Over the last few months in particular, we have seen oil companies exercising their contractual rights to
suspend drilling contracts. The reasons submitted to justify such suspensions range from an overcapacity in the market, to a lack of mature projects and financing.

A discretionary right to suspend the work of the drilling contractor does not follow from Norwegian back-ground law, but it is industry practice to include a suspension right in drilling contracts.

Usually, the contract does not contain a clear requirement that the oil company must have a specific reason for its suspension. It merely states that the suspension shall be “temporary”. However, Norwegian law may nevertheless impose limitations on the oil company’s right to suspend the drilling contract.


If the contract states that the suspension must be temporary, this may imply a limitation. The word “temporary” is defined as “continuing for a limited (usually short) time”. A suspension which de facto is a cancellation of the remaining part of the drilling contract may therefore not be regarded as a suspension. However, this raises the question as to when a suspension could be deemed to be a cancellation. The question must be considered for each individual contract, and will inter alia depend on the total duration of the contract, the remaining time of the contract or number of wells, as well as the actual number of days or wells already worked.


Under Norwegian law, a contract clause should be interpreted in accordance with the parties’ common understanding at the time of entering into the contract (provided that such com-mon understanding can subsequently be proven), even if such understanding does not correspond exactly with a strict literal construction of the clause.

The parties’ intentions may thus impose limitations on the company’s right to suspend. In some cases it may be argued that the parties intended for suspension to apply only in case of operational challenges, as opposed to an event of market fluctuation. Different factors may be relevant when seeking to establish the
parties’ intentions at the time of entering into the contract, most notably the details of the suspension clause itself. The suspension rate may give some indications. If the suspension rate is comparable to the force majeure rate, or otherwise very low, arguably it could indicate that suspension is only permitted in exceptional circumstances.


The standard setup for a drilling contract is that the contractor is to provide the drilling unit whilst the company pays the agreed day rate. A drilling contract is typically agreed for either a number of wells or for a fixed period.

Consequently, the employment of the rig is the risk of the company, and the contractor earns his compensation based on time and the actual performance of the rig.

Conceptually, a drilling contract for a fixed period (as opposed to a contract for specified work or defined wells) is similar to that of a time charter for a vessel. However in a time charter, there is no discretionary “suspension right” for the charterer. Rather, the use of suspension in the context of a time charter
refers to the owner’s right to withdraw the vessel and suspend his performance if hire is not paid.

The most commonly used time charter offshore, SUPPLYTIME 2005, has no provision for discretionary sus-pension by the charterer. Instead, it contains a specific provision concerning lay-up of the vessel in Clause 6 (d). Under this clause, the charter has the option of laying up the vessel, provided that hire shall
continue to be paid for the first 30 days and thereafter the charterer shall be credited any savings “by way of reduction in expenses and overheads as a result of the lay-up of the Vessel”. Under SUPPLYTIME 2005, the owner’s right to compensation is more in line with the overriding time charter principle that
the employment of the vessel is the charterer’s risk.

Suspension of work under a fixed term drilling contract can be compared to a lay-up of a vessel under a time charter. In particular when the period of suspension is undefined, and for the company’s convenience, the situation is more correctly described as a negative change order or as a partial cancellation. Drilling
contracts normally include provisions for such situations, which give the contractor protection by entitling him to full compensation of costs. It is in our view questionable whether the company may in fact “layup” the drilling unit for whatever reason by invoking suspension when the contract contains specific
provisions for lay-up. One would assume that the suspension provisions and partial cancellation provisions were meant to complement each other, and not to cover the same factual situations. Thus, the suspension provision should arguably be interpreted narrowly so that it does not cover circumstances where the contract may otherwise be cancelled.  A more narrow interpretation of the suspension provisions is supported by the fact that many suspension provisions appear too wide and unbalanced. Many of the drilling contracts used on the Norwegian continental shelf are based on the Norwegian Fabrication
Contract 2007 (“NF 07”). The NF 07 includes a discretionary right for the company to suspend work. However this suspension right is paired with: (i) a right for the contractor to full compensation of costs; and (ii) a right to terminate the drilling contract after a period of 120 days of suspension. One may ask whether the discretionary right found in drilling contracts to suspend work should be as wide when key elements of the NF 07 suspension provision - effectively the elements protecting the contractor - are excluded.


Under Norwegian law, the obligation of contracting parties to act with loyalty towards each other is an established legal principle. This principle applies also between professional parties and can be described as an implied term of the contract, although its practical consequences may be difficult to pinpoint in a specific case. With this background, it may be questioned whether a suspension right can be used solely for commercial rea-sons – or in other words, to reduce one party’s financial costs resulting from market
fluctuations, to the detriment of the other.

A drilling contract provides a detailed regulation of rights and obligations, and a division of risk between the contracting parties. Contractual clauses regarding negative variation orders or partial cancellation entitles the oil company to reduce work under the drilling contract when the services of the drilling unit are no longer needed. At the same time such clauses enable the contractor to recover certain costs and limit its losses by seeking other employment.  Therefore, when the oil company invokes the suspension clause
in situations where a partial cancellation could otherwise have been invoked, the contractor is losing in two ways because he can neither effectively reduce his costs nor seek alternative employment. 

In order to avoid the uncertainties highlighted above, it is clearly important that when negotiating the suspension provisions within a drilling contract the commercial intention of the parties is accurately reflected in the drafting.