Put yourself in the position of Anadarko. They drilled the initial wells at Gomez and decided that the field didn't meet their economic criteria, so they stopped development. A few years later ATP comes along and agrees to a farm out agreement of the Gomez lease. I have written hundreds of these agreements and I can tell you with certainty that the agreement Anadarko executed required, with no qualifications whatsoever, for 1) ATP to be solely responsible for any and all of it's actions on the lease, 2) to indemnify Anadarko for ALL plugging and operations of any kind undertaken by ATP on the lease and to 3) pay Anadarko an ORRI on all production from the field.
Imagine the ire of Anadarko over the BK court ruling this week. 1) ATP cant afford to develop Gomez unless they do so with the promise of term ORRI to the service companies actually doing the work. 2) ATP convinces the service companies (through cross-collatoralization with other fields owned by ATP) that there is no chance the service companies wont get paid for their work. 3) ATP files for chapter 11and later claims Gomez is uneconomic with all the burdensome term ORRI that burden the property that ATP created in the first place and allowed for the field to come online. 4) ATP tries to negotiate with the owners of the term ORRI to reduce their term ORRI so that ATP can avoid paying the service companies for the work they performed. 5) The service companies tell ATP to pound sand. 6) ATP shuts in the Gomez field to spite the term ORRI owners and force a settlement which doesn't happen.
Through all this Anadarko, the original owner of the field expects to be paid it's rightful share of production from the field, which is NOT by the way, a term ORRI or a financial contrivance, as the term ORRI are to the service companies. The Anadarko ORRI applies to 100% of the production from Gomez for the life of the field.
With this weeks ruling, the court has allowed ATP to skate on it's P&A obligations because they don't have the money to fulfill their obligations under the farm out agreement. This, despite the fact that all farmout agreements in the OCS require the farmee (ATP) to carry P&A bonds to prevent this exact situation from coming to pass. Guess who gets left holding the bag? That's right, Anadarko. Not only did they have their field shut in and abandoned when it still has producible reserves, but now they have to foot the bill to P&A the wells and remove the platform at a price tag of $150MM.
I can guarantee you one thing. The business model that ATP had of farming in properties of others that they don't want to develop in exchange for an ORRI in future production? It will never happen again, not with ATP. The industry will not forget this. |
