Seadrill Partners Awarded $195M From Tullow Oil Contract Dispute in English High Court; Partners Obliged to Partially Apply Proceeds in Repayment of Term Loan B

Relevant Documents:
Judgment Part 1
Judgment Part 2

The English High Court has ruled in favor of Seadrill Partners in the West Leo drilling contract dispute between the rig-owning company and Tullow Ghana, the owner of drilling concessions off the coast of Ghana. In his judgment, Justice Teare concluded that claimant Seadrill Ghana Operations Ltd. was entitled to the amounts claimed, save where VAT was not due, i.e. on the standby invoices for the period after Nov. 10, 2016.

The total amount claimed was $280 million, which is broken down as follows:
 

• Approximately $195 million plus VAT for reimbursement in the event of termination for company convenience;
   
• The daily standby rate payable under the contract for October and November 2016 at a total of $39 million plus VAT; and
   
• Other miscellaneous smaller amounts.

It is therefore expected that Seadrill will be awarded at least $195 million from Tullow.

Teare J added that Tullow Oil was not able to rely on the force majeure clause in the West Leo drilling contract. The parties had entered into a five-year drilling contact in November 2012, whereby Seadrill Partners, as owner of the West Leo deep water drilling rig, agreed to carry out drilling for Tullow. Tullow terminated the contract by letter on Dec. 1 2016, whereas its term expired in June 2018.

Tullow argued that a border dispute between the Ghanaian government and Ivory Coast caused a force majeure in October 2016, which led to the termination of its West Leo drilling contract with Seadrill Partners. Justice Teare rejected Tullow’s argument.

As Seadrill Partners has been successful in its claim against Tullow, pursuant to the terms of its term loan B (as amended), it may be obliged to apply amounts received in the litigation in repayment of the term loan B.

The amended agreement states that "no later than five business days after the receipt of [proceeds from the ongoing Tullow litigation] … the Term Borrowers shall prepay to the Administrative Agent, for the account of the Initial Term Lenders, (1) the greater of (a) 50.0% of such Net Litigation Proceeds and (b) $100,000,000, or (2) if less than $100,000,000 is awarded by the court or a jury in the Identified Litigation, 100% of such Net Litigation Proceeds." If there is an out-of-court settlement, then "in no event shall the amount of the Term Loans repaid … (b) be less than $100,000,000 regardless of the amount of such Net Litigation proceeds actually received."

Further, the amendments to the term loan B add a minimum liquidity requirement mandating that the borrowers will not permit either: (a) minimum group liquidity to be less than $150 million (or the minimum liquidity covenant set in the SDLP refinancing facility if the SDLP facility is refinanced), or (b) $100 million. If the minimum liquidity covenant is breached, it can be remedied by borrowers or waived by the required lenders within five days of such breach.

There is also a negative pledge stating that "no Borrower or any Loan Party will create, incur, assume or suffer to exist any Lien securing any Indebtedness (other than any Permitted Collateral Lien) under (i) the Global Intercompany Note, (ii) Deposit Accounts or (iii) Intercompany Vessel Contracts."

The parties were involved in a 12-day trial that began in May of this year.

Reorg’s full coverage of Seadrill Partners can be found HERE.