Amec heads for red Dispute over North Sea contract could push net debt as high as £50m

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The Independent Online
A DISPUTED payment for the Tiffany oil platform - the largest North Sea contract ever at £453m - will probably push Amec, the construction group, into a negative cash position for the first time in at least a decade. One analyst estimated the comp any could end the year with net debt as high as £50m.

Other worried analysts have been pestering the group to issue a trading statement, but the company insists its situation is substantially the same as it was when its interim results came out in September.

Amec's share price has tumbled 25 per cent to 70p since then, largely due to rumours about the project, the pending resignation of John Bateson, the group's chief executive, and the sale of 3.5 million shares by Goldman Sachs.

The company's officials are presently trying to reassure investors that it will eventually be paid the tens of millions of pounds it thinks are still owing for work by Tiffany Contractors, a joint venture two-thirds owned by Amec, the other third by the Italian construction company Saipem. The exact amount that Amec is claiming has not been revealed.

"We're not dealing with tuppence ha'penny," Mr Bateson said. "Obviously it's a problem because we haven't solved it yet, but I believe we're on the right track.'' Talks with Agip, the Italian oil company that commissioned the project, were continuing last week. However, Mr Bateson said a settlement would probably not be reached before the year-end, as there are 32 volumes of accounts to go through in detail.

Most City analysts have already taken the delay into account and revised their full-year profit estimates from just under £30m to a little more than £20m on sales of £2.5bn. But several remained nervous about the company's cash flow - seen as an important indicator. "Contracting is all about cash," said one.

Agip has paid Tiffany Contractors more than £500m, well above the £453m estimated price tag worked out in 1989. Only part of the contract was for a lump sum fee. The balance depended on hours worked and materials used.

The costs began to spiral after the design evolved to include safety modifications and the addition of a sulphur removal plant required by Agip, Mr Bateson said. That delayed the project by 20 weeks. The launch went ahead before all the shore-side work was done, so that the platform could rendezvous at sea with barges carrying critical equipment. As a result, some work that could have been done relatively cheaply in dock had to be done at great expense offshore, he said.

But a source at Agip disagreed with that explanation, saying the delays were due to the Tyneside yards being crowded with other projects, including the Piper Bravo platform. The Italian company does not feel it should be responsible for those problems.

As far back as 1992, Amec filed a suit demanding £11.6m plus interest, which would by now amount to another £3m. But after seeking a summary judgment and having a judge rule against it the company dropped the case.

Both sides said they expected the disagreement would be settled amicably and they are continuing to work together.

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