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Todd loses appeal against Shell and OMV

Published: 5:59AM Friday November 27, 2009

Source: NZPA

The Todd family’s operation in the multi-billion dollar Pohokura gasfield has suffered a further setback in its chain of litigation against partners in the field, Shell Exploration NZ Ltd, and Austrian explorer OMV NZ Ltd.

The Court of Appeal on Thursday dismissed Todd’s appeals against decisions delivered in the High Court at Wellington last August by Justice Andrew Dobson.

Todd was apparently trying to extract evidence of collusion between Shell, which has 48% of the Pohokura field, and OMV, which has 26%, the same share as Todd.

The company, owned by the Todds, one of New Zealand’s richest families, has been gathering evidence in preparation for a six week civil trial, starting on February 15.
Its litigation against Shell/OMV has so far been through three statements of claim.

The row began in 2004 as Todd faced off against Shell over which company would operate the offshore natural gas field, which was due to start production.

Up to that point it had been operated by Shell Todd Oil Services, a 50:50 joint venture that had been running oil and gas enterprises for the previous 50 years.

At the time Pohokura was publicly reported to have 750 petajoules of gas – about half of New Zealand’s known reserves – and was seen as crucial to the security of New Zealand’s energy supply, particularly to electricity generators Genesis and Contact. There was also said to be 46 million barrels of oil.

The partners in the field won special Commerce Commission approval in 2003 to jointly market the gas, claiming that development of the field would otherwise be delayed.
But they decided to go ahead and sell the gas separately anyway, – with no delay in production – and Shell moved to have its 50:50 joint venture with Todd, Shell Todd Oil Services (STOS) “resign” as operator of the field.

More litigation followed, and in 2005, Todd lost a High Court case over who operated Pohokura, after unsuccessfully challenging a decision by Shell and OMV to supplant STOS.

Shell and OMV used their majority voting power to pass resolutions known as the Offtake Rules, which required Shell to assess the “total production available”, a level it claimed was 70 petajoules a year.

At the time, a retailer, Wanganui Gas, reported conditions for the sale of the Pohokura gas would probably result in the price that retailers paid for gas doubling, and also facing significant “take-or-pay” conditions”.

Todd has claimed the amount of gas actually available from the field was actually 87 petajoules a year, with potential for extra revenue of $12 million to be generated by each additional petajoule.

Todd’s counsel, Adian Olney alleged a “secret alignment” deal between Shell and OMV was agreed on April 2, 2004, and sought answers to 23 sets of questions. This was shortened to four key ones probing telephone discussions or other meetings between Shell and OMV in the creation of the Offtake Rules, who participated, and what figures were given about the field’s rate of production.

The High Court dismissed Todd’s application, expressing concern about the “oppressive” amount of work needed to answer them fully.

Such questions should not be speculative to the extent that they were “fishing”.

Olney said the answers might be relevant to whether Shell and OMV had an anti-competitive purpose in limiting production to 70 petajoules a year.

But the appeal court said today the questions were objectionable and were open-ended enough to pace an unfair burden on the other parties.

Late last year, Crown Minerals announced that estimates of oil and gas reserves in the Pohokura field had been lifted. The amount of gas jumped 24% to 978 billion cubic feet, and the oil reserves lifted 38% to 61.6 million barrels.

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