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Malaysian Offshore Driller Sends Notice of Abandonment to Insurers of Sunken Rig

May 31, 2021

Image for illustration only - Credit: Wanfahmy/AdobeStock
Image for illustration only - Credit: Wanfahmy/AdobeStock

Naga 7, a jack-up drilling rig that sank earlier in May while gearing up to start drilling for ConocoPhillips off Malaysia, remains sunken at the location, Velesto, the owner said Monday, adding that it has sent a notice of abandonment to the insurers.

The incident happened on May 3, after one of the rig’s leg penetrated into the soil formation while jacking up at Salam-3 well off the coast of Sarawak for ConocoPhillips. The rig tilted and subsequently on May 4, 2021, sank at the site.

During the incident, drilling activities had not started and no well has been drilled. As previously reported, all 101 personnel on board were transferred to short. 

Two days after the rig's sinking, Velesto said it was unable to estimate the overall financial impact on the Group from this Incident, but expects it expected the damage to be mitigated "as the rig is adequately insured."

To remind, Velesto late in March announced it had secured a drilling contract for the rig with ConocoPhillips in Malaysia. The estimated value of the contract is around $8 million.

Under the contract, ConocoPhillips was to use the 2015-built, Gusto-designed, jack-up rig to drill up to three wells, with the start-up expected sometime in the first half of 2021. According to Velesto, ConocoPhillips has the right to Terminate the contract if the rig is declared a total loss.

The Naga 7 is a three-legged jack-up delivered by China's China Merchants Heavy Industries in 2015. The rig was built to a GustoMSC design.  It has a drilling depth capability of 30,000 feet (9144 meters) and has a rated operating water depth of 375 feet (114.3 meters).Naga 7 Sinking location - Credit: Velesto

'Adequately covered by insurance'

“The incident location is currently being monitored for security and any potential adverse impact. The company is investigating the incident and is evaluating options. The rig is adequately covered by insurance,” Velesto said Monday.

“The incident area is secured while the Group is working with the insurance underwriters and Protection & Indemnity (P&I) Club [Skuld, according to VesselsValue] on the way forward. 

"The rig and other related liabilities are adequately covered under the Hull & Machinery insurance and the P&I Club, respectively. Progressing on the insurance claims, Velesto Drilling Sdn. Bhd, as the insured under the H&M policy, has on 31 May 2021 issued a notice of abandonment of the submerged rig, Naga 7 to the H&M insurers, pursuant to the H&M policy and currently await their response,” Velesto said. 

The company did not say how much money it expected to recover from the insurance company. VesselsValue had the rig valued at $42.63 million a day before the incident.

Velesto expects that the insurer will be taking the lead on-site security, pollution containment and wreck removal.

As for the rest of its fleet, Velesto said Monday that three of its six available jack-up drilling rigs were working, with one more unit set to start mobilization by the middle of June.

“The two remaining rigs are being proposed for a number of ongoing tenders,” Velesto said.

“In Malaysia, while most of the drilling contracts for the year have been awarded, there is a small number of new contracts which are expected to be tendered out and awarded within this year. The Group is gearing to participate in these tenders to further improve asset utilization,” the company said.

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Categories: Energy Drilling Activity


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