Petrotrin and AV Oil settle arbitration dispute with a favourable outcome for the Trinidad Petroleum Holdings Ltd Group of Companies and Trinidad and Tobago
Port of Spain September 21st, 2021– The Petroleum Company of Trinidad and Tobago advises the national community that it has settled the arbitration dispute between itself and A&V Oil and Gas Limited (AV Oil) avoiding the payment of millions of dollars in damages. As an indication of the cordial nature of the settlement, Heritage, the national Oil Company, is entering into an Enhanced Production Service Contract (EPSC) with AV Oil for the purchase of crude oil.
The settlement is rooted in the partial award delivered on the 11th June 2021 by the arbitration panel in favour of AV Oil. In summary the arbitrators, headed by former President of the Caribbean Court of Justice, Sir Dennis Byron, found that Petrotrin had failed to establish that AV Oil was engaged in seal-tampering or any other inappropriate practices in the process of the delivery of crude oil to Petrotrin during the period from April 2016 to July 2017.
Based on that finding by the panel, Petrotrin was not entitled to treat any of the crude oil delivered to it by AV Oil as not having been delivered in pursuance of the Incremental Production Service Contract (IPSC) Agreement between the two companies. The findings of the arbitration also mean that AV Oil is entitled to payment of the sum of TT$84,699,879.47 that Petrotrin is holding in escrow in relation to the sums due on its unpaid invoices for the period 1st June 2017 to the 31st December 2017 together with interest at the rate of 3% per annum from the due date of each invoice until the date when the principal sum was paid into escrow. Additionally, the arbitrators also awarded payment to AV Oil of the sums due on its unpaid invoices for the crude oil supplied by the company to Petrotrin during the period 1st January 2018 to the 28th February 2018 in the amount of US$2,284,398.40 together with interest at the rate of 3% per annum from the date when each payment fell due until the date of the Award.
No evidence of corrupt practices by AV Oil
The panel of arbitrators found that Petrotrin did not have reasonable grounds for suspecting that AV Oil had misconducted itself or otherwise been involved in wrongful or fraudulent activity which would have normally entitled Petrotrin to terminate the IPSC Agreement under Article 29.1. It followed therefore, that AV Oil also has the right to be paid damages for wrongful termination of the IPSC Agreement. Those damages to AV Oil will include loss of net earnings for the period from 19th November 2019 to the 18th November 2024.
Further, because of Petrotrin’s inability to establish that it had reasonable grounds for suspecting that AV Oil had misconducted itself or otherwise been involved in wrongful or fraudulent activity, which would have entitled Petrotrin to terminate the IPSC Agreement and because it had been unable to prove that AV Oil was involved in seal tampering or any inappropriate practice in the process of the delivery of crude oil to Petrotrin during the period April 2016 to July 2017, Head 1 of Petrotrin’s counterclaim for the sum of US$143,892,397.12 was dismissed.
As a consequence of the decision of the panel, in addition to the sums provided for and mentioned above, the financial exposure to Petrotrin for assessed damages could be as high as an additional TT$800,000,000.00, which will not include further legal costs. This is why this matter has been referred to by many commentators as the “billion-dollar claim”.
Further legal action will bring additional costs with low chance of success
The Board of Directors of Petrotrin carefully considered the consequences of the partial award and the extremely strong view held by its own legal team that appeared before the arbitrators that further litigation should be commenced to have the award set aside.
To assist with its considerations and having regard to the view of the legal team, the Board sought not only one but two legal opinions, one from Rolston Nelson S.C., a leading Senior Counsel in commercial law, a former Justice of Appeal and a former Judge of the Caribbean Court of Justice, and Simon Hughes Q.C. a leading Silk specializing in arbitrations in the construction and energy sectors in the United Kingdom. It was the opinion of these senior specialist attorneys that further litigation was not advisable, the chances of success were low, and settlement of the matter should be pursued.
The Board also noted that the decision of the arbitration panel comprising as aforementioned Sir Dennis Byron, along with Petrotrin’s nominee- Mr. Justice Humphrey Stollmeyer, a former Court of Appeal Judge and Lord David Hope, the former Deputy President of the Supreme Court of the United Kingdom and Privy Councilor was not only firm but unanimous.
