Case Analysis—Apache v Esso and decommissioning liability under the Petroleum Act 1998

Case Analysis—Apache v Esso and decommissioning liability under the Petroleum Act 1998

What is the extent of decommissioning liability under the Petroleum Act 1998 with regard to wells drilled after the relevant oil field license had been sold to a third party? 

On 17 May 2021, the Commercial Court handed down judgement in the case of Apache UK Investment Ltd v Esso Exploration and Production UK Ltd [2021] EWHC 1283 (Comm). The case concerned a dispute as to the amount of security to be provided under bilateral decommissioning security agreements (BDSAs) entered into as part of a purchase by Apache from Esso of a company that held licenses in six North Sea oilfields. At the time of the agreements, Apache Corporation, the ultimate parent company of Apache, provided a guarantee in support of Apache’s obligation to indemnify Esso for all decommissioning related expenditure that Esso was or might become liable to incur. After Apache Corporation ceased qualifying as a surety under the BDSAs, disputes arose as to the amount of additional security Apache was required to provide.

In our latest case analysis, Judith Aldersey-Williams of CMS provides commentary on the court’s decision in regard to one of two issues under dispute in this case: whether the Petroleum Act 1998 made Esso potentially liable for the decommissioning of certain wells, therefore making said wells part of the property in respect of which Apache was required to provide security. Aldersey-Williams also discusses the wider practical implications of the case in light of the Secretary of State for Business, Energy and Industrial Strategy’s usual approach to determining what constitutes an 'installation' under the 1998 Act. 

Click here to read the full analysis: Apache v Esso raises concerns over the interpretation of the Petroleum Act 1998.

 

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