![COLUMN | See you in court, part 57: Dolphin Drilling; Seatrium; Bourbon; Zachry Holdings [Offshore Accounts]](http://media.assettype.com/bairdmaritime%2Fimport%2Fwp-content%2Fuploads%2F240527-Offshore-Accounts.jpg?w=480&auto=format%2Ccompress&fit=max)
"See you in court!" is a familiar refrain and one we have often used as a headline. Offshore companies seem to get embroiled in contract disputes that end up in lengthy and expensive arbitration, or in commercial court disputes, just too often.
I find it hard to believe that if this column covered artisanal baking or biodynamic wine production rather than offshore, that I would be reporting so many expensive lawsuits. Does nobody do mediation and conciliatory "win/win" negotiations in oil and gas, or is this an industry with high stakes, deep pockets, and big egos?
Don't answer that.
This week, we look at the legal travails afflicting Norway's rig owner Dolphin Drilling, Singapore's rig building and fabrication giant Seatrium, French offshore support vessel owner Bourbon, and American Engineering procurement and construction player Zachry Holdings.
Each of the cases is different, but the underlying themes are similar.
I'm sure we would all like to be given a plum offshore oil block with proven reserves already in it by means of a "discretionary" award from a friendly government that was just about to leave office and had decided that a competitive bidding process was just too hard for it to manage. Then, it would be even better if we could hire a rig cheaply to drill on the block just before the market surged in late 2022 and then decline to pay for it because we said it didn't perform.
Well, you don't have to dream, because that scenario is exactly what has happened in Nigeria, where Dolphin Drilling is seeking to extricate its semi-sub Blackford Dolphin from a contract with local champion, Lagos-based oil company General Hydrocarbons (GHL). When we last covered this topic a week ago, a sole arbitrator was waiting to hear arguments from GHL and Dolphin over whether the rig could leave Nigeria whilst they made their claims and counter-claims.
Dolphin Drilling had received three payment installments from GHL in January, February, and March of this year, and these were intended to enable GHL to continue to utilise Blackford Dolphin. The next payment in the plan was due by late April 2024 but was not received by Dolphin, and then things got legal.
Dolphin has been coy on the size of the debt it is claiming from GHL, but at the end of February, it amounted to US$46 million.
We had suggested that the Dolphin board might want to gear up for a long fight, and that they might listen to Banarama's Rough Justice to console themselves. The Nigerian court then added to the 1980s music theme by implementing a 1970s rock band into the mix.
What am I talking about?
On May 20, the court directed that the existing interim injunction from GHL, to maintain the status quo of the rig remaining in Nigeria, would continue in force, pending orders by the arbitrator.
Dolphin said that it would be, "making submissions for consideration by the arbitrator, seeking the discharge of the interim injunction, in the course of this week."
Status quo… Younger readers might want to check out these shaggy haired rockers here.
This is unfortunate because in March, Dolphin had been awarded a drilling contract valued at US$154 million for the rig to work in India with Oil India for 14 months firm.
No sooner had the bad news about the rig continuing to sit in Nigerian waters broken, than Dolphin also disclosed that on the same day it "received service of Nigerian court proceedings in an action brought by Technova Africa International Limited. Technova has obtained an ex parte order of arrestment against the Blackford Dolphin."
Arrestment? Was Charles Dickens writing the court papers? What exactly is an ex parte order? Well, you should check out "Understanding the Ex Parte Order: A Comprehensive Guide to Emergency Legal Actions" to find out, like I did.
We learn from Charles M. Green law company that "Ex parte orders provide immediate legal relief in urgent situations without prior notice to the opposing party… The process for obtaining an ex parte order involves filing a petition or motion along with supporting evidence and affidavits, with judges often making decisions on the same or next business day to ensure timely intervention. Ex parte orders are temporary and require a subsequent full court hearing to determine their continuation or modification, offering the opposing party a chance to contest and present their side, with due consideration to due process rights."
So, basically, Technova presented their case to a judge in Nigeria, likely without Dolphin even knowing about it, or receiving the papers. Technova demanded that the court arrest the rig to provide urgent, injunctive relief, which the judge did, for reasons that are not clear in Dolphin's press release.
If you wanted to make the Nigerian legal system look more Mickey Mouse than it already does, ex parte would be a great procedure to have in a commercial dispute, I think we can agree. We wonder if Nigeria appoints judges as freely as it promotes officers to admiral in the navy.
Dolphin said it is "in process of reviewing the court proceedings and confirms that it considers the claims of Technova to be without merit. The company shall be taking immediate steps to contest the court proceedings including to contest the said order."
Good. Keeping to the 1980s pop theme, Dolphin really could be facing a Cruel Summer.
Dolphin's first quarter financial results will come out on Wednesday. We can expect to see one-off gain (or loss) from the sale of the laid up rig Bideford Dolphin for scrap. The 1975-built rig was announced as being sold on March 15, but currently remains in Norway as per marinetraffic.com.