Finally, the Board was very conscious of the advice it received that setting aside a decision of an arbitration panel is not an easy task, and courts are minded to respect the decisions of arbitrators, unless the decision can be shown to be entirely unsupportable.
Among other things, the process to set aside the decision would involve even further litigation at the High Court, the Court of Appeal and the Privy Council only to return, if Petrotrin is successful, to the original arbitration panel identified above for a rehearing.
The legal costs and time already incurred in this matter are already very significant. Further litigation, along with the aforementioned exposure to consequential damages if Petrotrin were to continue to be unsuccessful, could take the financial exposure to well over One Billion Trinidad and Tobago Dollars.
It should also be mentioned that currently, the TPHL Group is pursuing refinancing of all of its debt. The Board was made aware by TPHL’s international financial advisors that the prospects for favourable terms are threatened with pending litigation of this magnitude; more so if findings were to once again go against Petrotrin.
A beneficial settlement
Therefore, the Board once more, admittedly against the strong views of its legal team that
appeared before the tribunal, appointed a high-level management team which entered into discussions with AV Oil to explore the terms of a settlement acceptable to both sides. Those discussions were based solely on operational data and proved very fruitful in arriving at a settlement in the following terms:
(i) The payment to AV Oil of the sums already awarded by the arbitration panel
for crude oil already supplied.
(ii) Payment to AV Oil of the sum of TT$18,000,000.00 in full and final
satisfaction of any and all damages suffered by AV Oil in connection with the
termination of the IPSC.
(iii) Payment to AV Oil of a sum of money to be agreed by the Parties representing
reasonable legal costs and expenses incurred by AV Oil in the arbitration
proceedings or such sum to be assessed by the Tribunal in default of
(iv) Heritage to grant an Enhanced Production Services Contract (EPSC) to AV
Oil for a period of ten (10) years.
(v) AV Oil accepts and acknowledges that Petrotrin shall not be liable for and
shall not pay any losses for mobilisation or demobilisation costs and expenses
claimed by AV Oil in the Arbitration and AV Oil hereby waives and
relinquishes any call for payment in relation thereto including its request for the sum
US$460,000.00 as made in the arbitration proceedings before the Tribunal.
(vi) AV Oil agrees to pay to Petrotrin all outstanding Oil Impost fees under the
IPSC in the sum of TT$660,000.00 and fees for Head Licence and other fees
in the sum of US$164,000.00 within the first full month of AV Oil’s payment
advice under the new EPSC.
(vii) AV Oil agrees to pay the outstanding funds for abandonment expenses under
the IPSC sub-licence in the amount of US$2,200,000.00.
There can be no doubt that the settlement of this matter, with the payment by Petrotrin of $18,000,000.00 in damages in addition to the sums awarded by the Tribunal to AV Oil for crude oil determined by the Tribunal to have already been supplied and received to Petrotrin’s benefit, is in the circumstances, a very good outcome for Petrotrin and Trinidad and Tobago.
New Exploration Licence between Heritage and AV Oil
With respect to the grant of a new licence by Heritage on terms no more favorable than
licences currently being granted; the Board was mindful of the fact that no finding of
wrongdoing on the part of AV Oil had been made out, and that prior to this dispute, AV Oil had been a good long-standing partner in Petrotrin’s Joint Venture programme, which continues to be a crucial component to the production of oil in this country. This grant is consistent with Heritage’s strategy of having these marginal fields operated and funded by smaller operators.
It is very important to note that Heritage has introduced and implemented modern production measuring tools which will significantly reduce the risk of similar disputes in the future.
What now remains to be settled is the question of costs of the arbitration, which is likely to be substantial, and is for Petrotrin’s account. The parties are currently exchanging supporting documents and attempting to arrive at a negotiated position. If this is not possible, the parties will return to the arbitration panel for its assistance in the assessment of those costs.
A win in the circumstances for Petrotrin, TPHL and T&T
Petrotrin acknowledges that this matter has generated a tremendous amount of public interest. The Board is however, extremely confident that having not been successful at the arbitration, this outcome is favorable and in the best interest of Petrotrin, the TPHL Group of Companies and the Country.