Royal Courts of Justice
Strand, London, WC2A 2LL
Before :
MR JUSTICE DAVID STEEL
Between :
BP EXPLORATION OPERATING COMPANY LIMITED | Claimant |
- and - | |
DOLPHIN DRILLING LIMITED | Defendant |
Helen Davies Q.C. & Alec Haydon (instructed by McGrigors LLP) for the Claimant
Jeffrey Gruder Q.C. (instructed by Ince & Co) for the Defendant
Hearing dates: 16 November 2009
Judgment
Mr Justice David Steel :
The dispute
This CPR Part 8 claim concerns the proper construction of a drilling rig charter. The Claimant (“BP”) seeks a declaration that it is entitled at any time so as “to suit the convenience” of BP to terminate Contract No. 104288 (“the agreement”) relating to the semi-submersible drilling rig BYFORD DOLPHIN which is owned and operated by the Defendant (“Dolphin”). Dolphin contends that BP has no contractual entitlement to terminate the agreement for that reason until after the prescribed commencement date for drilling work under the terms of the agreement.
The issue is of some urgency as BP is contemplating exercising the contractual right of termination (if available) now against the background of a provision for delivery of the rig for service in early 2010 for a period of three years. Dolphin contends that BP can only purport to do so by way of a repudiatory breach of the agreement.
The financial implications of the dispute are considerable. It is BP’s case that the contractual right of termination expressly holds it harmless from any liability for loss of profit incurred by Dolphin by reference to the three year term. Indeed BP further seeks a declaration that, in the event of termination, the only payments to which Dolphin is entitled are any sums due for work performed prior to termination (including modification and upgrades under the terms of the contract).
The agreement
In resolving the dispute it will be necessary to refer to a large number of the provisions of the agreement. Not surprisingly it is very long. The major part is contained in a written form of agreement with eight sections running to 170 pages dated 23 March 2009. It also incorporated numerous amendments and additions to the standard form of contract known as LOGIC General Conditions of Contract for Drilling Rigs (Ed 1 - December 1997). Further amendments were made by Amendment No. 1 dated 6 May 2009. For ease of reference a conformed version of the relevant parts of the contract is annexed to this judgment. Broadly speaking the amendments and additions to the standard form are highlighted in italics. The footnotes give relevant cross references to the hearing bundle.
The background
The issue is essentially one of construction. The relevant background circumstances can be expressed quite shortly. The parties had earlier entered into Heads of Agreement dated 10 September 2008. This made provision for an exclusive arrangement to negotiate a final agreement in respect of a “selected nominated rig” for a three year contract at an indicative rate of $410,000 per day, with drilling operations planned to commence in the last quarter of 2009 or the first quarter of 2010.
This arrangement was exclusive in the sense (as emphasised by Dolphin) it was agreed that marketing of the selected rig after 12 September 2008 could only be put into effect for “work that is not in competition” with BP’s planned operations. The Heads of Agreement were extended to 2 October 2008 at which stage the contract was awarded to Dolphin with a Commencement Date no earlier than 1 January 2010 or later than 31 March 2010. It was finally signed in March 2009.
The broad structure of the agreement is fairly simple. (I use the word agreement because there is a dispute as to the meaning of the word “Contract” as used from time to time within the provisions of the agreement.)
The Contract was between BP and Dolphin and was contained in the documents referred to above: Sec. I. 2.
Capitalised words were to have the meanings assigned to them: CONTRACT (“Contract”) was said to be one and WORK (“Work”) another: Sec I. 1.
The terms of the Contract applied from 23 March 2009 being the Effective Date: Sec I. 4.
The Commencement Date was to be no earlier than 1 January 2010 and no later than 31 March 2010 when the rig was under tow to the first drilling location following completion of all preparatory work: Sec I. 5.
The duration of the Contract was to be 3 years from the Commencement Date: Sec I. 6.
BP was entitled to terminate the Work or the Contract at any time for a number of specified reasons including its own convenience: Sec II. 22.1.
In the event of such termination, payments to Dolphin included remuneration for any Work already performed (Sec II. 22.2) plus loss of remuneration to the extent prescribed by Sec III. 2.8.
The Operating Rate was $410,000 per day: Sec III. 2.1.
Specified upgrades and modifications were to be made by Dolphin prior to the Commencement Date for which BP was to contribute 50%: Sec III. 3.2: Amendment No 1 added a provision that this contribution was to be payable by way of a supplement to the Operating Rate: Sec III. 3.2.1.
All other activity to be undertaken by Dolphin prior to the Commencement Date was set out in Sec IV.
The impact of termination
The rate of $410,000 per day agreed in September 2008 and subsequently adopted for the contract is no doubt well above present market rates in the wake of the financial crisis that emerged in the last quarter of 2008 and the first quarter of 2009. Indeed Dolphin contend that it may well be that no alternative work is now available. Pending BP’s decision on termination it is planned by Dolphin that the rig should be brought inshore to undertake or complete the upgrade programme as specified in the Contract.
It can be readily appreciated that the financial implications of an early termination are very considerable from both parties’ point of view. It is common ground that in the event of contractual termination immediately after the “Commencement Date” BP would be required to pay 90% of the operating rate less any mitigation in the form of other work or saved expenses for the entire three year period. The exposure would thus be a substantial sum. By the same token any liability for repudiatory breach arising from any earlier termination would be equally extensive. But it is BP’s case that the contractual provisions allow termination at any time prior to the Commencement Date without any liability on their part for any loss of profit thereafter.
The primary issue
The particular provisions in contention are Clause 22(1)(a) and 22.2 of Section II and Clause 2.8(b) a of Section III. As is no doubt apparent from this introduction it is BP’s contention in summary that:
BP is entitled to terminate the Contract at any time and at its convenience: Sec II. 22.1(a).
The amounts payable by BP in such event are the upgrade costs plus any termination fee prescribed in Section III: Sec II. 22.2(a).
The termination fee does not include any loss of profit payment: this is only payable if the Termination is after the Commencement Date: Sec III. 2.8(b).
The Commencement Date has yet to occur since it is the date where Dolphin has informed BP that the rig is ready (and indeed when the rig is under tow to the first well): Sec I. 5.
In response Dolphin in short submits that this outcome is commercially absurd and irrational. In the result Sec II.22.1(a) must be construed in such a manner that the right of termination is only exercisable after the Commencement Date. (Footnote: 1) In particular:
Any other construction would afford BP a “call option” for the rig exercisable right up to the time when the drill is taken in tow without payment of any premium;
In contrast Dolphin will have been constrained from seeking any work which would conflict with the commitment to BP as from September 2008 or at least from March 2009.
Despite the special condition relating to payment of a termination fee in the event of termination at BP’s convenience, in reality termination could be effected prior to the Commencement Date without any payment or “termination fee” at all;
Indeed the upgrade works were to be paid for by a supplement to the hire and there was no other work to be paid for prior to the Commencement Date.
Since Work as defined could only be undertaken after the Commencement Date, this supported the construction that the Contract for the purposes of Sec II. 21.1 was simply the agreement as from the Commencement Date.
