Occidental Drops A Claim But May Strengthen Suit Vs Government
By Mercedes Alvaro, Dow Jones Newswires
Tuesday October 3rd, 2006
QUITO -(Dow Jones)- U.S.-based Occidental Petroleum Corporation (OXY) has dropped a compensation claim against Ecuador’s state oil company Petroecuador in a move that analysts said may strengthen the oil firm’s case against the government.
The U.S. oil firm had sought compensation from both Petroecuador and the government under a single arbitration case, but using different legal claims.
The firm was suing Petroecuador for wrongfully canceling its operating contract, and the state for breaching a bilateral investment treaty signed by the U.S. and Ecuador.
The government canceled Occidental’s operating contracts on May 15 claiming the firm broke terms by farming out a 40% stake to Canada’s EnCana (ECA) without proper authorization.
Occidental denies the claims and filed its arbitration claim at the World Bank’s International Center for Settlement of Investment Disputes, or ICSID.
"In the lawsuit there were procedural problems for Occidental that made it difficult to deal with the demand quickly," said one legal source. "The ICSID had already warned about this situation and Occidental has corrected it and solved the problems, which should speed up the process."
Occidental can still choose to bring another independent claim against Petroecuador, the source said.
Talking to reporters on Tuesday, Ecuador’s President Alfredo Palacio qualified Occidental’s action as "a victory that the people must celebrate; it’s a report that the people can celebrate, it is news that fill the nation with hope and joy."
Meanwhile, a source at the Attorney General said that "now more than ever it is necessary for the government agencies to agree on a defense strategy."
In recent days, the law firm hired to defend the state quit, and the government has not yet said whether it plans to hire a new team.
Furthermore, Ecuador must inform ICSID by Oct. 12 who will be its representative on the arbitration panel. If it doesn’t decide, ICSID will make the choice for Ecuador.
Government officials have indicated that they want to await results of the election process currently underway, and the selection of a new administration, to be able to take further decisions. Ecuadoreans vote for a new president on Oct. 15.