US$1 billion not compensated! Daewoo Shipbuilding and ship owner shake hands and make peace

Daewoo Shipbuilding & Marine Engineering (DSME) of South Korea has reached a settlement with the ship owner regarding the delayed delivery of the Ichthys Venturer floating production, storage, and offloading (FPSO) vessel, escaping a potential US$1 billion loss crisis.

Sources revealed that the legal dispute between DSME and INPEX Operations Australia Pty. Ltd. concerning the delay of the Ichthys Venturer project has concluded. Both parties reached an amicable agreement through negotiation. DSME paid INPEX a sum of money as a settlement, and INPEX decided to forgo international arbitration on the project delay.

It is understood that the settlement amount paid by DSME to INPEX was significantly lower than INPEX's initial claim.

In August last year, INPEX filed a damage claim arbitration application with the International Chamber of Commerce (ICC), claiming US$970 million (approximately KRW 1.23 trillion) from DSME for the delay of the Ichthys Venturer project. INPEX's initial ICC application stated that the delayed delivery of the Ichthys Venturer, which went to Australian waters for installation and testing in July 2017, along with equipment defects, caused delays in the FPSO's production preparation, leading to the substantial claim against DSME.

In response, DSME stated: "The relevant equipment departed from the Okpo shipyard in Geoje City, South Gyeongsang Province, within the contractually required completion date, was towed to Australian waters, and production preparation was completed. Contractual changes and additional costs incurred during contract performance were also approved by INPEX and the relevant funds were received." In other words, both parties had reached an agreement on the contract changes, therefore the project was considered to be progressing normally.

Furthermore, DSME pointed out that INPEX's claim exceeded the scope of responsibility DSME should bear under the contract. DSME countered: "Most of INPEX's claims are unfounded, and the claimed amount is exaggerated."

DSME stated in its announcement: "To minimize the financial impact of this case on the company and recover the outstanding balance owed to the company according to the contract, the company will actively respond to the arbitration proceedings. The company will continue to strive for an amicable resolution of this case."

INPEX is Japan's largest oil and natural gas exploration and development company, formed in 2006 by the merger of two major Japanese oil companies, INPEX CORP. and Teikoku Oil Co. INPEX invested US$5 to 6 billion in developing an offshore liquefied natural gas project off the northwest coast of Australia.

In March 2012, DSME won the bid against Hyundai Heavy Industries and signed a general contract with INPEX for the Ichthys Venturer FPSO, valued at US$2 billion. According to International Shipbuilding News, DSME was responsible for all aspects of the FPSO, including design, procurement, production, installation, and commissioning of the hull and topside modules. The FPSO has a hull length of 336 meters, a width of 59 meters, and weighs approximately 110,000 tons. It can produce 85,000 barrels of crude oil per day, store up to 1.14 million barrels of crude oil, has a design life of 40 years, was scheduled for delivery in April 2016, and operates in the Ichthys field, 800 kilometers off the northwest coast of Australia. The Ichthys Venturer is designed to withstand hurricanes and is one of the largest and most advanced FPSOs in the world. This FPSO can store 1.12 million barrels of condensate, setting a new benchmark for FPSO durability.

Construction began on June 18, 2013. The keel was laid on February 19, 2014. The hull was launched on July 6, 2014. Topside module installation began on April 22, 2015, and was completed on May 16, 2016. The vessel departed from DSME's Okpo shipyard on July 18, 2017, and was towed to Australian waters. After completing production preparation in Australia in June 2019, it was finally delivered and is currently in stable production, exporting LNG, LPG, and natural gas condensate.

According to International Shipbuilding News, the FPSO was originally scheduled for delivery in 2016. However, previous reports indicated that cracks in the Ichthys Venturer's turret equipment caused delays and increased costs.

As DSME has avoided this crisis, potentially involving trillions of won in losses, it has also cleared the way for its official integration into the Hanwha Group. In December last year, the Hanwha Group signed a contract to acquire DSME, with the acquisition process scheduled to be completed by the end of March at the earliest.