Perenco Warns That Suspension Of Its Contracts With Ecuador Is Imminent Due To Ecuador's Refusal To

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14th July 2009, 05:23pm - Views: 696












MEDIA RELEASE PR35382


Perenco Warns That Suspension of its Contracts With Ecuador is Imminent due to

Ecuador's Refusal to Comply With International Arbitration Tribunal Orders


LONDON, July 14 /PRNewswire-AsiaNet/ --


    Perenco Ecuador Limited ("Perenco Ecuador") and its consortium partner,

Burlington Resources Oriente Ltd. ("Burlington"), today announced that

suspension of their participation contracts with Ecuador is imminent unless

the Government of Ecuador complies with orders of two international

arbitration tribunals that prohibit the Government from seizing oil produced

by the consortium.


    Perenco Ecuador is the Operator of Blocks 7 and 21 in Ecuador. On

February 19, 2009, the Republic of Ecuador and its oil company, Empresa

Estatal Petroleos del Ecuador ("Petroecuador"), commenced a coercive process

to collect from Perenco Ecuador approximately $327 million they claimed were

due under a 2006 Ecuadorian law ("Law 42") by which the Government asserts a

right to 99% of the oil revenues above an arbitrary "reference price." In

March 2009, Petroecuador began seizing crude oil produced by Perenco Ecuador

and Burlington from Blocks 7 and 21 to satisfy the alleged Law 42 debt.


    However, 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 Petroecuador were restrained from "instituting or

further pursuing any action" - including oil seizures - "to collect from

Perenco any payments [they] claim are owed. . . pursuant to Law 42." The

tribunal made clear that such orders are "are binding on the party to which

they are directed" and that the parties "are under an international

obligation to comply" with them. On June 29, 2009, a different international

arbitration tribunal in a separate ICSID arbitration commenced by Burlington

issued a similar provisional measures order. A copy of each tribunal's order



    Despite these ICSID tribunal orders, Petroecuador carried out three

auctions of the crude oil it has seized from Perenco Ecuador and Burlington.

No buyers materialized at the first auction held in May. The second and third

auctions were held on July 3 and July 8. In the final hour of each of those

two recent auctions, Petroecuador emerged as the sole bidder. As sole bidder,

Petroecuador purchased from itself approximately 2.5 million barrels of

seized crude at about half the current market price.


    Prior to last week's auctions, Perenco Ecuador and Burlington warned

Ecuador that defiance of the tribunals' orders could likely result in

suspension of operations at the Blocks. Today, Perenco Ecuador and Burlington

notified the Government of Ecuador that suspension is now imminent.


    According to Rodrigo Marquez, Latin American Regional Manager for the

Perenco Group, "The Government's conduct in violation of the tribunals'

orders has left Perenco Ecuador and Burlington exposed to all the cost and

risk of operations at Blocks 7 and 21 with no corresponding revenues. This

situation is unsustainable. The consortium cannot be expected to produce oil

for the sole benefit of the Government of Ecuador. Accordingly, not only will

Business Company Perenco Ecuador Limited 2 image

Perenco Ecuador contemplate the possibility of enforcing its rights against

buyers of the seized crude, but Perenco Ecuador and Burlington have today

informed the Government that they imminently will suspend operations unless

the Government complies with the tribunals' orders."


    Mr. Marquez said, "Even at this late date we encourage the Government to

change course and honor the tribunals' orders. Those orders were issued

through fair procedures in which all parties' views were considered. While

the orders prohibit continued oil seizures, they call for certain disputed

amounts to be placed in a escrow during the pendency of the disputes, which

is a reasonable and balanced solution."


    Perenco Ecuador Limited is part of a privately held upstream oil and gas

company and is the operator of Blocks 7 and 21 in Ecuador.



    SOURCE:     Perenco Ecuador Limited


    CONTACT:    Rodrigo Marquez, Perenco Group, +44-20-7901-8200
















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