Enron counts the cost of losing gas contract battle

Energy company reaches £270m agreed settlement with North Sea consortium

Enron faces a bill of more than £400m after losing its battle with North Sea oil companies over take-or-pay gas contracts.

A High Court judge on Tuesday threw out the US company’s attempt to invalidate a contract with a seven-member pipeline company to bring the gas ashore from the J-Block fields.

Enron had argued that if the contract was declared null, it would invalidate its gas-purchase agreement with the three J-Block field partners.

But the day before the court ruling, Enron settled with the three – Phillips Petroleum, British Gas and Agip – agreeing to pay $440m (£270m) in return for amending the terms of the contract.

These include reducing the fixed price for the gas `to reflect current market conditions’. Enron signed the contract in 1992 at a price of more than 20p a therm, only to see spot gas prices fall to less than half that level four years later.

In 1993, Enron signed a capacity reservation and transportation contract with the operators of the 408km Central Area Transmission System (Cats) pipeline. However, it stopped making payments under this contract in March 1995 and began the legal challenge to its validity in April 1996.

The court ruling in favour of the Cats partners will cost Enron a further £150m – the £70m of payments it has withheld and the £80m it had already paid, for which it is seeking reimbursement.

Kenneth Lay, Enron’s chief executive, said the company would consider appealing.

But Ted Greene, the solicitor with Herbert Smith who represented the Cats consortium, said that such a move would be surprising, given that the court had accepted his clients’ case `on almost every point, legal and factual’.

In giving judgment, Mr Justice Langley said he had little doubt that but for the fall in gas prices all the points about which Enron complained `would have been readily sorted out in the spirit of cooperation which existed before then’.