Husky may take legal action in gas dispute with Chinese firm

Tue Apr 26, 2016 12:29pm EDT
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By Nia Williams

CALGARY, Alberta, April 26 (Reuters) - Husky Energy said on Tuesday it was confident a dispute with China's CNOOC Ltd over gas delivery payments from the South China Sea will be resolved, but warned it would take legal action against the state-owned energy giant if necessary.

Husky operates and owns 49 percent of the Liwan Gas Project, approximately 300 kilometres (186 miles) south of Hong Kong, while CNOOC holds the remaining interest and buys the gas from Husky through a take-or-pay contract.

A pipeline outage in the first quarter temporarily impacted natural gas sales from Liwan, and Husky said it received payment only for the actual volumes of around 150 million cubic feet per day, rather than the 330 million cubic feet per day stipulated by the contract.

At the same time, CNOOC officials said there had been price changes in the Guangdong natural gas market and asked Husky to consider a cut to the fixed price it pays for gas.

"Our view is that there's no contractual basis to change the price unilaterally. We have a legally binding take-or-pay contract in place," Husky CEO Asim Ghosh said during a call to discuss the company's first-quarter results. He added that he was confident there would be a satisfactory outcome with Husky's "long-standing" partner.

Calgary, Alberta-based Husky is in talks with CNOOC to find a solution and said it will take legal action if no satisfactory outcome is obtained.

FirstEnergy Capital analyst Mike Dunn said the fixed price agreement had been made before Liwan went ahead and was key to Husky's final decision to invest in the project.

"The price commitment seems to me to be the more sacrosanct," Dunn said, adding that it was fixed in local currency but amounted to around $13-$15 mmcf/day. (Editing by Paul Simao)