Clough warned at its last AGM on November 10 that it faced a first-half loss of $A20-30 million following budget overruns and delays at the Panna and G1 oil and gas projects.
This follows problems in 2004 with the Origin Energy-operated BassGas project, which also inflicted serious losses on Clough.
Chief executive David Singleton said Clough was reducing its risk exposure by limiting fixed price contracts in which it bore the risk.
The company now only has two fixed price contracts on its books and both of these have fast-track arbitration processes in place to deal with any disputes, he said.
Clough’s contract with Panna field operator British Gas is for the provision of three offshore jackets and topsides, and modification of three existing platforms and four pipelines.
The G1-GS15 field development is being planned as India’s first deep water project. As lead contractor, Clough’s work includes design, procurement and installation for a new onshore gas plant, a shallow water wellhead platform, and a five-well development with sub-sea completions and dual pipelines linked to onshore processing facilities.
The company narrowed its fiscal first-half losses from $A40 million in the corresponding period of 2004-05, which were due to losses sustained on the BassGas project. Clough suffered a $A59.6 million full-year loss in fiscal 2004/5.
Clough is facing a lawsuit from operator Origin Energy, which is claiming $A90 million in delays and plant defects at BassGas. An arbitration hearing has been scheduled for June.
These legal costs and closeout expenditure have been factored into Clough’s borrowings, which were up $A48 million during the July-December period, the company said. Other reasons for the borrowings total include expenditure on the Indian projects, financing mining fleet investments in Petrosea and Clough Property acquisitions.
Commissioning of the onshore plant at the BassGas project has begun, Origin Energy said this week in its half-year results. Raw gas from the offshore platform will be introduced into the facility in March with first product sales expected shortly thereafter. Full production is expected to be achieved during April and will give Origin more than eight petajoules of gas per year.
Meanwhile, Clough’s order book for the first half of 2005-06 was slightly down on a year earlier at $A840 million worth of contracts and included new orders worth $A413 million. Clough had a further $A250 million worth of orders at the letter of intent stage at the end of the reporting period.
Clough’s first-half revenue of $A426 million was up 66% on the previous corresponding period.
Chief executive David Singleton said negotiations were underway on changes to the two Indian contracts.
“However, our accounting policies are clear and we have had to recognise the impact of higher costs and additional work scope prior to securing any cost recoveries,” Singleton said.
“The key challenge for the group is to negotiate successful outcomes in all aspects of the Panna and G1 contracts, including contract scope, schedule, profitability and cash flow.”
Singleton was satisfied the rest of the company’s activities were improving in profitability and there were positive margins being generated from the balance of the order book.
Clough’s Petrosea operations contributed $A7.3 million in revenue in the July-December period, although mining activity on the project will not be at full capacity until later this year.
