Crunch time for Enron

Decision on take-or-pay North Sea gas contract is in the hands of House of Lords

By Andrew Cavenagh

A dispute over a take-or-pay North Sea gas contract where more than £150million is at stake could go to the House of Lords for a key ruling by the middle of next month.

The issue is whether Enron, the US company contracted to buy the gas, can legitimately refuse to agree a commissioning date from which the contract becomes effective.

The partners in the offshore J-Block development, led by Phillips Petroleum, argue that the commissioning date should be taken as the time the offshore facilities were ready to produce gas – 15 February last year.

If Enron prevails, it will not have to make any payment under the contract until November this year. If it loses, its first payment (with interest) would be due from November 1996. Enron’s liability is more than £500,000 a day.

The High Court found in favour of the J-Block partners in May, but the Court of Appeal overturned this ruling in October. The J-Block partners immediately announced they would seek leave to appeal to the Lords, which is expected to grant or refuse the request within the next week.

Enron wrote to the Lords in December stating why it did not think there should be leave to appeal. The court case brought by the partners and a pipeline consortium against Enron for compensation will resume after a Christmas recess on 13 January and is scheduled for completion in mid-February. If the Lords decide to consider the issue, they would want to make a ruling before the case is over.

Phillips installed a gas reinjection module on the Judy platform on 29 December to enable J-Block to produce liquids without producing gas by April. Enron sought an injunction in the US last year to stop this project going ahead.