Justice John Wild is presiding over the latest saga in the deteriorating relationship between the two companies – a substantive hearing that is expected to last all this week.
There have already been several court skirmishes between the two during the past few months and the energy industry will be watching to see which of the blows landed during this latest bout are judicious as well as judicial.
In August, Shell NZ and Pohokura partner OMV voted to remove current operator Shell Todd Oil Services – an unincorporated body jointly owned by Shell and Todd - as operator of the Pohokura and Maui fields, thus effectively ending a 50-year partnership.
Todd then appealed to the Court of Appeal to stop that happening, though last week three Court of Appeal judges rejected Todd's application, saying Todd had not established a need for the injunction, with the substantive hearing only days away. In addition, any resolution would not take effect for 180 days and Shell and OMV had given an undertaking they would not remove STOS before next February.
Yesterday, the lawyer acting for Todd, Justin Smith, said in his opening address the development of Pohokura was at a critical stage and that any change in operator would pose a significant risk to the reputation of STOS and Todd, and to the future of the near-shore north Taranaki field.
It would cause considerable uncertainty and disruption, affecting employees, landlords and construction contracts, it was alleged. It could also raise competition concerns, depending on who replaced STOS as operator, and possibly raising the hackles of industry watchdog, the Commerce Commission.
Significant progress has already been made with the project - the first stage of development drilling commenced earlier this year at Motunui, and construction of the pipelines, platform and onshore processing station has commenced.
Pohokura, one of the major fields to replace the rapidly dwindling Maui field, is expected to produce about 700 petajoules of gas over approximately 20 years from 2006.
Appeal court documents say the latest dispute centres on inconsistency in agreements governing the relationship between the Pohokura partners – Shell, Todd and OMV - and STOS.
Shell argues it and OMV have the authority to remove STOS under a 1999 joint venture operating agreement, which says the operator may be removed on 90 days' notice, without cause, if two or more parties with not less than 70% interest in the field support that. Shell NZ has a 48% stake in the Pohokura mining permit and OMV 26%.
However, Todd argues that that section of the JVA – which was amended in 2002 when Shell completed its purchase of former Pohokura partner Fletcher Challenge Energy - does not apply. Todd says STOS can only be removed by a unanimous vote of the three partners under clause nine of the associated technical services agreement and that all parties had intended this clause to be the operative one.
Shell also holds 82.75% of Maui and 50% of Kapuni, while Todd holds 6.25% of Maui, 26% of Pohokura and 50% of Kapuni. OMV holds 10% of Maui and 26% of Pohokura. STOS operates Maui, Pohokura and Kapuni, and the McKee-Mangahewa fields for Todd only, but holds no equity in any permits.
