Key Facts
- •Apache North Sea Limited (claimant) and Neo Energy Central North Sea Limited (first defendant) are obliged to provide security for decommissioning the Forties and Brimmond Fields under a Decommissioning Security Agreement (DSA).
- •The second to fourth defendants are previous unit owners and remain liable for decommissioning costs.
- •Disputes arose regarding the construction and effect of the DSA, specifically the calculation of the Provision Amount (security) for 2023 and future years.
- •The DSA includes a dispute resolution mechanism involving expert determination.
- •The claimant initiated proceedings to clarify contractual interpretations before the expert determination.
- •Key disagreements centered on the life of field assessment, capital costs, the effect of clause 6.6, the role of the expert, and the impact of the Energy (Oil and Gas) Profits Levy Act 2022.
Legal Principles
Contractual interpretation considers the document's context, including natural meaning, other provisions, purpose, known facts, and commercial common sense, but excludes subjective intentions.
Arnold v Britton [2015] UKSC 36, Sara & Hossein Holdings Ltd v Blacks Outdoor Retail Ltd [2023] UKSC 2
A contract should be read as a whole to understand the parties' intentions.
Barclays Bank Plc v UniCredit Bank AG [2014] EWCA Civ 302, Apache North Sea Ltd v INEOS FPS Ltd [2020] EWHC 2081 (Comm)
Only facts known to both parties at the time of contract execution are relevant for construction.
Arnold v Britton [2015] UKSC 36
Unambiguous language must be applied; if unclear, the court may depart from the natural meaning if context suggests an alternative meaning.
Rainy Sky SA v Kookmin Bank [2011] UKSC 50, Arnold v Britton [2015] UKSC 36
The court should not rewrite a contract to relieve a party from a bad bargain.
Arnold v Britton [2015] UKSC 36, Wood v Capita Insurance Services Limited [2017] UKSC 24
In expert determination, the expert's role is to determine whether estimates were made in accordance with the agreement and to determine the correct estimates if not, using the Reasonable and Prudent Operator standard.
Clause 4.3, 4.4, 7.9.1, 11.9, 11.10 of the DSA
Outcomes
The claimant's approach to the life of field assessment, including inflation on decommissioning costs, is incorrect. Decommissioning costs should not be included in determining commercially recoverable petroleum.
The DSA requires the exclusion of decommissioning costs in calculating Net Value; including them contradicts this requirement. Whether to include other factors in determining 'commercially recoverable' is a judgment for the operator, applying the 'Reasonable and Prudent Operator' standard.
The determination of capital costs is a matter for the operator, applying the 'Reasonable and Prudent Operator' standard.
Clause 7.10 of Appendix 5 does not specify the amount of capital expenditure to be included. It's a judgment based on the circumstances and the 'Reasonable and Prudent Operator' standard.
Clause 6.6 applies to any assumption used to calculate Provision Amounts, not only those in Appendix 5. Changes to Appendix 5 assumptions must be specific changes to the published figures for the specified periods, not simply new figures published.
The phrase 'in accordance with Appendix 5' refers to the calculation process, not solely the assumptions in Appendix 5. The parties agreed to specific assumptions; clause 6.6 does not allow a departure from this.
The expert must consider the Energy (Oil and Gas) Profits Levy Act 2022, as it constitutes a major change in tax legislation after the assumption statement completion date.
Clause 11.9 mandates the expert to consider compliance with legislation. Appendix 5's provision regarding legislation encompasses the 2022 Act, even with retrospective effect.
The expert can consider issues of construction of the DSA that arise during the determination, but their interpretation of the law is not binding and can be challenged in court.
Clauses 11.9 and 11.10 should be read together with clause 15.9. The expert's role is to apply the law, not interpret or construe it; the court retains ultimate jurisdiction over legal interpretations.