KUALA LUMPUR (April 11): Sabah Shell Petroleum Co Ltd (SSPC) has been awarded US$339.7 million (about RM1.46 billion) in arbitration with a subsidiary of MISC Bhd, following SSPC's half-a-billion-US-dollar counterclaim filed in 2017 for defective works in their dispute involving the construction and lease of the Gumusut-Kakap semi-floating production system (semi-FPS).
The award was issued by the Asian International Arbitration Centre on April 8, MISC, in which Petroliam Nasional Bhd (Petronas) has a controlling stake, announced in a stock exchange filing yesterday.
The sum awarded involved US$236.38 million for defects rectification work, US$15 million for liquidated damages, and US$88.32 million as refund for overpayment of additional lease rate originally awarded to MISC's unit – Gumusut-Kakap Semi-Floating-Production System (L) Ltd (GKL) – for the period April 2014 to January 2020.
The arbitral tribunal also awarded costs of US$12.75 million to SSPC, and an interest rate of 6.65% is applicable on the sums awarded from the date of the award until payment, according to MISC.
"SSPC is entitled to set-off the above claims against moneys owed by SSPC to GKL under the contract, including but not limited to the lease rate," MISC said.
Meanwhile, GKL was awarded US$222.13 for its claims for variation works under the project, but with US$88.79 million to be deducted as manpower costs incurred for rectification defects that the tribunal held GKL liable for. As for the remainder US$133.34 million, it will be converted to an additional lease rate, which is lower than the previous additional lease rate awarded.
"The new additional lease rate is payable from the date of the award. The base rate is unaffected by the award and will continue for the fixed term," MISC said.
In November 2012, GKL inked a Semi FPS lease agreement with SSPC, for the construction and lease of the semi-FPS for the purposes of the production of crude oil. But it later fell into constractual disputes with SSPC over outstanding additional lease rates, payment for completed variation works and other associated costs for the construction of the semi-FPS.
This led GKL to seek arbitration in September 2016. In 2017, it was awarded US$255 million and US$10.9 million as payment of completed variation works after it obtained two adjudication decisions in its favour. "A total of approximately US$73 million of outstanding increased day rates has been paid by SSPC as lump sum payments, with the balance amounts payable by SSPC as increased day rates for the relevant lease period," said MISC.
But SSPC refuted GKL’s claims and filed a US$588 million counterclaim in the arbitration for alleged defective work, alleged limited functionality of the Semi-FPS, liquidated damages and a refund of the full amount paid to GKL under the adjudication decisions.
Following the arbitral tribunal's latest decision, MISC said GKL is still assessing the award and any potential material impact on MISC's earnings and net assets per share, as well as gearing for the financial year ending Dec 31, 2020.
"GKL is advised that the company (MISC) has legal grounds to challenge the award and is considering further action," MISC added.
MISC shares closed one sen or 0.13% higher at RM7.59 yesterday, for a market capitalisation of RM33.88 billion.