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Unocal et alia v. Conoco et alia

2009 October 29

Court: Netherlands Supreme Court

Date: October 14, 2005

LJN Number: AT7537

Case: Under Dutch law it is possible for the Dutch Government to grant licenses to explore and exploit natural resources on the Dutch Continental Shelf. For licensing purposes the Continental Shelf is divided into quadrants. Each of these quadrants is given a unique number; a full quadrant is subdivided into blocks.

Unocal held a license to explore and exploit natural resources in block Q1, but never operated a well in the block. The Continental Netherlands Oil Company (Conoco) held such a license for the adjacent block L16a. Both blocks form part of the Logger Field, an oilfield in the North Sea. Since 1985, Conoco has exploited wells in block L16a. One of the wells that has been operational had been drilled within 125 meters from the border between the blocks, which establishes a breach of the Governmental Licensing regulations.

The legislation moreover contains obligations to enter into a pooling agreement in case adjacent blocks form part of one and the same oilfield. In December 1992 Unocal requested the Minister to order Conoco to enter into a pooling agreement, but the Minister did not honour the request. Due to the exhausted status of the oilfield there was no legal ground to force the parties to enter into a pooling agreement. The law does not contain regulations regarding pooling historical revenues. For this, one needs to address the civil courts.

Unocal indeed decided to bring the case before the civil court, claiming that Conoco committed a tort against the licensees of the adjacent block. Conoco defended the claim, among others by alleging that the Rule of Capture forms part of Dutch law. Under the Rule of Capture, the various surface owners atop a common pool can take all the oil they can get, even if they disproportionately drain the pool or reduce the output of nearby wells and neighbouring producers. The problem with the rule of capture is that it encourages bad behaviour, reason why this theory is rejected in a lot of jurisdictions.

Held: The decision of the Supreme Court is long and technical. It is a very interesting decision for the Dutch legal community, but also for clients who are in the energy and natural resources business. Two important decisions have been made:

  1. It was held by the Supreme Court that the Rule of Capture does not form part of Dutch law.
  2. Moreover, the Supreme Court held that if it is established that it has indeed been economical feasible to explore the oil from within block Q1, then Conoco committed tort by withdrawing oil from the adjacent block Q1.
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