Korean Shipbuilders Embarrassed by Delays of Drillship Deliveries

Delays of drillship deliveries are putting Korean shipbuilders into the awkward blues. Samsung Heavy Industries had to reschedule delivering a drillship to its owner in the Oceania Region from this December to June 2017. This is because the owner asked Samsung Heavy Industries to delay the delivery under the condition that the owner will pay an extra 100 billion won (US$85 million).

Also on Aug. 28, Samsung Heavy Industries postponed the delivery of two drillships amounting to 1.17 trillion won (US$995 million) to Seadrill of the U.K. from November of this year to March 2017. Such delivery delays are putting Korean shipbuilders on alert. This is because a drop in oil prices since the second half of last year has forced clients to ask Korean shipbuilders to put off the deliveries of many drilling facilities such as drillships and semi-submersible oil drilling rigs.

To add to their misery, the delays are making matters worse for Korean shipbuilders, which have recorded an astronomical 8 trillion plus loss since last year. Delivery postponement means delays in final payments, which account for 70 to 80 percent of the total price of the vessel.

This year, Samsung Heavy Industries postponed the delivery of six drillships. Among the six, four were scheduled to be delivered to their owners. Taking into consideration the fact that the company has received orders to build ten drilling facilities, 60 percent of the company’s volume is delayed.

Most of the owners who want to postpone the deliveries of their ships placed orders at a venture without securing charterers. Such owners are avoiding the deliveries of drillships, as a drop in international oil prices has significantly lowered drillship charter fees. The daily drillship charter fee peaked at US$600,000 in 2012 and 1013. But at the moment, the fee is at around US$300,000.

But delivery delays are not the worst. The cancellation of drilling facility deals shortly before their deliveries will incur hundreds of billions of won in damages to Hyundai Samho Heavy Industries and Daewoo Shipbuilding & Marine Engineering, respectively.

U.K.-based Seadrill informed Hyundai Samho Heavy Industries of canceling an order to build a semi-submersible oil drilling rig amounting to about 670 billion won (US$570 million) in the middle of Sept. The shipbuilder booked the order in the middle of 2012. Seadrill called off the contract ten days before final delivery, making a pretext of the fact that the shipbuilding schedule was delayed for about nine months. Seadrill is demanding the return of the down payment of 176 billion won (US$149 million) plus interest.

On Sept. 19, Daewoo Shipbuilding & Marine Engineering canceled a contract to build a drillship amounting to 703.4 billion won (US$598 million) with a U.S. client. The owner did not make the intermediate and final payments shortly before its delivery.
Source: Business Korea