Santos continues lawfare

QUADRANT Energy may have won the latest court battle against Santos, but the Adelaide-based oiler is preparing for the next round, claiming in a case likely to be heard in West Australia's Supreme Court next year that its partner is lifting more than its share of gas from the John Brookes field offshore Western Australia.

Santos continues lawfare

Quadrant inherited the case from Apache Corporation after Apache's Australian business was last year sold to a range of local interests, including Macquarie Capital and Brookfield Asset Management, for $US2.1 billion ($A2.7 billion at the time).

A Quadrant spokesman told Energy News that "the matter is not being actively pursued due to commercial negotiations between the parties".

However, while discussions are ongoing, Energy News understands that's not true, at least from Santos' perspective.

Santos isn't taking its foot off the pedal in preparing for the case which is expected to be heard as early as next year.

In August 2010, Apache (55% and operator) and Santos (45%) entered into a gas balancing agreement for gas supplied from the John Brookes field in WA-29-L in the Carnarvon Basin.

The agreement recognised that because the two companies had entered into separate gas sales agreements, either party may from time to time take more than its equity interest of gas, and so it provided a mechanism by which the party that lifted more than its share could compensate the other party.

Santos started legal proceedings in the Supreme Court on March 12, 2014 seeking a declaration that the agreement between the two companies only permitted parties to lift more than their equity interest as necessary to meet the variability of customer demand that arose from time to time, and not as a matter of course of on a sustained basis, which is what Santos claims Quadrant has been doing.

Santos claims that Apache took more gas than its entitlement of the gas produced and processed from John Brookes from January to June 2010, and in each six-month period thereafter until June 2013.

Santos also alleges that "at some time before or on about December 11, 2013, Apache Northwest made a decision that it was going to lift about 20 terajoules per day more than its percentage interest share of the gas produced" from John Brookes.

By doing so, Apache would lift about 65% of the daily production of gas from the field, 10% more than it was entitled to.

Then, from about January 2014, Santos claims Apache lifted "and continues to lift" more than 60% of the daily gas production from John Brookes to supply gas to its contracts, arrangements or understandings with customers.

"Had the breaches not occurred, Santos would have been able to take its percentage interest share of the gas produced and processed from the John Brookes field during the relevant six-month period or thereafter," Santos said in documents filed with the WA Supreme Court.

"Had Santos been able to take its percentage interest of such gas, it would have been able to sell the gas taken by Apache Northwest in breach of the terms of either or both the JB JOA [joint venture operating agreement] and the JBGBA for a price far in excess of the price used in the JBGBA [the August 27, 2010 agreement] to determine the amount payable by Apache Northwest under the JBGBA."

Gas and condensate production started from John Brookes in 2005, with the gas sent by pipeline to the Varanus Island processing facility where the condensate is removed and stored and the raw gas is process.

Varanus Island was the subject of an earlier latest legal case between the two oil and gas companies.

Santos started legal action against Quadrant in December 2013 when Apache still owned its Australian assets, claiming that the US company went ahead with development work on a compressor project without joint venture sign-off.

Santos lost that case but has told Energy News it was "considering its options".


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A growing series of reports, each focused on a key discussion point for the energy sector, brought to you by the Energy News Bulletin Intelligence team.


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