The dispute between Pacific Drilling and Samsung Heavy Industries is about the cancellation of a contract awarded to the latter for the Pacific Zonda drillship


Tribunal orders Pacific Drilling to compensate Samsung Heavy Industries to settle a disputed contract. (Credit: aymane jdidi from Pixabay)

Samsung Heavy Industries (SHI) has been awarded nearly $320m in compensation by an arbitration tribunal in London pertaining to a cancelled drillship contract with Pacific Drilling in October 2015.

The South Korean shipbuilding company prevailed over Pacific Drilling’s subsidiaries Pacific Drilling VIII (PDVIII) and Pacific Drilling Services (PDSI) in the arbitration case.

The award excludes an amount of about $100m in interest and costs sought by the Korean company, on which the tribunal will announce a decision at a later date.

Background of the contract dispute between Pacific Drilling and Samsung Heavy Industries

The dispute between the parties is about the contract for the construction and sale of the Pacific Zonda drillship awarded to the Korean firm by the offshore ultra-deepwater drilling company.

Pacific Drilling had refused to take the Pacific Zonda drillship from Samsung Heavy Industries on the basis that the latter could not deliver it within a specified time. Scheduled to have been delivered in June 2015, the drillship was ready for delivery in October 2015.

In 2017, Pacific Drilling filed for bankruptcy protection in the US with an aim to restructure nearly $3bn in outstanding debt, reported Reuters.

In November 2018, the drillship contractor emerged from Chapter 11 bankruptcy. In connection with that, the company said that PDVIII and PDSI have filed a separate plan of reorganisation in the US Bankruptcy Court for the Southern District of New York, which was confirmed in January 2019.

Currently PDVIII and PDSI are considering whether to request permission to appeal the tribunal decision and are also looking at all available legal remedies, said the company.

According to Pacific Drilling, once the tribunal’s award is final and not appealable, its subsidiaries are expected to be liquidated with about $4.5m in cash and no other material assets.

The drillship operator said that the tribunal’s decision is not likely to have any material adverse impact on its operations or lead to any default under any of its material contracts.

Pacific Drilling CEO Bernie Wolford said: “The Company is surprised and disappointed by the Tribunal’s decision. However, this outcome will not impact our commitment and ability to continue to deliver to our customers the highest level of deepwater drilling services in our industry.”