
“The shipyard may seek to challenge our ability to terminate the contract pursuant to arbitration provisions in the contract, which would result in a delay in recovery of any amounts that might be due to us under the contract,” the company said.
“Such termination by the shipyard might entitle the shipyard to retain all supplies delivered to the shipyard and all milestone and other payments made by us to the shipyard to date, and to elect to sell the vessel and claim any deficiency in proceeds against us.”
The cancellation is another blow for troubled DSME, which in July requested KRW 1trn ($863m) in new emergency loans before reporting a second-quarter operating loss of KRW 3.07trn ($2.65bn), its largest quarterly loss ever. Some 13 senior DSME executives offered to resign as a result of the disastrous result.
South Korea’s top three yards – DSME, Samsung Heavy and Hyundai Heavy – are all in the red this year, largely as a result of the drop in the price of oil and their heavy exposure to offshore construction.