CIMIC-Saipem JV Issues Notice of Dispute on Gorgon Contract to Chevron
Australia's CIMIC Group Ltd. revealed Monday that the company noted recent media reports regarding the status of negotiations between CPB Contractors Pty Ltd. (CPB), a wholly owned subsidiary of CIMIC, together with its consortium partners, Saipem SA and Saipem Portugal Comercio Maritime LDA (together the Consortium) and Chevron Australia Pty Ltd. (Chevron) in connection with the Gorgon LNG Jetty and Marine Structures Project (Gorgon Contract).
- In November 2009 the Consortium was announced as the preferred contractor to construct the 1.3 mile (2.1 kilometer) Chevron Gorgon LNG Jetty and Marine Structures project on Barrow Island, 43.5 miles (70 kilometers) off the Pilbara coast of Western Australia
- The scope of work consisted of the design, material supply, fabrication, construction and commissioning of the LNG Jetty. The scope also included supply, fabrication and construction of marine structures including a heavy lift facility, tug pens and navigation aids
- The jetty comprised steel trusses approximately 230 feet (70 meters) long supported by concrete caissons leading to the loading platform approximately 2.5 miles (4 kilometers) from the shore
- Initial acceptance of the jetty and marine structures took place on Aug. 15, 2014
- During the project, changes to scope and conditions led to the Consortium submitting Change Order Requests (CORs). The Consortium, Chevron and Chevron’s agent remain in negotiations in relation to some of the CORs
Although negotiations continue, as noted in our announcement of Feb. 10, CIMIC determined that the process needed to progress to the next step. CIMIC therefore confirms that on Feb. 9 a Notice of Dispute was formally issued by the Consortium to Chevron pursuant to the relevant provisions of the Gorgon Contract. That Notice requires the Consortium to enter into a further prescribed negotiation process which, if unsuccessful, may lead to a private arbitration.
As the Gorgon Contract does not specify a time limit within which the process must be determined, there can be no certainty as to when the matter will be finalized.
As at today’s date, CIMIC’s share of the Consortium’s total amount under negotiation equals approximately $1.34 billion (AUD 1.86 billion). CIMIC confirms its view that CPB remains entitled to that amount plus interest (being an amount exceeding $361.5 million (AUD 500 million) which will continue to accrue) and costs (Total Entitlement).
CIMIC has only recognized revenue equal to the costs incurred in respect of the Gorgon Contract in accordance with the relevant accounting standard, AASB 111, resulting in an amount equal to $816.7 million or AUD 1.13 billion (approximately 50 percent of the Total Entitlement) being recognized as Contract Debtors at Dec. 31, 2015 (Contract Debtors). The Contract Debtors are included as a component of the Total Contract Debtors as set out in Note 8 – Trade and other receivables, in the CIMIC 2015 financial report.
CIMIC reiterates the guidance for 2016 NPAT is in the range of $375.9 million (AUD 520 million) to $419.2 million (AUD 580 million), subject to market conditions.
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