Because of Indo-Pacific's actions it was no longer fit to be operator of the small Goldie field within the Ngatoro mining licence, Greymouth Petroleum principal Mark Dunphy told the court during the third day of the civil case into Greymouth's claims regarding the "sole risk" drilling of Goldie-1, the well's subsequent production, and the interpretation of the relevant joint venture operating agreement.
Dunphy said that immediately after Shell had backed-in to the Goldie sole risk project in July 2001 (for a payment of about $US750, 000), they set up a Goldie sub joint venture operating committee with Indo-Pacific subsidiary Ngatoro Energy Ltd (NEL), to progress various operational matters. The subcommittee met several times during the next months.
However, in mid-2002, soon after Indo-Pacific had appointed Roger O'Brien as Goldie project manager, Dunphy said NEL did "a complete about face" and did not recognise the Goldie sub joint venture. NEL further claimed it did not have to produce a development plan, as asked by Greymouth, until Greymouth's sole risk premium had been paid. This left Greymouth "entirely at NEL's mercy" and its ad hoc and unstructured approach to field management.
Soon after Greymouth completed the purchase of Shell New Zealand's interests in the Ngatoro and Kaimiro oil fields last March, Greymouth realised Goldie operator Ngatoro Energy Ltd was flaring gas to produce the crude oil from Goldie-1 without any obvious development plan. Greymouth opposed any unnecessary flaring, as did Crown Minerals, said Dunphy. "NEL was simply producing oil from the well as quickly as possible; while NEL made the discovery, it did so under the terms of the JVOA."
Also, NEL did not need to flare Goldie gas as it could have been sold, said Dunphy. Greymouth already had the right to buy all Goldie gas through a previously agreed contract between former Kaimiro operator Fletcher Challenge Energy and NEL.
However, Indo-Pacific chief executive Dave Bennett has previously been reported as saying NEL tried to negotiate with third parties regarding the sale of Goldie gas, but had failed to get Shell and later Greymouth to agree to a contract to link Goldie gas production into the Kaimiro production facilities.
Dunphy said NEL continued pushing for the drilling of the Goldie-2 well, which Bennett said Shell had previously agreed to, though Dunphy said he was unaware of any Shell approval for Goldie-2. Anyway, NEL would not be allowed to drill Goldie-2 without a development plan and Greymouth's approval.
Greymouth believed NEL was not entitled to Goldie revenues, apart from accurate drilling and production costs, and that these revenues should be shared between the sole risk parties, as determined by Justice Wild.
NEL's operation, production, transportation and storage costs for Goldie were higher than they would have been if Goldie production had been linked into Greymouth's Kaimiro production facilities and product pipeline to the Omata tank farm near Port Taranaki, New Plymouth.
For much of the time Goldie-1 was producing, from March 2001 to August 2002, NEL did not have the required resource consents for the flaring of gas, although NEL maintained it did.
Dunphy said he had spent considerable time with Indo-Pacific, even visiting its Vancouver-based directors, but could not satisfactorily resolve these issues regarding sole risk, flaring, development and joint venture operating terms.
Indo-Pacific should be removed as Goldie operator because of its gross misrepresentation, wilful misconduct and deliberate deception, he added.
Greymouth is claiming it is entitled to 92.2564% of all revenues from Goldie, not the 59.57% stake it bought from Shell NZ last year, as well as being entitled to sell all Goldie gas. It is further claiming about $NZ40 million in damages because it says NEL did not operate Goldie optimally and had caused "irrevocable damage" to the field.
As well, Dunphy said that when Greymouth took over the Shell Ngatoro stake it discovered a high level of disharmony within the joint venture, with minority stakeholder and operator New Zealand Oil and Gas, through its NZOG Services Ltd subsidiary, essentially seeking to dictate terms. This was unusual, as most JVOA required the agreement of at least two partners in making operational decisions. Any field development plans NZOG had were piecemeal, with no secondary or tertiary recovery schemes in place.
Justice Wild adjourned the case this afternoon, to resume on Monday, and expects to be hearing Greymouth's and Indo-Pacific's claims and counter claims until early April.
