Factors driving choice of ARBITRATION in ADVERSERIAL Energy Sector context Litigation Arbitration Binding - mutually agreed third-party / institution. Neutral. Judge or jury - court issues binding decision PROS PROS • Select arbitrator or institution based on expertise. (40%) • Formal. Evidence / time to support argument. • Private - confidentiality is maintained - often crucial. (33%) • Verdict is final and binding. Winner / loser. • Outcome has global enforceability. New York Convention. • Open and transparent process. • Finality. Relationship maintained. (65%) • Enforceable in same jurisdiction. • Lower cost likely consumes less time . • Creates precedent for similar disputes. • Flexible / Customised. choose venue / platform. Neutral ground CONS CONS • National Courts – no neutral ground • One party can prolong the proceedings. Increasing cost. • Judges (or jurors), are ‘foreign’ parties to • Potential to be as formal as litigation in case of adverse parties. the dispute. No detailed expertise . • Limited scope of appeal. • Lack awareness of oil industry technicalities. Expert determination • Very high cost and time consumption. Expert or umpire vast knowledge. Technical / financial claims. • Open to appeal, added cost and time PROS • Expert - well aware and knowledgeable. Confidence. • Open to the public – Oil industry closely knit • Confidentiality maintained. The business relations maintained. demanding confidentiality . • Potentially binding. • Detrimental to the relationship - business • Faster and cheaper. Less formal - set of rules and regulations. divorce CONS • Binding decision –no middle ground / mutual • Not easily challenged. consensus. • No interpretation of law. Expert rules - no natural justice. • Not easily enforceable.
ARBITRATION in Energy Sector • Fundamentally HAS to be attractive Proposition 1. Cost and Time - Efficient Institutional • Ad Hoc • • Specialist Energy Sector 2. Integrity - Certainty Knowledge Expertise - Technical • • Size of market, Sector Track Record / Reputation • Capital Flows Confidential • Enforceable • • Reputation / Track Record 3. Practical – Routinely enforced Infrastructure • Ø Human Ø Physical
➔ Knowledge MAP SHOWING PREVIOUS PETROLEUM EXPLORATION LICENCES IN THE BAHAMAS BP EXXON SHELL Source: The Commonwealth of The Bahamas
➔ Knowledge Regional Hydrocarbon Distribution Map … shows & production ODP 627 (oil) Florida Free Air Gravity CI = 100 mGal Great Issac-1 250 km Bass Pumpkin Bay 12-2 Wiliams-1 SL 826Y-1 SL 373-1 Andros-1 Marquesas Blk 28-1 DSDP 537 Cay Sal-1 DSDP 538 ODP 1003 ODP 632 (Pz Bsmt) (Tr/LJ Ign) (oil/gas) (oil) SL 1011-3 DSDP 535 (oil) Blanquizal-1 Yamaugua-1 Felipe-1 Cayo Doubloon Saxon-1 DSDP 536 Long Island-1 (2001) Fragoso-1 (Jurassic) Cuba Cayo Cayo Coco-1-3 Frances-1 Collazo-1 Cayo Romano-1 Oil Fields Key DSDP or ODP Well Gravity Data from Sandwell et al. (2013); image processing courtesy of Stephen Leslie
Local Activity ➔ Knowledge / Financials ODP ODP Diameter: 900 m FREEPORT Diameter: 500 m Diameter: 1,000 m Abaco Depth: 55 m Depth: 10 m Grand Bahama Diameter: 1,600 m Diameter: 900 m Gt. Isaac Joides 101 Williams Joides 98 Atlantic Ocean Eleuthera Coastal State -1 Andros - 1 New Providence Cat Is. Boca de Jaruco ODP Joides 100 Fields (5) Andros Pto. Escondido Yumuri Fields (2) San Salvador Cay Sal Santa Cruz Exuma Cays Cay Sal IV-1 Rum Cay Joides 99 Varadero Exuma Fields (7) Great Long Is. Motembo Martin Mesa Field Bahama Field Jarahueca Field Samana Cay Bank Long Is. - 1 Crooked Is. Doubloon Saxon -1 Cayo Coco 10 563 ft (3,200m) Central Basin Fields (4) Cuba BPC Exploration Zarubezhneft Historic Storage drilled Q1 2013 Boreholes Refineries Oilfields Wells drilled in Cuba 2012 Terminals Oil Pipeline Anticipated well locations Major Shipping Lanes Gas Pipeline Transportation 6
What Would The Project Benefits Be? ➔ Financials Dividing the Pie ~ 5 – 10+ ~ 1 year ~ 1 – 3 ~ 3 – 6 years ~ 20 – 40 Exploration and years years years Development Costs: $40 Billion Phase Seismic & Exploratory Appraisal Development Development Geologic Drilling Drilling Planning & and Studies Construction Production Bahamas BPC Return on Government $50 million $60 – 160 $400 – $multiple billion USD Investment: BPC Revenue: million 600 Cost $20 Billion million $20 Billion $0 $0 $0 $0 ~ $ tens billion Gov. revenue Completed In Progress Estimated Typical Costs No financial risk, Based upon Exploration Success No cost to Government Projected revenue assumes 1 billion bbls developed at $80/bbl oil price ➔ Supply contracts: Rigs ➔ Education: Opportunity ➔ Training: Jobs; International options ➔ Royalties: Long term revenues FLORIDA ➔ Debt burden: Relief BAHAMAS ➔ Development: Growth ➔ Fuel and Power: Cheaper, lower costs ! CUBA Production ➔ Wealth Fund: Generations to come 7
➔ Example Lic Licence / / Oil Field Boundary Disputes - Un Unitisation ➔ Oil price – long term contracts Commercial disputes • Cancelled projects ➔ Increasing level of trade and Complexity • competing projects Falling demand in context of • Contractual, Financial, Technical • excess supply ➔ Complex value chain ➔ Expert Determination ➔ Long term relationships
➔ Example Forties Field Licence Boundaries Licence / Lic / Oil Field Boundary Disputes - Un Unitisation ➔ Geology / Nature deciding factor Unitisation disputes ➔ Maximise economic realisation Efficient operations • • Legal, Technical, Tenure Single field operator • • Common reservoirs Dominant partner • Well locations • ➔ Litigation ➔ Global relationships
➔ Example In Inter erna nationa nal Bounda undary Disput putes es - De Determination on ➔ Changing nation status / Government ➔ International relationships International disputes ➔ Sovereign Wealth Fund ➔ International precedent Fairness?? Reputation • ➔ Other examples ➔ Arbitration China – Spratly Islands • Nigeria – Sao Tome • • Caspian Sea
➔ Possibility Oil Exploration – Oil Develompent Potential in The Bahamas? Great Issac #1 FLORIDA Andros #1 BAHAMAS Ø Attractive to BPC Size of fields • Low cost environment • • Legislative and fiscal stability Technology application • Cay Sal #1 Long Island #1 ! Doubloon CUBA Saxon #1 Ø Licences 2007- renewed 2013 Drilling to commence 2015 • Ø +$80 million spent to date Ø Nassau based office & staff 11
1. Specialist knowledge • Centre of expertise – Technical, Legal and Financial • Demonstrated industry activity and capital investment 2. Specialist knowledge • Centre of expertise – Technical, Legal and Financial • Demonstrated industry activity and capital investment 3. Specialist knowledge • Centre of expertise – Technical, Legal and Financial • Demonstrated industry activity and capital investment 4. Conventions • National signatory • Global enforceability 5. Confidentiality / Confidence • Integrity of institutions / system
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