London-listed offshore construction company Lamprell has reached a settlement with ScottishPower Renewables over its work for the East Anglia One offshore wind project.
Back in 2016, ScottishPower Renewables awarded the UAE-based Lamprell - best known for its offshore oil rig construction capabilities - and Belfast-based Harland & Wolff as Lamprell's subcontractor, the contract to build 60 three-legged steel jackets for the East Anglia One offshore wind project in the UK.
Come September 2019, Lamprell said it had completed all the works on the foundations for the East Anglia One project, and that all 60 jackets had been installed by the client offshore the United Kingdom.
The parties were, however, still in discussions around commercial close out of the project, and the final payment.
Namely, despite eventually delivering the jackets, Lamprell had encountered major operational and commercial challenges and cost overruns on the project. Also, ScottishRenewables was contractually entitled to claim liquidated damages to of up to $33.8 million, due to delays on the project and concerns over technical specifications.
The parties have now reached a settlement which, according to Lamprell, removes both the risk of liquidated damages of USD 33.8 million "and will materially improve the Group's liquidity by approximately USD 40 million in due course."
The final settlement will result in a cash payment to Lamprell of $18.9 million in May 2020.
In addition, Lamprell said on Thursday it would start the process of releasing up to $23 million of the restricted cash reported on 14 April 2020 (USD 35 million) relating to the project performance guarantee, approximately half of which is expected to be released in the coming months.
In September 2019, the Group reported project losses of $95.6 million up to the period ended 30 June 2019.
Following this final settlement and subject to audit, the overall project losses amount to USD 118.2 million, an additional loss of USD 22.6 million that will materially affect the group's financial performance for the year ended 31 December 2019, Lamprell said.
"The project loss covers all outstanding works to completion and the increased costs incurred by the subcontractor in Belfast. We now anticipate that, subject to audit, 2019 revenue to be slightly lower than previous guidance at USD 260 million," Lamprell added.
East Anglia ONE is a £2.5 billion offshore wind farm, located 43km off the Suffolk coast, which will generate 714MW of electricity when completed in 2020, enough to power 500,000 homes per year.
UAE Yards Mothballed
Worth noting, Lamprell, with its primary construction facilities located in Hamriyah, Sharjah and Jebel Ali, last week announced a set of measures aimed at "achieving a significant reduction in the Group overhead and an improvement in operational efficiencies."
This will include closing two construction facilities and focusing only on work on the largest one - the Hamriyah yard.
As a matter of fact, the Jebel Ali facility has been mothballed from January 2020, with the Sharjah facility currently hosting some of the work on the Moray East wind farm project. This facility will be closed upon the Moray East work completion later this year.
The Moray East works are related to a $200M+ contract won by Lamprell in December 2018 to build 45 out of approximately 100 jacket foundations required for the Moray East wind farm, plus three jackets for the offshore substations for the project.
"The Hamriyah yard is our largest facility and continues to operate, offering various expansion opportunities should the Group require additional space. These actions allow for the Group to gradually grow fabrication volumes whilst significantly improving efficiency and reducing its cost base," Lamprell said. The measure also include headcount reductions, most of which have been implemented.
"These steps will help preserve our cash and maximize liquidity in a period of low revenue and slow pace of major contract awards, whilst retaining core capacity for future growth," Lamprell last week said, adding that it would also reduced fees, salaries, and allowances for its Board, senior management, and all of its professional staff by 25% for the next six months.
Looking ahead, Lamprell said that bidding activity continued in both of its end markets of oil & gas and renewables but that it is seeing signs of "deceleration and delays in some awards."