ONGC Ltd terminated a $152-million contract awarded to Mercator Oil & Gas Ltd in 2011 for converting its offshore drilling rig, Sagar Samrat , into a mobile offshore production unit.
The rig-conversion contract was to be completed by May 2013 as per the original timeline stipulated in the November 2011 deal. The 69-month delay has raised the project cost by 46 per cent to Rs. 1,256.72 crore, according to a status report of the Ministry of Statistics and Programme Implementation.
ONGC has so far spent Rs. 1,195.34 crore on the contract which is expected to be completed by December this year.
Sagar Samrat
ONGC took delivery of the jack-up rig in 1974 and after drilling 131 wells, the rig was decommissioned in 2005.
Mercator Oil & Gas is a unit of Mumbai-listed Mercator Ltd.
In September, ONGC notified Mercator Oil & Gas of its intention to terminate the contract after issuing 14 days’ notice and also moved to encash the bank guarantee of $15 million submitted by the contractor through Axis Bank.
On 26 September, Justice S J Kathawalla of the Bombay High Court ordered Axis Bank not to make payment to ONGC upon invocation of bank guarantee on a petition by Mercator Oil & Gas.
On October 9, the court heard the petition again and decided to continue with its earlier order till the case was disposed. “ The Company (ONGC) is left with no choice but to terminate the contract,” said Ved Prakash, a general manager at ONGC in the October 10 termination letter to Mercator Oil & Gas.
The termination will deepen the woes of Mercator whose short-term and long-term bank facilities were recently downgraded by Care Ratings due to delays/defaults in debt servicing on the term loans rated by Care, due to cash flow mismatch.
The parent company, Mercator has given a corporate guarantee for the conversion contract and ONGC has indicated that it will recover liquidated damages from the contractor.
“Mercator has claimed that the project had achieved 95 per cent completion for more than six months.This rig is to be used as a production platform and per day loss because of the non-availability of this rig is 15,000 barrels of oil. That is why ONGC was concerned about the return of MODU back to production,” said Prakash.
Delay in project
“Mercator’s intention to go to Court was to stall the pay-out arising from the invocation of bank guarantee,” he said.
He stated, “ONGC informed Mercator of its intent to terminate the contract with 14 days curating period. Its proposal is not viable and they are sitting on the project for more than two years in spite of repeated requests to complete the project.”
The delay has been attributed to the increase in scope of work post-award of contract due to legs of Sagar Samrat failing in in-place analysis as per ABS guidelines necessitating replacement of all its four legs, delay in procurement of steel and slow progress of fabrication of legs by the contractor.