RigNet, Inmarsat disputing cancelled $65 million Global Xpress contract

RigNet, Inmarsat disputing cancelled $65 million Global Xpress contract
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RigNet, Inmarsat disputing cancelled $65 million Global Xpress contract

WASHINGTON — RigNet, a supplier of telecommunications services to the oil and gas industry, has pulled out of a $65 million capacity lease on Inmarsat’s Global Xpress satellite constellation, triggering a legal dispute between the two companies.

In an Aug. 8 filing to the U.S. Securities and Exchange Commission, RigNet said it gave Inmarsat a “notice of termination” for the contract, “pursuant to its contractual rights under the agreement.”

Houston-based RigNet and Inmarsat in London formed the agreement in January 2014, whereby RigNet said it agreed to purchase up to $65 million of Global Xpress, or GX, capacity “under certain conditions” for the first five years after the high-throughput constellation began operations.

“The parties are attempting to resolve the GX dispute through a contractually stipulated arbitration process that began in October 2016,” RigNet wrote. “The parties dispute whether Inmarsat has met its contractual obligations with respect to the service under the agreement.”

Inmarsat told SpaceNews Aug. 14 that the satellite operator initiated a formal dispute with RigNet last year, and that RigNet is contesting the operator’s position.

“Inmarsat has notified RigNet that it is terminating their ‘take or pay’ agreement for Global Xpress (GX) services,” Inmarsat said. “This decision was based on RigNet’s failure to deliver on its ‘take or pay’ obligations. Under the agreement, RigNet is now required immediately to pay the full value of the five-year contract, totalling $65 million (discounted to today).”

Inmarsat spokesperson Jonathan Sinnatt told SpaceNews that RigNet was in the “early stages” of the $65 million contract. He declined to say exactly how much RigNet had paid.

“Talks are already underway with other companies to potentially become new strategic GX distribution partners in the energy sector,” Inmarsat said.  

RigNet did not respond to SpaceNews media inquiries.

RigNet bought most of Inmarsat’s Energy Broadband business in August 2013 for $25 million, becoming a Value-Added Reseller for GX as well as a distribution partner for Inmarsat’s L-band services to the energy sector. The purchase closed in February 2014.

RigNet’s buying spree

Over the past nine months, RigNet purchased three companies, two of which have “similar profiles to ours in many ways,” according to Chief Financial Officer Charles Schneider. RigNet bought “substantially all the assets” of Texas-based Energy Satellite Services (ESS) for $22.2 million, and Louisiana-based Data Technology Solutions (DTS) for $5.2 million, both in July.

Those two companies folded in additional satellite capacity for RigNet to leverage. During an Aug. 8 conference call with investors, Schneider said both are expected to buoy revenue and EBITDA, or earnings before interest, taxes, depreciation and amortization, very soon.

“We are hoping to integrate both businesses into our company so that we can start using our larger bandwidth portfolio, and, with scale on buying side of bandwidth, we can further reduce costs.”

RigNet’s third purchase was Cyphre Security Solutions, a cybersecurity company in Texas specialized in advanced enterprise data protection, for $12 million.

Steven Pickett, RigNet’s president and CEO, said DTS will enable the company to be more competitive in providing connectivity services to land energy sites and for maritime customers. ESS, he said, expands the company’s Internet-of-Things business. RigNet also gained a Gilat SkyEdge-2 network from ESS, which he said would form the basis for the combined business.

After enduring a sustained downturn in the oil and gas market for the past three years, RigNet saw a jump in the number of sites relying on its satellite and terrestrial connectivity services. Pickett said the number of connected sites increased by about 5 percent from 995 to 1,051 for the three months ended June 20. RigNet included offshore production sites and maritime vessels — markets sought to diversify revenue during the downturn — in its count. Offshore rigs specifically “showed no net change quarter over quarter — the first time without a decline in nine quarters,” Pickett said.

RigNet reported a net loss of $4.2 million on $49.2 million in quarterly revenue. Compared to the prior quarter, revenue increased by $1.1 million, but was down $5.7 million when compared to the same quarter in 2016.

RigNet, Inmarsat disputing cancelled $65 million Global Xpress contract
RigNet, Inmarsat disputing cancelled $65 million Global Xpress contract

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