KUALA LUMPUR (June 2): Sabah Shell Petroleum Co Ltd has filed a statement of defence and counterclaim against MISC Bhd's wholly-owned subsidiary Gumusut-Kakap Semi-Floating Production System (L) Ltd (GKL), seeking US$583 million (RM2.5 billion).

In a filing with Bursa Malaysia today, MISC said Sabah Shell had stated in the counterclaim that it refutes GKL's earlier claims and is counterclaiming against the company for alleged defective work, alleged limited functionality of the Gumusut-Kakap Semi-Floating Production System (Semi-FPS), liquidated damages and a refund of the full amount paid to GKL under the adjudication decision rendered in the adjudication proceeding.

GKL was awarded US$255 million in February this year after it obtained an adjudication decision in its favour in its case against Sabah Shell. GKL initiated the legal action last September after it fell into contractual disputes with Sabah Shell over outstanding additional lease rates, payment for completed variation works and other associated costs for the construction of the Semi-FPS, which is for crude oil production.

Under the arbitration proceedings, apart from preserving the adjudication decision, GKL claimed for US$185 million in additional lease rates and other direct costs.

Sabah Shell's counterclaim covers a sum of US$583 million together with any applicable interest, a repayment for the full amount paid to GKL under the adjudication decision rendered in the adjudication proceedings in February, and the costs and expenses of the adjudication and arbitration proceedings.

GKL said that it maintains its view on the strength of its claims against Sabah Shell and will rigorously resist and defend against the counterclaims during the course of the arbitration proceedings.

"Further and in any event, the contract provides a limitation of liability clause which limits GKL's total liability to Sabah Shell for any claims arising from the contract to a maximum amount of US$200 million, inclusive of claims for liquidated damages," MISC said.

Given the volume of documents involved in the arbitration proceedings, GKL is still assessing the merits of the claims made by Sabah Shell and any potential material impact on the earnings per share, gearing and net assets per share of MISC for the financial year ending Dec 31, 2017 arising therefrom.

The arbitration hearing has been fixed for Feb 25, 2019 to March 16, 2019, with the arbitration award expected to be issued around 2020.

"The arbitration proceedings will not have any impact on the operation of the Semi-FPS or the performance of the contract, including the lease payments which continue to be paid by Sabah Shell since October 2014.

"The lease period pursuant to the contract remains intact and GKL continues to receive lease payments from Sabah Shell to date," MISC said.

MISC, which is 62.67% owned by Petroliam Nasional Bhd, saw its shares closed up 12 sen or 1.6% to RM7.56 today for a market capitalisation of RM33.76 billion.