How Energy Division Lead to Major Losses for Sime Darby

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  • Topic: Due diligence, Sime Darby, Oil platform
  • Pages : 2 (725 words )
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  • Published : March 31, 2011
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How energy division lead to major losses for Sime Darby

There are 4 multimillion Ringgit projects entered by Energy and Utilities division of Sime Darby, but turned out bad. One of the projects is collaboration with Qatar Petroleum (QP), the Bulhanine and Maydan Mahzam project. Sime Darby has been awarded a RM265 million contract to build wellhead platforms where the scope of works in the contract covers three wellhead platforms, installation of about 40 kilometres of pipeline, 23 kilometres of umbilical and alteration to existing platforms. It started in April 2006 and supposedly completed in August 2008. However, the division has encountered delays and cost overruns which resulted in losses on the project exceeding RM500 million, which have already been accounted for. At that time, they still try to negotiate with the QP project’s client on claims for the over budget cost, but the Board has already decided to reverse the revenue of RM200 million previously recognized in the Group accounts for Financial Year 2009. The second project is the Maersk Oil Qatar project (MOQ). Maersk Oil awarded Sime Darby Engineering the EPCIC contract to build and install a process platform, a utility platform and three bridges off the coast of Qatar in February 2007. It was scheduled for completion in October 2009 but there have been delays and cost overruns in this project which caused losses of RM159 million for Financial Year 2010. According to Sime Darby, the cost overruns were incurred on transport and installation, and hookup and commissioning works. It is not clear if the overruns were the result of under-budgeting, and unexpected increase in raw material costs, or both, or some other reason. Even though negotiations were made with the client, they still could not probe the losses. The third project related with the MOQ project, which is the construction of vessels for the MOQ project’s usage called the Marine Project. MARINE Project was meant to turn Sime Darby Bhd...
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