By a sale and purchase agreement, the claimant acquired from the defendant a company which held licences in several hydrocarbon-producing fields in the North Sea. Bilateral decommissioning security agreements imposed an obligation on the claimant to indemnify the defendant for all decommissioning-related expenditure for which the defendant was or might become liable to incur, and required that the claimant provide security. The effect of the security agreements was to require the claimant to provide security for field facilities including wells even if they were constructed after the date of the sale and purchase agreement, so long as the Security of State had power to require their decommissioning by the defendant under the Petroleum Act 1998. On a dispute between the parties as to the amount of further security to be provided by the claimant a question arose, inter alia, as to the extent of the defendant’s potential decommissioning obligations. The defendant argued that the security obligation extended to four additional wells because, prior to the effective date of the sale and purchase agreement, the target company had been issued with notices from the Secretary of State under section 29 of the 1998 Act covering the fields in which the additional wells were later drilled, and the notices were wide enough to require decommissioning of the additional wells. Section 29 required the recipient of a notice to submit a programme setting out the measures proposed to be taken in connection with the abandonment of an “offshore installation”, as defined in section 44 of the Act as any installation which was or had been maintained, or was intended to be established, for the carrying on of exploitation of mineral resources at sea. The defendant argued that the fields in which the additional wells were later drilled were themselves an “offshore installation”, alternatively that the additional wells were an “offshore installation” and that the notices were effective to cover the additional wells even though they were constructed after the notices had been sent. It contended that in either case it had potential liability for the wells under section 34(1)(b) of the 1998 Act and that the claimant was obliged to provide security to protect the defendant from the possibility of being required to incur decommissioning costs in respect of those wells.
On the claimant’s claim for declarations—
Held, declaration granted that the claimant was not required to provide security to cover the additional wells. “Offshore installation” as defined in section 44 of the Petroleum Act 1998 was insufficiently broad to encompass an entire field or sub-field, but instead naturally referred to equipment or structures within the field or sub-field such as a rig. Accordingly, the fields in which the additional wells were later drilled were not an “offshore installation”. As a matter of construction of the relevant notice, the section 29 notice did not cover the additional wells, constructed many years later, nor, as a matter of statutory construction, could the additional wells, whose construction was on the facts were not in contemplation at the time of the notices, be an “offshore installation” within section 44(1). The additional wells therefore did not fall within the section 29 notices and no liability arose under section 34(1)(b) (paras 52, 53, 55–56, 58).
David Allen QC and Luke Pearce (instructed by Clyde & Co) for the claimant.
Nigel Tozzi QC (instructed by Norton Rose Fulbright) for the defendant.