Bocardo SA v Star Energy UK Onshore Ltd
| Jurisdiction | England & Wales |
| Judge | MR JUSTICE PETER SMITH |
| Judgment Date | 24 July 2008 |
| Neutral Citation | [2008] EWHC 1756 (Ch) |
| Docket Number | Case No: HC06C02870 |
| Court | Chancery Division |
| Date | 24 July 2008 |
[2008] EWHC 1756 (Ch)
In The High Court Of Justice
Chancery Division
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Justice Peter Smith
Case No: HC06C02870
Jonathan Gaunt QC & Edward Peters (instructed by Denton Wilde Sapte) for the Claimant
Laurance Rabinowitz QC & Elizabeth Fitzgerald (instructed by Norton Rose) for the Defendants
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.
Peter Smith J:
INTRODUCTION
The Claimant (“Bocardo”) is the freehold owner of Barrow Green Court and Barrow Green Farm (together “the Oxted Estate”) at Barrow Green Road Oxted Surrey. The ultimate beneficiary behind Bocardo is Mr Al Fayed. The Palmers Wood Oilfield (“the Oilfield”) is a naturally occurring reservoir of petroleum and petroleum gas. The north eastern part of the field extends beneath the Oxted Estate.
The First Defendant Star Energy UK Onshore Ltd (“ Star Onshore”) was the holder of a petroleum production Licence (“the Licence”) issued on 17th November 1980 under the Petroleum Act 1934 which authorised it to search and bore for and get petroleum in the Oilfield. It had a quarter share in the Licence from 1994 until 1996 when it became the 100% owner of the Licence. Between 1994 and 1996 it was the Licence Operator.
The Second Defendant (“ Star Weald”) acquired the Licence from Star Onshore on 16th October 2007. That was after the commencement of the present proceedings. It was added as a Second Defendant pursuant to an order made by Master Bragge on 14th March 2008 and I granted permission to amend the Defence (amongst other things) to reflect that change of ownership on the first day of the trial of this action. I refer to the ruling that I subsequently handed down in respect of the amendment application on 2nd July 2008.
One of the drilling sites is located at Coney Hill immediately next to the boundary of the Oxted Estate. From this site 3 wells were drilled namely PW5, PW8 and PW9 all of which pass under the substrata of the Oxted Estate. PW5 and PW8 are used to extract oil from the oilfield. PW9 pumps water into the oilfield to speed up or aid the extraction. Oil is extracted from the top of the reservoir of an oilfield so that water is pumped into the bottom of the reservoir which then pushes the oil up towards the top.
PW5 and PW8 are each 0.8 kilometres long and penetrate about 0.5 and 0.7 kilometres respectively into the Oxted Estate. They both terminate beneath it. Both wells are used to extract petroleum and petroleum gas from beneath the Estate. However that extraction process is not limited to the oil and gas beneath the Oxted Estate. An oil company wishing to extract oil seeks by investigation to identify the top most point of the oil in any particular reservoir (“the cone”). A well situated at the top of the cone enables the optimum extraction of the oil from the field to take place.
The experts in this case are agreed that PW5 enables the oil to be optimally extracted from the field. Extraction through PW5 is not limited therefore to the oil and gas under the Oxted Estate. It extends beyond that. There is another set of wells at a site to the west called Rooks Nest. Further wells emanate in a westward direction from that. In rough terms the oil from the eastern part of the oil field is extracted through the wells from the Coney Hill site and the oil in the western part of the Oilfield is extracted through Rooks Nest. That is not a fully accurate description of the operation as there is no barrier between the 2 parts of the reservoir of the oilfield and oil might ultimately be extracted from either of the wellheads (Rooks Nest or Coney Hill) from any part of the total of the Oilfield.
Nevertheless in essence the parties acknowledge that any claim in this action is limited to the oil extracted via PW5 and PW8.
The wells from the Coney Hill site were drilled diagonally under the neighbouring land (so called “deviated drilling”) to maximise the recovery of the oil from that north eastern part. PW8 was targeting an area where the high point of the field was thought to be separated by a geological fault from the area targeted by PW5.
PRODUCTION
Production from PW5 began in October 1990 and from PW8 in September 1992 (both before the Defendants' interest in the Oilfield). Initially the two wells were producing up to 9,000 barrels per month but the rate of production has declined to about 3,500 barrels per month in 2000 and 2,000 barrels per month in 2007. The total amount extracted between 1990 and the end of 2007 was approximately 1,006,000 barrels.
