Marco Polo Marine Updates on Jackup Construction Dispute with PPL Shipyard
Marco Polo Marine Ltd. (the Company) referred Monday to the Company’s announcements dated Nov. 17 and Nov. 24 with respect to the termination of the $214.3 million rig construction contract dated Feb. 26, 2014 (as amended and supplemented) entered into between Marco Polo Drilling (I) Pte. Ltd. (MP Drilling) with PPL Shipyard Pte Ltd. (PPL) for the construction of a high-specification jackup (the New Rig) -- PPL Jackup TBN 1 (400' ILC) -- based on PPL’s proprietary Pacific Class 400 design (the Rig Construction Contract).
Unless otherwise defined herein, capitalized terms and expressions used in this announcement shall bear the same meanings ascribed to them in the Company’s announcements dated Feb. 26, 2014, Nov. 17 and Nov. 24 in relation to the Rig Construction Contract. Copies of these announcements can be found at the official website of The Singapore Exchange (www.sgx.com).
On Nov. 17, MP Drilling had issued PPL, the builder of the New Rig, a notice of termination of the Rig Construction Contract following the latter's failure to comply with certain of its material contractual obligations. In arriving at this decision to terminate the Rig Construction Contract, MP Drilling has taken into account various factors including cracks found on all three legs of the New Rig during two rounds of tests, notwithstanding repair works carried out by PPL after the first round of tests.
In view of this termination, MP Drilling had informed PPL that it would not be taking delivery of the New Rig. In addition, it is seeking, among others, a refund from PPL of the initial amount of 10 percent of the contract price (approximately $21.4 million) as well as all other payments made by MP Drilling under the Rig Construction Contract (collectively, Initial Payment) previously made to PPL pursuant to the Rig Construction Contract together with interest.
MP Drilling disagrees with the allegations in the announcements made by Sembcorp Marine on Nov.18 and Nov. 25 that, among others, MP Drilling is in alleged repudiatory breach of the Contract or that MP Drilling’s termination of the Contract is wrongful.
The second announcement by Sembcorp Marine on Nov. 25 states that the New Rig is at “the final phase of construction” and does not deny the existence of defects found on all three legs of the New Rig during two rounds of tests as set out in MP Drilling’s announcements dated Nov. 17 and Nov. 24. MP Drilling regards the nature and number of cracks and other defects (such as porosity) found on all three legs of the New Rig at this stage of construction wholly unacceptable:
- On or about August 20 to 22, a full preload test commissioned by PPL was carried out on the New Rig, followed by a full length jacking test and thereafter a 100 percent non-destructive testing (1st NDT) on all leg connections to spud cans. Among others, 70 cracks were found on all three legs of the New Rig, including cracks on the parent material, with a majority of the cracks detected at or near the weld joints on both the internal and external surfaces of the spud cans
- Following completion of the repair works by PPL on or about Oct. 22, retests were scheduled by PPL. However, PPL did not carry out a full length jacking test prior to a 100 percent non-destructive testing as per the first round of tests. Instead, PPL conducted only a full preload test on or about Oct. 29 followed by a partial non-destructive testing on all leg connections to spud cans (save for the external spud cans below water line) (2nd Partial NDT) on or about Oct. 30 to Nov. 5. Even without a full length jacking test being carried out, more than 180 new cracks (not including other defects) were found on all three legs of the New Rig during the course of the 2nd Partial NDT. This does not include the condition of the external spud cans below water line, on which non-destructive testing has yet to be conducted.
MP Drilling maintains therefore that it is entitled to terminate the Contract. The consequence of termination is that MP Drilling is discharged from its obligations under the Rig Construction Contract and is under no further obligation to perform the same. This includes a discharge of its obligation to make any further payment of the contract price or any other sum under the Contract to PPL.
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