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Contracts and conditions at issue Superior Court case between Alaska Venture Capital Group and TG World Energy focusing on contract signed late last year Eric Lidji Petroleum News EDITOR’S NOTE: A previous version of this article published in the April 26, 2009, issue of Petroleum News incorrectly reported that Judge Craig Stowers already ruled on the motion made by AVCG/BRPC. As of April 30, 2009, that ruling ad not yet been made. Petroleum News regrets the error. A lawsuit between two North Slope explorers is centering on a contract signed last fall.
Kansas-based Alaska Venture Capital Group and its subsidiary Brooks Range Petroleum Corp. asked state Superior Court Judge Craig Stowers on April 9 to rule that a 2008 contract signed by Calgary-based TG World Energy Corp. is “binding and effective.”
TG World said the contract should not be considered binding. The company says it signed the contract based on the assumption that AVCG and BRPC would meet certain conditions, and withdrew its signature after the companies didn’t meet those conditions.
The contract is a Joint Operating Agreement designed to guide where and how the companies will explore, develop, produce and complete prospects on the North Slope.
AVCG/BRPC and TG World Energy are part of a four-company joint venture.
The contract is part of a larger debate between the two parties. AVCG/BRPC asked for a quicker ruling on the contract, calling it “a core issue in dispute in this case” and saying “early decision of this issue may assist greatly in the ultimate resolution of the matter.”
AVCG/BRPC believes the language of the 2008 JOA should stand on its own.
“There is not any provision of the 2008 JOA providing that TGWE’s signature is effective only upon the satisfaction of certain specified conditions,” Edgar Dunne, managing member of AVCG, wrote in an affidavit dated April 9, 2009.
TG World Energy believes AVCG/BRPC is not entitled to a so-called “summary judgment” on the contract question. Lawyers for TG World noted that Dunne, who provided testimony for AVCG/BRPC, wasn’t present when the contract was signed.
TG World Energy also claims the 2008 JOA never became a binding “contract” because its signature was “provisional,” in other words: based on conditions that were never met.
A question of conditions The companies formed a joint venture and signed a Joint Operating Agreement in 2006.
The agreement required the companies to complete a follow-up operating agreement within 10 days, Dunne wrote in his affidavit. Lawyers for TG World described the 2006 JOA as “bilateral” and said the parties considered replacing it with “a single JOA that would include other Working Interest Owners,” adding, “Many drafts were exchanged.”
Dunne said negotiations on the new operating agreement took two years. Representatives from the four partners ultimately signed the 2008 JOA in September and October 2008.
AVCG believes the 2008 agreement is binding because Clifford James, president and chief executive officer of TG World Energy, signed the document on Oct. 21, 2008.
TG World believes the 2006 contract is still valid, saying James’ signature on the 2008 contract was “affirmatively withdrawn” when AVCG failed to meet certain conditions.
In an affidavit signed April 24, James wrote that AVCG and BRPC presented drafts of the 2008 JOA in July and September of 2008, but TG World Energy rejected both.
James said he still had concerns in October, but Bo Darrah and Jim Winegarner, with BRPC, told him the matter could be handled by amending the Joint Venture Agreement.
“As a good faith measure, I then offered to sign the 2008 JOA, subject to the express condition that the parties would also agree upon and sign mutually acceptable amendments to the JVA addressing issues of concern to TGWE,” James wrote.
In his affidavit, James said both Darrah and Winegarner agreed to the condition.
In addition to the affidavits and statements from lawyers for each party, the April 9 motion by AVCG and BRPC and TG World Energy’s April 24 response in opposition contain documents and e-mails traded between the companies last fall on the matter.
Amendment issue On Oct. 23, two days after signing the contract, James sent an e-mail to Bo Darrah and Jim Winegarner, executives with AVCG and BRPC respectively, saying the contract wouldn’t become effective “unless all parties executed a mutually acceptable First Amendment” to a Joint Venture Agreement signed by the companies back in 2006.
“This condition was agreed by you before I signed,” James wrote.
In an e-mail to James the next day, Darrah wrote, “I am not sure what you want here, what I proposed was on the premise of you signing 2 (Authorizations for Expenditures) this year for drilling. If you are not going to drill, what else is there to agree upon?”
These correspondences back and forth came as the joint venture was planning an exploration program for the 2008-09 winter drilling season, now coming to a close.
On Nov. 6, 2008, AVCG sent a letter to James demanding TG World Energy either fund its share of two wells planned for Gwydyr Bay, or forfeit its interest in the prospect.
James responded, saying TG World Energy was withdrawing its signature from the 2008 JOA because the requested amendments had not been made to the 2006 JVA.
Claims and counterclaims In a Nov. 25 letter to all four members of the joint venture, James reiterated that the 2006 JOA should be considered binding until the companies met various conditions. James said TG World Energy would start legal proceedings if it didn’t get an answer by Dec. 5.
On Nov. 26, 2008, TG World Energy issued a press release saying it was postponing its participation in “drilling and development programs” planned for this winter.
Brooks Range filed suit against TG World for breach of contract on Dec. 4. TG World Energy filed a counter claim against AVCG/BRPC in January, refuting those claims.
In February, Superior Court Judge Craig Stowers ordered mediation.
The companies met with retired Anchorage Superior Court Judge Brian Shortell in March, but the mediation failed to produce a settlement, according to filings from TG World Energy, and now the companies are again preparing to go to trial.
A trial date has been set for early January 2010.
The lawsuit in effect canceled drilling work planned for this winter, and threatens to cancel plans for next winter as well if the companies can’t resolve the issue before fall.
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