DSME, INPEX end $970 mn dispute over FPSO

Daewoo Shipbuilding & Marine Engineering Co. (DSME) and INPEX Corp. have agreed to end a $970 million dispute less than a year since the damage suit over a floating production storage and offloading unit (FPSO) filed by the Japanese oil and gas giant, removing the last hurdle to the sale of DSME.

According to sources in the legal community on Tuesday, South Korea’s second-biggest shipbuilder agreed with INPEX to pay undisclosed compensation that is much less than the $970 million originally sought by INPEX over an FPSO for its project on the Ichthys field off Australia.

DSME also confirmed the withdrawal of the arbitration based on mutual agreement between the two parties in a regulatory filing on October 18, 2022.  

In August 2022, INPEX Operations Australia PTY, Ltd., which is wholly owned by its Japanese parent INPEX, filed a damage claim against DSME seeking $970 million in compensation for an alleged delay in the delivery of the FPSO and some defects. It filed a request for arbitration with the International Chamber of Commerce (ICC).  

In response to the suit, DSME argued that it built the FPSO based on the contract with INPEX and delivered it at the agreed time. It also said that INPEX gave the nod for extra costs during construction. 

An FPSO is a sea-floating facility used by offshore oil and gas companies to extract, process and store oil or gas.

DSME completed the construction of the FPSO for INPEX's Australian operations in June 2019 after two years of production preparation in the sea off Australia, it said. The company won the FPSO order from INPEX in 2012. 

With the agreement to end the dispute, DSME has avoided huge compensation that would have accounted for a whopping 57.3% of its equity capital in Korean won, according to the Korean shipbuilder's regulatory filing. 

Their speedy agreement also suggests that INPEX's original intention was to use the ICC arbitration to leverage its position in the negotiations, not for the big bucks, said a source in the legal community.   

LAST HURDLE TO DSME SALE

After the two parties agreed to close the case earlier than expected and with a lower price tag, Hanwha Group’s plan to place DSME under its wing is expected to pick up speed with less financial burden.

Hanwha in September last year agreed to buy DSME for 2 trillion won ($1.6 billion). It signed a binding contract three months later, with an aim to complete the purchase in March.

Hanwha expects great synergy with DSME, which is also the world’s largest warship and submarine builder. Hanwha has been aggressively pushing for global expansion in the arms manufacturing sector with its ammunition and arms unit Hanwha Defense Co.

It is the second attempt by Hanwha to acquire DSME after it dropped its original bid to buy debt-ridden DSME for more than 6 trillion won in 2008 amid the global financial meltdown.   

It got a second chance after the EU turned down Hyundai Heavy Industries Co.’s original attempt to acquire DSME due to concerns over market competition following the marriage of the world’s two largest shipbuilders.

After the sale of the 49.3% stake in DSME to Hanwha, the state-run Korea Development Bank (KED), DSME’s main creditor, will hold 28.2%.

Write to Jin-seong Kim at jskim1028@hankyung.com

Sookyung Seo edited this article.