The contractor insists it has met its obligations and says it will now take legal action to recover the bond.

This move came as the deadline to enter formal arbitration passed. Clough served a notice of dispute on the BassGas partners two weeks ago.

Origin now has until 6 December to nominate an arbitrator, Clough general manager corporate affairs Robert Ash told EnergyReview.Net this morning.

“Hopefully before Christmas we can sit down with an arbitrator and work out a timeline for proceedings to follow from there,” Ash said.

In accordance with the contract Clough has sent Origin a shortlist of potential arbitrators to allow Origin to choose one to hear the case, and has also invited Origin to participate in executive-level negotiations. But Origin has not responded on these issues, according to Clough CEO and managing director David Singleton.

In September, Origin and its joint venture partners said they were seeking damages from Clough because the completion of the BassGas project to develop the Yolla gas field offshore Victoria state had been delayed four months to October.

Origin’s only official comment about calling in the bond was that, “[Clough] has failed or refused to perform significant work that is required of it pursuant to the EPIC contact.”

Singleton disputed this claim.

“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,” he said.

“We have received and passed on to Origin third party verification that the offshore facilities are contractually ready for start-up. It is inexplicable that at the very moment that the onshore and offshore plants are ready for commissioning, Origin should make such a move.”

But whether or not the plant is ready for commissioning, it appears to be incapable of effectively processing the hydrocarbons from the Yolla field.

Industry sources have told EnergyReview.Net that the plant specifications were based on 20-year old production tests and gas from the field has been found to have a higher gas-to-liquid ratio and higher mercury levels than had been previously believed.

Sources outside of the protagonists have said it is likely Origin will have to rework the internals of some of the processing towers, with less liquids to drive the gas flow, with serious consequences for cost overruns and production revenues.

Less liquids also means reduced economics from the project when it does eventually come on stream, an issue none of the partners have yet disclosed to the market.

“Origin remains unable to supply hydrocarbons that meet the contract specifications for which the plant has been designed and built,” Singleton said.

“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.”

The payable-on-demand bond, issued to Origin by Clough, was honoured upon being presented to Clough’s bankers and was paid from Clough’s existing bank credit facilities, Ash told EnergyReview.Net.

“In the short term it won’t cause any liquidity problems for us – our reserves can cover that liability, but we haven’t worked out any long-term accounting implications yet" he said.

Interests in BassGas are Origin (operator) 37.5%, Australian Worldwide Exploration 30%, CalEnergy Gas (Australia) Ltd 20%, and Wandoo Petroleum 12.5%.

Clough shares closed on Tuesday steady at 50 cents and opened today at 48.5 cents. Origin shares fell 7 cents on Tuesday to A$7.05 and opened at that same price this morning.