This was confirmed by the manner of calculation of the figure for loss of earnings “during the initial 12 months of the Contract”: Sec III. 2.8 b) a.
The law
I was inevitably reminded of the decision of the House of Lords in Chartbrook v Persimmon Homes Ltd [2009] 3 WLR 267as regards the principles to be adopted in construing a contract. The essence of the decision is as follows:
The essential question is what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language of the contract to mean.
If the Court was to depart from the ordinary meaning of the language used, it must be satisfied that something must have gone wrong with the language and linguistic mistakes are not readily or easily established in a formal document.
The mere fact that a contract may appear to be unduly favourable to one of the parties is not a sufficient reason to conclude that there has been a linguistic mistake.
Where however the ordinary meaning of the words makes no commercial sense or appears arbitrary or irrational but can be understood in a rational way, that meaning is to be accepted.
In short, it should be clear that something has gone wrong with the language but also clear what a reasonable person would have understood the parties to have meant.
It may well be that difficulties of construction do not call for the court to formulate some alternative form of words. “What is clear from the cases is that there is not, so to speak, a limit on the amount of red ink or verbal rearrangement or correction which the court is allowed.” per Lord Hoffman at para. 25. Nonetheless if on the one hand the words used by the parties are straightforward (albeit giving rise to a harsh outcome in the circumstances that have arisen) and on the other hand it is difficult to reformulate the relevant provision in a manner which avoids that harsh result, the Court will be the more ready to accept that commercial parties, with their competing interests feeding the negotiations, meant exactly what they said.
Discussion
The starting point is Sec II. 22.(1). As already explained it is Dolphin’s case that, solely as regards the entitlement to terminate at “the convenience” of BP, it is clear that something has gone wrong with the language and that a reasonable person would have understood the parties to mean that it was subject in effect to an implicit proviso that this entitlement could only be exercised after the Commencement Date. There are in my judgment a number of difficulties with this submission.
At the outset, Sec II. 22 is largely derived, word for word, from the industry’s standard LOGIC Conditions of Contract Edition 1 which has been in effect as from December 1997. This fact, taken with the experience of the oil and gas industry in making use of the conditions over the last 12 years, greatly undermines the suggestion that an open ended liberty to terminate at the convenience of the charterer both before and after the commencement of the drilling operations makes no commercial sense. Indeed, it is clear that representatives from all quarters of the industry were on the drafting and review committee.
Notably the clause allows for termination in a number of other circumstances, some of which were as likely to emerge before drilling commenced as after e.g. bankruptcy of the contractor or total loss of the rig. Yet it is accepted by Dolphin that no limitation on the right to terminate to a period after commencement of drilling applies in these cases. This is clearly a realistic concession. Indeed some events can only occur before commencement of drilling: e.g. failure to provide the rig ready for drilling.
It follows from that concession that only sub-clause (a) is subject to the suggested limitation on the exercise of the right of termination until after commencement of drilling. This is despite the fact that all the specified reasons are introduced by the same phrase and no reference is made to the Commencement Date as defined in the sub-clause. Put another way, it remains common ground that the Contract referred to in the introduction to Sec II. 21(1) is, as regards reasons (b) to (h), the terms and conditions of the written agreement applicable from the Effective Date (i.e. 23 March 2009). Yet so far as reason (a) is concerned, it is submitted by Dolphin that termination is only available after the Commencement Date. This in effect requires the Contract to be construed in two different senses: one as the agreement in force as from the Effective Date and the other as the agreement in force as from the Commencement Date. In my judgment this is difficult to reconcile with a right to terminate the contract at such time as BP may consider necessary “for all the following reasons”.
Dolphin places emphasis on a number of further points said to be in conflict with this analysis which is categorised as being too literal. At the forefront it is contended that it fails to give effect in any meaningful sense to the amendment to Sec II. 22.2(a) which introduced a termination fee specifically as regards termination under Sec II. 22.1(a). It was submitted the suggested outcome was irrational since no such fee was payable under Sec III. 2.8 for termination prior to the Commencement Date. This was all the more striking, it was contended, given the express precedence given to special conditions in Sec I. 2.
Even if this contrast was made out, I am not persuaded that it is particularly telling. The provision can simply be understood as providing for payment of a termination fee if the preconditions are satisfied. In any event, the point is not made out. The termination fee is made up of two parts. Whilst no claim in respect of the Operating Rate could be made, Sec III. 2.8(a) requires payment of any unpaid monies for Work performed up to the date of termination. Such in my judgment would for instance include sums due in respect of any upgrade work undertaken prior to the Commencement Date: Sec IV 6.10.2. Leaving that aside there are in addition a number of items of potential expenditure on the part of Dolphin prior to the Commencement Date for which reimbursement might be due from BP: e.g. accommodation of BP employees: Sec III 3.1, training costs: Sec III 3.4, handling and storage : Sec III 3.5 and Sec IV 7.2, additional equipment : Sec IV 6.10.1
Dolphin challenges this analysis on the basis that the word “Work” is a defined term referable only to activity after the Commencement Date. The source of this argument is the definition in Sec II 1.15 (as taken from the Standard Conditions):
““WORK” shall mean all work conducted on the UKCS which the Contractor is required to carry out in accordance with the Contract”.
For this purpose “UKCS” means the United Kingdom Continental Shelf: Sec II 1.12. This was reinforced by those provisions which suggested a distinction between “Work” and “work”: see e.g. Sec I 5 and Sec III 3.2.1 Thus the argument ran the termination fee was only by reference to Work carried out after the Commencement Date.
In my judgment this approach cannot survive the express provisions of Sec IV which covers the scope of the “Work” to be furnished under the terms of the Contract which includes not only the modifications and upgrades (which by definition had to be completed before the Commencement Date) but a number of other steps expressly required to be taken prior to that date such as documentation and inspection.
Indeed the definition Work derived from the Standard Conditions has to be read in the context of the special provisions in Sec IV including in particular Sec IV. 1:
“1.1 The Contractor shall provide the Drilling Unit to carry out the Work as generally described herein, according to the programmes and instructions issued from time to time by the company and/or the company Representatives.
....
“1.3 The Work which is to be provided by the Contract shall comprise but is not necessarily limited to the provision of management, engineering, supervisor, labour, plant, equipment and material at onshore and offshore locations to support the Company’s operation, all as generally described herein.”
It is clear from this that the parties had enlarged the scope of the Work beyond that merely on the continental shelf. In my judgment it included all activities required under the Contract whether before or after the Completion Date, including as I have already observed the specified modifications and upgrade.
It was not entirely clear whether Dolphin was submitting that Work for the purposes of the remaining reasons itemised in Sec II. 22.1 is similarly restricted to activities after the Completion Date. But it would be surprising if BP could not terminate the upgrade or modifications in the face of say force majeure but only the contract as a whole.
In any event, even if the Work is restricted to activities after the Commencement Date as suggested, it does not directly help in determining the meaning of the Contract, not least because Dolphin unquestionably does contend for a special meaning of the word as regards reason (a) alone. As regards termination for any other reason it was common ground that the Contract meant the agreement applicable as from the Effective Date.
