Apache North Sea Ltd v Euroil Exploration Ltd
| Jurisdiction | England & Wales |
| Judge | Pelling |
| Judgment Date | 06 December 2019 |
| Neutral Citation | [2019] EWHC 3241 (Comm) |
| Date | 06 December 2019 |
| Docket Number | Case No: CL-2019-000014 |
| Court | Queen's Bench Division (Commercial Court) |
[2019] EWHC 3241 (Comm)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
COMMERCIAL COURT (QBD)
Royal Courts of Justice, Rolls Building
Fetter Lane, London, EC4A 1NL
HIS HONOUR JUDGE Pelling QC
SITTING AS A JUDGE OF THE HIGH COURT
Case No: CL-2019-000014
Mr David Allen QC and Mr Henry Moore (instructed by Clyde & Co LLP) for the Claimant
Mr Alec Haydon QC (instructed by Herbert Smith Freehills LLP) for the Defendants
Hearing dates: 28 October 2019
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
HIS HONOUR JUDGE Pelling QC SITTING AS A JUDGE OF THE HIGH COURT
HH Judge Pelling QC:
Introduction
This is a trial of a claim concerning the sums payable by the first defendant (“EEL”) to the claimant (“ANSL”) under a farm out agreement made on 19 February 2015 by which ANSL sold to EEL a minority interest in respect of two UK Continental Shelf Licences (“FOA”). What was sold is defined within the FOA and is described in more detail later. The second defendant is a parent company of EEL and is its guarantor under a Deed of Guarantee and Indemnity with ANSL dated 19 February 2015. The Licence relevant to this dispute is Licence P.1998 for two licence blocks constituting an area called “Val D'Isere”. It is referred to hereafter as “the Licence”. The other – and irrelevant – area is called “Les Arcs” and it is necessary to mention it only to understand references to it in the FOA and other agreements to which it will be necessary to refer in this judgment.
The issue between the parties is whether (as ANSL claims) it is entitled on a true construction of the FOA to a payment from EEL of £3,280,482.46 being a 26.25% share of the full costs incurred by ANSL in drilling the Val D'Isere well (“Earn-In Well”) or whether (as EEL contends) ANSL is entitled to no more than £1,114,480.68.
The Facts
The FOA having been entered into on 19 February 2015, on 22 July 2015, the parties entered into an associated Joint Operating Agreement (“VJOA”) that was substantially in the form annexed to the FOA. Following execution of the VJOA, on 4 November 2016, ANSL concluded a “Farm In Agreement” in relation to the licence with a company that thereafter changed its name to DNO Exploration UK Limited (“DNO”). A Deed of Novation by which DNO became a party to the VJOA followed on 13 July 2017. Nothing relevant to this dispute turns on the detail of these agreements and I need say no more about them or their contents.
ANSL used a drilling rig (“Rig”) to drill the Earn-In Well that it had leased from 12 August 2013 at a rate that at the date of drilling the Earn-In Well exceeded the market rate for an equivalent rig. The Rig was deployed in drilling the Earn-In Well between 19 December 2017 and 3 February 2018. The Earn-In Well proved to be dry and in consequence EEL did not exercise the option referred to in clause 3.1.8 of the FOA (the terms of which are set out below) and operations in connection with it were wound up. ANSL claimed the rate it was paying to lease the rig for the period it was deployed in drilling the Earn-In Well, maintaining that it was entitled to reclaim the whole of that sum by operation of the FOA. EEL maintains that ANSL was entitled only to the rate prevailing for similar equipment at the date when the Earn-In Well was drilled by operation of the VJOA. This issue explains in effect the whole of the difference between what ANSL claims to be due and what EEL admits is due.
These proceedings were started in January 2019 and on 13 May 2019, EEL paid the sum it admits is due in respect of the Rig charges. It refused to pay the balance, maintaining that no sum other than what is admitted to be due was properly due to ANSL.
The trial took place on 28 October 2019. No evidence was called. The trial took place on the basis of a list of common ground and legal submissions.
The FOA, VJOA and their Relevant Terms
The FOA
By the FOA, ANSL agreed to transfer an undivided legal interest in the Licence and a 17.5% interest under the VJOA in return for a promise by EEL to pay 26.25% of the total costs in relation to the Earn-In Well and a proportion of some historic costs. This is the effect of clause 2 of the FOA when read with the definition within the FOA of the phrase “Val D'Isere Earn-In Costs” set out in clause 1 of the FOA and is the basis on which ANSL claims to be entitled to the whole of the hire costs for the Rig during the drilling period.
In so far as is material, the FOA provided:
“WHEREAS:
…
B. On and subject to the terms and conditions of this Agreement, [ANSL] is willing to transfer the Earned Interests to [EEL] in consideration of the payment by [EEL] of certain costs that would otherwise be borne by Apache.
