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Clough: BassGas status update

Posted: 1 December 2004

Despite third party verification that the offshore BassGas facilities are contractually Ready For Start Up, Origin Energy Resources Limited, without any prior notice and notwithstanding that the formal dispute process is underway, yesterday cashed one of the performance bonds provided by Clough pursuant to the Contract. This bond was payable on-demand in the amount of $19.3 million and, in accordance with its terms, was paid out upon presentation to the bank.

“This action by Origin is particularly disappointing as we have received and passed on to Origin third party verification that the offshore facilities are contractually Ready For Start Up and following that the whole project is now ready for the introduction of hydrocarbons” David Singleton, CEO and Managing Director of Clough Limited said. “It is inexplicable that, at the very moment that the onshore and offshore plants are ready for commissioning, Origin should make such a move.”

Mr Singleton said that Origin’s only official comment about the calling of the bond has been that Clough ‘…has failed or refused to perform significant work that is required of it pursuant to the EPIC contract’.

“Clough strongly denies this and maintains that, as is permitted by the Contract, only minor punch-list items remain outstanding and these items would be dealt with in the normal course over the commissioning period.”

“We can only speculate as to the true motive of Origin in calling the bond at this time. We do note however that Origin remains unable to supply hydrocarbons that meet the Contract specifications for which the plant has been designed and built.”

“We understand that Origin has commissioned significant additional work to modify the plant and the regulatory approvals under which it will operate, and it will be some time before these are completed. No doubt Origin and its joint venturers will incur significant additional costs in completing this work.”

Following service of the Notice of Dispute on 10 November 2004, Clough has, in accordance with the Contract, sent a shortlist of potential arbitrators to Origin to allow Origin to choose one to hear the case, and has also invited Origin to participate in executive-level negotiations. Origin has not responded on these issues.

As previously advised, Clough has not made provision for the payment of liquidated damages as claimed by Origin. Clough remains firmly of the view that they are not payable. The accounting treatment of the bond being called is being reviewed internally and with Clough’s external auditors. The payment of the bond amount was made within Clough’s current banking facility limits.

“Clough will continue with the dispute proceedings it has initiated and will pursue its claims with vigour. These will now include a claim for repayment of the amount paid out under the bond. We remain confident that our position will ultimately be vindicated by the arbitrator,“ Mr Singleton said.

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Posted by Richard Price, Editor

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