This argument was advanced primarily by reference to the provision for a Termination Fee based on unpaid remuneration:
“2.8.(b)(a) For termination after the Commencement Date and during initial 12 months of Contract…”
A similar point was made by reference to the defined duration of the Contract being 36 months from the Commencement Date: Sec I. 6. This demonstrated, it was submitted, that the parties regarded the Contract as variously meaning the overall agreement or alternatively the three year agreement running as from the Commencement Date.
The difficulty with this proposition is that it requires the word Contract in Sec II. 22. 1 to mean two different things at the same time. In any event, Section I expressly provides that the terms of the Contract shall apply from the Effective Date. This is in contra-distinction to the Commencement Date. The Contract has to be read as a whole. For instance the dispute resolution clause in the Standard Conditions governs any dispute arising out of the Contract or the Work: Clause 27.1. This must include disputes arising from events prior to the Commencement Date. In my judgment, there is little support for any different construction to be derived from the reference in Sec III. 2.8 to the “initial 12 months of the Contract”. It is simply descriptive of the 12 month period of the Contract after the Commencement Date.
The overall analysis is not undermined by the implementation of the special provision as regards payment for modifications and additional equipment provided for by Sec III. 3.2.1. In saying this I have not forgotten the proposition advanced by Dolphin that BP is wrong in accepting responsibility of its share of costs incurred in undertaking any modifications to the rig in the event of early termination since the parties have agreed that it should be recovered by supplement to the hire. It is right that a supplemental rate is premised on the continuation of the contract throughout the three year period after the Commencement Date. But I regard the point as neutral in the sense that it does not assist one way or another as regards the meaning of Work let alone Contract. Even if well founded it is simply a reflection of the facts of the case.
But in any event, if it matters, I am not presently persuaded that the proposition is well founded. The contract must be read as a whole. Given the wide range of reasons for termination the parties must be viewed as intending that on termination costs incurred would be recoverable on the alternative basis of a lump sum even if a supplement to the hire rate had been agreed.
Conclusion
The issue comes full circle to the proposition that BP’s construction gives rise to a commercial absurdity and thus something must have gone wrong with the language of Section II. 22(1)(a). I am not persuaded that such is the case let alone clearly so.
The outcome (in the aftermath of an unexpected financial crisis) may be highly unattractive from Dolphin’s perspective. But it arises from a standard term. The usual financial implications of BP’s right to terminate at its convenience up and until the Commencement Date may well have been a valuable option reflected in the Operating Rate. The value of the option may not have been fully appreciated given the extreme nature of the business downturn. But it is not suggested that BP acted other than bone fide in regard to their presently asserted convenience. In my judgment whether the motivation for termination is the fall in the market on the one hand or, say, the absence of drilling opportunities in the designated area on the other, it is not made out that the consequences are commercially absurd.
It may be severe in the circumstances that have arisen but in my judgment Dolphin has fallen a long way short of establishing that something had gone wrong with the language let alone establishing otherwise what a reasonable person would regard the parties as having meant by the terms of Sec II. 22.
For all those reasons I conclude that BP is entitled to the declarations sought.
CONFORMED CONTRACT
between
BP EXPLORATION OPERATING COMPANY LIMITED
and
Dolphin Drilling
For the provision and operation of the Byford Dolphin, Semi-Submersible Drilling Rig
SECTION I: FORM OF AGREEMENT (Footnote: 2)
This CONTRACT is made between the following parties:-
BP Exploration Operating Company Limited a company formed under the laws of England, registered number 305943, and having its registered office at Chertsey Road, Sunbury upon Thames, Middlesex, TW16 7BP.
hereinafter called the COMPANY,
and Dolphin Drilling Ltd. a company formed under the laws of England, Registered number: 1017650, and having its registered office at Kings Scholars House, 230 Vauxhall Bridge Road, London SW1V 1AU
hereinafter called the CONTRACTOR.
WHEREAS:
(a) the COMPANY wishes that WORK shall be carried out, all as described in the CONTRACT and as provided for by the issue of an ASSET ORDER which shall reference the specific Assets of the COMPANY and its particular details for which the WORK is specifically being carried out; and
(b) the CONTRACTOR wishes to carry out the WORK in accordance with the terms of this CONTRACT and the ASSET ORDER.
NOW:
The parties hereby agree as follows:
In this CONTRACT, all capitalised words and expressions shall have the meanings assigned to them in this FORM OF AGREEMENT or elsewhere in the CONTRACT.
The following Sections shall be deemed to form, be read and construed as part of the CONTRACT:-
Section I Form of Agreement including Appendix 1.1
Section II (a) LOGIC General Conditions of Contract for Mobile Drilling rigs, Edition 1,
December 1997
Special Conditions of Contract
Illegal Information Brokering
People Management (Drilling and Well Operations)
Code of Conduct Section III Remuneration Section IV (a) Scope of Work
Rig Specification
Rig Audit
Checklist of Responsibilities for Services and Materials (Footnote: 3)
(e) Personnel
Section V Health, Safety, Security and Environment
Section VI Reporting Responsibilities of the Contractor
Section VII Quality Management and Legislative Requirements
Section VIII Key Performance Indicators ~
The relevant ASSET ORDER
Notwithstanding that this CONTRACT is executed between the COMPANY and the CONTRACTOR, it is the intent of the parties that the CONTRACT shall be utilised by the appropriate AFFILIATES of the parties detailed in the ASSET ORDER.
The Sections shall be read as one document, the contents of which, in the event of ambiguity or contradiction between Sections, shall be given precedence in the order listed, with the exception that the Special Conditions of Contract shall take precedence over the General Conditions of Contract.
In accordance with the terms and conditions of the CONTRACT, the CONTRACTOR shall perform and complete the WORK and the COMPANY shall pay the CONTRACT PRICE.
The terms and conditions of the CONTRACT shall apply from [23 March 2009], which shall be the EFFECTIVE DATE.
The COMMENCEMENT DATE shall be: (Footnote: 4)
after all rig audit actions are closed to COMPANY'S satisfaction and equipment detailed on the rig equipment list including all equipment detailed under Clause 3.2 of Section III of the CONTRACT (Footnote: 5) is fit for purpose and where applicable approved and tested to manufacturers specification and in direct continuation following DRILLING UNIT'S five year Special Periodic Survey (SPS) which is scheduled to commence first quarter 2010. Subject to finalization of the SPS work scope, CONTRACTOR shall make all reasonable efforts to complete the SPS within the first quarter of 2010. The exact COMMENCEMENT DATE shall be the date and time when CONTRACTOR has informed COMPANY that the DRILLING UNIT is ready to be mobilised to COMPANY'S first well location and the DRILLING UNIT has been accepted by COMPANY in accordance with a mutually agreed acceptance testing procedure and the DRILLING UNIT is under tight tow to the first location under this CONTRACT. The COMMENCEMENT DATE shall be no earlier than the 1st day of January 2010 and no later than the 31s' day of March 2010. CONTRACTOR shall apply best endeavours to contract and manage the preceding work to ensure the UNIT is available to commence WORK during the aforementioned timeline.
