Energy heavyweights Shell and Todd square off

Shell New Zealand and Todd Petroleum Mining squared off at the High Court in Wellington yesterday over who will operate the crucial new Pohokura gas field.

The pair are joint operators of the field through a 50:50 venture, Shell Todd Oil Services (STOS) - a partnership dating back to 1955.

That relationship has soured, however, and Shell wants to supplant STOS as operator of Pohokura, a move that is supported by Austrian explorer OMV, the gas field's third owner after Shell and Todd.

On August 17, Shell and OMV voted to remove STOS. Todd sought an interim injunction to prevent that from happening, but the injunction was last week rejected by three Court of Appeal judges.

The latest substantive hearing, presided over by Justice John Wild, is expected to last five days.

In his opening arguments, Justin Smith, the lawyer acting for Todd, said the Pohokura field was at a "critical juncture" in terms of development. Any change in operator would pose a significant risk to the reputation of STOS and Todd, and to the future of the field.

It would cause considerable uncertainty and disruption, impacting on employees, landlords and construction contracts. It could also raise competition concerns depending on who takes over the operation - sparking Commerce Commission intervention.

Significant construction is already under way at Pohokura, with stage-one drilling begun and platforms and pipelines being built.

The Pohokura field, jointly owned by Todd, Shell and OMV, is expected to yield about 700 petajoules of gas over the next 20 years, making it a key player in the bid to replace the diminishing Maui gas reserves.

The latest dispute centres on inconsistency in agreements governing the relationship between Pohokura's partners and STOS.

Shell argues it and OMV have the authority to remove STOS under article 4.11D of a 1999 joint venture operating agreement.

The article says the operator may be removed on 90 days' notice, without cause, if two or more parties with not less than 70 per cent interest in the field support that. Shell and OMV have a total 74 per cent interest.

The joint venture agreement was changed by an amending agreement in September 2002 after Shell and Todd bought Pohokura from Fletcher Energy.

Todd argues that article 4.11D does not apply and says STOS can only be removed by a unanimous vote of the three partners under clause 9.1 in a technical services agreement, attached to the amending agreement.

It says the amending agreement contains an obvious error and it should have made article 4.11D subject to the 9.1 provision in the technical services agreement.

- NZPA