Long-Running Dispute Over MPSVs Between Gulf Island and Hornbeck Settled

Gulf Island Fabrication has settled a long-running legal battle with Hornbeck Offshore Services relating to the construction of two multi-purpose supply vessels (MPSV) ordered a decade ago but never delivered. The two companies had been fighting in the courts since 2018 with allegations of wrongful termination of the contracts, damage claims from both sides, and possession of the two ships.

Hornbeck ordered the two vessels as part of its fifth OSV newbuild program. It called for two 365-foot vessels, HOS Warhorse and HOS Wild Horse, due for delivery in 2018. The vessels were to be outfitted with two large, heave-compensated cranes, two ROVs, a large moonpool, and accommodations for 102.

The first of the vessels was launched in November 2016 at Gulf Island Shipyards’ Jennings, Louisiana yard before transferring to the yard in Houma, Louisiana for final outfitting, testing, and commissioning. Hornbeck however in the first quarter of 2018 terminated the construction contract citing the shipyard’s statement that it would be more than a year late in the delivery of the vessels.

Gulf Island filed suit against Hornbeck in October 2018 seeking the right to complete the vessel or alternately that the company owed Gulf Island compensation for unpaid work before it would release the incomplete vessels. They alleged claims for delay, hindrance, and disruption during the construction project, before the wrongful termination.

Hornbeck counter sued including asking the courts to give it possession of the two ships so that it could contract with an alternate shipyard to complete the vessels. The courts however repeatedly denied Hornbeck’s efforts to take control of the two vessels. Hornbeck contended in court filings that it had identified 1,500 deficiencies on the two ships during construction.

The terms of the agreement announced today call for Gulf Island to pay Zurich American Insurance Company, the issuer of the performance bonds for the MPSV contracts, a total of $20 million plus interest, in fifteen equal annual installments commencing on December 31, 2024. Gulf Island also agreed to release possession of the MPSVs to Zurich.

“We are pleased to be putting this matter behind us and believe this resolution is in the best interest of all of our stakeholders,” said Richard Heo, Gulf Island’s President and Chief Executive Officer. “The resolution will eliminate ongoing legal and vessel holding costs and removes the uncertainty and risk of a potential adverse outcome inherent in any jury trial.”

Gulf Island exited the shipbuilding business in 2021 selling the assets and certain long-term vessel construction contracts from its shipyard division to Bollinger Shipyards for approximately $28.6 million. The company said at the time the sale would permit it to focus on its fabrication and services businesses. While they said they intended to wind down the shipyard division operations by mid-2022, Gulf Island excluded from the transaction the two multi-purpose service vessels for Hornbeck Offshore Services that were subject to the dispute as well as contracts and related obligations for the construction of two forty-vehicle ferries for the North Carolina Department of Transportation, and a seventy-vehicle ferry for the Texas Department of Transportation.