C. The costs to be borne by [EEL] described in Recital B are in respect of the drilling of up to two (2) separate wells at different times under the Licences
NOW THEREFORE IT IS HEREBY AGREED as follows:
1. Definitions and interpretation
Definitions
1.1 In this Agreement the following expressions shall, except where the context otherwise requires, have the following respective meanings:
…
“ AFE” means an authorisation for expenditure pursuant to the relevant JOA relating to an Earned Interest (including those set out in Schedule 6);
…
“ Agreement” means this deed including the recitals and the Schedules attached hereto;
…
“ Earned Interests” means the Les Arcs Interest and the Val D'Isere Interest, and “Earned Interest” means either of them;
…
“ Earn-In Costs” means the Les Arcs Earn-In Costs and the Val D'Isere Earn-In Costs;
…
“ JOA” means the Les Arcs JOA or the Val D'Isere JOA to be entered into at Completion (substantially in the form set out in Schedule 7) (or either of them as the case may be);
…
“ Les Arcs Earn-In Costs” means (i) twenty-five percent (25%) of the total costs (other than the Back Costs) in relation to the Les Arcs Earn-In Well, whensoever incurred in respect of all works undertaken pursuant to the Well Programme for the purpose of the Les Arcs Earn-In Well, including the planning, surveying, drilling (including side-tracking for mechanical reasons), coring, testing, logging, suspending and abandoning of the Les Arcs Earn-In Well and the mobilisation and demobilisation of the rig (if relevant) provided that in the event that the costs in respect of Les Arcs Earn-In Well net to [EEL] exceed seven million seven hundred thousand Pounds Sterling (£7,700,000), then with respect to any such costs in excess of such amount such percentage shall be reduced to ten percent (10%) of such costs, plus (ii) the Back Costs set out in Schedule 4 Part 1);
…
“ Val D'Isere Earn-In Costs” means (I) (a) in the event that the Val D'Isere Option is not exercised twenty six point twenty five percent (26.25%) of the total costs (other than the Back Costs) in relation to the Val D'Isere Earn-In Well, whensoever incurred, and in respect of all works undertaken pursuant to the Well Programme in connection with the Val D'Isere Earn-In Well, including: the planning, surveying, drilling (including sidetracking for mechanical reasons), coring, testing, logging, suspending and abandoning of the Val D'Isere Earn-In Well and the mobilisation and demobilisation of the rig (if relevant), provided that in the event that the costs in respect of Val D'Isere Earn-In Well (net to [EEL]) exceed ten million five hundred thousand pounds (£10,500,000), then with respect to any such costs in excess of such amount such percentage shall be reduced to seventeen point five percent (17.5%) of such costs; or (b) in the event that the Val D'Isere Option is exercised, thirty-seven point five percent (37.5%) of the total costs (other than the Back Costs) in relation to the Val D'Isere Earn-In Well, whensoever incurred, and in respect of all works undertaken pursuant to the Well Programme in connection with the Val D'Isere Earn-In Well, including: the planning, surveying, drilling (including sidetracking for mechanical reasons), coring, testing, logging, suspending and abandoning of the Val D'Isere Earn-In Well and the mobilisation and demobilisation of the rig (if relevant), provided that in the event that the costs in respect of Val D'Isere Earn-In Well (net to [EEL]) exceed eighteen million Pounds Sterling (£18,000,000), then with respect to any such costs in excess of such amount such percentage shall be reduced to twenty-five percent (25%) of such costs; plus (II) the Back Costs as further set out in Schedule 4 Part 2;
“ Val D'Isere Earn-In Well” means the well to be drilled in accordance with the Well Programme pursuant to the Val D'Isere JOA by the Operator;
“ Val D'Isere Earned Interest” means an undivided legal interest in the Licence P.1998 and a seventeen point five percent (17.5%) Percentage Interest under the Val D'Isere JOA in the event that the Val D'Isere Option is not exercised, or twenty five percent (25%) Percentage Interest under the Val D'Isere JOA in the event that the Val D'Isere Option is exercised, together with all rights and obligations attaching thereto and including but not limited to: (1) the right to take and receive a consequent share of all Petroleum produced under Licence P.1998 on or after the Completion Date and to receive the gross proceeds from the sale or other disposition thereof; and (ii) all rights, liabilities and obligations associated with such an interest under the Earned Interest Documents and Earned Interest Data;
“ Val D'Isere JOA” means the joint operating agreement for UKCS Licence No P.1998, Blocks 21/10b and 21/9b to be entered into at or prior to Completion substantially in the form set...
To continue reading
Request your trial