Judge orders Tullow to pay up in Seadrill rig case

Oil and gas company Tullow Oil is considering its options, including an appeal, following a court judgement ordering it to pay a fee to Seadrill over an early rig termination case in Ghana. 

West Leo; Source: Seadrill

To remind, Tullow in October 2016 sent a notice of force majeure to Seadrill for the West Leo rig contract, claiming that the field the rig had been hired for was subject to a drilling moratorium by the government of Ghana.

The moratorium was in place due to the, at the time, ongoing arbitration proceedings before the International Tribunal for the Law of the Sea (ITLOS) to determine the delineation of a disputed maritime border between Ghana and Ivory Coast in the Atlantic Ocean. Tullow then in December 2016 unilaterally terminated the rig contract.

Seadrill filed counterclaims in the Commercial Court in London against Tullow Ghana Limited (TGL) seeking a declaration that TGL was not entitled to terminate the West Leo rig contract for force majeure. In its claim, Seadrill was seeking payment of $277 million from Tullow, before interest and costs.

According to Tullow’s statement on Tuesday, the judgment in the English Commercial Court case brought against its wholly owned subsidiary Tullow Ghana Limited by Seadrill Ghana Operations Limited (Seadrill) was received on Tuesday, July 3.

The Hon. Justice Teare has ruled that Tullow was not entitled to terminate its West Leo rig contract with Seadrill on December 4, 2016 by invoking the contract’s force majeure provisions and as such requires Tullow to pay Seadrill a contractual termination fee and other standby fees that accrued in the 60 days prior to termination of the contract.

These fees amount to approximately $254 million. Tullow said it 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.

Tullow said in June that any resulting liabilities would be shared amongst the TEN joint venture, where the rig had operated at the time.

Tullow is the operator of the TEN field with a 47.18% interest and its partners are Kosmos Energy (17%), Anadarko (17%), GNPC (15%), and Petro SA (3.82%).

Following the judgement, Tullow commented: “Tullow is disappointed with the decision and maintains 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.”

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 October 1, 2016. The arbitration tribunal’s decision is expected shortly.