In the event that the COMMENCEMENT DATE is delayed beyond the 31st day of March 2010 the following discounts shall be applied;
11 to 20 days after the 31s' day of March 2010 a 20% discount to the Operating rate shall be applied
21 to 30 days after the 31SI day of March 2010 a 25% discount to the Operating rate shall be applied.
31 to 60 days after the 31sl day of March 2010 a 50% discount to the Operating rate shall be applied.
The aforementioned discount rates shall be applied to the days immediately following the COMMENCEMENT DATE. So, for the avoidance of doubt, if the DRILLING UNIT arrives 15 days after the 31st day of March 2010 the Contractor shall reduce the first five days Operating rate by 20%. (Footnote: 6)
The duration of the CONTRACT shall be: (Footnote: 7)
for a period of Thirty Six (36) months from the COMMENCEMENT DATE unless terminated pursuant to the provisions of Clause 22 of Section II (a) - CRTNE General Conditions of Contract.
Notwithstanding the foregoing, the CONTRACT shall continue until completion of the WORK on the well being drilled at the end of the initial term of this CONTRACT, referred to above provided that COMPANY shall not commence WORK on a new well location less than 30 days prior to the end of the CONTRACT term which is planned to exceed the term of the CONTRACT as stated above except by prior agreement of CONTRACTOR such agreement not to be unreasonably withheld. In the event that CONTRACTOR does not agree to commencement of a new well the contract will cease upon conclusion of the final well in progress and in accordance with clause 7. In the event of non productive time as a result of non performance by CONTRACTOR GROUP and/or as a result of unplanned or planned ship yard visits and/or extended repair time, during which time Nil Rate is applicable, COMPANY shall have the option to extend the length of CONTRACT to correspond to the time lost as detailed below:
a) Total time lost during the first 24 months of operation to be exercised in one extension prior to the end of the 25* (twenty fifth) month. b) Total time lost between the 25th month and the 33rd month of operation to be exercised in one extension prior to the end of the 34th (thirty fourth) month. "
The DRILLING UNIT shall be "on hire" to the COMPANY from the COMMENCEMENT DATE until the COMPLETION DATE.
The COMPANY shall use the DRILLING UNIT to perform a programme appraisal, development and abandonment operations in the UKCS Central and Northern North Sea. (Footnote: 8)
The COMPLETION DATE ... (Footnote: 9)
... shall mean the time and date when the DRILLING UNIT is under tight tow to the next operator's location and is five hundred (500) metres from the last COMPANY location or, in the event that the DRILLING UNIT does not have work in direct continuation of its current WORK, at the date and time the DRILLING UNIT is safely moored at a sheltered inshore location as specified by the CONTRACTOR, such location to be no further distant from the last location on which the COMPANY uses the DRILLING UNIT than Invergordon ("the Demobilisation port"). COMPANY shall endeavour to demobilise COMPANY'S and its other contractors' equipment and personnel prior to or upon achievement of the COMPLETION DATE. Where there are likely to be delays in demobilisation of equipment or personnel, COMPANY and CONTRACTOR shall mutually agree timing for demobilization of such (Footnote: 10)
The authorised representatives of the parties have executed the CONTRACT in duplicate upon the dates indicated below:
SECTION II(a): LOGIC GENERAL CONDITIONS OF CONTRACT
The General Conditions of the CONTRACT shall be the LOGIC General Conditions of Contract for Mobile Drilling Rigs (Edition 1 – December 1997), Copies of which are deemed to be in the possession of both the COMPANY and the CONTRACTOR. Copies of the Standard Contract document can be downloaded from the LOGIC website, www.logic-oil.com (Footnote: 11)
SECTION II (b): SPECIAL CONDITIONS OF CONTRACT
In the event of any ambiguity or contradiction between the LOGIC General Conditions of Contract for Mobile Drilling Rigs (Edition 1, December 1997) and these Special Conditions of Contract, the latter shall take precedence.
[RELEVANT LOGIC TERMS AS AMENDED BY THE CONTRACT]
1. DEFINITIONS
The following definitions shall be used for the purpose of interpreting the CONTRACT. Further definitions not contained in this Clause shall apply to the Section in which they are stated and subsequent Sections.
....
1.8 The DRILLING UNIT shall be the Byford Dolphin as described within Section IV(b) – Rig Specification. (Footnote: 12)
...
1.12 “UKCS” shall mean the United Kingdom Continental Shelf.
...
1.15 “WORK” shall mean all work conducted in the UKCS which the CONTRACTOR is required to carry out in accordance with the CONTRACT.
...
12. FORCE MAJEURE
...
12.2 For the purposes of this CONTRACT force majeure shall be limited to the following:
(a) Riot, war, invasion, act of foreign enemies, hostilities (whether war be declared or not), acts of terrorism, civil war, rebellion, revolution, insurrection or military or usurped power;
(b) Ionising radiations ...
(c) Pressure waves caused by aircraft or other aerial devices ...
(d) Earthquake, flood, fire, explosion ....
(e) Strikes at a national or regional level ...
(f) Maritime or aviation disasters;
(g) Changes to any general or local Statute, Ordinance, Decree or other Law ....
...
22. TERMINATION
22.1 The COMPANY shall have the right by giving notice to terminate all or any part of the WORK or the CONTRACT at such time or times as the COMPANY may consider necessary for any or all of the following reasons :
to suit the convenience of the COMPANY;
if a force majeure condition prevails for the period of Sixty (60) days (Footnote: 13) or longer other than a force majeure condition of a nature referred to in Clause 12.2(g) giving rise to a requirement upon the COMPANY to reimburse the CONTRACTOR pursuant to Clause 17.3;
in the event of the CONTRACTOR becoming bankrupt or making a composition or arrangement with its creditors or a winding-up order of the CONTRACTOR being made or (except for the purposes of amalgamation or reconstruction) a resolution for its voluntary winding-up passed or a provisional Liquidator, Receiver, Administrator or Manager of its business or undertaking appointed or presenting a petition or having a petition presented applying for an administration order to be made pursuant to Section 9 Insolvency Act 1986, or possession being taken by or on behalf of the holders of any debenture secured by a Floating Charge of any property comprised in or subject to the Floating Charge, or any equivalent act or thing should be done or suffered under any applicable law;
(d) if a breakdown of the CONTRACTOR'S equipment unless directly caused by COMPANY or COMPANY'S other contractors or subcontractors’ results in the CONTRACTOR being unable to perform its obligations hereunder the following shall apply
In the first year from COMMENCEMENT DATE COMPANY shall have the option to terminate CONTRACT in the event that total downtime exceeds sixty days.
In the second year from COMMENCEMENT DATE COMPANY shall have the option to terminate CONTRACT in the event that total downtime exceeds forty five days.
In the third year from COMMENCEMENT DATE COMPANY shall have the option to terminate CONTRACT in the event that total downtime exceeds thirty days.
