Summary

International Arbitration Tribunal
Before the Arbitral Tribunal composed of:
Jesse R. Pierce, Esq.
Lucy F. Reed, Esq.
John J. Buckley, Jr., Esq. (Chairperson)

TABLE OF CONTENTS

I. INTRODUCTION
A. Parties and Counsel
B. Tribunal and Case Administrator
C. Arbitration Agreement, Procedural Rules, Seat, and Governing Law
1. Arbitral Jurisdiction
2. Procedural Rules and Seat
3. Governing Law
II. FACTUAL BACKGROUND
A. The Parties' Contractual Relationship
1. Farmout Agreement and JOA
2. The Letter Agreement
B. Occidental-Ecuador ICSID Arbitration and ICSID Award
C. ICSID Annulment Decision and Final ICSID Award
D. Occidental-Ecuador Settlement Agreement
E. The Andes-OEPC Arbitration and Final Award
F. Confirmation Proceedings and Entry of Judgment
III. PROCEDURAL HISTORY
IV. PRINCIPAL CONTENTIONS OF THE PARTIES
A. Claimant's Position
B. Respondent's Position
V. ANDES' AFFIRMATIVE DEFENSES: DOCTRINE OF RES JUDICATA
A. Positions of the Parties
1. Respondent's Position
2. Claimant's Position
B. Tribunal's Analysis and Decision
VI. COSTS
A. Positions of the Parties
B. Tribunal's Analysis and Decision
1. Attorneys' Fees
2. Costs and Disbursements
3. Factual Witness and Expert Witness Costs
4. Arbitration Costs
5. Summary of Costs
VII. CONCLUSION AND AWARD

I. INTRODUCTION

1. Claimant Occidental Exploration and Production Company ("OEPC") commenced this Arbitration against Respondent Andes Petroleum Ecuador Ltd. ("Andes") on November 1, 2021.

OEPC asserts claims for breach of contract based on Andes' failure to pay or reimburse it for alleged losses, costs and expenses it incurred as Operator in conducting Joint Operations, including legal proceedings, relating to oil exploration rights.

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II. FACTUAL BACKGROUND

A. The Parties' Contractual Relationship

1. Farmout Agreement and JOA

16. Claimant OEPC was party to a "Participation Contract" dated May 21, 1999 with Ecuador's state-owned oil company, PetroEcuador, for the exploration and exploitation of hydrocarbons in a defined area in the Ecuadorian Amazon known as Block 15.9 As explained below, Respondent Andes later acquired a 40% economic interest in OEPC's oil exploration rights.

17. On October 19, 2000, OEPC and a subsidiary of Alberta Energy Corporation ("AEC"), City Investing Co. Ltd., entered into a Farmout Agreement by which OEPC divested to AEC's subsidiary 40% of its economic interest in Block 15.10 The AEC subsidiary that held the 40% economic interest was later renamed "AEC Ecuador." Andes is the successor in interest to AEC Ecuador. The Farmout Agreement provided that OEPC was to retain nominal legal title to the AEC subsidiary's 40% economic interest in Block 15 under the Participation Contract until such time as the Government of Ecuador gave its formal approval to the transfer of interest and title to the AEC subsidiary as contemplated by the Farmout Agreement. Upon Ecuador's formal consent, AEC Ecuador would obtain legal title to its 40% economic interest.11 Although OEPC continued to have many discussions with the Government over the ensuing years, Ecuador never consented to the transfer of interest. Consequently, 100% of the legal title remained with OEPC.

18. On October 31, 2000, OEPC and AEC Ecuador entered into a Joint Operating Agreement (the "JOA") to implement the Farmout Agreement and govern their relationship concerning the operation of Block 15.12 OEPC was the Operator in the conduct of Joint Operations under both the Farmout Agreement and the JOA. Pursuant to the JOA, OEPC and AEC Ecuador each confirmed that its rights and interests arising under the Participation Contract would be enjoyed in accordance with their respective 60:40 split recognized in the Farmout Agreement, and that all liabilities and expenses in connection with joint operations would be shared according to that same 60:40 division. AEC Ecuador also committed to a series of payments to OEPC to earn its Farmout Interest as well as to contribute 40% to Capex going forward.

