A brief chronology of relevant events is set out below:
- 2003: The Operating Committee (comprised of one person from each JV participant in the ESJV) approved a development program which stated: “if there is insufficient aquifer support, compression can be installed onshore Varanus Island to maximise reserves recovery.” The breakdown of costs did not include any amount for inlet compression.
- 2012: Apache sent an Authority for Expenditure (AFE) to Santos in relation to two inlet compressors and an additional export compressor to be installed on Varanus Island. Santos declined the AFE and Apache responded it would perform the work on a ‘sole risk basis’. Apache undertook various activities for the VICP at its ‘sole risk’.
- 2013: Apache proposed to Santos a work program and budget for 2014, the major expenditure of which related to the VICP. An Operating Committee meeting was held and Santos abstained from voting on the basis that the program and budget were invalid.
- 2014/2015: Apache issued cash calls to Santos for the VICP, which Santos paid under protest (to avoid being treated as a defaulting party under a separate clause of the JOA).
The legal question
The primary legal issue in this case was whether, on proper construction of the JOA, a JV participant could include past expenditure incurred by that participant in either a program or budget, without prior approval of the Operating Committee . If this was permitted, the participant whom incurred the expense could then raise an AFE and pursue the money from the other participants.
The key issue