Celtique and Magellan in legal dispute over Broadford Bridge exploratory well

The two oil companies behind an exploratory drilling site in West Sussex are suing each other in the High Court in London, according to a financial document filed in the US.

Celtique Energie, the operator of the site at Broadford Bridge, near Billingshurst, has begun a legal action against its partner, Magellan Petroleum UK. The claim concerns Magellan’s $2 million contribution to the operating costs of the Broadford Bridge well. Magellan has filed a defence and a counterclaim, alleging failures by Celtique.

Work began on preparing the Broadford Bridge site in September 2014, 10 days after final planning permission was granted. Magellan told shareholders that drilling was expected to start in the spring this year, but so far there has been no activity at the site.

The details of the legal action came to light on Friday in the quarterly filing by MPUK’s parent company, Denver-based Magellan Petroleum, to the United States Securities and Exchange Commission. It was spotted by the Sussex anti-fracking campaigner and author, Martin Dale.

The filing revealed that Celtique issued a claim in the Queen’s Bench Division of the High Court on 26th February. The claim requires Magellan Petroleum UK (MPUK) to pay Celtique £1.54m or $2.284m for outstanding contributions, known as cash calls, plus interest at 5%.

According to Friday’s filing, Celtique is also seeking a declaration from MPUK that it will forfeit its 50% ownership rights in three Petroleum Exploration and Development Licences (PEDLs) in the Weald Basin.

Magellan referred to the cash call in an earlier filing for the three months to December 2014. Magellan said it had been “evaluating its alternatives” under the agreement it had with Celtique.

In February this year, Magellan said it might fund its contribution from existing cash balances, but it said it was also considering other means, including a potential farmout transaction. This would be an agreement under which Magellan would assign all or part of its interest in the well to another company in return for payment.

Magellan told the SEC on Friday that it had issued a defence and counterclaim to Celtique Energie on 1st April, arguing that the cash calls were not valid. It said Celtique had failed “as operator of the PEDLs to comply with the contractual accounting procedures, adhere to an agreed-upon drilling schedule and otherwise properly execute the parties’ development plans.”

MPUK is seeking to recover damages from Celtique, the filing added “as a result of Celtique’s unilateral actions following the purported forfeiture of the PEDL interests”.

The filling continued: “MPUK believes that it has strong defenses to, and intends to vigorously contest, the claims by Celtique. However, due to the early stage of this matter and the uncertainty and risks inherent in litigation, the Company cannot predict the ultimate outcome of this matter and believes that a meaningful estimate of a reasonably possible loss, if any, or range of reasonably possible losses, if any, cannot currently be made.”

Later in the filing it said: “We cannot predict the ultimate outcome of this matter, which may have a material adverse effect on our interests in the central Weald licenses and/or require the payment of amounts for which we would need to obtain funding.”

The three Weald PEDLs currently held jointly by Magellan and Celtique Energie are 231, 234, and 243, representing 124 thousand acres. Magellan believes they may be prospective for oil and gas from the Kimmeridge Clay, Liassic, and other formations. The licences were due to expire in June 2016 unless the partners drilled an exploratory well. The Department of Energy and Climate Change extended the term until 2019 for 234 and 243 if Celtqiue drilled the well at Broadford Bridge..

Last year, Celtique Energie was refused planning permission for two other wells in West Sussex: at Fernhurst in the South Downs National Park and another nearby at Boxal Bridge, between the villages of Wisborough Green and Kirdford.

Celtique appealed against the refusal of the Wisborough Green-Kirdford application. A public inquiry was due to decide the application in September this year. But in a surprise move in March, Celtique pulled out of the appeal. It said the reason was a delay in the start date of the public inquiry. By the time the result was known, it said, there would not be enough time to drill the well before the PEDL term expired. It also did not appeal against the refusal at Fernhurst, citing uncertainty about petroleum exploration in National Parks.

We could find no reference on the Celtique Energie website to the legal action. We have asked Celtique to confirm and comment on the information in Magellan’s filing. A spokesman said “Celtique Energie has no comment to make at this time”.

The Keep Kirdford and Wisborough Green campaign group, which opposed Celtique Energie’s drilling plans near its villages, described Magellan’s filing about Billingshurst as “very interesting”

Katy Fletcher, the group’s secretary, said: “This news may be the reason that Celtique dropped the Appeal at the Boxal Bridge site and did not decide to Appeal the decision at Fernhurst – a money issue, and not a matter of timing, as they insisted as to why they pulled out. Whatever the reason it does not present an attractive prospect for any future or current investors!”

[Updated 18/5/2015 to correct expiry date of two PEDLs to 2019]

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