Arbitration Tribunal Order Favors Perenco in Ecuador Dispute



    LONDON, May 14 /CNW/ -- 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 $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.
    



    




For further information:

For further information: Rodrigo Marquez of Perenco Group,
+44-20-7901-8200

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