This will be the first quarter to include the results from the two North Sea semi-subs acquired from Transocean, Paul B. Loyd, Jr. and Transocean Leader (now Dolphin Leader), which Dolphin bought in February 2024 for US$49 million.
After making a successful private placement of 72,000,000 new shares at a subscription price of NOK6 (US$0.57) per share in April, raising gross proceeds of the NOK equivalent of US$40 million, Dolphin subsequently an intended follow on sale of shares as its shares were trading below the levels of the private placement, the company announced last week. This suggests that the market is braced for some bad news. Dolphin shares have halved since November.
Dolphin's success is crucial to its 17 per cent shareholder S.D. Standard ETC, controlled by Norwegian investor Øystein Stray Spetalen. In March 2023, Standard entered into a shareholder bridge loan facility agreement with Dolphin for the granting of an unsecured bridge loan facility of an amount up to US$7.5 million, at an interest rate of 8.5 per cent, which was disbursed in 2023. The loan also has a three per cent exit fee on total drawings made.
Standard had already extended the loan in February 2024, pushing back the facility final repayment date to May 31, 2025. The first quarter results will show the impact of the delayed payment in Nigeria and the financing of the purchase of the two Transocean rigs on Dolphin's balance sheet.
We can't confirm if Robert de Niro's waiting for the results, but the Oslo market certainly is.
The first quarter results will also see the impact of another court case on the company's balance sheet, this time in the UK.
In January, Dolphin lost a "legacy tax case" against the British tax authorities, HM Revenue and Customs (HMRC), over tax deductions the company had claimed in 2014 and 2015 relating to the charter of the semi-sub Borgsten Dolphin, which has already been scrapped, in the UK sector of the North Sea.
Unfortunately, in January the UK Court of Appeal has now found in HMRC's favour, and Dolphin was found liable for tax payments of £9.9 million, plus interest and costs of £2.9 million making a grand total of US$16.3 million at today's exchange rates.
Earlier this month, Dolphin received confirmation that it could bring its appeal to the Supreme Court in London, with the case expected to go to court in early 2025.
For a small company with only four rigs, Dolphin keeps a lot of lawyers in work.
Another company that has faced multiple legal woes is Seatrium, the rig and fabrication player, which was created in Singapore from the merger of Sembcorp Marine and Keppel Offshore earlier this year.
Often in a merger or take-over, one party brings some toxic litigation into the newly merged company. Seatrium is unusual in that both its predecessor companies were not only caught up in bribery and corruption in Brazil, but also seem to have enough legacy issues to keep even Judge Judy busy.
Keppel had paid out over US$422 million in fines relating to Brazil. In February, Seatrium announced a US$110 million deferred prosecution settlement with the Singapore government over the bribery allegations in Brazil from the Sembcorp Marine business, and in March, Sembcorp Marine's former CEO Wong Weng Sun and three colleagues were criminally charged in court in Singapore.
The litigation doesn't stop there.
On May 1, Norway's Awilco Drilling announced that it had received the decision from the High Court refusing Seatrium's Keppel FELS subsidiary the right to appeal a US$43 million award, plus interest and legal costs. The arbitration tribunal had awarded in favour of Awilco regarding the termination of the newbuilding contract between Awilco Rig 2 and Keppel FELS for the construction of a semi-submersible drilling rig, one of two ordered for around US$425 million before Covid, both of which were subsequently cancelled amid much rancour.
Offshore Engineer has an excellent summary of the troubled history here.
The loss to Awilco came on top of an another arbitration loss, this time to MH Wirth, part of Norway's MHM Holdings. In December 2021, MH Wirth had taken Seatrium's wholly-owned subsidiary, Jurong Shipyard, to arbitration over the cancellation of a drilling equipment supply contract relating to "certain rigs".
In case you are wondering, MHM was established in October 2021, through the merger of Baker Hughes' Subsea and Surface Drilling Systems business and Akastor's wholly owned subsidiary MH Wirth. HMH owns the legacy brands Maritime Hydraulics (MH), Wirth, and Hydril Pressure Control, among others,
In April this year, Seatrium announced that it had lost the case and that it expected to pay cancellation damages of US$101 million plus US$7 million in legal fees, but this excluded interest charges due to MH Wirth from Seatrium. Last week, Seatrium announced it agreed to pay MH Wirth an additional US$68 million "as full and final settlement to resolve the interest payable and all outstanding issues arising from the arbitration award."
I don't believe I have misunderstood, and it seems that this second payment is on top of the award. No doubt Seatrium's PR team can correct me.
If building rigs is expensive, not building rigs also has a hefty price tag, it seems. I imagine some pressure control will be required in the Seatrium boardroom if the company keeps losing cases of this magnitude.
Does anyone in the English language shipping press bother to read foreign newspapers? Often the best stories are hiding there in plain sight, but written in Norwegian, or Spanish…or French.
