A "Fast Track" Project Leads to a Dispute Over the "Finer Details" of an Agreement

International Arbitration, Middle East and Africa

Gas processing facilities affect sales gas quality and can shift the income balance between sales gas and natural gas liquids (NGLs). This dispute between owner and developer resulted from such a material balance shift when early production facilities were used to expedite bringing the gas stream online. Baker & O'Brien presented written and oral testimony on the differences between installed facilities and those described in their production sharing agreement, and the impact that these differences had on gas quality.

Nearly all gas field production is subjected to some degree of processing, which typically includes: (1) separation of the gas from entrained liquids (such as water and hydrocarbon condensate); (2) removal of undesirable contaminants (such as hydrogen sulfide); and (3) separation and recovery of natural gas liquids ("NGLs" such as propane, butanes, and natural gasoline), prior to making the gas "saleable." Sales gas specifications vary from location to location depending on: (1) how the gas is to be transported; (2) the ambient conditions during transit; and (3) the final usage requirements.

The owner of an undeveloped gas field entered into a production sharing agreement (PSA) with a gas field developer. The PSA included terms entitling: (1) the owner to receive all of the sales gas; and (2) the developer to receive the revenue from the sale of the NGLs and condensate yielded from the facility. Due to the urgent need for gas, the owner requested the project be completed on a "fast track" basis. During the course of fully developing the gas field, the developer made use of an early production facility to varying degrees.

A dispute resulted between the two parties regarding the quality of the sales gas in relation to the terms of the agreement. Baker and O'Brien compared the installed physical assets with those described in the technical description of the gas processing facilities as written in the PSA. Additionally, we assessed the operational performance and quality of gas delivered from the facility. Our methodology and conclusions were presented in written and oral testimony.

Aaron J. Imrie

Vice President, Dallas Office Manager

Oil & Gas Production / Natural Gas and NGLs / Transportation and Storage
Standard of Care / Commercial Contracts / Engineering, Procurement, and Construction (EPC) / Litigation / Arbitration / Expert Witness Testimony / Pipeline
Middle East and Africa