In 2015 we were asked by New Zealand Petroleum & Minerals to prepare a report detailing the tools available to New Zealand’s regulators to encourage greater participation in the industry by New Zealand’s indigenous people, the Maori. The research gave us the opportunity to apply our global experience in the treatment of indigenous peoples, interview many iwi and industry leaders and review the literature in this area from global institutions, such as the World Bank, and from within the petroleum industry itself. Our analysis is supplemented with numerous case studies both from New Zealand and abroad and our conclusions and recommendations can be read in the final report available at the link below.
In March of 2015 New Zealand’s Court of Appeal brought to a conclusion a long
running dispute between the joint venture partners in the Pohokura gas and condensate
field located in Taranaki, New Zealand. Todd Pohokura v. Shell Exploration NZ
Limited et ano deals with the rights to production and offtake arising under the
Association of International Petroleum Negotiator’s (AIPN) 1995 Model Form joint
operating agreement (JOA), the powers of the Operating Committee in regards thereto
and the practical implications of entering into a field development without documenting
all the necessary gas sale and transportation arrangements in advance.
The factual matrix provides an opportunity to review the principles of common law
relevant to production and offtake, including the development of those principles from
early English common law into U.S. domestic law, and how those principles have been
reflected in model form JOAs on both sides of the Atlantic, including the AIPN forms
and ultimately the Pohokura JOA.
The analysis confirms the New Zealand courts’ rulings upholding the power of the
Operating Committee to determine production rates under the AIPN Model form.
However, it concludes that gas offtake arrangements that amend or add to the rights
and obligations of the parties under the JOA must be agreed unanimously and are not
within the jurisdiction of the Operating Committee to determine.
I was recently flattered to be asked to address students and staff at Waikato University’s Centre for Environment, Resources and Energy Law. Due to my previous involvement with the International Bar Association’s Section on Energy, Environment and Infrastructure Law, Professor Barry Barton who heads up the Centre and received the periodical I used to edit for SEERIL, suggested a presentation that provided a mix of career and energy issues might be of interest. It gave me a great opportunity to take a trip down memory lane, back to my first few months out of University in 1992, back in my home town of Napier. To get into a very tight law graduate market I provided research services to a criminal barrister. After my research resulted in an acquittal, he recommended me to a local law firm and I ‘was away.’
Working in the Provinces exposed me to real issues, real clients and real judges. Real people would go to real jail if I didn’t perform.
I still believe that, notwithstanding some of the high value commercial deals I have been involved in, the greatest pressure I ever found myself under as a lawyer was holding the freedom of your client in your hands – you simply can’t have a ‘bad hair’ day when your client’s facing the prospect of a stint inside. Certainly the most colourful war stories emerge from my criminal law days – I remember, as a young, fresh faced lawyer about to interview a Maori chap on armed robbery charges at Mangaroa prison out of Hastings. It was tipping down with rain. When the prisoner entered the room I figured I’d break the ice – “good day to be inside” I said cheerfully. “You reckon” he responded, and I twigged, and released an internal ‘D’oh’!!
Working in the criminal law taught me that very few criminals are inherently ‘bad’. Most are easily led, make poor decisions and fall into a cycle that leads them back to making those poor decisions again and again. My commercial head shakes at the human resource tied up in New Zealand jails – wouldn’t it be great if we could get these guys working, earning some cash, having respect for what they can achieve and maybe break that cycle and make the place a bit safer?
In 1994 I headed off on my big ‘OE’ (‘overseas experience’). I played rugby in San Francisco, ran with the bulls in Pamplona, went to the beer festival at Munich and did the Kiwi bar tender thing in London. After a couple of years I decided to get the suits on again and see what I could make of myself in London. Another competitive market but after short stints as a paralegal, notably 4 days at Clifford Chance, enough to get on the CV, I got a role with Agip UK in London, helping to assimilate a huge number of documents resulting from their acquisition of Sun Oil Britain. I took to the commercial intricacies of upstream oil and gas contracts like I was made for it – I joked that I was simply a black t shirt wearing ‘petrol head’ from Napier – what could be more natural than working with over sized drill bits, pipelines and oil? I learnt a lot while at Agip and owe the team there a great debt. I was asked to stay on, qualifying as a UK lawyer in 1998 which really was career defining. From there I went on to become Petro-Canada’s Counsel for North West Europe, a 120,000 barrel a day business, again, working with some great folks and mentors, and after two years in Calgary, Senior Counsel International. Along the way I picked up the editor’s role for SEERIL’s Current Practice that Barry read and ultimately resulted in my appearance at Waikato University and completed an LLM in petroleum law and policy through Dundee’s Centre for Energy, Mineral, Petroleum Law and Policy. I recently called on skills gained there in advising the New Zealand regulator on policy development matters. I also did a stint as Chairman of the IBA’s UK Energy Lawyer’s group and Director of the European Chapter of the Association of International Petroleum Negotiators.
