In a row over who should shoulder billions of dollars in liabilities sparked by delays and cost blow-outs, producers in Australia are now locked in legal battles with contractors after splurging $200 billion building the world’s biggest gas export plants.
Among energy heavyweights trying to claw back funds are Impex Corp. and Santos Ltd. along with Chevron Corp., owner of the $54 billion Gorgon facility, Australia’s largest resource development.
There is a chain of litigations, which extends to small businesses subcontracted to supply materials and services and the number of disputes is growing weekly.
“There are billions and billions of dollars of claims out there in the market, and claims of hundreds of millions of dollars are not uncommon,” said Matthew Croagh, who handles liquefied natural gas matters as a partner in Melbourne with London-based law firm Norton Rose Fulbright. Croagh wasn’t referring to any specific dispute.
Many of the world’s top energy producers and service firms face the prospect of weaker returns, even though Australia was poised to be catapulted ahead of Qatar as the world’s biggest supplier of LNG after an investment bonanza at the start of the decade.
Amid competition from rival projects for equipment, labor and resources that pushed up prices and led to delays, costs of completing eight Australian projects exceeded initial forecasts by $55 billion. Now companies may have to wait years to get a return on their investments due to an oil market slump.
A 138-page document filed by Santos in the Supreme Court of Queensland in December, shows the scale of disputes. For work on its $18.5 billion GLNC facility in the northeastern state, a $1.5 billion ($1.1 billion) in damages has been sought in a suit by Australia’s third-biggest oil and gas producer against U.S. contractor Fluor Corp.
Irving, Texas-based Fluor wasn’t entitled to retain its fees, claim lawyers for Santos who have detailed alleged delays in delivering on parts of the construction contract.
Saying that it will vigorously defend the case, the claims “are without merit,” Fluor said in an emailed statement. There was no comment from Santos, based in Adelaide, South Australia.
A $2.4 billion legal action against Chevron and project manager KBR Inc. over a jetty project at Gorgon, off Western Australia state by Spanish-controlled engineering firm Cimic Group Ltd. is among other high profile disputes.
While also commencing separate U.S. court proceedings that are still ongoing, according to its 2016 annual report, Cimic has entered arbitration over the dispute. A representative said that Chevron doesn’t publicly discuss the details of contractual dealings or litigation.
Also involved in legal proceedings is Inpex’s $37 billion Ichthys LNG project in Darwin. According to a regulatory filing by one of its partners in the venture, due to alleged delays to the completion of a power plant, UGL, owned by Cimic, may enter arbitration with a contractor.
“Five years ago, there was so much work in front of everyone, there just wasn’t the focus on it,” said Melbourne lawyer Croagh. “We are getting into that phase where contractors are looking much more closely at the claims potentials. And I think owners are looking more closely at what rights they have.”
(Adapted from Bloomberg)