ARO Drilling, a joint venture (JV) of Saudi Aramco and Valaris Companies, has awarded a couple of contracts to International Maritime Industries (IMI) and signed a subsequent sub-contract agreement with long-term partners Lamprell Energy Ltd (LEL) for the construction of two Letourneau Super 116E Class offshore jack-up drilling units.
The offshore drilling contractor that owns, operates, and manages a fleet of high-specification and premium jack-up rigs in Saudi Arabia said that the delivery of the first rig is likely to be in Q1 2022, while the second rig will be in Q2 2022.
ARO Drilling said that after delivery, each rig is likely to get an eight-year commitment with Saudi Aramco for operations in Saudi Arabia and after that based on some conditions, additional commitments of up to a total of eight years.
"This award provides many benefits for IMI, including transfer of technical knowledge and IP from LEL to IMI and a mechanism to address the development plans required for IMI employees, so they acquire world class skills in rig building and planning that will ensure IMI is well equipped to build rigs independently in Ras Al Khair, once IMI's world-class shipyard opens," said Fathi K. Al-Saleem, IMI Chief Executive Officer.
Fathi added: "LEL will assist IMI to localize supply chain in Kingdom. These project awards will, therefore, contribute to the long-term growth of this new industry in Saudi Arabia and will enable IMI to independently build jack-up drilling rigs in Saudi Arabia to the highest international rig building standards," said Fathi K. Al-Saleem, IMI Chief Executive Officer.
Kelly McHenry, CEO of ARO, said: "ARO is committed to increasing our presence in the region and we are pleased to reach agreements that will enable us to use local manufacturing capabilities to support our fleet growth objectives. Through these purchase agreements, ARO will acquire two state-of-the-art jack-ups and we look forward to partnering with IMI on the delivery of these rigs."
"This project award further strengthens the business relationship between IMI and its shareholders, as well as contributing to the development of a localized Industry supply chain infrastructure, technical expertise for Saudi Nationals, and a track record in jack-up rig building," said Al-Saleem.
International Maritime Industries, located in The King Salman Complex for International Maritime Industries & Services at Ras Al-Khair, Saudi Arabia, will be the largest, full service maritime facility in MENA.
When building is complete, the annual capacity of the facility will be four new build offshore rigs and over 43 new build vessels including VLCCs, in addition to servicing more than 260 maritime products.
Major production operations are expected to start toward the end of 2020 with the facility reaching its full production capacity by 2022. International Maritime Industries is a joint venture between Saudi Aramco, Lamprell, Bahri and Hyundai Heavy Industries.
Boost for Lamprell
London-listed rig builder Lamprell - a partner in IMI, saw its share price rise following the confirmation of the rig deal.
In a separate statement issued on Monday morning, Lamprell said its share of the share of jack-up rig project value would amount to circa $350 million.
The rig design will be based on the Super 116E, and it is expected that the vast majority of the work will be performed at Lamprell's UAE facilities with final commissioning works performed in Saudi Arabia.
Lamprell said: "The project is expected to commence with immediate effect including a 25% downpayment to Lamprell amounting to USD 87.9 million which we expect to receive in late January. The downpayment puts the group in a stronger net cash position as we begin 2020 even when taking into consideration the $25.8 million equity contribution to our IMI investment which we anticipate to be made in Q1 2020. This will bring Lamprell's total equity investment in IMI to $84.8 million of our total commitment of $140 million."
"This award is against a backdrop of a continued difficult newbuild jack-up market and therefore gross margin contribution will be minimal. However, Lamprell will be utilizing the jacking kits for the project which have already been paid for and are currently held in inventory, which is expected to result in the conversion of approximately $70 million of inventory into cash over the project's execution," Lamprell added.
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