The OE had to end. After being a partner at London law firm, Memery Crystal, for 3 years I returned to NZ in 2013. Being back in New Zealand brought into sharp contrast the social conscience I had developed as a criminal lawyer with the commercial demands of the petroleum business but there is a part of that criminal lawyer still in me. I am passionate about the industry and fervently believe it has the capacity to provide a step change for all New Zealanders – maybe some of those guys in jail could get work in the hot trades or related industries or just digging pipeline trenches? Maybe early breast cancer screening for women 40 and above, as per WHO guidelines and not from 45 as per NZ practice? What about first class health care for our Mums and Dads?
The environmental conscience in NZ is strong and we are rightly cautious about our beautiful place on the globe. But constraining activities that can really help people make a go of their lives is not the answer. Yes, the Macondo spill in the Gulf of Mexico was bad but it was a great example of technology getting ahead of safety. Since then the industry has developed the types of tools (capping devices) that weren’t available to BP and adjusted good industry practice – it’s hard to believe that blow out preventers were routinely installed without being tested prior to Macondo. It was also a demonstration of regulatory failure. As a member of the IBA’s working group providing submissions to the EU on regulatory responses, we noted the regulator in the US was wearing conflicting hats – to encourage more commercial activity and to ensure appropriate safety measures were in place. That is not the case in NZ. We have 5 different regulators that would have had the power to stop a Macondo happening.
The marine life will recover, the Gulf of Mexico is a hydrocarbon emitting basin – oil in the water is natural, admittedly not in the quantities that we saw, but it will recover in time. Do you know what really kills marine life? Fishing. But it is a huge double standard that we seem to be comfortable in killing fish, some of which is delivered to our dinner table, but have a massive problem if a small number are affected by extracting petroleum that transports the fish to the table. In time, it will be the 11 families without their Dads, Sons or Brothers that will be forever affected by the Macondo blow out. Does anyone mention the Ekofisk blow out – the North Sea’s biggest spill in 1977? Admittedly much smaller than Macondo, nevertheless, half of the oil evaporated and the other half was broken broke up by natural forces. The first oil in NZ was dug out of a Taranaki beach, the coastline around Taranaki is still oil bearing, there are unknown quantities of oil seeping out naturally into the seabed on the North Island’s East Coast and huge quantities of gas, which is what is likely to be found in NZ, being released from gas nitrates. We should definitely be vigilant and having the global resources that are in place for spills is warranted, but we should not be preventing opportunities that can secure high living standards for all New Zealanders.
Concluding on climate change – again a lot of misinformation is out there to support agendas that definitely do not have the world’s climate at heart. Leaving aside the thorny question of whether natural variability has more impact than the IPCC would have us believe, here are some facts: (1) The US will meet the target emissions it set for itself in Copenhagen because it has developed gas extraction technology that makes coal fired power stations uneconomic. The ‘science is settled’ that gas can produce the same electricity as coal for half the CO2 emissions. If we replaced all coal fired generation with gas we would be a long way to meeting global targets. Australia’s Gorgon LNG project will deliver huge quantities of gas to India and China as a direct substitute for coal. Environmentalists don’t like to hear this but the best thing NZ can do for global climate change is to find that big gas field Shell reckons is in the Great South Basin and use it to shut down coal fired generation globally. Maybe we’ll get a few jobs out of it too. (2) the leading carbon capture and sequestration proponents are oil companies – it is they who are investing billions in developing this technology (iii) it is the major oil companies that have called on Governments to get their act together and introduce a carbon tax in Paris – of course making petrol more expensive isn’t going to win many votes.
In other words it is the oil and gas industry who are developing solutions to CO2 emissions. And it shouldn’t be forgotten it is not they who are doing the emitting – it’s ordinary people, like you, me and even the environmentalists that are the final users of oil and gas products.
After deliberating for nearly 6 months the New Zealand Court of Appeal has handed down its judgment in Todd Pohokura Limited v. Shell Exploration New Zealand Limited and OMV New Zealand Limited. The case will be of special interest to members of the AIPN and those oil and gas companies whose JVOA’s are based on the AIPN model forms, in particular, the 1995 model form.
The Court was asked to consider the operation of disposition provisions, based on Article 9 of the 1995 model form JVOA, and the scope of the Operating Committee’s powers in approving an annual work programme and budget. The Court considered how the binding principles for nominating and taking oil (Art 9.2), including the cash balancing ‘sale option’ procedure that applies when entitlement is not taken (Art 9.2(H), interacts with rules, approved by majority, that allow disproportionate gas offtake and balancing in kind at a later date. A further key issue was whether the Operating Committee, by majority vote, can use the annual work program and budget procedure (Art 6.3 of the model form) to constrain production to below facility capacity. The full judgment can be viewed at Todd Pohokura v Shell
A new report from Venture Taranaki details the benefits that can arise from a properly managed petroleum industry. However, the report also notes that riches do not come over night and that policy makers and communities need to take a long term view. The report notes the industry, largely based in Taranaki, employs nearly 12,000 people and contributes $2.79 billion to the national economy. The full report can be found here.