22/02/2016 - 11:21

Cimic confirms Chevron dispute

22/02/2016 - 11:21

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CIMIC Group has confirmed a formal contract dispute has been issued to Chevron over work at the Gorgon LNG project, with the construction and contract mining firm claiming it is owed about $2.36 billion.

Cimic confirms Chevron dispute
Cimic and its consortium partners completed the jetty at the Gorgon LNG project in 2014.

CIMIC Group has confirmed a formal contract dispute has been issued to Chevron over work at the Gorgon LNG project, with the construction and contract mining firm claiming it is owed about $2.36 billion.

In a statement today, Cimic said it and its consortium partners Saipem SA and Saipem Portugal Comercio Maritime had formally issued a notice of dispute to Chevron over a blowout on the construction of a 2.1-kilometre jetty on the LNG project on Barrow Island, along with marine structures, which was completed in 2014.

Cimic said that, during construction, the consortium was faced with changes to the scope of work and conditions, which led to the submission of a ‘change of orders’ request.

The consortium and Chevron remain in negotiations in relation to some of the requests.

“The notice requires the consortium to enter into a further prescribed negotiation process which, if unsuccessful, may lead to a private arbitration,” Cimic said.

“As the Gorgon contract does not specify a time limit within which the project must be determined, there can be no certainty as to when the matter will be finalised.”

Cimic says its share of the consortium’s total owing stands at $1.86 billion plus more than $500 million in interest, which will continue to accrue.

“Cimic has only recognised revenue equal to the costs incurred in respect of the contract ... resulting in an amount equal to $1.13 billion, about 50 per cent of the total entitlement, being recognised as contract debtors,” it said.

Cimic maintained its net profit guidance for FY16 of between $520 million and $580 million.

The cost of building the jetty doubled in 2012 to $1.8 billion, three years after it was awarded to the consortium.

The bulk of the cost blowout was attributed to extra fabrication and transportation work, coupled with weather-related challenges, which requried the contractors to provide additional resources to complete the work.

The project is reported to have cost more than $4 billion at completion.

Cimic shares were 1.6 per cent higher to $29.77 each at 11am.

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