April 27, 2020 / 6:47 PM / a month ago

UPDATE 2-Diamond Offshore sues Australia's Beach Energy for terminating drilling contract

* Diamond says spent over $100 mln preparing, transporting rig

* Diamond seeks damages to be determined at trial

* Beach denies contract was not validly terminated

* Beach says remains in talks with Diamond Offshore (Adds Beach Energy comments)

April 27 (Reuters) - Bankrupt Diamond Offshore Drilling Inc has sued Australian oil and gas producer Beach Energy Ltd for abruptly terminating a $65 million drilling contract.

Beach Energy ended the agreement, claiming Diamond Offshore 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.

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

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

Beach on Tuesday denied the allegation and said it “will defend any claim that the contract was not validly terminated”.

Under the drilling agreement, the rig would have been used to drill six wells over a year and Diamond Offshore stood to earn at least $65 million.

Diamond Offshore said it had spent more than $100 million to prepare and transport the deepwater rig to execute the drilling program in the Otway Basin off the southern coast of Australia to fulfill the contract.

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.

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

Loews Corp was Diamond Offshore’s largest shareholder, with 53% as of April 3, according to Refinitiv data.

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.

Reporting by Arathy S Nair in Bengaluru; Editing by Arun Koyyur and Sam Holmes

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