Awilco Drilling: Shipyard Quickly Turns To Arbitration, The Stock Remains Highly Speculative
Keppel FELS issued a observe of termination of Awilco's newbuild agreement and initiated an arbitration process.
Awilco will now must undergo a prolonged court warfare even as attempting to find funds for the second one installment payment on the second newbuild rig.
Awilco's best hazard is a chief rebound in contracting activity in the Norwegian North Sea which wishes to come in a timely fashion.
In my previous article on Awilco Drilling (OTCPK:AWLCF), I referred to that Awilco's decision to terminate the agreement for its first newbuild rig could cause a lengthy court war.
As it turned out, it did not take lengthy for Keppel FELS, the shipyard that become building the harsh-environment semi-sub Nordic Winter, to choose the arbitration route.
Here's what the yard needed to say:
"Non-fee of any instalment through Awilco is a default according with the settlement, entitling Keppel FELS to terminate the settlement, keep all payments received thus far (approximately $fifty four million), are seeking for reimbursement for the work done thus far and claim possession of the rig. Keppel FELS has for this reason issued a be aware of termination of the settlement to Awilco and has started out arbitration to put in force its rights in opposition to Awilco".
Awilco's function did no longer change:
"AR1 (Awilco Rig 1 Pte. Ltd. - author) keeps its function that it validly terminated the contract and maintains its entitlement to the installments".
Currently, the state of affairs is growing in an unfavorable manner for Awilco as Keppel FELS has selected to proceed with the arbitration (which is infrequently a surprise) and desires to searching for reimbursement for the work which became already completed. Given the fact that the rig became due in spring 2021, the paintings carried out by using Keppel FELS materially exceeded the first instalment charge of $54 million.
Awilco's idea in this situation is that each rig is owned by means of a separate subsidiary, so this limits Awilco's parent agency exposure to the ability negative result of the arbitration, at the same time as the default on the second installment fee does now not forestall the paintings on the second rig, Nordic Spring.
However, arbitration will come with related legal costs and expenses, so that you can likely ought to be financed by way of the parent business enterprise (there's no public statistics on whether or not the subsidiary holds any meaningful sum of money).
As the arbitration can take a considerable amount of time as I stated in my preceding article on this situation, Awilco's fine chance is to hope for extra oil charge recovery with a purpose to allow it to locate the settlement for the second newbuild and finance it with a mix of debt and equity.
Awilco will still have to find the cash to finance the second installment price on the second rig seeing that its handiest working rig, WilPhoenix, will now not be able to generate cash flow needed to cover the $54 million fee.
While the latest oil price upside has provided aid for a few oil-related equities, it will now not assist Awilco because a forty-something oil isn't going to transport the needle for the offshore drilling industry. In addition, Awilco should not expect any cooperation from the shipyard since it has ordered two sophisticated harsh surroundings rigs so that you can be in high demand once the market situation stabilizes, so the backyard may preserve them to itself and find a client later.
This is a first-rate difference as compared to the recent scenario when shipyards were pressured to postpone deliveries of often normal drillships as every person had roughly the equal rigs ordered and no contracts for them.
For now, Awilco's function looks as a substitute weak, and the stock charge reflects this weakness, even though the business enterprise maintains a few chances in case of a primary rebound on the oil charge the front and a rebound in the agreement activity in the Norwegian North Sea.
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