Last week, readers of French newspaper Le Marin will have learned that one lost bag from 2012 is still causing considerable grief to offshore support vessel (OSV) owner Bourbon and many of its past and current managers. The English language press seemed to have missed this detail.
When we last touched the story in 2019, we noted the unlucky Marc Cherqui, the former tax director of Bourbon, had been happily reunited with a suitcase that had been mishandled on its way to Marseille when he was returning from a business trip in Nigeria in October 2012.
Unfortunately, French customs examined the lost bag and discovered the suitcase stuffed with over quarter of a million US dollars in cash. Mr Cherqui finally explained to the French authorities that he had gone to Africa to resolve a tax problem that Bourbon was experiencing in Nigeria, following a Nigerian tax audit against the company. He claimed that the cash was left over from a massive bribe of nearly US$2.7 million that he said he had paid to the tax authorities there to make the problem go away.
In 2019, Bourbon, as a legal entity; its Director General in 2012, Christian Lefevre; the COO at the time, and now the current Director General, Gaël Bodénès; and six other former executives, including Mr Cherqui, appeared in court charged with either the active bribery of public officials, or complicity in corruption, or both.
Interestingly, Bourbon's Chairman, founder and largest shareholder, Jacques de Chateauvieux, was not charged.
Readers of Le Marin learnt that last week, the prosecutor Jean-Yves Lourgouilloux requested prison sentences in part against the three members of the executive committee of Bourbon, including Gaël Bodénès, who was staunchly defended by the current shareholder of the company (a consortium of banks called the Société Phocéenne de Participation) as the saviour of the troubled business.
Philippe Goossens, the lawyer for one of the current Bourbon managers facing charges, said that Mr Cherqui was "a pyromaniac firefighter," who had allegedly, "leaked to the Nigerian tax authorities an estimate of the tax risk incurred that he had established for Bourbon companies in Nigeria."
In a defence that I am sure will shock those who have followed our previous coverage of Nigeria, lawyers for the accused claimed that the crime of corruption cannot be applied in this case. Mr Gooseens claimed that because Bourbon was facing an extortion attempt by Nigerian public officials, "it cannot be argued that extortion is part of the normal function of a tax auditor, and if there have been payments, it is not normal, but it is not criminal."
We are stunned that the Nigerian tax auditors should be accused in court of running an embezzlement racket. How can that be? What a shocking defamation! Someone please fetch an ex parte injunction for defamation immediately!
The judgment will be handed down on July 12. Mr Cherqui's suitcase was opened and shut in 2012, but this criminal case is anything but open and shut, clearly.
Finally, we have additional proof the that the engineering, procurement, installation and construction (EPIC) business model is completely broken in oil and gas.
Large, lump sum contracts can be fatal. The Colombia refinery project destroyed McDermott after it acquired the burning dumpster fire that was Chicago Bridge and Iron (where the former CEO Philip Asherman was convicted and sentenced to prison for bribery in 2019). Petrofac has been brought to the brink of a painful restructuring by losses on lump sum contracts to build a Thai refinery, as we observed last month.
Now US-headquartered turnkey EPIC provider Zachry has initiated a voluntary court-supervised Chapter 11 bankruptcy protection process "to address the financial challenges stemming from ExxonMobil and QatarEnergy's Golden Pass Liquefied Natural Gas (LNG) export terminal project in Sabine Pass, Texas," according to press reports.
"As the project's lead contractor, we have navigated significant challenges and disruptions stemming first from the Covid-19 pandemic and, more recently, international geopolitical issues," said John B. Zachry, Chairman and CEO. "These unforeseen disruptions have resulted in significant financial strain while meeting targets and keeping the project appropriately staffed."
Three major bankruptcies in the EPIC industry suggest that the model of building large and complex LNG plants, refineries, and even floating production units is broken. Contractors are taking on too much risk for too little reward.
By any measure of the imagination, ExxonMobil and QatarEnergy have bigger balance sheets and sufficient resources to fund and manage such an LNG project. A new business model that better matches risk and reward to those best able to bear them is needed.
How many more bankruptcy and restructuring lawyers have to be paid millions whilst workers are laid off and projects are delayed?
Background reading
Previous "see you in court" cases we have covered include Pacific Drilling against Samsung Heavy Industries and Bumi Armada getting whacked by Woodside in 2019, and the endless Lava Jatocorruption litigation in Brazil, which sucked in SBM and several of Seatrium's legacy companies, Sembcorp Marine and Keppel Offshore. Then there is the ongoing arbitration between Northern Drilling and Daewoo Shipbuilding and Marine Engineering (now known as Hanwha Ocean) over the cancellation of the resale contracts for the seventh generation ultra deepwater drill ships West Aquila and West Libra, due to delays of delivery. Northern announced in March that it has lost an appeal against its defeat in the arbitration.
The Technova website might need some work. It doesn't really scream "serious oil and gas player" today, in our humble opinion.
If you missed the link, the report in Le Marin is here.
