Perenco Calls on Ecuador Not to Sell Seized Oil and to Resume Negotiations

LONDON -

Perenco Ecuador Limited (”Perenco Ecuador”) today called on the Government of Ecuador to cease efforts to sell oil seized from Blocks 7 and 21 in defiance of orders by international arbitration tribunals, and instead to seek a negotiated solution to the dispute concerning the applicability of Law 42 to Blocks 7 and 21.

Perenco Ecuador is the Operator of Blocks 7 and 21 in Ecuador. On February 19, 2009, the Republic of Ecuador and its oil company, Empresa Estatal Petroleos del Ecuador (”Petroecuador”), commenced a coercive process to collect from Perenco approximately US$327 million they claimed were due under a 2006 Ecuadorian law (”Law 42″) by which the Government asserts a right to 99% of the oil revenues above an arbitrary “reference price.” In March 2009, Petroecuador began seizing crude oil produced by Perenco and its consortium partner, Burlington Resources Oriente Ltd. (”Burlington”), from Blocks 7 and 21 in Ecuador to satisfy the alleged Law 42 debt.

However, on May 8, 2009, a three member international arbitration tribunal constituted under the auspices of the International Centre for the Settlement of Investment disputes (”ICSID”) unanimously ordered that the Republic of Ecuador and Petroecuador were restrained from “instituting or further pursuing any action” - including oil seizures - “to collect from Perenco any payments [they] claim are owed… pursuant to Law 42.” The tribunal made clear that such are orders “are binding on the party to which they are directed” and that the parties “are under an international obligation to comply” with them. A copy of the tribunal’s order can be found on the ICSID website, www.worldbank.org/ICSID. On June 29, 2009, a different international arbitration tribunal in a separate ICSID arbitration commenced by Burlington issued a similar provisional measures order.

Despite these ICSID tribunal orders, the Ecuadorian Government has twice attempted to auction the crude oil it has seized from Perenco and Burlington. Petroecuador first attempted to sell the seized oil at an auction in May, but no buyers materialized. Last week, on July 3, Petroecuador convened a second auction, but the only bidder was Petroecuador itself. Petroecuador has announced an intention to conduct a third auction today.

Rodrigo Marquez, Latin American Regional Manager for the Perenco Group, said: “The failure of these auctions indicates that the international business community has taken heed of the arbitration tribunal orders and the risks of buying oil that the Government has no right to sell.”

Mr. Marquez added: “We continue to believe that a negotiated solution is best for everyone. However, whether there are negotiations is at this point up to the Government. They have a clear choice. If they continue attempting to enforce the coercive measures, there will be no negotiations and the situation will deteriorate further. Perenco can neither negotiate, nor be expected to continue to operate, when the Government - in defiance of orders by two international arbitration tribunals - is seizing our entire production, forcing us to absorb all the costs and risks, and essentially demanding that we operate the Blocks for the Government’s sole benefit. On the other hand, the Government could choose to comply with the tribunal orders by suspending those measures. The tribunals established that during the pendency of the dispute the Blocks 7 and 21 crude should continue to be sold by Perenco and Burlington, with the disputed portion of the sale price put in escrow. As soon as the Government decides to comply with those orders, the path will be clear for further negotiations.”

Mr. Marquez said: “The Government had a fair opportunity to make its case to the arbitration tribunals, and in both instances the tribunals concluded that the Government’s position was wrong. The tribunal orders are binding international obligations, which are also part of Ecuador’s legal system. We believe disputes that cannot be settled by the parties should be resolved by the rule of law in an international forum, not by coercive measures.”

Perenco Ecuador Limited is part of a privately held upstream oil and gas company and is the operator of Blocks 7 and 21 in Ecuador.

Source: Perenco Ecuador Limited

Rodrigo Marquez, Perenco Group, +44-20-7901-8200