This is a risky business, offshore drilling, but who bears the risk under a drill contract in case of force majeure?

Mr. Justice Teare says in the opening of his judgment, "[d] that oil is a risky business" ] But who bears the greatest risk in case of force majeure?

To a certain extent, of course, the answer to this question depends on the wording of the force majeure clause.The dispute in this case concerned a long contract term for the semi-submersible rig West Leo of Seadrill. The contract area was Ghana and Tullow intended to use the platform to perform drilling and completion work in the 2 fields that it operated off the coast Ghana – TEN and Jubilee, although Tullow originally planned to use it. Ghana's Government in the framework of the TEN long-term development plan

In September 2014, Ghana submitted to arbitration before the International Tribunal for the Law of the Sea a long-standing dispute over its position. maritime border with Cote d Ivoire. The disputed area covered the entire area of ​​the TEN, but did not cover Jubilee

There is force majeure …

During arbitration, in April 2015, as a result of a request from Coast to Coast. Ivory, the TIDL court issued a provisional measures order (PMO) which prohibited "new drilling" in the disputed area covering all the TENs. Ghana ordered Tullow to comply with the PMO, interpreting it as banning the drilling of new wells but allowing the completion of wells already drilled and for well work.

The Commercial Court ruled that the PMO was a "government imposed moratorium" which was a force majeure event under the drilling contract. But she stated that Tullow did not have the right to terminate the contract for force majeure because the force majeure did not cause the lack of work for Tullow's inability to meet its contractual obligation to provide Seadrill with a drill program for the previous platform. Tullow planned in October 2016 to drill and complete a well in the TENs, and then move the West Leo to drill at Jubilee where he planned to drill wells. he expected the Ghanaian government to approve in a new jubilee development plan.

However, as of October 1, 2016, Tullow was in an unenviable position. It was prevented by a case of force majeure from drilling, and therefore completing, the well planned for the TENs and all the other wells approved by the government in the development plan of the TEN. And he could not drill new wells in Jubilee because the government had not approved Jubilee's new development plan for reasons that the court found out of Tullow's control

. Other terms, October 1, 2016. Work Tullow had planned for the West Leo at TEN and Jubilee missed. Tullow declared force majeure under the drilling contract. He terminated the contract 60 days later, on December 1, 2016, stating that he had fulfilled a contractual obligation to make reasonable efforts to avoid, overcome or mitigate the force majeure.

… but this is not the case

The Court concluded that Tullow was unable to provide drilling programs to Seadrill prior to October 1, 2016: first, the event of force majeure and then the lack of approval by the government of the new Jubilee development plan, and the actual cause was the last. Tullow therefore could not demonstrate that she had been delayed or prevented by a case of force majeure, which the Court stated that she was bound to do by the force majeure clause of the contract drilling.

This finding was made despite the approval of the new Jubilee. The development plan had never existed and was never certain to exist and the failure to obtain the approval was not attributable to Tullow. The Court ruled that it was sufficient for Tullow to await approval in 2016 (although the basis of this expectation was not badyzed in evidence).

The establishment of schedules in the offshore industry is an art. The drilling is speculative and very often subject to change, sometimes just before the scheduled start of work – schedules are very far. The West Leo contract, like the vast majority of long-term drilling contracts, gave Tullow the discretion to use the platform in the contract area (Ghana)

The Court's judgment deals with Tullow's long-term plans. Tullow reportedly used the West Leo to drill new wells in the TENs, although the other evidence was advanced by Tullow prior to the trial.

Reasonable Efforts

Although the question was moot after the causation conclusion, the Court also found that Tullow had not made reasonable efforts to avoid, overcome or mitigate force majeure. He stated that as part of this duty of reasonable effort, Tullow should have used the West Leo to work two more water injection wells at Jubilee (and supplement a gas producer in TEN and a water injector at Jubilee). The Court stated that, although Tullow acted reasonably in making the decision not to do the work in 2016 with its own interests in mind (taking into account commercial and safety considerations), Tullow had to take into account the interests of Seadrill. , in addition to his own, when deciding whether to do the job. The judgment emphasizes that the West Leo did not have any other work to do in October 2016 to badess what was reasonable considering Seadrill's interests.

Another problem in this case was the fact that, even if the Jubilee had been done (at a significant cost), they would have had no short-term impact on field production – it would not have been possible. There would be no return on investment for a significant period

The conclusion of the Court could have serious consequences. There is always work that can be done with a platform. Oil companies decide on the work to be done according to the needs of the company and evaluate various factors – safety, labor cost, production profit / commercial return on investment, and so on. The judgment of the Court imposes higher requirements and additional considerations. this must be taken into account in the decision-making process when there is force majeure and a reasonable obligation to avoid or mitigate it.

Although the Court insisted that the West Leo did not do other reasonable efforts, significant costs in addition to the rate of drilling should be incurred to make the repackaging, completion and drilling. This judgment means that an oil company must do the work and spend those costs, even if it is neither necessary nor in its interest, to make reasonable efforts.

Take aways

Judgment in the West The Leo case arose to some extent from the ambiguities of the force majeure clause. It shows that it is worth spending time dealing with the causal link and defining what is captured by reasonable efforts at the drafting stage.

It is not clear from the judgment that the limit must be established between reasonable work is not the case. The oil companies will therefore have a difficult decision to take in case of force majeure in the face of a reasonable effort. It could, as in the case of Tullow, be significantly better for them financially not to perform work that falls within the reasonable obligation and, if they have the option, such as Tullow, d & # 39; 39, cancel the contract for convenience or advance payment, that it would do the work and have the right to cancel for force majeure. It's hard to see how that could be what the words "reasonable efforts" meant.