Beyond COVID-19: Crisis response or road to recovery?
Crisis response or road to recovery?
The Commercial Court has recently provided a significant judgment regarding decommissioning liability for wells drilled in the North Sea in a rare decision interpreting provisions of the Petroleum Act 1998 (the “Act”).
On May 17 2021, Charles Hollander QC, sitting as judge at the High Court, decided the matter between the Claimant, Apache UK Investment Limited (“Apache”) and the Defendant, Esso Exploration and Production UK Limited (“Esso”). The full judgment can be found here.In summary, the Court:
The parties entered into several Bilateral Decommissioning Security Agreements (“BDSAs”) as part of Esso’s sale to Apache of a subsidiary which held licenses in several oil fields in the North Sea, including the Buckland and Nevis Fields. The BDSAs provided security for Apache’s obligation under the sale and purchase agreement to indemnify Esso for any decommissioning obligations that Esso could be held liable for. The dispute concerned the amount of security to be provided by Apache in respect of those decommissioning obligations.
There were two issues before the court for determination:
In summary, the Court found in favour of Esso on issue 1, and in favour of Apache on issue 2.
On issue 1, the Court found that Esso was successful on the basis of interpretation of the relevant contractual provisions, applying the usual rules of construction.
On issue 2, Apache claimed that Esso could not be liable for decommissioning the Additional Wells as they constituted ‘offshore installations’ and were drilled after Esso had sold its interests to Apache. Esso was concerned that:
Esso sought to engage with OPRED, the regulatory of offshore decommissioning before trial. Whilst it did not give a formal opinion on the scope of the relevant provisions of the Act or formally participate at the trial, it attended trial and heard the parties’ arguments, together with the court’s judgment.
The Court found that Apache was not obliged to provide security in respect of the Additional Wells on the following basis:
The case provides welcome clarity on the scope of certain provisions of the Petroleum Act which govern the decommissioning regime in the UK North Sea. In particular, oil and gas companies selling out of assets can take comfort from the judge’s interpretation of s.44 (1) that if the Secretary of State issues a s.34 notice in relation to an offshore installation which was not constructed or intended to be constructed at the date of a historic s.29 notice, it will be acting ultra vires and the s.34 notice will not be effective. Whilst this finding is not binding on the regulator, it does provide an insight into the Court’s view on this matter. It also gives guidance on what constitutes an “offshore installation” with the court finding that each of the Additional Wells constituted an “offshore installation”, notwithstanding that the relevant s29 notices were drafted in far more generic terms. In light of this parties may start seeking more specificity from OPRED in s29 notices in order to avoid disputes arising as to their scope.
With thanks to London trainee Hafsah Waheed for her contribution to this article.
As the global aviation industry looks towards post-pandemic recovery and less turbulent skies, it is the topic of decarbonisation that is increasingly top of everyone’s agenda. There have been a number of eye-catching announcements around the world in recent weeks, from United Airlines announcing its intention to purchase 100 electric aircraft, an increased focus on the use of sustainable aviation fuel (SAF) from several airlines, and Korean Air utilising the green bond markets.
© Norton Rose Fulbright LLP 2021