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Petroleum

XCL Ltd. Seeks Removal of Apache as Operator in Joint Venture Project

Strategic Insights

— 2 min read

XCL Ltd., an oil and gas exploration and production company, has notified Apache Corporation that it will seek the removal of Apache's wholly owned subsidiary, Apache China LDC, as operator of their joint venture project in the Zhao Dong Block in Bohai Bay, China. This move follows four years of delays in developing the existing discoveries on the block, with Apache failing to meet its most important obligations as operator. XCL Ltd. has also initiated a $17 million arbitration proceeding against Apache Corporation for unauthorized and excessive engineering and design costs.

Key Takeaways:

  • XCL Ltd. has notified Apache Corporation that it will seek the removal of Apache China LDC as operator of the joint venture project in the Zhao Dong Block.
  • Apache has failed to meet its obligations as operator, including delays in developing the C/D Field on the Zhao Dong Block and failure to properly manage project costs.
  • XCL Ltd. has initiated a $17 million arbitration proceeding against Apache Corporation for unauthorized and excessive engineering and design costs of approximately $18.5 million.
  • Apache has attempted to charge XCL Ltd. for project costs and exploration costs that were its sole responsibility, totaling $5.3 million and $3.9 million, respectively.
  • XCL Ltd. has paid $7.2 million of Apache's overbillings and is seeking a refund, as well as responsibility for its unauthorized and excessive expenditures.
  • CNODC must approve the removal of Apache as operator, and Apache has 30 days to cure its breaches before it can be removed.

Statistics:

  • $18.5 million: unauthorized and excessive engineering and design costs incurred by Apache.
  • $16 million: amount of engineering and design costs that were not only unauthorized but also unnecessary and wasteful.
  • $5.3 million: project costs that were solely the responsibility of Apache.
  • $3.9 million: exploration costs that were solely the responsibility of Apache.
  • $7.2 million: amount paid by XCL Ltd. to Apache's overbillings.
  • 30 days: time period given to Apache to cure its breaches before it can be removed as operator.
  • 50,000 acres: size of the Zhao Dong Block.
  • 33 1/3 percent: percentage of interest in the Block sold by XCL to Apache in 1994.
  • 50 percent: percentage of interest in the Block increased to by Apache in 1995.
  • 1994: year in which XCL Ltd. discovered oil reserves on the Zhao Dong Block.
  • 1995: year in which XCL Ltd. sold 33 1/3 percent of its interest in the Block to Apache.
  • May 10, 1995: date of the agreement signed by Apache and XCL Ltd. regarding exploration costs.

Sources:

  • XCL Ltd. press release, "XCL Ltd. Announces Intent to Remove Apache as Operator of Joint Venture Project," June 28, 1999.
  • XCL Ltd. press release, "XCL Ltd. Announces Initiation of Arbitration Proceedings Against Apache Corporation," [date not specified].

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