Sabah Shell launches RM2.5bil counterclaim against MISC unit

Gumusut Kakap Semi-Submersible Floating Production System, Sabah

KUALA LUMPUR: Sabah Shell Petroleum Co Ltd has raised the stakes in its dispute with MISC Bhd over the Gumusut-Kakap semi-floating production system (semi-FPS), filing a counterclaim for US$583mil (RM2.5bil) and seeking a refund of any amount paid under a previous adjudication decision.

The retaliatory move came after the Kuala Lumpur Regional Centre for Arbitration’s decision in February to award US$255mil (RM1.09bil) in favour of MISC’s unit Gumusut-Kakap Semi-Floating Production System (L) Ltd (GKL), the owner of the semi-FPS which in November 2012 inked a 25-year lease deal with Sabah Shell.

MISC Bhd, which is a 62.67% owned subsidiary of Petronas, told Bursa Malaysia that Sabah Shell had, through a statement of defence and counterclaim, refuted GKL's claims for outstanding additional lease rates, payment for completed variation works and other associated costs.

GKL delivered the semi-FPS, the largest such facility in the world, in June 2013 to Sabah Shell, which operates the Gumusut-Kakap field offshore Sabah in partnership with Petronas Carigali Sdn Bhd, ConocoPhilips Sabah Ltd and Murphy Sabah Oil Co Ltd.

Under the arbitration proceedings, GKL also claimed for about US$185mil (RM792.07mil) for additional lease rates and other direct costs.

Meanwhile, Sabah Shell is counterclaiming against GKL for alleged defective work, alleged limited functionality of the Gumusut–Kakap semi-FPS, liquidated damages and a refund of the full amount paid to GKL under the adjudication decision.

The Royal Dutch Shell unit’s claims cover, among others, a sum of about US$583mil (RM2.5bil) together with any applicable interest, repayment to it for the full amount paid to GKL under the adjudication decision, and costs and expenses of the adjudication and arbitral proceedings.

All in, if judgment should go against it, the MISC unit stands to lose about US$1.02bil (RM4.4bil), comprising the sum of US$583mil as well as its total claim of US$440mil against Sabah Shell, which has been partially awarded.

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

MISC said “GKL maintains its view on the strength of its claims against Sabah Shell and will rigorously resist and defend against Sabah Shell’s counterclaims during the course of the arbitration proceedings.”

The energy shipping firm added that the contract also provided a limitation of liability clause that limited GKL’s total liability to Sabah Shell for any claims to a maximum of US$200mil (RM856.3mil), including claims for liquidated damages.

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 from the proceedings.

MISC said it would announce on any material developments on the arbitration proceedings in due course.

It further noted that the proceedings would not impact 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,” it said.