17/05/2021

Commercial Court hands down important judgment on meaning of Petroleum Act

Apache UK Investment Ltd v Esso Exploration and Production UK Ltd [2021] EWHC 1283 (Comm)

 

On 17 May 2021, the Commercial Court handed down judgment in an important case concerning the decommissioning of offshore installations under the Petroleum Act 1998.

The dispute arose in the context of a series of Bilateral Decommissioning Security Agreements (BDSAs) entered into between the claimant (Apache) and the defendant (“Esso”).  The BDSAs were entered into upon the sale by Esso to Apache of a company holding licences in a number of oil fields in the North Sea (the “Fields”).  Under the sale agreement, Apache was obliged to indemnify Esso in respect of decommissioning obligations it may be held liable for, and the BDSAs were designed to provide security for that obligation.

The dispute between the parties concerned the level of security to be provided.  There were two broad issues between the parties.  The first issue raised an issue of construction under the BDSAs relating to the year for which Apache was required to produce a decommissioning plan (which formed the basis of the calculation of security).  The second issue raised an important point of principle concerning the interpretation of the Petroleum Act 1998.  In particular, the question was whether Esso could in principle be held liable by the Secretary of State under the terms of the Act for the decommissioning of wells which were drilled in the Fields some years after Esso had sold its interest in the Fields to Apache (the “Additional Wells”).  Apache contended that, on a proper analysis of the Act, Esso could not be held liable.  Esso, by contrast, contended that it was possible that it could be held liable for the decommissioning of the Additional Wells, and that security should therefore be provided in relation to that potential liability.

The court found in favour of Apache on this issue.  It was common ground between the parties that Esso could only be held liable for the decommissioning of the Additional Wells if a s.29 notice had been served in respect of them prior to the sale of Esso’s interest in the Fields.  Esso contended that relevant s.29 notices had been served in relation to the Additional Wells in that period, because notices had been served in broad language covering all installations on the relevant Fields, and these were wide enough to cover the Additional Wells.  This was rejected by the judge, who found that in order for the s.29 notices to relate to the Additional Wells, those wells had to have been in existence, or intended to be established, at the time of the relevant notices.  On the facts of the case, this test was not satisfied, and it followed that the Secretary of State had no power to impose a liability on Esso for the decommissioning of the Additional Wells, and no security was therefore required to be provided in relation to them.

The decision therefore resolves an important point as to the scope of the Secretary of State’s powers under the Petroleum Act.

Luke Pearce acted for Apache with David Allen QC of 7KBW and was instructed by Clyde & Co.

 

Read the judgment