Enron Corp., Houston, is taking action through the state district court of Harris County, Tex., over disputed contracts covering delivery of gas from North Sea Judy field through the Central Area Transmission System (CATS) pipeline.
The move follows Enron's decision last year to take no gas from Judy for the first year of its contract. This forced J Block operator Phillips Petroleum Co. U.K. Ltd. to defer development (OGJ, Sept. 25, 1995, p. 38).
Now Enron is pursuing two claims over those U.K. operations through the U.S. courts:
- Against the CATS group, led by operator Amoco (U.K.) Exploration Co., in which Enron claims the CATS line and related facilities "have not been built to the required standard nor are they capable of meeting the contract redelivery specification."
- Against J Block licensees, led by Phillips, seeking an injunction to prevent reinjection of associated gas "to protect the asset integrity of the gas reservoirs dedicated to Enron under the J Block contract."
Enron's decision not to take the first year of gas deliveries up to 260 MMcfd from Judy was related to the collapse of gas prices in the U.K. following a flurry of gas developments ahead of gas supply market liberalization.
The cases are viewed as a move by Enron to escape from contracts that require it to buy gas at higher prices agreed to before the price collapse. Those contract prices are now much higher than spot market prices.
In a similar move, British Gas plc started proceedings to shed contracts with its largest suppliers, Shell U.K. Ltd. and Esso Exploration & Production U.K. Ltd., with apparent government support (OGJ, Dec. 11, 1995, p. 30).
Opposing views
An Enron spokeswoman said the company chose to pursue the case in Harris County because it is headquartered in Houston and because courts in U.S. petroleum centers such as Houston are experienced in oil and gas contract problems.
The spokeswoman said Enron had been trying to negotiate with J Block partners for 15 months, and it had become clear there would be no solution to the contract problem through negotiation.
She said she could not detail how CATS pipeline facilities failed to meet contract specifications because this is under investigation by the court. "There are a number of engineering and construction issues. Basically, the system doesn't do what it should."
Amoco issued a statement on behalf of CATS partners denying Enron's allegations, which they consider unfounded.
The statement continued: "The CATS pipeline is ready to flow J Block gas at any time in full compliance with the CATS capacity reservation and transportation agreement.
"As Enron itself has indicated, however, its Enron Europe affiliate, which has contracted to purchase gas from the J Block owners, has estimated that its nominations will be zero gas flows from the J Block before Sept. 30, 1997, and has said that it will give no estimated nominations for the year to Sept. 30, 1998."
Phillips said, "We will continue our efforts to move forward on the project. We have a valid contract with Enron for sale of our gas from our J Block fields and expect the contract to be upheld and honored."
A Phillips official said the company will continue with its plan to install a gas reinjection plant on Judy platform in a bid to start oil production Apr. 1, 1997 (OGJ, Mar. 18, p. 46).
Teesside sale
Meanwhile, Imperial Chemical Industries plc (ICI) sold its 50% share in Teesside Gas Transportation Ltd. (TGTL) to partner Enron Europe for an undisclosed sum.
TGTL holds the disputed agreement for 300 MMcfd capacity in the CATS pipeline, which is used to move gas ashore to fuel an Enron-operated power generation plant at Teesside, U.K.
ICI's disclosure of the sale came only 2 days prior to Enron's announcement of its legal moves against CATS and J Block partners. An ICI spokesman said the timing was coincidental.
ICI said because all the TGTL capacity had previously been booked by Enron, its participation in TGTL was no longer of strategic importance.
CATS partners are Amoco 29.5289%, British Gas 51.1835%, Amerada Hess Ltd. 17.7174%, Phillips 0.663%, Fina Exploration Ltd. 0.5684%, and Agip (U.K.) Ltd. 0.3388%.
J-Block partners are Phillips 36.5%, Agip 33%, and British Gas 30.5%.
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