AN OFTEN bitter and protracted legal battle between Todd Energy, Royal Dutch Shell and Austrian giant OMV continued during September with the Court of Appeal hearing disputes about offtake levels from the country’s largest gas resource, the near-shore Taranaki Pohokura field.

The multi-million-dollar dispute between Todd Energy and its multinational partners is now in its eighth year, having reached the Court of Appeal for a second time, as well as earlier High Court and Supreme Court proceedings.

The latest Court of Appeal case, held in Wellington during mid-September, comes three years after the parties last adjourned for settlement talks, following a High Court judge’s plea that the issue “be resolved by negotiation… not by further litigation”.

In 2010, a High Court decision dismissed proceedings brought by Todd Energy against Shell Exploration NZ and the New Zealand offshoot of OMV. That court also dismissed Todd’s NZ$274 million damages claim against Shell and OMV but awarded costs and disbursements of about NZ$1.9 million in favour of Shell and OMV.

Todd had argued its Pohokura partners “colluded” to limit production from the field to 70 petajoules (PJ) per year whereas the coastal resource could produce up to 86PJ per year and supply up to 47% of the country’s natural gas demand. Todd also claimed Shell and OMV’s alleged collusion breached the New Zealand Commerce Act and was therefore illegal.

But Justice Robert Dobson dismissed Todd’s claims and also made the unusual plea for the parties to settle the matter themselves and not go back to court.

However, a legal appeal was made regardless, though a two-week hearing scheduled for 2011 was adjourned on the first day when the parties said settlement discussions were in progress.

Now, more than three years later, Todd’s appeal has begun again, with its lawyer James Farmer, QC, saying the dispute centres around opposing commercial interests.

The field’s operator Shell Exploration NZ earlier assessed the offtake capacity of Pohokura as being about 86 PJ per year but, during 2006 when the field started producing, the joint venture’s operating committee decided only 70 PJ would be produced annually, with Shell and OMV prevailing over Todd.

Todd owns 26% of Pohokura, as does OMV, while Shell owns 48% of the rich gas field.

Todd still maintains it is entitled to take its full share of the field’s total capacity, while Shell and OMV’s strict take-or-pay provisions but flexible arrangements with their Pohokura gas customers mean it is in their commercial interest to only produce 70 PJ per year.

All partners have been able to extract additional condensate from the field for the past two years because of the gas reinjection project undertaken earlier this decade.

However, only Todd is able to take its share of the extra LPG made available through gas reinjection because of its nearby onshore Mangahewa-McKee processing facilities.

Raising offtake levels would enable Todd to produce more LPG, primarily for export to Australia, small South Pacific nations and some South-East Asian countries.

High Court judge Justice Robert Dobson has described the Shell-Todd relationship as “trench warfare”, involving “entrenched bitterness and mutual suspicions of ulterior motives on the part of the other”, almost since the start of their alliance, with now long-departed BP, in 1955.

He has also described the Shell-Todd-OMV alliance – they are also partners in the more southern offshore Maui gas field – as “a significant business relationship that needs a thorough breath of fresh air”. Shell Exploration NZ holds 83.75% of Maui, Todd 6.25% and OMV 10%.