The row between the two NZ energy heavyweights has been common knowledge within the industry for years and became public two years ago when Todd Energy decided to drill in onshore Taranaki without engaging Shell Todd Oil Services (STOS) – as it was obliged to under the 1955 Joint Venture Operating Agreement (and subsequent 2002 Area of Mutual Interest Agreement).
Todd Energy managing director Richard Tweedie told EnergyReview.net then his company had become concerned that STOS’ exploration costs were too high and decided to recruit its own drilling team.
Now Shell NZ has confirmed it wants to directly operate the fields in which it has major equity interests – Maui, Kapuni and Pohokura. Shell is farming out its small stakes in the offshore Taranaki licences PEP 38481 and 38482.
But Todd has temporarily stopped that move, gaining an interim injunction from Justice Goddard in the Wellington High Court late last week preventing the STOS board from voting on resolutions that would have resulted in STOS resigning as operator of the gas fields and Shell taking over.
Shell NZ spokesman Simon King today confirmed that Shell’s moves to assume direct operation of these assets had been put on hold pending legal proceedings.
Shell NZ EP commercial manager Ajit Bansal said Shell believed it could add substantial value to the oil and gas assets by moving away from the STOS service company structure.
“Replacing STOS with direct operation by one of the field participants would align operations with common global practice in the industry,” Bansal said.
“Shell is convinced that by simplifying the operating company arrangements, it would bring advantage to all joint venture owners and staff.”
King added that Shell believed what it was proposing was in the best interests of the parties, the assets themselves and the country. “We want to drive value from these assets.”
King – who leaves for Royal Dutch Shell headquarters in The Hague at the end of the month – said Shell NZ was determined to meet the work programs of the Pohokura and Maui fields, and implementing the changes Shell proposed would ensure the programs were met.
Tweedie today declined to comment to ERN on these latest events, which have also been reported in The Dominion Post newspaper.
The newspaper reports the high court judgment in which Shell NZ says the STOS joint venture is beset by disputes and its "dysfunctionality" is raising concerns that the Pohokura work program might not be met.
Bansal told the court that if Todd was granted the interim injunction there could be “continuing and further slippage in the Pohokura and Maui development schedules, and exposure of Shell to claims for damages from third parties who have entered into contracts with the Pohokura joint venturers".
But Todd told the court the real problem was costs – the fees Shell International Exploration and Production was proposing to charge STOS for technical support, advice and other services, as well as other charges Shell NZ wanted to impose.
Todd said the viability of STOS, which has a 2005 budget of NZ$362 million, would be at risk if Shell NZ’s proposed changes were implemented.
STOS also operates the McKee and Mangahewa fields on behalf of Todd Energy.
