Shares in Senex Energy Ltd (ASX: SXY) slipped 10% to $0.27 after the company released a non-market sensitive announcement disclosing that Energy Drilling Australia Pty Ltd (“EDA”) had commenced a proceeding against it for breach of contract. EDA is a wholly-owned subsidiary of Ausdrill Limited (ASX: ASL), who has not yet publicly commented on the dispute. Ausdrill shares were down 2% to $0.48 at the time of writing.

Senex asserts that it terminated a contract with EDA for drilling services after ‘material and ongoing breaches of the contract relating to the performance of the relevant rig.’ Senex further claims that it gave EDA a significant amount of time, above and beyond contractual requirements, to rectify the issues.

EDA is suing Senex for wrongfully terminating the contract, and is claiming for compensation of ~$6.7m. Senex stated in its announcement that it had attempted to resolve the dispute amicably but was unsuccessful. Senex will defend the proceeding vigorously, and counterclaim for losses of $1.2m that it sustained as a result of EDA’s alleged breaches.

What’s a shareholder to do?

Fortunately for Senex shareholders, $6.7m is just a fraction of Senex’s ‘cash and cash equivalents’ of $99.6m as of 31 December 2015. With the company’s operations still ongoing and in a sound financial position, Senex appears well placed to weather the storm. I do not intend to make any changes to my shareholding.

It is uncertain exactly what impact will be had on Ausdrill, since presumably the cancelled contract will result in a loss of revenue. If we assume lost revenue is the $6.7m for which EDA is claiming, it’s an insignificant portion of Ausdrill’s $375m revenue in its most recent half-yearly report. However, profit margins are thin and the costs for the drilling equipment and staff must still be paid during their time of idleness which could result in a small hit to profit.

Ultimately, lawsuits can take some time to resolve and either way the stakes don’t appear to be too significant for either Ausdrill or Senex. I would not consider today’s announcement a reason to sell either company.

With that said, investing in the new, oversupplied commodity environment can be a tough way to make a buck. Smart investors are looking to other sectors and better opportunities, like one company our resident dividend expert recently named his Top Dividend Share for 2016.

Not only are the shares dirt cheap, the company is trading on a 5.6% fully franked dividend yield. Simply click here to gain access to this comprehensive FREE investment report, including the name of this fast growing ASX dividend share. No credit card required!

HOT OFF THE PRESSES: Motley Fool’s #1 Dividend Pick for 2017!

With its shares up 155% in just the last five years, this ‘under the radar’ consumer favourite is both a hot growth stock AND our expert’s #1 dividend pick for 2017. Now we’re pulling back the curtain for you... And all you have to do to discover the name, code and a full analysis is enter your email below!

Simply enter your email now to receive your copy of our brand-new FREE report, “The Motley Fool’s Top Dividend Stock for 2017.”

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our https://www.fool.com.au/financial-services-guide">Financial Services Guide (FSG) for more information.

Motley Fool contributor Sean O'Neill owns shares of Senex Energy Limited. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.