Cost of Delays
Daewoo Shipbuilding & Marine Engineering canceled a 703.4 billion won (US$590.5 million) contract for a drillship on Aug. 19 four months ahead of delivery, as the ordering party failed to make a second payment. On Aug. 28, Samsung Heavy Industries put off the delivery of two drillships to Seadrill until March 2017 at the request of the shipowner. They were originally supposed to be delivered by November this year. Samsung Heavy Industries is expected to be unable to receive the remainder of the contract amount for at least another 18 months, although the financial costs attributable to the delayed delivery are to be borne by the shipowner.
It has been found that approximately 20 percent of oil drilling equipment remains idle due to low international oil prices. Under the circumstances, Korean shipbuilders are still working on a number of pieces of drilling equipment, which means their operating ratios are likely to keep falling over time.
According to Clarkson Research Services and the Korea Offshore & Shipbuilding Association, Korean shipbuilders’ jackup rig operating ratio declined from 94 to 85 percent between 2014 and January this year, and then to 82 percent in May. The drillship operating ratio fell from 96 to 86 percent between last year and now, and that of semi rigs decreased from 98 to 90 percent during the same period.
This is because international oil majors have halted their projects amid plummeting oil prices. The operating ratios are unlikely to rebound for a while, because the order backlog-to-bottoms ratio reaches as high as 21 percent now, which means new equipment is being brought out in quantity while the demands are falling. Most Korean companies are scheduled to be paid 60 to 90 percent of their contract amounts upon delivering the offshore plants. Therefore, they are likely to take a financial hit when the number of delays or contract cancellations increases.