- Statoil Loses 5% Stake in Agbami Oilfield, To Pay Chevron $1.1bn
Norwegian oil firm, Statoil, has lost an arbitration dispute to the tune of $1.1 billion against its partners, including Chevron and Petrobras, over the redetermination of shares in Nigeria’s largest deepwater oilfield – Agbami.
A Nigerian-based tribunal made up of three English senior lawyers issued the award that would see Statoil paying Chevron and Petrobras $1.1 billion and losing a 5.17 per cent stake in the Agbami oilfield.
The tribunal rejected Statoil’s request to set aside a 2015 expert determination in favour of the Nigerian subsidiaries of Chevron and Petrobras, and a local partner, Famfa Oil.
The expert determined that the Norwegian giant’s shares in the Agbami oilfield should be reduced from 20.21 per cent to 15.04 per cent.
Statoil, which is majority-owned by the Norwegian government, according to the Global Arbitration Review, revealed the outcome in a disclosure to the United States Securities and Exchange Commission (SEC).
Located 110 kilometres of Nigeria’s coast, the Agbami field straddles two oil licence blocks: one is majority-owned by Chevron alongside Petrobras and famfa Oil, with the other owned by Statoil and Chevron.
The oilfield has been jointly developed by the blocks’ shareholders, pursuant to a unanimous agreement under which the allocation of costs and production is linked to the estimated percentage of oil located in each block.
In 2012, Chevron began a contractual process to redetermine the allocation of shares in the oilfield based on newly acquired data.
When the parties failed to agree on the data that should be included, the dispute was referred to an expert from Gaffney Cline and Associates.
Under the contract, decisions by experts can be challenged through ad hoc arbitration under the rules of the Nigerian Arbitration and Conciliation Act.
The expert made an interim ruling in favour of Chevron in 2013.
But Statoil brought the first arbitration to set aside the ruling, arguing that the expert erred by admitting data from after 2007.
Then a tribunal chaired by Australia’s Michael Pryles, including two British Queen’s Counsel, Ian Glick and Stuart Isaac, issued its award in 2015 rejecting Statoil’s claim and upholding the interim ruling.
In the same year, the expert issued a final ruling that Statoil’s shares in the Agbami oilfield will be reduced from 20.21 per cent to 15.04 per cent, promting another arbitration claim by the Norwegian company.
In the latest award, a different tribunal rejected Statoil’s argument that the expert exceeded his jurisdiction in his interpretation of the data.
At the same time, the tribunal rejected a request by the respondent that the award should have a retroactive effect from the date the final expert ruling was made.
How Statoil’s shares will be reallocated is yet to be decided by the various internal mechanisms established under the unit agreement.
While Statoil had previously estimated that the redetermination process was worth $880 million, Norway’s Dagens Neringsliv and Offshore Technology magazine, had valued the dispute at close to $1.1 billion.
The primary issues affecting the value of the redetermination are the future oil production, the price of oil, whether licences for the oil block are extended, and the extended and the effective data of the award.
In its April 25 regulatory filing with the US SEC, Statoil said it was “currently evaluating the arbitration ruling”, which it said will have “no impact on Statoil’s accounting for the Agbami redetermination as the outcome of the expert ruling has been provided for”.
The company said it had recognised the reduction of its stake in the field through its Nigerian tax provision.
Since the Nigerian Arbitration Act requires advocacy to be carried out by local counsel, the parties used Nigerian firms in the arbitration with international counsel in advisory roles.
Hearings in the arbitration concerning the expert’s interim ruling took place in London while those on the expert’s final ruling held in Lagos.
In resolving the dispute, Clifford Chance and Strachan Partners acted for Statoil, Chevron was represented by Uche Nwokedi & Co and Herbert Smith Freehills, while Petrobra used Ashurst and Aelex. FamfaOil relied on the local firm of MFA Solicitors & Co.
Statoil’s challenge of the 2015 award upholding the expert’s interim ruling is pending before the Nigerian Supreme Court.
The company argued that the tribunal misconducted itself in the way it reformulated the issues in dispute and committed serious procedural irregularities by preventing Statoil from submitting evidence on issues that were determined to be highly important to the arbitration.
The award had already been upheld by the Federal High Court in Lagos in May 2017 as well as the Court of Appeal, which ruled that the arbitrators had not misconducted themselves and that Statoil’s counsel had agreed to the tribunal’s formation of the issues.
The Nigerian National Petroleum Corporation (NNPC), which was joined in the proceedings by an order of the court, as it was also a party to the 2005 Agbami agreement, filed an affidavit supporting Statoil.
Despite their disagreements, Statoil and Chevron have been working together in a separate dispute with NNPC over the allocation of crude oil under their production sharing contract (PSC) for one of the blocks that covers Agbami.
In March, the two companies applied to a New York court for the enforcement of a $1 billion award against the NNPC, although the award has been annulled at the seat of arbitration in Nigeria.
NNPC is facing three similar actions in the same court by other oil block operators.
Last year, Petrobras announced that it would sell its stake in the Agbami oilfield, with Famfa Oil, owned by Africa’s second wealthiest woman, Mrs. Folorunsho Alakija, reported to be interested in purchasing it.
