Ghana: Tullow ordered to pay $273m in offshore drilling dispute

Seadrill Partners’, a subsidiary Seadrill Ghana Operations has been awarded a settlement of $273m by the English High Court over the West Leo contract dispute with Tullow Oil’s subsidiary Tullow Ghana.

The Hon. Mr Justice Teare ruled that Tullow pay Seadrill a contractual termination fee and other standby fees that accrued in the 60 days prior to termination of the contract.

The West Leo contract dispute is related to the five-year contract given by Tullow Ghana to Seadrill to use its West Leo semi-submersible drilling rig for a drilling program offshore Ghana.

However, on December 4, 2016, Tullow made a premature termination of the drilling contract by bringing in a force majeure clause in the contract, driven by a border dispute between Ghana and Cote d’Ivoire. The border dispute ended up restricting drilling in an area that was part of its plans, claimed Tullow.

A statement issued by Tullow Oil plc (Group) confirmed that a judgment in the English Commercial Court case brought against itsubsidiary Tullow Ghana Limited (Tullow) by Seadrill ruled that it was not entitled to terminate its West Leo rig contract on December 4, 2016 by invoking the contract’s force majeure provisions.

"The fees amount to approximately $254 million. Tullow expects to be required to pay these fees within the next 14 days with Tullow being liable for a net amount of approximately $140 million, which compares with the provision of $128 million made in the 2017 Annual Report and Accounts," the statement said.

Tullow revealed that it will now assess its options, including seeking leave to appeal the judgment on the West Leo contract dispute in the Court of Appeal.

"We are disappointed with the decision and maintain the view that it was right to terminate the West Leo contract for force majeure. Tullow will now examine its options, including seeking leave to appeal the judgment.

"As disclosed in the Group’s recent trading statement, Kosmos is disputing separately, through an arbitration against Tullow with the International Chamber of Commerce, its share of the liability (c. 20%) of any costs related to the use of the West Leo rig beyond 1 October 2016. The arbitration tribunal’s decision is expected shortly".

According to Haynes and Boone CDG, the law firm defending Seadrill, Tullow had claimed that the restricted drilling following the border dispute was a force majeure event. Thereby, the company said that it will have to pay a lesser hiring rate for a period of 60 days and to scrap the contract at the end of that period without paying any additional compensation to Seadrill.

Seadrill disagreed in the court that there was no force majeure event in accordance with the contractual requirements while alleging that the contract was cancelled as per Tullow’s convenience.

The deepwater drilling contractor also argued that Tullow’s scrapping of the contract was linked to the decline in oil prices in 2014, which resulted in the latter paying a significantly greater price for the rig compared to the then-current market rate.

The court ruled in favor of Seadrill by stating that Tullow was not entitled to terminate the contract while concluding that the oil and gas firm was not stopped from drilling by any cause that would qualify as a force majeure.

Haynes and Boone CDG partner Glenn Kangisser said: “This is a wonderful result for Seadrill. The ruling underscores that English courts won’t let parties escape a bargain because of a turn in the market.

“Disputes of this nature are typically arbitrated rather than ligated before the courts therefore today’s public decision will serve as a rare guidepost for energy companies.”