Bollsta Dolphin Project
Hyundai Heavy Industries and Fred Olsen Energy, a Norwegian company, met each other halfway in the disputes surrounding the Bollsta Dolphin Project for semi-submersible drilling platform construction. According to their agreement, Hyundai Heavy Industries is to return the advance payment of US$176 million to the shipowner and have the ownership of the semi-submersible drilling platform ordered by Fred Olsen Energy.
Hyundai Heavy Industries won the US$620 million project in May 2012 and the drilling platform was to be built in its Gunsan Shipyard before delivery in March last year. However, according to Hyundai, the shipowner told it to change the basic design and specifications of the platform to a significant extent during the construction period while hampering the process by causing a delay in approval.
In the end, Hyundai Heavy Industries filed a request for arbitration with the London Maritime Arbitrators Association (LMAA) on October 22, 2015, claiming that the shipowner pay US$167 million in addition and the period until delivery be extended. Five days later, the shipowner notified Hyundai of the cancellation of the contract for the reason of a delayed delivery, telling it to return US$186 million in advance payment along with the interest. In response, Hyundai filed a damage suit for US$519 million.
Both sides came to a conclusion that any longer arbitration procedure would do more harm than good and reached a compromise in 10 months by agreeing to Hyundai’s returning US$176 million in advance payment. The South Korean company explained that an estimated loss of 22 billion won had already been reflected in its performance for the third quarter of last year, immediately after the shipowner’s demand for the return of the advance payment, and thus no new loss would be incurred with regard to this case.
Hyundai Heavy Industries is planning to sell the drilling platform to a charterer. This is likely to be tough though. These days, contract cancellations by ordering companies are becoming increasingly frequent with regard to drillships and semi-submersible drilling platforms and this has to do with heavy tail contracts. In other words, a shipowner tends to search for a charterer until delivery with only 10% or so of its contract value paid in advance and avoid losses by means of contract cancellation in the case of failure due to variables such as a rapid drop in oil price or excess supply. Hyundai Heavy Industries is going to lease the platform if necessary.
In the meantime, Samsung Heavy Industries and Daewoo Shipbuilding & Marine Engineering are also having headaches for payment regarding finished marine facilities. Samsung Heavy Industries filed for arbitration with the LMAA in October last year, immediately after Pacific Drilling Company cancelled their drillship contract. Daewoo Shipbuilding & Marine Engineering filed for arbitration as well in order to obtain the additional expenses incurred during the construction of two semi-submersible drilling platforms for the Songa Project in Norway. In that project, Daewoo Shipbuilding & Marine Engineering recorded approximately one trillion won in loss while building a total of four such platforms.