Norwegian company Northern Drilling is looking at an uncertain future after losing a legal battle with DSME (now Hanwha Ocean) over the cancellation of contracts for two ultra-deep water drilling ships.
Northern Drilling was set up by Norwegian shipping magnate John Fredriksen in 2017 in order to buy and operate modern offshore drilling assets. It signed contracts with the shipyard then known as DSME to complete and deliver two previously-canceled drillships, West Aquila and West Libra, originally ordered by Seadrill. The deal was signed on favorable terms and would have given Northern two seventh-generation drillships for half the original purchase price. However, Northern Drilling later sought to cancel the contracts and recover $180 million in advance payments (plus interest) from the shipyard, citing delays in delivery.
DSME disputed the claims and commenced arbitration proceedings in London, claiming that it was entitled to retain the $180 million and apply these funds against losses stemming from the contract termination.
Just last month, Northern Drilling projected confidence in the prospect of winning the case, and said that recovery of the disputed payments would have a positive impact on its finances. However, the arbitration tribunal has now made a determination in favor of Hanwha Ocean, a development that Northern Drilling described as “disappointing.”
“West Aquila Inc. and West Libra Inc. are disappointed with the Tribunal’s determination and are currently considering whether to appeal. We will revert with further information once a decision on whether to appeal has been made,” said Northern Drilling in a filing.
The determination comes barely a month after Northern Drilling announced that its total operating expenses increased by $3.9 million to $6.5 million in the six months ended June 30 compared to the same period last year. The increase was attributed to an increase in legal costs relating to the disputes.
In February, the company raised $10 million in a private placement to cover the arbitration costs and obtained another $1.7 million revolving credit facility in August to cover legal costs. Owing to the expenses of the case, the company saw its net loss increase to $6.2 million during the six-month period compared to $2.5 million in 2022.
The tribunal’s ruling now puts the future of Northern Drilling in focus. The firm was set up with the ambitions of becoming an international offshore drilling contractor but does not currently own any drilling assets.
“The company’s activities are subject to significant risks and uncertainties that can have an adverse effect on the company’s business, financial condition, results of operations and cash flow,” said Northern Drilling in its six-month financial report.