Seadrill Ghana Operations Ltd v Tullow Ghana Ltd
| Jurisdiction | England & Wales |
| Judge | Mr. Justice Teare |
| Judgment Date | 03 July 2018 |
| Neutral Citation | [2018] EWHC 1640 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | Case No: CL-2016-000646 |
| Date | 03 July 2018 |
[2018] EWHC 1640 (Comm)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Rolls Building, 7 Rolls Buildings
Fetter Lane, London EC4A 1NL
Mr. Justice Teare
Case No: CL-2016-000646
Richard Jacobs QC, John Snider and Gemma Morgan (instructed by Haynes and Boone CDG LLP) for the Claimant
Sean Wilken QC, Adam Robb QC and Stephen Kosmin (instructed by Holman Fenwick Willan LLP) for the Defendant
Hearing dates: 8–10, 14–17, 21, 23 and 24 May 2018
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.
Drilling for oil is a risky business. Oil companies seek to protect themselves against the financial consequences of risk by appropriate clauses in their contracts, for example, by a force majeure clause. This case concerns a contract for the hire of an expensive oil rig which contained such a clause. During the course of a territorial sea dispute between neighbouring states the arbitration tribunal determining that dispute required drilling to cease in the disputed sea where drilling was to take place. Other, perhaps more usual, risks also materialised: a technical problem occurred with a related marine structure, a Floating Production Storage and Offloading unit (a converted vessel used for the processing and storage of oil, an “FPSO”), which significantly affected the amount of oil which could be extracted from the well; a government failed to give approval for drilling in a particular location; and there was a fall in the market value of oil which changed the economic landscape of the oil business. After these risks had materialised the oil company decided to bring the contract to an end, relying upon the order of the arbitration tribunal as a force majeure. The question to which this case gives rise is whether the oil company was entitled to rely upon the force majeure clause in that way.
Tullow Ghana Limited (which, although a subsidiary, I shall refer to as “Tullow”) had interests in two offshore petroleum licences or concessions about 60kms. off the coast of Ghana. One, known as West Cape Three Points, included the Jubilee oilfield, an asset described by one witness as Tullow's “flagship asset”. Jubilee has been in production since December 2010. The other, known as Deepwater Tano, included three oilfields collectively known as TEN (Tweneboa, Enyenra and Ntomme). Oil was discovered in TEN in 2009 and first produced in August 2016. Part of the Jubilee field was also in in Deepwater Tano so that Jubilee straddled both concessions. Tullow was the operator of both TEN and Jubilee on behalf of joint venture partners.
Both concessions had been granted by the Government of Ghana. They were to the east of the boundary between Cote d'Ivoire and Ghana and hence in water claimed by Ghana.
The West Cape Three Points concession also included other oil fields, Mahogany, Teak and Akasa (collectively known as MTA). They were operated by another oil company Kosmos, one of Tullow's joint venture partners. Tullow had plans to replace Kosmos as the operator of MTA (with, I was told, the consent of Kosmos) and to obtain approval from the Government of Ghana to a plan for the development of MTA, known as the Greater Jubilee Full Field Development Plan (the “Greater Jubilee Plan”). 1
Tullow hired from Seadrill Ghana Operations Limited (which, although a subsidiary, I shall refer to as “Seadrill”) a 6 th generation ultra deepwater water semi-submersible rig, West Leo. The contract, initially entered into on 3 November 2011, was for one year but a three year contract was later agreed with an option to increase by a further two years. That option was exercised by Tullow on 15 December 2012 so that the three year contract was amended to a 5 year contract. Pursuant to the contract Tullow was obliged to pay a daily operating rate of hire of the order of US$600,000.
In May 2013 the Government of Ghana approved the TEN Plan of Development (“the TEN POD”). “First Oil” (the date when oil first flows from TEN) was scheduled to be August 2016.
At the outset of the contract Tullow intended to use West Leo in TEN and to use another rig, Stena Drillmax, in the Greater Jubilee Field. But when it was decided no longer to use the services of Stena Drillmax in the Greater Jubilee Field Tullow decided to use West Leo initially in TEN and then later in the Greater Jubilee Field.
