DSME Fights $975M Compensation Claim from Japanese Energy Company 

DSME legal dispute over FPSO built for Inpex
DSME is involved in a dispute with INPEX over a 2017-built FPSO now operating off Australia (INPEX)

Published Aug 8, 2022 6:26 PM by The Maritime Executive

Troubles are continuing to mount for South Korean shipbuilder Daewoo Shipbuilding & Marine Engineering. In the last development, the company reported in a stock exchange filing that it is facing a legal dispute with Japan’s INPEX. The energy company has filed a claim for nearly $1 billion in compensation which amounts to more than 57 percent of the shipyard’s equity capital.

"Most of Inpex's claims are groundless, and it exaggerated its losses," DSME said in its filing. The company however said that the Japanese company had submitted a request for arbitration to the International Chamber of Commerce on August 4. “We will continue to work towards settling the dispute," the company said.

At issue is a 2012 contract for DSME to build and deliver a floating production storage and offloading (FPSO) vessel for Inpex Operations Australia’s LNG project. INPEX invested in the development of its LNG field located about 130 miles offshore Western Australia and 500 miles southwest of Darwin. The field went into production in 2018.

As part of the project, DSME was contracted to build the FPSO, which was delivered in 2017 from the shipyard on Geoje Island in South Korea and to INPEX for operation in Australia. According to INPEX, the vessel is over 1,100 feet long and weighs 150,000 tons. The turret is one of the largest and most complex ever installed on an FPSO, allowing it to weathervane around the turret in response to wind and sea conditions. The FPSO was designed to hold more than one million barrels of condensate and accommodates 200 people for its operations. The vessel has three thrusters that position and stabilize the vessel during offloading.

INPEX in its claim says the vessel was delayed during construction resulting in commissioning delays. They also cite “manufacturing defects,” demanding $970 million in compensation.

"At this moment, it is stably producing liquefied natural gas (LNG), liquefied petroleum gas, and condensate for exports," said DSME in response to the claim. They also highlighted that INPEX is now litigating issues that the shipyard believes were part of previously agreed to changes to the contract signed in March 2012.

Last year, INPEX settled out of court for similar claims made against Samsung Heavy Industries. The two companies had sued each other over claims from the construction of a central processing facility built by Samsung for the same project in Australia.

The suit comes as DSME has already reported it was working in an emergency management situation due to its declining financial position. The company was forced to cancel lucrative contracts with Sovcomflot after the sanctions were introduced against Russian and oil and gas interests after the start of the war in Ukraine. In addition, the shipyard experienced a 51-day strike by subcontractors that prevented work on three tankers. As the company’s financial condition deteriorated, there have been growing rumors that the Korea Development Bank, which holds the majority of the company’s debt, would seek to split the yard into its commercial shipping and military operations and sell off the commercial shipping business. Management is denying these reports while KDB is believed to be seeking a new route to privatize the shipyard after the proposed sale to Hyundai was blocked earlier this year by opposition from the European Union.