During the term of the CONTRACT, COMPANY shall have the option to terminate CONTRACT in the event that the total downtime attributable to multiple breakdowns of a similar nature for the same equipment exceeds sixty days in any 12 (twelve) month period.
If the COMPANY at its sole option, chooses not to exercise its termination rights under this clause, a further period of NIL RATE shall continue consecutive to the above periods for no more than ninety (90) days. In the event that, the parties agree to continue the repairs thereafter, then a mutually agreed rate shall apply until operations recommence. In the event that a rate cannot be mutually agreed both parties shall have the right to terminate the CONTRACT. (Footnote: 14)
in the event that the CONTRACTOR breaches any of its material obligations hereunder which has or is likely to affect its performance of the WORK and, having received written notice thereof from the COMPANY, fails or refuses within ten (10) days of receiving such written notice to take action satisfactory to the COMPANY in order to ensure that the matter complained of is remedied to the satisfaction of the COMPANY as soon as practicable and/or fails or refuses to continue to take action satisfactory to the COMPANY in order to ensure that the matter complained of is remedied to the satisfaction of the COMPANY as soon as practicable;
if the CONTRACTOR does not provide the DRILLING UNIT ready to commence mobilisation to the COMPANY'S initial well location within 60 days following the latest COMMENCEMENT DATE (approximately the 30th day of May 2010) provided COMPANY’s right to terminate after such date shall not apply for the amount of days CONTRACTOR has delayed due to well control issues or due to unexpected or unusual weather conditions on the preceding contract. (Footnote: 15)
if the DRILLING UNIT becomes an actual or constructive total loss;
(h) If, in the reasonable opinion of the COMPANY, (Footnote: 16) any member of the CONTRACTOR GOUP fails to comply with the provisions of Clause 25. (Footnote: 17)
22.2 In the event of termination in accordance with 22.1, the CONTRACTOR shall be entitled to payment as follows:
For termination in accordance with 22.1(a) or (b) the CONTRACTOR shall be entitled to payment as set out in Section III - Remuneration for WORK performed up to the date of termination, together with such amounts as are determined in accordance with Clause 3.2 of Section III - Remuneration less any amounts already paid in accordance with Clause 3.2 of Section III – Remuneration, including in the event of termination in accordance with 22.1(a) a termination fee as set out in Section III Remuneration (Footnote: 18) and the COMPANY shall pay for the demobilisation of the DRILLING UNIT to the Demobilisation port;
For termination in accordance with 22.1(d) or (e) the CONTRACTOR shall be entitled to payment as set out in Section III - Remuneration for WORK performed up to the date of termination, together with such amounts as are determined in accordance with Clause 3.2 of Section III - Remuneration less any amounts already paid in accordance with Clause 3.2 of Section III - Remuneration (Footnote: 19) and except where the termination arises from the CONTRACTOR'S default the COMPANY shall pay for the demobilisation of the DRILLING UNIT to the Demobilisation port;
For termination in accordance with 22.1(c), (g) and (h) the CONTRACTOR shall be entitled to payment as set out in Section III - Remuneration for WORK performed up to the date of termination, together with such amounts as are determined in accordance with Clause 3.2 of Section III - Remuneration less any amounts already paid in accordance with Clause 3.2 of Section III - Remuneration; (Footnote: 20)
For termination in accordance with 22.1(f) the CONTRACTOR shall not be entitled to payment hereunder.
...
25. BUSINESS ETHICS
…….
SECTION III: REMUNERATION
1. GENERAL
Any expenditure of whatsoever nature incurred by the CONTRACTOR in order to operate and maintain the CONTRACTOR'S equipment and perform the WORK shall be a cost to be borne by the CONTRACTOR.
All rates per day specified in this section shall be for a day of twenty four (24) hours. For parts of a day all such daily rates shall be prorated to the nearest one quarter hour. The dates and times shall be certified by the COMPANY REPRESENTATIVE on the IADC-API Official Daily Drilling Report Form.
Subject to the provisions of Clause 17.3 of Section II (a) - CRINE General Conditions of Contract and to Clause 5 of this Section III, all rates per day specified in this section shall be valid for the duration of the CONTRACT.
Invoices shall be submitted in a currency specified in this Section III - Remuneration.
CONTRACTOR shall invoice in accordance with Clause 13.2, and 13.5 of Appendix 1.1, Section 1 - Form of Agreement.
2. DESCRIPTION AND APPLICATION OF RATES AND CHARGES
2.1 The OPERATING RATE
shall be $410,000 per day (Footnote: 21)(as specified in Schedule No. 1 to this Section III – Remuneration) for the fully manned provision and operation of the DRILLING UNIT and CONTRACTOR GROUP personnel during the performance of the following services:
(i) Normal drilling operations required by the COMPANY
(ii) Coring & associated operations
(iii) Well testing
(iv) Casing running
(v) Cementing
(vi) Completion operations
(vii) Mud conditioning & circulating
(viii) Fishing (unless due to an act or omission of the CONTRACTOR GROUP)
(ix) Subsea operations
(x) during the first six (6) hours in aggregate per calendar month that the DRILLING UNIT is not carrying out normal drilling operations required by the COMPANY as a result of or in connection with any failure of any equipment or machinery of the CONTRACTOR GROUP including, without limitation, the DRILLING UNIT if the OPERATING RATE was applicable immediately prior to the cessation of normal drilling operations required by the COMPANY provided that this Clause 2.1 (x) shall not apply in respect of any period in a calendar month where normal drilling operations required by COMPANY are not being carried out as aforesaid if that period is a direct continuation of a period in the immediately preceding calendar month where the DRILLING UNIT has not been carrying out normal drilling operations required by COMPANY. Where applicable this clause shall be read in conjunction with clause 29a and 29b
(xi) Wireline logging operations (from the time the first logging tool passes through the rotary table until the last tool of the logging suite is retrieved through the rotary table)
2.8 The TERMINATION FEE
shall be the amount due in accordance with Clause 22.2 (a) in Section II (b) - Special Conditions of Contract, subject to and calculated as follows:-
On the effective date of such termination, CONTRACTOR shall discontinue performance of the WORK and shall comply with COMPANY'S instructions regarding such termination.
Following such termination, COMPANY shall pay:
The unpaid parts of any moneys due to CONTRACTOR for the WORK performed up to the date of such termination, and
The Operating Rate provided for in Clause 2.1 of Section III Remuneration calculated in the following manner:
a. For termination after the COMMENCEMENT DATE and during initial 12 months of CONTRACT, the number of remaining days in the CONTRACT at 90% of the Operating Rate less any savings CONTRACTOR may achieve by not performing the WORK and/or any earnings under such alternative contract as referred to below; or
b. For termination after the initial 12 month period but prior to completion of 24 months, the number of remaining days in the CONTRACT at 70% of the Operating Rate less any savings CONTRACTOR may achieve by not performing the WORK and/or any earnings under such alternative contract as referred to below; or
c. For termination after 24 months but prior to the COMPLETION DATE, the number of remaining days in the CONTRACT at 50% of the Operating Rate less any savings CONTRACTOR may achieve by not performing the WORK and/or any earnings under such alternative contract as referred to below.
