MISC Annual Report 2018

NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS HIGHLIGHTS OF THE YEAR OUR BUSINESS OUR LEADERSHIP OUR PERFORMANCE OUR COMMITMENT TO SUSTAINABILITY OUR GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION 50 TH ANNUAL GENERAL MEETING 357 MISC BERHAD ANNUAL REPORT 2018 356 42. JOINT ARRANGEMENTS AND ACTIVITIES (CONT'D.) (a) Joint ventures and activities (cont'd.) Name of company Country of incorporation Principal activities Ownership interest and voting interest (%) 2018 2017 Malaysia Deepwater Production Contractors Sdn. Bhd. **** Malaysia Operating and maintaining FPSO terminal 51 51 *** Even though the Group holds less than 50% equity interest in these companies, all material operational and financial matters require unanimous consent of the joint venture parties. **** Even though the Group holds more than 50% equity interest in these companies, all material operational and financial matters require unanimous consent of the joint venture parties. (b) Joint operations Details of the Group's joint operations are as follows: Name % of Ownership interest held by the Group 2018 2017 Technip MMHE (Malikai) Joint Venture 50% 50% Technip MMHE (SK316) Joint Venture 50% 50% Technip MMHE (Malikai) Joint Venture and Technip MMHE (SK316) Joint Venture are unincorporated joint ventures between the subsidiary, MMHE and Technip Geoproduction (M) Sdn. Bhd. to undertake specific engineering, procurement and construction, installation and commissioning projects. 43. SIGNIFICANT EVENTS Material litigation (i) Gumusut-Kakap Semi-Floating Production System (L) Limited (“GKL”) and Sabah Shell Petroleum Limited (“SSPC”) On 9 November 2012, MISC’s wholly-owned subsidiary, GKL entered into a Semi FPS Lease Agreement with SSPC, a wholly-owned subsidiary of Shell, for the construction and lease of Gumusut-Kakap Semi-Floating Production System (“Semi-FPS”) for the purposes of the production of crude oil (“the Contract”). On 2 September 2016, GKL filed a Notice of Arbitration dated 2 September 2016 with the Kuala Lumpur Regional Centre for Arbitration (now known as Asian International Arbitration Centre) to commence arbitration proceedings against SSPC (“Arbitration”) whereby GKL is claiming for outstanding additional lease rates, payment for completed variation works and other associated costs under the Contract from SSPC, which covers the following: i. The total sum of approximately USD245 million and applicable interest at any rate deemed fit by the tribunal/adjudicator; ii. Declaratory relief; iii. The costs of the arbitration/adjudication; and iv. Any further or other awards as the tribunal/adjudicator deems fit. In addition, GKL filed Notices of Adjudication against SSPC under the Construction Industry Payment and Adjudication Act 2012, resulting with GKL being successful under the First and Second Adjudication Decisions for payment of completed variation works amounting to approximately USD255 million and USD10.9 million respectively. A total of approximately USD73 million of outstanding increased Day Rates has been paid by SSPC as lump sum payments, with the balance amounts payable by SSPC as increased Day Rates for the relevant lease period. SSPC refuted GKL’s claims and filed a counterclaim against GKL in the Arbitration for alleged defective work, alleged limited functionality of the Semi-FPS, liquidated damages and a refund of the full amount paid to GKL under the Adjudication Decisions. SSPC’s claims cover, among others, the following: i. The sum of approximately USD588 million together with any applicable interest; ii. Repayment to SSPC for the full amount paid to GKL under the First and Second Adjudication Decisions; and iii. The costs and expenses of the Adjudication and Arbitration Proceedings. The hearing for the Arbitration from 25 February 2019 to 16 March 2019 is proceeding as scheduled. GKL is of the view that GKL has a good legal position to succeed in its claims against SSPC and has a good legal position to defend the majority of SSPC’s counterclaims.