19. In 2002, AEC merged with PanCanadian Enderby Company to create Encana Corporation ("Encana"). Encana thereby became the indirect owner of the 40% economic interest in Block
held by AEC Ecuador.

20. By 2004, AEC Ecuador had made all required capital payments to OEPC to earn its farmout interest. In July 2004, OEPC formally requested the Ecuadorian Government to consent to the transfer of the 40% interest to AEC Ecuador under the Farmout Agreement. The Government did not consent, however.

21. Beginning in 2002, OEPC had engaged in an international arbitration against Ecuador to recover refunds of value-added tax ("VAT"). In July 2006 the VAT tribunal issued a $75 million award in OEPC's favor, finding that Ecuador's conduct had been unfair and discriminatory. Soon thereafter, Ecuador began threatening OEPC with termination of the Participation Contract. It cited several bases, including that OEPC's transfer to AEC Ecuador of a 40% economic interest in the farmout property (i.e., the Participation Contract for Block 15) was done without Ecuador's consent and in breach of Ecuadorian law. In addition, Ecuador made clear that it would not consent to a transfer of legal title.

22. On September 8, 2004, Ecuador's Minister of Energy and Mines instructed PetroEcuador to initiate proceedings to terminate the Participation Contract for Block 15 (the "Caducidad Proceedings"), including on the ground that OEPC had failed to obtain the Ministry's authorization for the assignment of 40% of OEPC's interest in Block 15 to AEC Ecuador.

23. In August 2005, Encana and Andes Petroleum entered into a Share Sale Agreement by which Encana sold, inter alia, its ownership in AEC Ecuador to Andes Petroleum, Respondent's parent. The Share Sale Agreement, as modified, closed on February 28, 2006, after which AEC Ecuador was renamed Andes Petroleum Ecuador Ltd., i.e., Andes, the Respondent in this Arbitration.

2. The Letter Agreement

24. Given the threat that the Ecuadorian authorities would take actions that interfered with OEPC's and AEC Ecuador's rights concerning Block 15, the parties to the Share Sale Agreement and OEPC engaged in discussions to address the effect of the Caducidad Proceedings and, among other things, what would happen in the event of termination of the Participation Contract in a "Caducidad Decree." To address that contingency, Andes and OEPC entered into a Letter Agreement dated February 22, 2006 (the "Letter Agreement")14 but effective February 28, 2006, explicitly amending the Farmout Agreement and JOA with respect to the Caducity Proceedings.

25. The Letter Agreement stated that it constituted an amendment to the Farmout Agreement and JOA but only with respect to the Caducity Proceedings and that those agreements were to remain in full force and effect "except as specifically provided" in the Letter Agreement.15 In addition, the Letter Agreement provided that the "agreements [made in paragraph 2] with respect to the Caducity Proceedings" were to apply "notwithstanding any provision to the contrary" in the Farmout Agreement and JOA.

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VII. CONCLUSION AND AWARD

Through this Final Award and for the reasons set forth above, the Tribunal by majority hereby Declares, Orders and Awards as follows:

A. Respondent's request to dismiss Claimant's claims as barred by the doctrine of res judicata is GRANTED.

B. Claimant's claims for breach of contract are DENIED.

C. Respondent's request to be awarded its attorneys' fees and costs is GRANTED in the amount of $3,694,953.93.

D. Claimant is ORDERED to pay the amounts awarded in this Section VII ofthis Final Award within 30 days from the date of the transmittal of this Final Award to the Parties. This payment shall be effected by the American Arbitration Association disbursing the funds held in escrow pursuant to PO3 in the amount awarded within 30 days ofthe date of this Final Award.

E. This Final Award renders a final decision on the merits on all claims submitted to the Tribunal. All other claims or requests for relief by the Parties, to the extent not expressly granted and determined herein, are DENIED.

F. This Final Award may be executed in any number of counterparts, each ofwhich shall be deemed an original, and all of which shall constitute the Final Award of this Panel.

We hereby certify that, for the purposes of Article 1 of The New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards, this Final Award was made in New York City, New York, United States of America.

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Footnotes omitted