CONTRACTOR shall not be entitled to any further compensation for termination other than expressly set out herein this Clause 2.8
CONTRACTOR shall apply best endeavors to enter in contracts for alternative work for the DRILLING UNIT after the termination date. Where CONTRACTOR is successful in contracting alternative work, the amount of operating rate eventually received, under any such contract for the period between COMMENCEMENT DATE and the COMPLETION DATE shall be credited to COMPANY against the relevant amount payable by COMPANY in clause 2.8.b). a,, b or c.
Credits as described in Clause 2.8 shall always be limited to the termination cost, as described under this Clause 2.8 item b) paid by COMPANY. CONTRACTOR'S invoice in respect of a termination under this Clause 2.8 shall certify as to whether or not such alternative work has or has not been obtained, If it has been obtained, the relevant reduction to be made by reference to the applicable alternative rate received, and the relevant number of days shall be specified accordingly.
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3.2 Modifications and Additional Equipment Provided By CONTRACTOR
The cost of modifications, upgrades or additional equipment requested in accordance with Clause 6.10 of Section IV (a) - Scope of Work shall be determined in accordance with the provisions of Clause 7.2 of Appendix 1.1 to Section I - Form of Agreement.
Such costs as are determined above shall, if so required by the COMPANY, be reimbursed to the CONTRACTOR by way of a separate Supplemental Day Rate. Such Supplemental Day Rate shall apply over a period to be agreed between the COMPANY and the CONTRACTOR and the amount shall take into consideration the cost of the modification, upgrade or additional equipment, the residual value of the modification, upgrade or equipment and if necessary the cost to reinstate the DRILLING UNIT to its original condition if so required by the CONTRACTOR. Alternatively, such costs will be reimbursed on a lump sum basis.
Equipment and/or modifications provided by, and reimbursed to, the CONTRACTOR under the provisions of this clause shall become the property of the CONTRACTOR,
The specific upgrades listed below to be made prior to the COMMENCEMENT DATE shall be reimbursed to the CONTRACTOR by way of a separate SUPPLEMENTAL RIG UPGRADE RATE as detailed below.
All modifications and additional equipment detailed within the RIG UPGRADE PROGRAMME hereunder shall be considered as part of the DRILLING UNIT and shall under no circumstances be considered as additional work which in any way shall effect the COMMENCEMENT DATE as defined in the CONTRACT.
The SUPPLEMENTAL RIG UPGRADE RATE:
Shall be $3,663 per day payable each day of 3 Year term Contract (subject to Amendment as per Section III Clause 3.2) (Footnote: 22) and shall be applicable during each day of the three year term of the Contract but not during any subsequent periods. The rate is based upon the estimated costs in respect of the specific Rig Upgrade Programme detailed below but shall be subject to reconciliation against “Actual Costs” audited upon completion of the Rig Upgrade Programme. The total “Actual Costs” expended for each individual item detailed below within the Rig Upgrade Programme shall be separately calculated by CONTRACTOR and submitted to COMPANY for approval immediately following completion of the Rig Upgrade Programme. CONTRACTOR shall include all necessary documentation required for COMPANY to accurately audit these costs. Following agreement of these “Actual Costs” the SUPPLEMENTAL RIG UPGRADE RATE shall be re-calculated by CONTRACTOR based upon 50% of the “Actual Costs” as opposed to 50% of the estimated costs (with the exception of item 8 which shall be paid in full up to the capped sum) and submitted to COMPANY for approval. All subsequent invoices shall be reimbursed utilizing the new SUPPLEMENTAL RIG UPGRADE RATE. Furthermore, any invoices which have been paid prior to the re-calculation of the SUPPLEMENTAL RIG UPGRADE RATE shall be amended to the new rate and any additions or deductions resulting shall be incorporated within the next invoice.
CONTRACTOR must obtain COMPANY approval in writing before ordering any additional equipment which they expect COMPANY to partially reimburse and CONTRACTOR shall inform COMPANY immediately if he considers any of the individual estimated costs detailed below will be exceeded and must receive further written approval from COMPANY before exceeding these costs. If any of the individual estimated costs are exceeded and these are not approved previously in writing by the COMPANY the total amount payable to CONTRACTOR shall be fixed at 50% of the estimate detailed in the Rig Upgrade Programme detailed below.
Furthermore, under no circumstances shall an overall increase in excess of 5% to the current COMPANY CONTRIBUTION figure of $3,650,000 (excluding finance charges) be exceeded (ie $182,500).
Notes: For the purpose of this Clause “Actual Costs” shall be defined as direct costs only with no allowances for any overheads, handling fee’s or profit of any nature whatsoever.
RIG UPGRADE PROGRAMME
ITEM | COMPANY Contribution | TOTAL ESTIMATED COST | COMPANY CONTRIBUTION | |
1 | Install Raised Back-Up system | 50% | $425,000 | $212,500 |
2 | Wellhead Connector, BOP Mods, BOP Frame mods, test stump | 50% | $920,000 | $460,000 |
3 | 5 Te capacity subsea constant tension utility winch | 50% | $45,000 | $22,500 |
4 | 10 Te rating tugger installed on the drill floor at ventrance to the V door | 50% | $60,000 | $30,000 |
5 | Drill Floor 18” mousehole | 50% | $300,000 | $150,000 |
6 | BOP Rams dressed with the most flexible ram available. Additional pair(s) of VBR’s required | 50% | $400,000 | $200,000 |
7 | New Port Crane | 50% | $4,850,000 | $2,425,000 |
8 | Ballast valve solenoid panels to be moved. | Capped value of $150,000 | Unknown | $150,000 |
Estimated COMPANY CONTRIBUTION | ||||
9 | Financing Charges shall be charged at 5% based upon 12 month incremental reduced balance |
Equipment and/or modifications provided by, and reimbursed to, the CONTRACTOR under the provisions of this clause shall become the property of the CONTRACTOR. (Footnote: 23)
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Clause 5
5. OTHER RATE ADJUSTMENTS
5.1 In addition to such adjustment as detailed in Clause 4 above the rates specified in Schedule No 1 to this Section III -Remuneration shall be adjusted, by mutual agreement, for the actual increase or decrease in the operating cost of the DRILLING UNIT, first time one year following the COMMENCEMENT DATE, and thereafter on a yearly basis based on the actual increase or decrease in CONTRACTOR'S operating cost.
The baseline for the aforementioned operating cost shall be documented and mutually agreed by COMPANY and CONTRACTOR at the COMMENCEMENT DATE.
For the purpose of documenting such increases or decreases in operating cost, COMPANY will, on request, be given access to required accounting books in CONTRACTOR'S offices for review to verify the increased or decreased operating cost presented by CONTRACTOR. The increase or decrease in costs shall not exceed Ten percent (10%) in any one year.
SECTION IV (a): SCOPE OF WORK
1. GENERAL
1.1 The Contractor shall provide the Drilling Unit to carry out the Work as generally described herein, according to the programmes and instructions issued from time to time by the company and/or the company Representatives.
