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Ecuador sees ruling in Occidental case in second half of year

Dow Jones | 4 March 2010

Ecuador sees ruling in Occidental case in second half of year

By Mercedes Alvaro

QUITO (Dow Jones)—The World Bank’s International Center for Settlement of Investment Disputes may soon rule on a case brought by U.S. oil company Occidental Petroleum Corp. (OXY) against Ecuador, a high-level official from Ecuador’s attorney general’s office said in an interview Thursday.

The ruling is expected to take place in the second half of the year, said Rafael Parreno, Ecuador’s deputy attorney general.

"Ecuador expects the court’s ruling to recognize that the Ecuadorian government acted in accordance with the laws and reject Oxy’s claims for compensation, because the company violated the Ecuadorian laws and its contract’s terms," said another official from the attorney general’s office who did not want to be named.

Occidental is seeking $3.2 billion in damages for the decision by Ecuador’s government in May 2006 to cancel the company’s operating contract. The government alleges Occidental broke several of its agreed terms by transferring a 40% stake in its Ecuadorian projects to Canada’s EnCana Corp. (ECA), without Energy Ministry approval.

Occidental has said the Ecuadorian government violated the U.S.-Ecuador bilateral investment treaty by illegally nullifying its exploration rights and expropriating its assets.

In early February, Ecuador attended a hearing in Washington, where both sides presented their final oral arguments.

The judges are analyzing the evidence submitted by both sides before ruling.

Before it left Ecuador, the Los Angeles-based Occidental produced about 100,000 barrels a day from its Block 15, now operated by state oil company Petroamazonas SA. The block now produces about 98,000 barrels a day.

Ecuador officially terminated its membership with the International Center for Settlement of Investment Disputes in January, and last July, President Rafael Correa signed a decree terminating the country’s relationship with the ICSID.

ICSID rules, however, say membership expires six months following the official notification, and the withdrawal from ICSID doesn’t annul pending lawsuits but does protect Ecuador from future ones.

The government has several times maintained that many companies have turned to the international arbitrator, without having the right to do so.

Ecuador’s constitution prohibits the signing of international agreements in which Ecuador would have to cede jurisdiction to international arbitration courts in contractual or commercial matters between the state and individuals or corporations.

However, the constitution allows for disputes to be resolved between Latin American states and their nationals via regional arbitration courts.

The ICSID has been an alternative for companies, especially oil companies, seeking redress in disputes with the Ecuadorian government since the 1980s.

Ecuador faces arbitration claims at ICSID worth a total of at least $10 billion. Twelve foreign companies, and one local company, are suing Ecuador at ICSID.

Among the companies that have suits against Ecuador are the Anglo-French Perenco Corp, Chevron Corp (CVX) and Burlington Resources Inc., a subsidiary of ConocoPhillips (COP).

 source: Wall St Journal