Seatrium seeks US$55.7 million from unit of Brazil’s Petrobras over ongoing dispute, starts arbitration

Jurong Shipyard, a wholly owned subsidiary of Seatrium, has commenced arbitration proceedings against oil and gas exploration and production firm Petrobras Netherlands, a unit of Brazilian state-run oil firm Petrobras.

The arbitration relates to an ongoing dispute over a contract that Jurong Shipyard and Petrobras Netherlands entered into in June 2004, to convert a floating production, storage and offloading vessel, known as the P-54 Contract.

Jurong Shipyard is seeking US$55.7 million from Petrobras Netherlands. This is part of a larger sum of US$152.3 million that Petrobras Netherlands had agreed to pay Jurong Shipyard under a settlement agreement.

The Seatrium unit is asserting that Petrobras Netherlands breached the settlement agreement by refusing to pay the US$55.7 million; it is also seeking to prevent the Petrobras unit from making further payment demands.

The parties entered into the settlement agreement in 2008 to resolve all issues surrounding the contract, and to mutually release each other from past claims arising from it, said Seatrium on Tuesday (Feb 10).

This came as the contract had undergone various amendments in 2006 and 2007 to adjust prices and reflect cost increases from foreign exchange and market movements, which led to the Brazilian Federal Court of Accounts in 2007 commencing an audit of the contract and its amendments.

Seatrium said that Petrobras Netherlands had agreed to pay its unit US$152.3 million under the settlement, but withheld US$55.7 million of this sum, pending a final decision by the Brazilian Federal Court of Accounts.

The Brazilian court in November 2023 issued its final decision relating to the P-54 Contract, such that the basis for withholding the US$55.7 million was “no longer applicable”.

Petrobras Netherlands continued to withhold the amount thereafter, said Seatrium.

Additionally, Petrobras Netherlands’ parent, Petrobras, issued a demand letter to Jurong Shipyard, claiming US$135.3 million for alleged overpayments under the P-54 Contract.

After deducting the US$55.7 million withheld under the settlement agreement, Petrobras demanded a net payment of US$79.6 million from Jurong Shipyard.

Seatrium noted that it has no balance sheet exposure to the US$55.7 million and that no provision has been made.

It added that “Jurong Shipyard expressly reserved its right to claim the withheld amount through arbitration”.

As the arbitration proceedings and recovery attempts by Petrobras Netherlands are at a preliminary stage, Seatrium said that it is “unable to definitively ascertain the financial impact, if any, arising from these proceedings”.

It added: “The financial impact will be dependent on the final outcome of the arbitration proceedings; there is no financial impact on the company expected at this juncture.”

Shares of Seatrium closed Tuesday 0.5 per cent or S$0.01 lower at S$2.08, after the news.

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