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1.3 The Work which is to be provided by the Contract shall comprise but is not necessarily limited to the provision of management, engineering, supervisor, labour, plant, equipment and material at onshore and offshore locations to support the Company’s operation, all as generally described herein.
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2. WORK TO BE PERFORMED BY THE CONTRACTOR: DRILLING SERVICES
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3. MOBILISATION
3.1 The CONTRACTOR shall keep the COMPANY REPRESENTATIVE advised of the anticipated date on which the CONTRACTOR will be able to make the DRILLING UNIT available and ready to commence the tow to the first well location with the full complement of CONTRACTOR GROUP personnel on board.
3.2 The CONTRACTOR shall give written confirmation to the COMPANY of the estimated date and time it requires the COMPANY'S tugs not later than five days prior to the commencement of tow.
3.3 In the event that the DRILLING UNIT is not going to be available and ready to commence the tow to the first well location at the dates and times specified in Clause 3.2 above the CONTRACTOR shall inform the COMPANY, not later than 36 hours prior to the date and time specified in Clause 3.2.
3.4 The COMPANY shall, at its own cost and expense, provide anchor handling vessels for the purpose of racking and relocating and laying the anchors of the DRILLING UNIT and tugs for the purposes of towing the DRILLING UNIT and in each case for the purposes of mobilisation, mooring, operating and demobilisation subject to the provisions of Clauses 2.1 & 2.2 of Section IV (d) (Footnote: 24) – Checklist. (inserted below)
Legend: 1 = CONTRACTOR
= COMPANY
= COMPANY or CONTRACTOR, to be determined by the COMPANY.
Provided Costs
2. TRANSPORTATION/HANDLING
2.1 Vessels acceptable to underwriter's 2 2
surveyor for towing and anchor
handling between COMMENCEMENT DATE and COMPLETION DATE.
2.2 Vessels acceptable to underwriter's 2 1
surveyor for towing and anchor
handling between COMMENCEMENT DATE and COMPLETION DATE where the tow or anchor handling is required due to CONTRACTOR'S negligent act or omission or default. (Footnote: 25)
4. MOVING OPERATIONS
4.1 General
Before any moving operations are commenced the CONTRACTOR shall consult in adequate time with the COMPANY upon weather conditions and consider all other relevant information available at the time but the responsibility for the decision to commence moving operations shall be the CONTRACTOR'S. The CONTRACTOR shall provide 24 hour OIM / Tow Master cover during moving operations
The CONTRACTOR shall agree with the COMPANY its requirements for towing and the COMPANY shall provide towing vessels to meet such requirements, subject to the provisions of Clauses 2.1 & 2.2 of Section IV (d) (Footnote: 26) - Checklist. The COMPANY shall provide to the CONTRACTOR, if so requested, the conditions of the charter party for such towing operations.
4.2 Positioning at Well Location
4.2.1 Where the well location is at, over or adjacent to seabed pipelines, wellheads, templates or fixed platforms and other like obstructions al! moving operations within a radius of 500 metres of the well location, or such other distance as may be determined by the COMPANY, shall be conducted under the supervision and direction of the COMPANY and in accordance with the detailed procedures agreed between the COMPANY and the CONTRACTOR prior to the commencement of moving operations.
During the period of such moving operations the DRILLING UNIT shall be under the control and responsibility of the CONTRACTOR'S Offshore Installation Manager who shall have the right to veto any instructions given by the COMPANY which he considers might endanger the safety of the DRILLING UNIT or the safety of the personnel on board.
The CONTRACTOR shall have sufficient trained personnel onboard to operate two winches 24 hours per day during positioning operations.
4.2.2 Where the well location is not at, over or adjacent to seabed pipelines, wellheads, templates, fixed platforms and other known like obstructions all moving operations within a radius of 500 metres of the well location, or, such other distance as may be determined by the COMPANY, shall be carried out in the presence of the COMPANY and in accordance with the detailed procedures agreed between the COMPANY and the CONTRACTOR prior to the commencement of moving operations.
4.2.3 During the aforementioned moving operations the CONTRACTOR shall provide and maintain the insurances required of it in accordance with the provisions of Clause 19 of Section II (a) - CRTNE General Conditions of Contract, notwithstanding that the final positioning of the DRILLING UNT at the well location may be conducted under the supervision and direction of the COMPANY.
5. MATERIALS, SERVICES AND FACILITIES TO BE PROVIDED BY THE CONTRACTOR
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6. THE CONTRACTOR'S EQUIPMENT
6.1 The CONTRACTOR shall prior to the COMMENCEMENT DATE, give appropriate written documentation to the COMPANY that:
the DRILLING UNIT is properly certified by the appropriate Authorities to operate at the WORKSITE and that it complies with all applicable laws, codes and regulations of the WORKSITE.
lifting equipment including, but not by way of limitation, top drive, hook, elevators, elevator links, slips, tongs, swivel, crown block and travelling block shall be fully inspected, tested (non-destructive testing) and certified in accordance with the requirements of "LOLER" (S.I. 1998 No. 2307) and "PUWER" (S.I. 1998 No. 2306).
Each item of lifting equipment shall have its own inspection and test certificates, which the CONTRACTOR shall retain on board the DRILLING UNIT, including records of any subsequent inspections, certificates and repair work, and shall make such records available for inspection by the COMPANY REPRESENTATIVE at all times:
Man riding operations shall only be carried out using dedicated man riding winches which shall be fitted with an effective line force limiting device.
In the event that any item of lifting equipment does not have appropriate records as aforesaid, or if any item of equipment should fail to meet the requirements laid out above, the CONTRACTOR shall, if so requested by the COMPANY REPRESENTATIVE, replace such equipment which meets the specification and which does have appropriate records.
It shall be the responsibility of the CONTRACTOR to ensure that all equipment used during all lifts is fit for purpose.
6.2 The CONTRACTOR shall, prior to the COMMENCEMENT DATE permit the COMPANY to inspect the DRILLING UNIT.
The COMPANY shall have the right to reject any or all of the CONTRACTOR'S equipment which does not meet the manufacturer's specification or which is damaged or otherwise defective.
The CONTRACTOR shall ensure that all consents, approvals, certifications or similar of any applicable authority required by CONTRACTOR GROUP for the operation of the DRILLING UNIT along with the classification of the DRILLING UNIT notified to and accepted by the COMPANY prior to the EFFECTIVE DATE shall in both cases be maintained throughout the duration of the CONTRACT (including any extensions).
The CONTRACTOR shall upon request of the COMPANY, make available to the COMPANY all or any of the following: -
the environmental design criteria of the DRILLING UNIT.
all available and relevant records of surveys, modifications and repairs of a structural nature that have been made to the DRILLING UNIT since it was first launched.
copies of the current and past official Marine Log Books pertaining to the DRILLING UNIT, records of Inclining Test Results of the DRILLING UNIT and any other records which have been made which report on the structural integrity and stability history of the DRILLING UNIT.
