Court rules against Dommo Energia in Brazilian offshore field case

Brazilian oil and gas company Dommo Energia has lost a dispute with compatriot companies QGEP and Barra Energia over BS-4 Block offshore Brazil, which will result in Dommo’s expulsion from the block.

Petrojarl I FPSO. Source: Flickr/Teekay Corporation

As stated in Dommo’s announcement on Wednesday, the arbitration award was issued by the Arbitration Court on Tuesday, September 25, 2018, in respect to the first phase of the arbitration proceeding managed by the London Court of International Arbitration – LCIA, established by Dommo Energia against Queiroz Galvão Exploração e Produção S.A. (QGEP) and Barra Energia.

To remind, Barra Energia in October 2017 exercised its rights to expel Dommo Energia from the Block BS-4, under the terms of the consortium’s joint operating agreement (JOA), and Dommo subsequently disputed this action.

Barra claimed it had been supportive of Dommo over an extended period of time. Barra paid its pro rata share of the very many cash calls on which Dommo has defaulted in Block BS-4, including those related to the Atlanta oil field development. In addition, Barra provided substantial credit support on behalf of Dommo in relation to a material services contract associated with the Atlanta Oil Field Development, a contract that included substantial early termination penalties.

On the other hand, Dommo claimed that QGEP, as the operator in the BS-4 Consortium, was responsible for delays with the development plan and FPSO Petrojarl I and that QGEP’s mismanagement postponed the beginning of production in BS-4 Block under the Early Production System. Dommo also claimed that, as a consequence of QGEP’s ineptitude and Barra’s willful omission, its revenues were significantly deprived and it was the main reason of the supposed default that Barra alleged in its notice where it had asked for Dommo’s expulsion.

Dommo expelled 

The decision by the Arbitration Court states that the notification issued by Barra on October 10, 2017, in order to exercise, without offer of payment, the option to demand the company’s exclusion from the Joint Operating Agreement – JOA, the Consortium agreement and the Concession agreement, all related to the BS-4 Block – as disclosed in the material fact on October 20th, 2017 -, was valid at the time it was issued, and effective from the date of its receipt by the company, on October 11, 2017, without prejudice to the possible annulment of this exclusion in a subsequent step of the arbitration proceeding, based on analysis of evidence that could support such an annulment.

Dommo noted that the first phase of the arbitration did not include the analysis of evidence, having the decision foreseen that, in any additional phase(s) of the arbitration, through the fact-finding exercise, Dommo Energia may still seek to annul the exclusion and the transfer of its stake in BS-4 Block and argue for an indemnity for losses and damages against QGEP and Barra.

The company also said that the decision is subject to eventual clarification requests from the interested parties, which may change its content.

In a separate statement on Wednesday, QGEP said that the request of Dommo’s compulsory withdrawal from the BS-4 Consortium made by Barra Energia has been declared to be valid and effective in an award issued by the tribunal on September 25, 2018.

As a consequence, Dommo’s rights, title and beneficial interests in BS4 Block are deemed transferred by the tribunal to Barra Energia and QGEP as from October 11, 2017, who as a result will hold a 50% interest each in the block.

QGEP said it was assessing the award and intends to adopt all necessary measures to implement the decision before the arbitral tribunal and the relevant Brazilian authorities.

It is also worth reminding that QGEP started oil production from the Atlanta offshore field using the early production system in the form of Petrojalr 1 FPSO in early May 2018.

Located in Block BS-4, in the Santos Basin, Atlanta is a post-salt oil field situated 185 kilometers from the city of Rio de Janeiro, in water depths of approximately 1,500 meters.

Offshore Energy Today Staff