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High Court dismisses Todd claim over Pohokura "collusion"

Contributor:
Fuseworks Media
Fuseworks Media

Wellington, July 13 NZPA - The High Court has dismissed a claim that Shell colluded with Austrian oil company OMV by restricting the gas and oil they allowed to be produced from the Pohokura gas field and so disadvantaged third partner Todd.

Todd Pohokura Ltd went to the High Court at Wellington seeking damages of $274 million from Shell Exploration NZ Ltd and OMV NZ Ltd, its international partners in Taranaki's offshore Pohokura gasfield.

Todd alleged that since 2006, Shell and OMV had constrained Pohokura production to 70 petajoules of gas, when it could produce 86PJ, breaching the joint venture agreement and the Commerce Act.

Shell holds 48 percent of Pohokura, with Todd and OMV each holding 26 percent.

Justice Andrew Dobson, assisted by specialist Professor Martin Richardson, found that Shell and OMV did not behave anti-competitively. He also ruled that there was no breach of contract, and said that Todd had the ability to increase access to gas by striking a gas balancing agreement.

The proportionate share of gas is settled on an annual basis by a budgetary process, proposed by the operator -- Shell -- and approved by the operating committee.

Justice Dobson said that even if Todd had a case, it could not have made the losses of over $600m it claimed for breaches of the Commerce Act and up to $320m for breach of contract.

Jim Farmer QC, representing Todd, had argued in court that the Pohokura joint venture gave each party the right and obligation to take and sell its share of the total available production.

The three owners had "good faith" obligations to each other, and Shell also had a fiduciary duty in connection with its role as the field's operator.

Pohokura produces about 40 percent of New Zealand's gas. It has been estimated to contain 700 billion cubic feet of gas and 42.8 million barrels of light oil condensate.

Justice Dobson awarded costs to Shell and OMV, but urged a discussion between the parties in a way that was constructive for the business relationship.

The parties have six months to resolve the issue before returning to court.

He also anticipated an appeal, given the amounts of money at stake and the tensions in the business relationship.

"Nonetheless, I take the unusual step of recording my view that the issues this judgment leaves the parties to grapple with ought to be resolved by negotiation between them, and not by further litigation.

"I venture that view not as a judge apprehensive that the Court of Appeal might arrive at a different view on any of the material issues.

"Rather, I do so as a New Zealander concerned that the resource vested in these parties by virtue of the permit they have from the Crown deserves to be managed without the significant inefficiency caused by the distraction of this dispute."

The key for the partnership's future was in striking an agreement allowing some flexibility in the gas takeup by the parties.

Shell welcomed the finding, New Zealand chairman Rob Jager said in a statement tonight.

"Shell looks forward to putting this contractual matter behind it and working with our joint venture partners to maximise the field's economic recovery for New Zealand for many years to come."

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