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Samsung Heavy, DSME troubled by canceled drillships

Samsung Heavy Industries and Daewoo Shipbuilding & Marine Engineering (DSME) are facing difficulties in collecting payments for drillships as overseas buyers cancel contracts, according to industry officials, Sunday. After reflecting on costs from the canceled drillships, Samsung Heavy posted a hefty operating loss in the third quarter, extending its losing streak for the second year. DSME is yet to reveal its third-quarter earnings but analysts expect a drop of up to 60 percent in its operating profit.

According to Samsung Heavy, it logged a 312 billion won ($269.5 million) operating loss in the third quarter, up from 127.2 billion won a year earlier. The shipbuilder attributed the expanded loss to “financial costs worth 260 billion won stemming from loss reserves for its botched driller contracts.” On Oct. 30, the company said it and Swiss drilling firm Transocean decided to cancel the contracts on building two drilling ships, which were ordered by Greek drilling firm Ocean Rig in October 2013 and April 2014, respectively. Transocean acquired OCEAN RIG in December 2018. The combined value of the two ships was $1.43 billion, and Samsung Heavy has collected only $520 million won from the buyer so far, meaning the company has failed to collect the remaining $910 million.

Samsung Heavy said it will retain the down payments and the ships’ ownership following the cancellation. This is not the first time that Samsung Heavy saw drillship order canceled. The shipbuilder agreed to scratch off contracts for two drillships for Seadrill of Norway last year and ditched another on building one drillship with Pacific Drilling of the United States in 2015.The combined worth of the three ships stood at 1.56 billion won, but Samsung Heavy has collected only $500 million from them. Samsung Heavy’s revenue could decline further because it is in a legal battle with Pacific Drilling which demands the shipbuilder to return the down payment.Samsung Heavy is currently attempting to resell those “inventory” drillships.DSME is also facing similar difficulties in collecting drillship payments.

Last month, another Norwegian offshore drilling contractor, Northern Drilling, said it has canceled its deal to buy a drillship from DSME.Northern Drilling’s subsidiary West Cobalt was supposed to purchase the ship at $350 million in the first quarter of 2021, but it will demand a refund of down payments totaling $46.2 million from DSME. Including the ship for Northern Drilling, DSME has five drillships under construction for global drilling contractors including London-headquartered Ensco, and outstanding payments for those contracts are valued at $1.07 billion.

“Ocean Rig’s canceling of its drillship contract with Samsung Heavy is raising doubts on other drilling vessels currently up for resale,” SK Securities analyst Yoo Seung-woo saidCasting a gloomy outlook on the shipbuilders’ plan to resell those drillships is the low oil price.”Following the expansion of U.S. shale gas, increased crude oil production in the Middle East and the protracted global economic slowdown, the operation rate of deep-sea drillers across the world is declining,” a shipbuilding industry official said. “Unless there is a big recovery in oil price, drillships are not as attractive as they were used to be and their resale will not be smooth.”

By Nam Hyun-woo

Source : koreatimes