There was nothing to indicate to Bocardo at the time that the wells were drilled that drilling had taken place under the Oxted Estate and that oil was being extracted from under the Estate via the wells. The pipelines are at least 800 ft below sea level.
INVESTIGATION BY BOCARDO
In June 1992 Mr Al Fayed noticed that an oil drilling rig had been erected at Coney Hill and he retained Allen & Overy to write to Cairn Energy PLC seeking to clarify what actually was occuring. The correspondence started on 25th June 1992 and was addressed to a Mr McKie Cairn Energy PLC's Contract Operations Manager. I will make further references to this correspondence and Mr McKie later in this judgment when addressing an issue of Limitation raised by the Defendants. Cairn Energy PLC initially had a 75% interest and Cairn Energy Onshore from 17th November 1994 acquired a 25% interest and as I have said was the Operator. On 24th July 1996 Cairn Energy PLC's interest in the Licence was transferred to Onshore. That changed its name on 19th June 1997 to Soco UK Onshore Ltd and then changed its name to Star Energy UK Onshore Ltd on 26th October 1999. At the time of the correspondence in 1992 these Defendants had no interest in the Licence. Mr McKie however was kept on when they became interested and he still has an operational role within the Defendants in respect of (inter alia) the Oilfield.
In that correspondence Allen & Overy asked Mr McKie to inform them whether or not the intended drilling and bore hole would pass under the Oxted Estate. Mr McKie declined to answer the question stating that he could not reveal it because of “reasons of commercial confidentiality.” Allen & Overy did not accept that explanation and required Mr McKie twice more to identify the route of the drilling. Mr McKie declined to answer ultimately in a letter dated 20th July 1992. The letter was described by an internal manuscript annotation on a copy as being “very elegantly worded”. This I accept as Bocardo submits in its closing suggested that Mr McKie was trying to draft his way around a problem that is to say revealing the true facts namely that drilling was not only taking place under the Oxted Estate but had already been happening for 2 years. It is plain that although the correspondence was written on behalf of Mr Al Fayed Mr McKie was taking legal advice from Stephenson Harwood solicitors and was told by them that the land in question was owned by Bocardo.
Thereafter the correspondence stopped. Neither Mr Al Fayed nor Bocardo took the matter further until 2001. When Bocardo took the matter up further in 2001 apparently Mr Al Fayed did not tell his then representatives of the existence of the 1992 correspondence. They only became aware of it when it was disclosed by the Defendants in this action. I have not had any explanation as to how this occurred and Mr Al Fayed has not given evidence.
Between December 2001 and 2004 there were various communications by email and a number of meetings between Bocardo and Star Onshore as to whether they might enter into a joint project to search for and if possible extract oil from beneath the Oxted Estate. It is Bocardo's case that at this time it had no idea that the oil had already been extracted by wells drilled over 10 years earlier. Ultimately in 2004 Star Onshore declined Bocardo's proposals stating that its financial covenants prevented it from entering into any joint venture with Bocardo to search for oil beneath the Oxted Estate. As will appear in this judgment that in my view was untrue; the Defendants were in the discussions perpetuating a decision not to tell Mr Al Fayed/Bocardo what was actually happening beneath the Oxted Estate.
Bocardo contends that it first became aware from records held at the British Geological Survey in July 2006 that well PW5 and its pipe work had encroached beneath the Oxted Estate. However during the course of the trial the Bocardo position changed and by its closing Bocardo accepted that whilst its case was that it did not actually know until that time of the existence of wells beneath the Oxted Estate there was enough material in the public domain by August 1997 (well PW5) and August 2001 (wells PW8 and PW9) that it could (with the appropriate assistance of oil industry experts of the type that it employed) have discovered the facts. This was what Mr McKie had declined to reveal in 1992 and the Defendants declined to reveal in the discussions in 2001 and 2004 namely that the wells had been bored under the Oxted Estate a decade before and that by 2007 (for example) some 1,000,000 barrels had been extracted via them.
I will refer to this in more detail once again when dealing with the Limitation issue.
COMMENCEMENT OF PROCEEDINGS
The Claim Form was issued on 21st July 2006. It follows therefore that any claim for damages for trespass prima facie can only cover any acts of trespass back to 21st July 2000 unless there are reasons why the 6 year limitation period should not...
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