A&V Oil gets $100m settlement by Trinidad Petroleum, new 10-year deal
By Joel Julien /TT Guardian
Petroleumworld 09 22 2021
Going against the "extremely strong views” of its own legal team, the Trinidad Petroleum Holdings Ltd (TPHL) company board has agreed to pay A&V Oil and Gas Ltd over $100 million and grant the company a new ten-year Enhanced Production Services Contract (EPSC) with Heritage Petroleum.
In a release yesterday, TPHL stated that there can be no doubt that the settlement of this matter “is in the circumstances, a very good outcome for Petrotrin and T&T.”
In fact it is a win, TPHL added.
“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 favourable and in the best interest of Petrotrin, the TPHL Group of Companies and the country,” it stated.
Speaking to Guardian Media yesterday, TPHL chairman Michael Quamina said he “played no part in the decision making process” for the settlement but assured it was done above board.
“In terms of negotiating contract terms and the assessment as to that $18 million (in damages to be paid), that assessment was premised on data and an analysis of data, not on any kind of assessment or approximation,” he said.
Quamina also said the 10-year contract being offered to A&V Oil was “absolutely no more favourable” than any other contract currently being offered. He also said plans are being put in place to ensure that “proper measurement tools” will be used to accurately determine the amount of oil being produced.
The settlement is rooted in the partial award delivered on June 11, 2021, by the arbitration panel in favour of A&V 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 A&V 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 A&V 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 A&V 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 June 1, 2017 to December 31, 2017, together with interest at the rate of three per cent 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 A&V Oil of the sums due on its unpaid invoices for the crude oil supplied by the company to Petrotrin during the period January 1, 2018 to February 28, 2018, in the amount of US$2,284,398.40, together with interest at the rate of three per cent per annum from the date when each payment fell due until the date of the award.
History of the matter
The issue surrounding AV Oil began just over four years ago, when Opposition Leader Kamla Persad-Bissessar raised the issue of “fake oil” involving Prime Minister Dr Keith Rowley’s self-proclaimed friend, AV Oil CEO Hanif Baksh.
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.
And, as such, it followed that AV Oil also had the right to be paid damages for wrongful termination of the IPSC Agreement, TPHL stated. “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,” TPHL stated.
“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 SC, 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 QC a leading Silk specialising 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.”
TPHL said the legal costs and time already incurred in this matter are already very significant.
And that further litigation, along with the exposure to consequential damages if Petrotrin were to continue to be unsuccessful, could take the financial exposure to well over $1 billion.
“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 advisers 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,” it stated.
TPHL said with respect to the grant of a new licence by Heritage “it 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,” it stated.
“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,” TPHL stated.
The TPHL board said it was made aware by its international financial advisers 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.
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 million 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 agreement.
(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 and fees for Head Licence and other fees in the sum of US$164,000 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$2.2 million.