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Arbitration Tribunal Order Favors Perenco in Ecuador Dispute

London (ots/PRNewswire)

Perenco Ecuador Limited ("Perenco") announced today that on May
8, 2009, a three member international arbitration tribunal
constituted under the auspices of the International Centre for the
Settlement of Investment disputes ("ICSID") unanimously ordered that
the Republic of Ecuador and Empresa Estatal Petroleos del Ecuador
("Petroecuador") were restrained from instituting or further pursuing
any action to collect from Perenco any payments they claim are owed
pursuant to Law 42.
Ecuador enacted Law 42 in April 2006. Law 42 and its implementing
regulations provide that Ecuador shall receive 99% of the revenues
from oil sales above certain reference prices, despite contractual
terms that provide it with a much smaller participation share. In
April 2008, Perenco commenced an ICSID arbitration against Ecuador
and Petroecuador challenging the applicability of Law 42 to Perenco
in light of specific contractual commitments and Perenco's rights
under a the France-Ecuador bilateral investment treaty. Perenco is
represented in the arbitration by the international law firm
Debevoise & Plimpton LLP.
On February 19, 2009, Ecuador and Petroecuador commenced a
coercive process to collect from Perenco approximately US$327 million
they claimed were due under Law 42. In March 2009, Petroecuador
seized crude oil produced by Perenco and its consortium partner,
Burlington Resources Oriente Ltd., from Blocks 7 and 21 in Ecuador,
and has threatened to sell that crude oil at auction to satisfy
alleged Law 42 debts. The tribunal's May 8 order effectively prevents
Petroecuador from conducting the announced auction of seized crude
oil.
The tribunal issued its May 8 order after receiving extensive
written submissions from the parties, and conducting an oral hearing
in Paris on March 19, 2009. Ecuador actively participated in the
process, and was represented by the Attorney General's office and
external legal counsel.
In its decision, the tribunal found that without provisional
measures "Perenco's business in Ecuador would be crippled, if not
destroyed." It held: "Having initiated the arbitration to challenge
the recoverability of enhanced payments not provided for in the
Participation Contracts but demanded pursuant to Law 42, Perenco
should not, pending a final decision, be required to choose between
making the very payments they dispute and suffering extensive seizure
of its oil production or other assets." The tribunal noted that its
decision was "fully sanctioned by a long line of legal authority."
ICSID will soon publish on its website the tribunal's decision, in
English and Spanish. An excerpt from that decision is attached to
this press release.
Rodrigo Marquez, Latin American Regional Manager for the Perenco
Group, stated: "We are gratified by the international arbitration
tribunal's decision." He added, "this decision not only protects
Perenco against the loss of the crude oil already seized, but also
allows the company to continue producing and selling oil in the
future while the tribunal considers Perenco's case. The decision is a
strong signal to the market that so long as the tribunal's order
remains in place, only Perenco may sell Block 7 and 21 crude."
Commenting on recent statements indicating that Petroecuador
would carry out plans to auction crude seized from Blocks 7 and 21
despite the tribunal's order, Mr. Marquez stated: "We have the
deepest respect for Ecuador and Petroecuador and trust that they will
honor their legal obligations, including complying with the
provisional measures order. For Petroecuador to comply with the
provisional measures order, it must cancel the auction and return the
seized oil to Perenco." He also pointed out that an auction of seized
oil was impractical, as "no buyer could now have good title to the
seized oil." Should the auction proceed, "Perenco will consider
asserting rights against buyers and cargoes," Mr. Marquez elaborated.
While Perenco welcomed the tribunal's decision, it continues to
support a negotiated resolution of its dispute with Ecuador and
Petroecuador. "We remain open to negotiations with the Government
about fair terms for continued operations in Ecuador," said Mr.
Marquez. He noted, "Perenco has consistently made clear to the
Government that we prefer to have an agreement rather than an
arbitration. That remains true today."
The Perenco Group is a privately held upstream oil and gas
company. Perenco Ecuador Limited is the operator of Blocks 7 and 21
in Ecuador.
Excerpt from Tribunal's May 8, 2009 Decision in Perenco
Arbitration
79. The Tribunal considers that circumstances require it to
recommend, and it does recommend, provisional measures restraining
the Respondents from:
          (1)  demanding that Perenco pay any amounts allegedly due pursuant
               to Law 42;
          (2)  instituting or further pursuing any action, judicial or
               otherwise, including the actions described in the notices
               dated 19 February and 3 March 2009, to collect from Perenco
               any payments Respondents claim are owed by Perenco or the
               Consortium pursuant to Law 42;
          (3)  instituting or pursuing any action, judicial or otherwise,
               against Perenco or any of its officers or employees, arising
               from or in connection with the Participation Contracts; and
          (4)  unilaterally amending, rescinding, terminating, or repudiating
               the Participation Contracts or engaging in any other conduct
               which may directly or indirectly affect or alter the legal
               situation under the Participation Contracts, as agreed upon by
               the parties.
As from the date of this Decision, the Tribunal's
communications of 24 February and 5 March (paragraphs 28 and 35
above) shall cease to have  effect.
80. Since the Tribunal may, in a later decision, hold that it has
no jurisdiction to entertain this dispute, or that the Respondents
are entitled to claim and enforce the enhanced payments required by
Law 42, the Tribunal considers that the Respondents should enjoy a
measure of security in relation to sums accruing due to them from
Perenco (not the Consortium) under Law 42 from the date of this
decision forward until such later decision. It considers that such
security is best provided by payment of the sums so accruing into an
escrow account, from which sums will be disbursed on the direction of
the Tribunal or by agreement of the parties. The Tribunal invites the
parties to agree the terms and conditions on which such account may
be established, and to establish it, within 120 days of the date of
issuance of this Decision. If, at the end of that period, the parties
fail to agree or act, either party may revert to the Tribunal.

Contact:

Rodrigo Marquez of Perenco Group, +44-20-7901-8200