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Seadrill Ltd (NYSE:SDRL) has been reported by Husky Oil Operations Limited of the cancellation of the drilling deal for the West Mira. In 4Q2012, the company was awarded a five year deal for the West Mira with Husky for activities in Greenland and Canada. The total projected base revenue potential was nearly $1 billion.

The matter

As mentioned in Seadrill`s second quarter financial report, due to the deferred delivery of the unit, it tentatively agreed with Husky to lower the day rate on the unit. The construction deal was subsequently terminated due to the Shipyard`s failure to deliver the Unit in the given duration as defined under the agreement. Seadrill continues its talks with Husky in an attempt to reach a mutual solution to fulfill its drilling requirements.

The buzz

Last week, Seadrill Ltd (NYSE:SDRL) canceled its order for the West Mira drilling rig. That news placed Husky in an interesting position as the company was expecting to get the delivery of the rig early in 2016 to commence work in Canada and Greenland. However, now the company either has to abandon its exploration programs or it has to accept a different rig for the time being.

Wise decision

Given the steep decline in oil prices and the considerable slowdown in the offshore drilling industry, Seadrill appears to be taking advantage of the clause mentioned in the contract. It stated that in event of delay, the company will have an option to terminate the contract.

That leaves Husky in a bit of problem as it was depending on the West Mira unit for exploration operations in the Atlantic region, which is also termed as one of its three growth pillars. The rig was being customized to meet the needs of frontier region. Due to contract cancelation, Husky has to identify some other way in conjunction with Seadrill Ltd (NYSE:SDRL) to achieve its drilling requirements.

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