Tullow purported to enter into the contract on behalf of itself and its joint venture partners. Seadrill said that Tullow did not have authority to do so but Tullow said that it did. There does not however appear to be a dispute that Tullow needed to obtain joint venture partner approval on an annual basis when the partners approved the “work programme and budget”. This arrangement appears to have been a deliberate decision taken to maximise flexibility in the use of the rig. Tullow obtained such approval on an annual basis through to the completion of the wells in TEN necessary to get to “First Oil”. 2
In September 2014 Ghana and Cote d'Ivoire entered into an arbitration pursuant to the United Nations Convention on the Law of the Sea (“UNCLOS”) to resolve a dispute between them as to precisely where the offshore boundary between the two states lay. Cote d'Ivoire maintained that it lay further to the east than Ghana maintained. If Cote d'Ivoire were correct in this contention TEN would lie in the waters belonging to Cote d'Ivoire. In support of its claim Cote d'Ivoire sought and, on 25 April 2015, obtained from the tribunal a Provisional Measures Order (“PMO”) pursuant to which the tribunal ordered that “Ghana shall take all necessary steps to ensure that no new drilling either by Ghana or under its control takes place in the disputed area.”
It was understood that the effect of the PMO was that whilst the “completion” of “spudded” wells could continue in TEN, no new wells could be “spudded”. (Spudding is the drilling a hole in the sea bed. Completion is the work which is undertaken thereafter to enable oil to be pumped from the well.) This was fortunate for Tullow because several spudded wells remained to be completed in TEN and West Leo was scheduled to be used for such completions. However, it was expected that the last such well would be Completed in September 2016. Thereafter it was envisaged by Tullow that West Leo would be used in the Greater Jubilee Field (upon the assumption that approval had been given by the Government to the Greater Jubilee Plan).
In February 2016 an unexpected event occurred, namely, a technical problem was found with the “turret” on the FPSO being used in the Jubilee field. In consequence, according to Tullow, Ghana was unwilling to approve the Greater Jubilee Plan. Thus, said Tullow, there was no further work for the West Leo to do as from October 2016. Tullow ceased to pay the daily rate of hire and terminated the contract for the hire of the rig. Tullow justified its refusal to pay hire by reference to the “force majeure” clause in the contract for the hire of the West Leo and also by reference to the
doctrine of frustration. The latter argument was abandoned shortly before the start of this trialSeadrill does not accept that the “force majeure” clause has any application to the facts of the case and therefore claims the sums due under the contract, some US$277.4 million, essentially the sums due under the contract from September 2016 through to June 2018. Seadrill says that Tullow's refusal to pay hire is not unconnected with the collapse in the oil price in 2014 which led to a reduction in demand for rigs such as West Leo and, in consequence, to a substantial reduction in the daily market rate of hire for such rigs, from about $600,000 per day to $150,000 to $200,000 per day at the end of 2016. (This court's sister, the Admiralty Court, is familiar with the fall in the demand for 6 th generation ultra deep water drillships; see Deutsche Bank Trust Company Americas v The Owners of the SERTAO [2018] EWHC 1013 (Admlty)).
Thus, in essence, the question which the court must resolve is whether Tullow's reliance on “force majeure” is justified. Seadrill says that in truth the question is a short one. Nevertheless the parties have called seven witnesses of fact and two witnesses of expert opinion and have placed before the court some 111 lever arch files containing over 33,000 pages of contemporaneous documents. At the end of the evidence the documents which had been referred to during the course of the examination of the factual witnesses were placed in 1 file. That suggests that there remains much to be done to ensure (a) that the process of disclosure is restricted to that which is reasonably necessary to determine a dispute fairly and (b) that a grossly disproportionate and unnecessary number of documents is not copied for trial.
A great many issues were the subject of submissions by counsel but there were two overarching issues. The first issue (“the force majeure” issue) is whether the cause of Tullow's failure to comply with its obligations under the contract in October 2016 was a force majeure, namely, a drilling moratorium imposed by the Government of Ghana. If it was not, then Tullow is liable to Seadrill for the sums due under the contract for standby services and for a termination “for convenience”. The second issue (“the reasonable endeavours issue”), which strictly arises only if the force majeure issue is answered in Tullow's favour, is whether Tullow had exercised its reasonable endeavours to remedy or avoid the force majeure. That depends, in particular, upon whether...
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