Velesto abandons sunken drilling rig off Malaysia

Velesto Energy’s NAGA 7 jack-up drilling rig, which sank off Malaysia last month (IMN May 7th) while under contract to ConocoPhillips, will be abandoned.

The driller said that it had issued “a notice of abandonment” to its insurers and that it was currently awaiting their response.

NAGA 7 was an independent-leg cantilever jack-up rig that was delivered in January 2015. It had a drilling depth capability of 30,000ft and a rated operating water depth of 375ft. The rig was hired by ConocoPhillips in March to drill up to three wells. The commencement of drilling was tentatively set for H1 2021. The contract was valued at about $8m.

The eventual fate of the rig was now a matter of conjecture. Either it will be removed from the seabed or left as a man-made reef.

Velesto Energy said that the rig remained submerged off the coast of Sarawak following the incident on May 3rd. The rig sunk due to the penetration of one of its legs into the soil formation whilst jacking up at ConocoPhillips Salam-3 well, said Velesto.

The incident area is secured while Velesto is working with the relevant insurers.

Velesto said the rig was adequately covered by insurance.

“Progressing on the insurance claims, Velesto Drilling, as the insured under the Hull and Machinery (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,” the driller stated in a quarterly report.

 “All 101 personnel on board were safely transferred to shore and all the relevant authorities were duly informed”, it added.

Velesto has said that it was investigating the incident, but it remained unclear who was responsible for the sinking of the rig, reported Energy Voice.

Kuala Lumpur-based analyst Raymond Yap at investment firm CGS-CIMB last month said that the knock-on valuation for the rig may be positive as its insurance claims could exceed the written-off net book value, estimated at just under $100m. “First, the NAGA 7 is fully insured, and the insurance value is pegged to the outstanding debt secured on the rig,” said Yap. He believed the insurance claims could exceed the NBV of the jack-up rig. “In a perverse way, it may be better to secure a near-term cash payout than to suffer uncertainties over asset underutilisation,” he said.