Andrews Kurth London Legal Briefing: TRANSOCEAN v PROVIDENCE

The recent case of Transocean Drilling U.K. Limited v Providence Resources plc, The Arctic III1 illustrates that even accepted industry-wide standard form contracts do not provide all the answers, and that disputes will never be too far away where the contract drafting is not completely watertight.

The case concerned the drilling of an offshore appraisal well (with a target depth of 7,645 feet TVD and water depth of 335 feet) in the Barryroe field off the south coast of Ireland.

Providence, the licensee of the Barryroe field, contracted with Transocean for the drilling of the well using the LOGIC model form drilling contract2 as the base contract. The following day rates were payable by Providence for the hire of the drilling rig:

Operating rate

US$250,000/day

(100%)

Standby rate

US$245,000/day

(98%)

Fishing rate

US$245,000/day

(98%)

Repair rate

US$245,000/day

(98%)

Waiting on weather rate

US$245,000/day

(98%)

Force majeure rate

US$225,000/day

(90%)

Redrill rate

US$225,000/day

(90%)

The well spudded on 20 November 2011 and completed on 25 March 2012. However, drilling delays occurred between 18 December 2011 and 2 February 2012. These delays were largely attributed to problems with a blow out preventer (BOP) stack on the drilling rig.

Transocean claimed remuneration of US$5.7m and £1.7m from Providence (in accordance with the day rates payable under the contract) for the period of the drilling delays. Providence argued that the drilling rig and Transocean's performance was defective, and that it should not have to pay for periods of delay in the drilling programme which were caused by Transocean's breach of contract. Providence also counterclaimed some US$10m against Transocean for the wasted costs of the wider marine spread which it was obliged to incur during those periods of delay.

In response, Transocean argued: (i) that it was entitled to be paid by Providence at the agreed day rates, regardless of whether it had breached the contract, because the contract described what Transocean called "a complete code" for remuneration. This meant that a particular day rate would always be applicable, irrespective of circumstances, which recognised an agreed allocation of risk between the parties; and (ii) that Providence's counterclaim for the wider marine spread costs should be irrecoverable because it amounted to a consequential loss, and the contract expressly excluded consequential loss liabilities.

The dispute between Transocean and...