KS Drilling will not take delivery of the KS Java Star 3 rig.
Energy service provider KS Energy’s unit KS Drilling and Shanghai Zhenhua Heavy Industry Co. (ZPMC), a port machinery and heavy marine equipment manufacturer, have terminated their new build contract for the KS Java Star 3 with immediate effect, an announcement revealed.
The termination agreement was reached following discussions between KS Drilling and ZPMC. Pursuant to the agreement, KS Drilling will not take delivery of the rig.
Whilst the termination will not have a material impact on the operations of the group, its net tangible assets and earnings per share for the financial year ending 31 December 2019 is expected to take a hit after the costs of construction relating to the rig, which were previously capitalised with a book value of US$12.6 million as at 31st March, will be written off.
KS Energy first entered into a contract with ZPMC for the construction of a new build jack-up drilling rig, with an option granted to KS Drilling for the construction and delivery of a second rig of the same design, in June 2014. The first new rif was expected to be delivered 27 months from 23 June 2014.
The two parties entered into an amendment agreement in June 2016 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 31 December 2018, to take delivery of the rig.
KS Drilling's unit KS Rig Invest Five (KSRI-5) also agreed that liquidated damages associated with the contract would only be applicable in the event the unit entered into an effective drilling contract for the rig on or after 31 July 2017, and ZPMC was unable to meet the requested delivery date.
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