THE forthcoming profit reporting season is expected to give observers of the massive Gorgon LNG project their first full-year glimpse of its impact on the contracting sector as the development ramps-up construction.
South African engineering player Murray & Roberts is one contractor that has already revealed it has taken a financial hit from the project, and its associate Clough issued a Gorgon-related profit guidance in May.
In a business update and trading statement announced on the Johannesburg Stock Exchange at the end of the financial year, Murray & Roberts said one of the primary factors influencing the group’s latest 12-month performance was losses recognised on the Gorgon Pioneer Materials Offloading Facility, which has experienced scope changes, delayed access and weather delays.
Murray & Roberts does not clarify whether the losses relate to its own direct work with the project or to those of Clough, a key member of the Kellogg Joint Venture awarded the engineering, procurement and construction management contract for all downstream facilities on Gorgon.
Clough, which is more than 60 per cent owned by Murray & Roberts, estimates its share of the EPCM contract is $540 million. In its May guidance, Clough stated its profit for 2010-11 would be lower than forecast but said this was a timing issue due to weather-related delays, which would be fully recoverable.
Murray & Roberts’ marine unit separately had a contract to design and construct the material-offloading facility for the Gorgon Project. Murray & Roberts took over the contract for the wharf loading facility after its joint venture partner, Marine & Civil, went into administration last year.
The South African company was unwilling to comment further on its Gorgon-related profit impact until its full-year accounts are published at the end of August.
Earlier this year, listed east coast contractor AJ Lucas warned that profit from its horizontal drilling work for Gorgon had been delayed in the first half of the financial year due to logistics associated with getting equipment to the island.
Existing contractors have not been the only ones affected by issues connected with Gorgon. Southern Cross Electrical Engineering ended nine months of negotiations with Leighton Contractors in June after failing to conclude a contract to perform electrical and instrumentation services for the civil and underground services at Gorgon. Leighton is a major contractor on the project.
This month, Gorgon awarded its biggest contract, $US2.3 billion, to a joint venture between New York-based CB&I and Kentz Corporation, a Channel Islands-domiciled company that originates from Ireland. That contract was for structural, mechanical, piping, electrical, instrumentation and commissioning support for the construction of three LNG trains.
The CB&I/Kentz contract followed media speculation that Australian listed engineering firms UGL and Downer EDI had abandoned a $2 billion deal for a similar scope of works at Gorgon due to concerns about rising costs.
A spokesman for Downer said that speculation was incorrect, and the company had been informed by Chevron that it had not been successful.
Gorgon was given the go-ahead in late 2009, with a projected cost of $43 billion and a forecast production start in 2014.
Unlike many other major projects in Western Australia, the Chevron-led project has not announced significant cost blowouts or big delays.
But the logistical complexities of a major construction project on a protected A-Class reserve such as Barrow Island off the Pilbara has created problems for some contractors.
Marine & Civil was forced to bring in the administrators late last year, blaming delays related to the Gorgon project for cost blowouts. Earlier this year, creditors approved a deed of company arrangement resulting in most of the group’s assets and staff transferring to a new entity owned by Leighton Holdings-subsidiary Thiess and Marine & Civil’s existing management.
Apart from the wharf joint venture, Marine & Civil had also been working on the development of WAPET Landing, which is part of a larger $108 million site development contract awarded to Perth-based Ertech Pty Ltd in June 2009.