Samsung Heavy Cancels $2.4 Billion FLNG Order, Battle Over Down Payment Continues

FLEX LNG FPSO, Image: SHI

By Oleg Vukmanovic and Joyce Lee

LONDON/SEOUL, March 6 (Reuters) – South Korean shipbuilder Samsung Heavy Industries on Wednesday cancelled a $2.39 billion order from Oslo-listed Flex LNG for four floating liquefied natural gas (FLNG) production units, the companies said.

Samsung said in a regulatory filing on Wednesday that it had cancelled the order, first made in 2008, due to a lack of financing by the European buyer.

Although Samsung did not name the company, Flex LNG confirmed in a separate statement on Wednesday that the order for four FLNG vessels has been abandoned.

Although prospects for the floating LNG industry have brightened, thanks to technological innovations, it remains commercially untested and no such facilities currently exist.

Royal Dutch Shell is the only company so far to have taken the leap with its flagship Prelude project off the coast of western Australia, due to be delivered by Samsung in 2016.

Flex and Samsung have held regular talks over the past few years in an attempt to resolve a dispute over a $458.7 million down payment that Flex LNG made to Samsung on the four orders.

In talks last year, Flex LNG wanted Samsung to redeploy the capital for the construction of a conventional LNG tanker, but the companies failed to reach a resolution, Flex LNG said.

“As previously announced, FLEX LNG considers the four shipbuilding contracts … that were entered into with SHI (Samsung Heavy Industries) in 2008, to have been abandoned,” it said in a statement.

“FLEX LNG has requested that SHI repays a net amount in excess of USD 300 million and appropriate actions are being taken to secure the repayment of the said funds,” it said, referring to arbitration proceedings.

The firm hired lawyers Pincent Masons to claw back the money paid-in, which Samsung considers non-refundable, and has taken steps to initiate arbitration proceedings, it said.

(c) 2013 Thomson Reuters, Click For Restrictions