Apache UK Investment Ltd v Esso Exploration and Production UK Ltd

Under contractual decommissioning-security arrangements, the “Relevant Year” for a proposed plan is ordinarily the next calendar year after the event triggering the obligation. A drafting difficulty in one clause does not justify a construction that produces commercially incoherent results elsewhere in the agreement. Interim security remains subject to later adjustment under the contractual approval or expert-determination process.

For statutory decommissioning purposes, an “offshore installation” ordinarily refers to equipment or structures within a field, rather than the field itself. Existing statutory notices cannot generally extend to wells constructed years later unless those wells were maintained or intended to be established when the notices were issued.

Apache acquired ABIL, which held interests in North Sea fields, from EEPUK under a sale and purchase agreement. The parties entered into bilateral decommissioning security agreements. After Apache’s parent ceased to qualify as a surety, Apache provided interim letters of credit and later submitted proposed plans for 2020 and 2021.

The parties disputed whether the contractual planning obligation related to 2020 or 2021, and whether security had to cover four additional subsea wells constructed after the relevant section 29 notices under the Petroleum Act 1998. The court was required to construe the agreements and determine the potential statutory liability.

1. The court granted declarations that the amount of security was to be determined by reference to the 2021 Proposed Plan under clauses 3 to 5 of the bilateral decommissioning security agreements, and that security need not include provision for the Additional Wells.

2. The initial letters of credit provided interim protection because, when the parent ceased to be a qualifying surety, no later decommissioning plan or provision amount had been approved. The contractual scheme contemplated that the initial or interim amount would later be replaced or adjusted following approval, agreement or expert determination.

3. The phrase “immediately following Year” in clause 3.1.2 naturally meant the next calendar year. Accordingly, an event occurring in 2020 required a proposed plan for 2021. This construction was supported by clauses 5.2 and 5.3, which otherwise could not operate sensibly, and by the commercial purpose of maintaining accurate security. The 2020 Proposed Plan was ineffective, and EEPUK was not deemed to have approved it.

4. For the statutory issue, the expression “offshore installation” in section 44 of the Petroleum Act 1998 referred naturally to equipment or structures such as a rig, rather than an entire field or sub-field. The existing section 29 notices identified installations that predated the Additional Wells. The wells therefore could fall within those notices only if they were being maintained or intended to be established when the notices were issued.

5. There was no evidence or realistic basis for concluding that the Additional Wells were intended to be established between 2000 and 2005. The Secretary of State consequently could not impose a decommissioning duty on EEPUK in respect of them under section 34 on the material facts. The Additional Wells were outside the contractual definition of Field Property for which security was required.