What you need to know about Keppel's failed USD1.2bn contract with Naftogaz

Did Keppel really blow it?

Citing a company press release, Nomura noted that Keppel’s USD 1.2bn contract with Naftogaz, the Ukrainian state energy company, to build two semisubmersible rigs is no longer effective as certain conditions within the three-month timeline were not met. 

Nomura adds, Keppel management declined to give any details of what these terms and conditions were but it is not surprised by the news as Keppel had excluded the contract from its orderbook count as at end-FY2012, a good indication that there were some issues involved in the contract that led the group to hesitate from proceeding with the new-builds.

Here's more from Nomura:

We believe this could be partly related to the tight timeline that was set by Naftogaz in its urgency to build up its fleet of offshore rigs to build up its oil/gas reserves to reduce dependence on costly gas imports.

Naftogaz had indicated that they required the two semi-sub rigs to be built and delivered no later than December 31st, 2014, which at some 24 months is an extremely tight delivery schedule for high specification deepwater semi-submersible rigs.  

About the contract. The two semi-submersible rigs were to be based on Keppel’s proprietary DSS 38D design, which is capable of operating in harsh weather conditions such as in the Black Sea. 

According to an article dated 12 March 2013 on Rigzone, Naftogaz had invited 4 Ukrainian and 11 international companies to bid for the semisubs in September 2012.

Besides Keppel FELS, other companies that submitted a tender included Rigas Kugu Buvetava of Latvia, Belizebased Magic Worldwide LTD, and Aida Holding Ltd. of Belize, most of which have little or no experience in the building of offshore rigs, let alone harsh environment semi-submersibles. 

The semi-subs were to be deployed in the Pallas gas field, which is located in the north eastern part of the Black Sea. According to the Rigzone article, the Pallas area is estimated to contain non-associated gas reserves of ~4.2 trillion cubic feet, liquefied gas reserves of 303.7 Tcf and oil and gas condensate of 70 million tons.