Statoil opts to chop two more COSL rig charters

Norwegian energy giant has cut short three contracts with Chinese operator in nine months.

Statoil has opted to terminate one rig charter and suspended a second with Chinese operator China Oilfield Services Ltd (COSL).

The Norwegian energy giant said it had decided to use its contractual right to terminate the contract with COSL Offshore Management for the chartering of the COSL Innovator.

“The conditions for terminating the contract signed with COSL Offshore Management AS have in our opinion been met, and we therefore choose to use our contractual right to terminate the contract,” says Geir Tungesvik, Statoil’s senior vice president for drilling and well.

In addition Statoil said it has decided to stop drilling operation with the sister rig COSL Promoter when it is safe to discontinue well operations.

“This is done in order to enable COSL to implement the necessary actions in order to fulfil the requirements of the contract,” Statoil said.

The two rigs are employed on the Troll field off Norway originally under eight year contracts with options for an additional eight years.

The remaining effective periods for the two contracts were four years and eight months and five years and one month, respectively.

However, COSL said it would receive no further revenue for the two contracts or any compensation for the outstanding periods.

COSL said it expects a significant negative impact on earnings as a result of Statoil’s decision and said it will contact Statoil in a bid to resolve any differences.

If necessary, the Hong Kong-listed drilling company said it would take legal action to protect interests of the company.

 “Given that these two rig contracts were signed before the crude oil price correction, we estimate that each rig could contribute over CNY 2m ($306,000) revenue per day,” says Morgan Stanley analyst Andy Meng.

“As a result, the termination and suspension of those two rigs are likely to introduce negative earnings impact of over CNY 300m or more than 55% of COSL's earnings in 2016.”

In June this year Statoil also cancelled the charter of another semi-submersible drilling rig in the face of the continued depressed offshore market.

Statoil decided to cancel the contract for the COSL Pioneer some 13 months before the expiry of its charter in August 2016.

COSL reached an agreement with Statoil on settlement in respect of the cancellation, and Statoil agreed to pay COSL a compensation equivalent to a certain percentage of the daily rate for the remaining term of the contract.