Seadrill Partners LLC said the English High Court has ruled in favor of its subsidiary Seadrill Ghana Operations Limited relating to the early termination of the West Leo contract by Tullow Ghana Limited.
Seadrill Ghana was seeking to recover standby and force majeure rates and early termination fees of $278 million plus interest and legal expenses, Seadrill said in a press release.
The English High Court has ruled that a total sum of approximately $273 million is either payable to Seadrill Ghana if a suitable parent company guarantee from the company is provided or into court within 14 days of today’s judgment.
The case
At issue was a five-year drilling contract for Seadrill’s semi-submersible drilling rig “WEST LEO” concluded with Tullow Ghana Limited in 2012 for a drilling campaign offshore Ghana, according to law firm Haynes and Boone.
Haynes and Boone partner Glenn Kangisser, lead lawyer on behalf of Seadrill Partners, provided details of the case in a press release.
Pursuant to the contract, Tullow was obligated to pay a daily rate of around US$ 600,000 for the rig. The contract term was due to run to June 2018.
In October 2016, Tullow sought to invoke a force majeure clause in the contract. Tullow claimed that a border dispute between Ghana and Cote d’Ivoire, which led to an arbitral ruling restricting drilling in an area where Tullow had planned to drill, constituted a force majeure event. Tullow further claimed that the event entitled it to pay a reduced rate of hire for a period of 60 days and to terminate at the end of that period without paying any further compensation to Seadrill. Tullow claimed in the alternative that they were entitled to terminate for convenience.
Seadrill countered that there was no force majeure event in accordance with the contractual requirements. Seadrill accepted that the contract had been terminated for convenience with effect from December 2016 and that it was entitled to payments of sums in excess of US$ 270 million, which claims it pursued in the Commercial Court in London. Among other things, Seadrill contended that Tullow’s termination of the contract was connected with the decline in oil prices in 2014, which had resulted in Tullow paying significantly more for the rig than the then-current market rate.
The Court had to determine whether the contract had been validly terminated for force majeure or Tullow’s convenience in December 2016. The Court sided with Seadrill, concluding that Tullow was not prevented from drilling by any cause that would qualify as a force majeure and that the contract was therefore terminated for Tullow’s convenience, entitling Seadrill to payment of a pre-agreed early termination fee plus standby fees (as well as interest and legal expenses).
The judgement
“In the business of drilling for oil there are many risks,” the Judge, Mr. Justice Teare, wrote in his judgment. “If the risk which materializes is not a force majeure then Tullow has to bear the consequences.”
Tullow has indicated that it is considering its options to appeal to the Court of Appeal after an initial application for permission to appeal was rejected by the presiding judge at today’s hearing.
All figures above are quoted inclusive of applicable withholding tax and VAT. Seadrill Ghana estimates that the net judgment sum due (inclusive of interest and legal expenses) will be around $250 million.
