By: MICHEAL KAUFMAN: Sep 3, 2015

A Dutch court has ruled that Nederlandse Aardolie Maatschaapij BV (NAM), a joint venture of Exxon Mobil Corporation (NYSE:XOM) and Royal Dutch Shell plc (ADR) (NYSE:RDS.A), must compensate those affected by the earthquakes near the Groningen gas field, one of the biggest natural gas reserves in the world.

The Dutch court found NAM responsible for earthquakes in the region. Wall Street Journal (WSJ) reported industry experts as saying that the pumping of the field has deflated the gas reservoir below the surface, causing pressure build-ups and sudden jolts in the area.

Hundreds of earthquakes in the northern province of Groningen have been recorded since 1991. According to the Dutch Safety Board, energy companies and regulators have not taken any significant steps to reduce earthquakes linked to the gas field. Earlier this year, the Netherlands government was forced to twice reduce production from the field.

Around 900 homeowners and 12 housing cooperatives filed a case against the company. The judge noted that earthquakes in the area have reduced property value by “several percent”, making the company liable to compensate the home-owners. Following the court ruling, NAM will have to face more compensation dues in the future.

The joint venture company has said that it was studying the court ruling and planning its future moves. However, it has accepted its role in the earthquakes and is ready to pay compensation to local home-owners and has set aside $1.4 billion for the purpose. However, it would only compensate those who had to sell their property and suffered losses. The court ruling, on the other hand, maintained that owners could ask for compensation if their property value had been reduced by the earthquakes, without waiting for the sale of their property.

Various Energy companies including Shell and Exxon have been badly hit by the downturn in the commodity market and falling crude prices. Shell’s earnings fell down by $1.7 billion, to $5.1 billion in the second quarter (2QFY15, ended June 30, 2015). Exxon Mobil’s earnings dropped to $4.2 billion from last year’s second quarter earnings of $9.1 billion. Since the companies don’t expect a major positive change in crude prices soon, and are testing their new projects at lower prices, it makes sense for NAM to try to settle this court ruling, as compensations would only put an extra burden on the company.

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