More than 2 years ago, the Kingdom of Saudi Arabia (KSA) introduced a new Commercial Maritime Law via a Royal Decree no. M/33, requiring all offshore ships and vessels to be registered under the KSA flag to continue operations in Saudi water. Initially scheduled to take effect 6 months later in July 2019, these regulations were decreed as part of the Saudi Vision 2030 initiative to, among other things, develop the KSA as a maritime and logistics hub of the region.
The new Commercial Maritime Law modernizes some commercial laws dating back to the 1930s. With almost 400 new articles, this constituted a considerable regulatory overhaul for the commercial maritime industry by the KSA Government. Ranging from registration to debt enforcement, licensing, contracts and liability constraints, the overhaul was designed to provide certainty and clarity to the KSA’s maritime trade.
The Commercial Maritime Law Implementing Guidelines issued in September 2019 provided that offshore drilling rigs or platforms would be treated under the Law in the same manner as a ship or vessel. As such, Mobile Offshore Drilling Units (MODUs) operating offshore were required to transfer ownership of the MODUs to a KSA incorporated entity or person and register the MODUs under the KSA flag.
Despite this much needed update to their commercial maritime laws, the Ministry of Public Transport graciously granted temporary exemptions to the Law to provide time for non-KSA organizations operating in KSA waters to comply with the new requirements. These exemptions were granted under Article 6 which considered “ships of all states [to] enjoy the right of innocent passage through the territorial sea of the Kingdom.” These exemptions were due to expire in March 2021.
With around 60 MODUs operating offshore in KSA waters under foreign flags, the proposed changes caused considerable concerns amongst drilling contractors operating in the region. The application of the Law to MODUs meant re-flagging under the KSA laws without certainty of long-term contracts or pricing adjustments to reflect the required shift in project economics. This concern was further intensified after a tumultuous 2020 where oil prices averaged US$42 a barrel for the year after starting off around $65.
IADC was asked to step in to assist. The IADC initially organized a regional workgroup, representing all offshore drilling contractors operating in KSA. Through our collective advocacy efforts, we sought to explain the challenges of a change of flag on our drilling contractors. Over the course of the next five months and the exchange of numerous formal letters to key stakeholders in the region, drilling contractors were notified at the end of February 2021 of a positive new development.
The KSA Government instituted a 3-year exemption to the application of the Commercial Maritime Law to MODUs to provide sufficient time for drilling contracts to assess the economic impact of the change and plan its transition accordingly if required by the KSA authorities. IADC and our regional members are very grateful for this consideration. IADC will monitor the situation and will continue with future advocacy efforts to hopefully gain a full non – conditional release for MODUs before 2024, subject to the agreement of the KSA Government and with continued support in all respects for the Saudi Vision 2030.