Beach Energy to defend Diamond Offshore drill rig termination contract lawsuit

Diamond Offshore Drilling has sued Australian oil and gas producer Beach Energy for abruptly terminating a $US65 million ($101 million) drilling contract.

Beach said it “will defend any claim that the contract was not validly terminated”.

Beach ended the agreement, claiming Diamond missed a “contractual milestone to deliver the rig”, the contract driller said in a lawsuit filed on Sunday with the Southern District of Texas, Houston.

Beach announced on April 20 it had exercised its right to terminate the contract as the Ocean Onyx rig had arrived in Victorian state waters in mid-April, which the company said was later than had been agreed.

Seeking the court to declare the termination notice invalid, Houston-based Diamond, which filed for bankruptcy protection on Sunday, said the delay was “largely of Beach’s own making”.

It alleged Beach Energy’s action pointed to an attempt to renegotiate the deal “for more favourable terms”.

Beach has denied the allegation.

Under the drilling agreement, the rig would have been used to drill six wells over a year and Diamond stood to earn at least $US65 million.

Diamond said it had spent more than $US100 million to prepare and transport the deepwater rig to execute the drilling program in the Otway Basin off the southern coast of Australia to fulfil the contract.

Beach said last week it had “a good working relationship with Diamond” and on Tuesday said “despite the commencement of legal proceedings Beach is engaged in without prejudice discussions with regard to the future operations of the Ocean Onyx rig and the Victorian Otway Basin offshore drilling campaign”.

Diamond sought bankruptcy protection in Texas after it skipped an interest payment and said it had retained restructuring advisers.

Prices and demand for oilfield services have worsened since the price war between Saudi Arabia and Russia and a steep cut in oil demand caused by the coronavirus pandemic.

Beach’s shares closed at $1.32 yesterday. They are down more than 50 per cent for 2020 amid a wider market downturn.

Reuters