Contractor UGL's American partner, CH2M Hill, is considering a "comprehensive settlement" on its $610 million Ichthys power plant joint venture in Darwin to resolve disputes over cost blow-outs.
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Analysts said that a subtle change in language used by CH2M Hill in its second-quarter results statement released on Tuesday in the US, when it first used the phrase "comprehensive" settlement, indicated negotiations with its client, JKC Australia LNG, over recouping cost blowouts may have become more difficult.
CH2M Hill had previously said in its first-quarter results statement that it expected a "negotiated" settlement of the joint venture's dispute.
Deutsche Bank analyst Craig Wong-Pan said CH2M Hill's second-quarter update was a "slight negative" for UGL, and could indicate that a third-party arbitrator may be brought in to adjudicate between the joint venture and its client, or that the dispute may end up in court.
"It could be more difficult [for the joint venture] to get what they were after," Mr Wong-Pan said.
But he also noted that the settlement of claims and costs by a third party may not necessarily be worse than a negotiated outcome.
CH2M Hill has been ahead of UGL in forecasting problems on the Ichthys project. The American engineering group first warned of problems on the project in August 2014, more than three months before UGL disclosed cost blowouts in November.
CH2M Hill reiterated on Tuesday that a significant amount of work still needed to be performed on the project before it was completed, and that "there can be no assurance that additional cost growth will not occur".
The Ichthys project, which was 45 per cent complete on June 30, is valued at US$450 million ($608 million.)
The joint venture has previously estimated the total expected loss of the project at US$280 million and UGL has already set aside $175 million for provisional write-downs on the project.
The joint venture has been pursuing claims with JKC Australia – a consortium of Japanese engineering groups JGC and Chiyoda and US engineering group KBR – over concerns it had not been given correct instructions and the project's original scope had been altered.
In June, chief executive Ross Taylor said he believed the provisions were sufficient and that he hoped to "cut a deal" with JKC Australia LNG to sort out disputes over cost blowouts.
Separately, UGL said on Wednesday that another joint venture had won a $131 million contract by Transport for NSW to upgrade the technology on the state's Tangara passenger rail fleet. UGL controls 70 per cent of the joint venture with Unipart Rail.
The stock closed up 11¢ to $1.86 on Wednesday.
UGL reports its annual results on August 24.