CONTRACTOR shall supply all Classification Society details or information concerning the DRILLING UNIT as COMPANY may request and which is available in the records of the said Society.
6.5 The CONTRACTOR shall during the continuance of the CONTRACT maintain and repair, in accordance with its Planned Maintenance Procedures Manual and at its cost, the CONTRACTOR’S EQUIPMENT to ensure that its performance meets the specifications quoted by the manufacturers and that the stated quantities thereof are maintained.
The CONTRACTOR shall maintain a record of, and be able to demonstrate compliance with relevant OEM and regulatory authorities, safety notices.
The CONTRACTOR shall maintain a copy of the aforesaid manual on board the DRILLING UNIT and shall at the request of the COMPANY or COMPANY REPRESENTATIVE provide a copy of the detailed records of the maintenance work carried out on the CONTRACTOR'S equipment.
If so requested by the COMPANY, the CONTRACTOR shall make every effort to produce a certificate from all relevant manufacturers or other approved repair facilities stating that any repairs to all or any part have been carried out in accordance with manufacturer's specifications or other relevant engineering standard.
In the event of any shutdown in operations arising out of the CONTRACTOR'S failure to comply with the requirements of this Clause 6.5 then the provisions of Clause 29 of Section II (b) - CRINE Special Conditions of Contract may, at the option of COMPANY, apply.
6.6 The CONTRACTOR shall whenever so requested by the COMPANY permit and give every assistance for an inspection of the CONTRACTOR'S equipment to be carried out by the COMPANY or its service company.
The COMPANY shall have the right to reject all or any part of the CONTRACTOR'S equipment so inspected which does not meet the manufacturer's specification or for reasonable considerations of safety or hygiene and the CONTRACTOR shall forthwith at its cost and expense replace such rejected CONTRACTOR'S equipment with other equipment to the reasonable satisfaction of the COMPANY.
Pending such replacement the COMPANY shall have the right to shut down the operation if in COMPANY'S reasonable opinion the drilling services cannot be safely and efficiently performed without such replacement and the provisions of Clause 29 of Section II (b) - CRINE Special Conditions of Contract may, at the option of COMPANY, apply.
The cost of inspection (if any) of the CONTRACTOR'S equipment so rejected shall be a debt due to the COMPANY from the CONTRACTOR.
6.7 The CONTRACTOR shall unless otherwise agreed between the COMPANY and the CONTRACTOR, prior to the COMMENCEMENT DATE arrange at its cost and expense for the CONTRACTOR'S used in-hole equipment to be inspected by an independent tubular inspection service company acceptable to the COMPANY and make the certificates of inspection available to the COMPANY.
The COMPANY shall have the right to reject any defective in-hole equipment, as detailed in Section IV (b) - Rig Specification, so inspected and the CONTRACTOR shall at its cost and expense repair or replace such rejected items to the satisfaction of the COMPANY.
In the event that new (unused) in-hole equipment is provided by the CONTRACTOR, the COMPANY may waive the inspection requirement and accept the manufacturer's certificates in lieu thereof.
6.8 For the purposes of Clauses 6.7 and 6.8, "inspection" shall meet the requirements of T. H. Hill Associates Inc. Standard DS 1 Category 4 or such other standard that is agreed by COMPANY and CONTRACTOR.
The CONTRACTOR shall make the certificates and reports of all such inspections available to the COMPANY and, from the COMMENCEMENT DATE, shall:-
6.8.1 arrange thereafter, at its cost and expense, for all items of the CONTRACTOR'S in-hole equipment to be inspected by an independent tubular inspection company, acceptable to the COMPANY, at times to be agreed with the COMPANY REPRESENTATIVE as follows:-
Bottom Hole Assembly, comprising drill collars, heviwate drill pipe and substitutes, at intervals of not more than 6 months or not more than every 2 wells, whichever occurs first, unless otherwise agreed;
Drill pipe and pup joints at intervals of not more than 12 months or not more than every 3 wells, or not more than 30,000 ft drilled, whichever occurs first, unless otherwise agreed.
in the event of drill string failure during the aforesaid interval the CONTRACTOR shall arrange at its cost and expense for an inspection to be made, as aforesaid, as soon as possible thereafter, at a time to be agreed with the COMPANY REPRESENTATIVE.
repair or replace, at its cost and expense, items rejected as consequence of such inspection. If in the reasonable opinion of the COMPANY REPRESENTATIVE the safety or efficiency of operations are reduced arising out of the rejection or failure of any item of the CONTRACTOR'S in-hole equipment then, subject to Clause 6.8.4 below, the provisions of Clause 29 of Section II (b) - CRTNE Special Conditions of Contract may, at the option of the COMPANY, apply.
in the event that it can demonstrate, by reference to records or to the report of an independent inspection company .acceptable to the COMPANY, that the rejection of any item of the drill string was caused by either the published performance limits of the drill string having been exceeded or by having been exposed to the deleterious effects of H2S and/or gases or liquids or other in-hole exposure, except where such limits have been exceeded by acts or omissions of the CONTRACTOR, during the performance of operations under this CONTRACT, then the COMPANY shall reimburse the CONTRACTOR for the cost of any additional inspection earned out in accordance with Clause 6.8.2 above and for the costs of repair or replacement of any item rejected in accordance with Clause 6.8.3 above.
6.9 The CONTRACTOR shall ensure that Hardbanding on pipes meets the specification of ARNCO 200XT.
6.10 The CONTRACTOR shall whenever so requested by the COMPANY REPRESENTATIVE in writing subject to mutual agreement on scope and cost:-
supply, deliver to the DRILLING UNIT, install, maintain and operate any additional equipment & materials, or provide additional services;
carry out modifications or upgrades to the DRILLING UNIT and/or its equipment as set out in Section IV (b) - Rig Specification.
6.11 The CONTRACTOR shall prior to any equipment being sent to the DRILLING UNIT take all appropriate measures to ensure that all equipment is fit for immediate service. Such measures would include, by way of example, breaking in of new drill string. Such measures, where necessary, may be performed offshore providing that where possible they do not interfere with the efficiency of drilling or other operations and are agreed with the COMPANY REPRESENTATIVE in advance.
7. THE COMPANY’S MATERIALS AND PROPERTY
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8. QUALITY MANAGEMENT AND LEGISLATIVE REQUIREMENTS
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9. PROCUREMENT ACTIVITIES
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10. TRANSPORTATION OF MATERIALS AND EQUIPMENT
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11. POLLUTION
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12. DOCUMENTATION
12.1 At least one (1) month prior to the COMMENCEMENT DATE the CONTRACTOR shall have completed, with assistance as required from the COMPANY, a Safety Management System Interface Document, and if applicable an HPHT Joint Operating Manual, in accordance with the requirements of the COMPANY.
The CONTRACTOR shall ensure that the above mentioned document is up to date at all times.
The CONTRACTOR shall develop and maintain a comprehensive library of Risk Assessments and procedures for activities on the DRILLING UNIT. The Risk Assessments and procedures will address all hazards within the job scope.