KS Energy to not take delivery of rig after contract termination with ZPMC

ENERGY services provier KS Energy's unit KS Drilling and port machinery and heavy marine equipment manufacturer Shanghai Zhenhua Heavy Industries (ZPMC) have terminated with immediate effect their new build contract for the KS Java Star 3 rig after discussions between the two.

KS Drilling, which is an 80 per cent owned subsidiary of the company, shall not take delivery of the rig.

The termination agreement is expected to have a material impact on the net tangible assets and earnings per share of KS Energy for the financial year ending 31 December 2019 because the costs of construction relating to the rig, which were previously capitalised with a book value of US$12.6 million as at March 31, will be written off.

There is no material impact on the operations of the group from the termination.

The two parties had in June 2014 signed a contract to build a jack-up drilling rig, with an option granted to KS Drilling for the construction and delivery of a second rig of the same design. The consideration for each new rig was about US$199.2 million.

The first rig was expected to be delivered twenty-seven months after the contract's effective date, while KS Drilling could exercise the option for the second new rig within six months the effective date of contract.

In June 2016, they amended the contract to allow for a deferral, with the first rig still under construction With the changes, KS Drilling would be entitled at any time following technical acceptance and before Dec 31 2018, to take delivery of the rig.

KS Drilling's unit also agreed that liquidated damages associated with the contract will only be applicable in the event the unit has entered into an effective drilling contract for the rig on or after 31 July 2017 and ZPMC is unable to meet the requested delivery date.

KS Energy closed on Monday at S$0.016 unchanged before the announcement was made.