Arbitration finds a home in Dubai

Oil & Gas Middle East meets the team behind the legal framework, Joseph Huse is the managing partner of MENA practice and is based in Dubai, Harnek Shoker, head of the Bahrain office and Reza Mohtashami, counsel in the international arbitration group of Freshfields.

What’s your background with NOGA?

JH: NOGA acts as the regulatory authority, and through NOGA holdings it holds 100% of the shares in BAPCO and BANAGAS plus the other hydrocarbon based subsidiaries.

We have advised NOGA on several initiatives. The most recent and important of which have been the arrangement for the offshore oil and gas exploration rounds, and NOGA’s programme with regard to deep gas exploitation (Companies registered include oil majors BP, Chevron, Exxon Mobil and Royal Dutch Shell. Bids were due by the end of May).

Bahrain wants to develop onshore natural gas fields at a depth of up to 20 000 feet (6096 metres) below sea level to meet rising domestic demand.

However, most recently, we were engaged to handle the arrangements with Mubadala and Oxy through the development and production sharing agreement (DEPSA) for the Bahrain field. It’s a field which produces significant quantities of both oil and gas. Bahrain has come to the conclusion that it needs to eek out more of the oil resources they have locked in that field.

The quickest way to do this is by getting access to enhanced production technologies and techniques. NOGA decided the best way to engage this was by having access to the international market through a tender process. NOGA then short listed three IOCs. The winning bid, as we now know, was a consortium of Oxy and Mubadala. We then went through a long period of negotiations with them to come up and finalise all the arrangements with the DEPSA agreements.

Beyond Bahrain, what is dominating your energy industry workload in the region?

JH: Freshfields is ranked as one of the top arbitration firms worldwide, and as such we have a substantial amount of experience with disputes in the oil and gas sector.

Generally in the upstream portion of the business there has been an increase in dispute resolution work, but I don’t think the recession has caused that. Industry players in the oil and gas business are loathed to sue each other, particularly in the upstream.

RM: There has been a tremendous amount of disputes activity in the broader energy sphere, particularly upstream disputes, outside of the Middle East, particularly in Latin America. When we were in a very high price environment there were a massive amount of expropriation claims coming out of Ecuador, and Venezuela. The Middle East was fairly quiet in comparison. Now The Latin American companies are starting to regret some of their moves. There has always been a certain amount of dispute work, but for this region I think downstream is the sector more likely to see this.

Is it still the case that contractual arbitration provisions are typically organised through international bodies?

JH: I wear two hats, one is as Partner at Freshfields, the other is as registrar at DIFC arbitration centre. One of the things we’ve seen there is use of this Dubai centre for the resolution of disputes. I think everything is being stress tested now. My experience has been that there is certainly a move towards more local arbitration. There’s no doubt its growing. We were approached by regional oil and gas ministries looking for a reasonable and acceptable dispute resolution forum in this country.

RM: Dispute resolution mechanisms and investment structures for investing in Iraq has seen huge growth in interest in the last twelve months. One of the driving forces behind those requirements is that Iraq is not a signatory of the New York Convention which is a global agreement for the enforcement of international arbitration awards. Under the NYC if you have an award rendered by the ICC in Paris you can take it to any other NYC signatory country and enforce that award.

Iraq is outside of that system, but Iraq is a signatory to a pan-Arab judicial cooperation convention called the Riyadh Convention, so an award rendered in Dubai or the DIFC would be enforceable in Iraq, so that’s one of the reasons why DIFC is attractive for investors looking to invest in Iraq. Additional benefits are that it is obviously nearer and more convenient than Paris, and more importantly cheaper than Paris.

Is Qatar a very dynamic market for you?

JH: The gas projects in Qatar are largely done and taken care of now. There is a freeze on additional exploration for the time being, so it’s fair to say that the LNG projects will be finished in due course and I don’t foresee a massive amount of gas related contractual work coming up.

The great wave of Petrochemical projects, particularly in Saudi Arabia is probably the most dynamic sector looking forward. There are two interesting things there. Firstly, they have allocated or used up most of the available feedstock, so contemplating new petrochemical projects is problematic in that regard. Secondly, when you consider what’s happened to both liquidity in general, and oil prices, what we find is that a number of those projects are being slowed, delayed or put on hold. The good news is that the construction costs have fallen dramatically, so many of those projects are being rethought, and some are being re-tendered.

HS: I think there is a lot of activity in the wider energy market on the power side, in Qatar, Bahrain and the Eastern Province in Saudi Arabia. The race is on with the need for more power generating capacity. Also the growing need for desalinated water continues apace. Long-term I think we’ll find that oil prices will stabilise and then most likely continue to ramp up. I wouldn’t be surprised to see $100-plus oil two year from now.

What’s your experience been with the Iranian upstream sector?

RM: I spent a great deal of 2006 and 2007 advising two oil companies about there investments in Iran, with a focus on ramping up the LNG project on the South Pars field. That project was put on hold in 2008 due to various reasons, but significantly the increasing sanctions put on Iran. We then started giving the same advice to two Asian oil companies which had taken the place of the western oil companies – and now that’s come to a halt too. So Iran was flourishing in terms of interest and investment.

These companies want to make absolutely sure they have cast-iron provisions and arbitration arrangements prior to investment, but all of that activity and potential activity has just gone quiet for the past 12 months, which is a shame for the Iranians.

Meet the panel

Joseph Huse is the managing partner of our MENA practice and is based in Dubai.  Joseph has particular experience of infrastructure and energy projects.  His sector experience focuses primarily on the power (including nuclear) and oil and gas industries. Huse has advised French energy giant Total on an equity participation in QG II, the Qatari LNG project, and the Government of Bahrain in relation to the development (including the design, the construction , the operation and the maintenance) of the Al-Ezzel 1000MW independent power project. This is the first IPP of the
privatisation programme of the Government of Bahrain.

Harnek Shoker is head of the Bahrain office. He has been in the Middle East since January 2005 and prior to that was based in the firm’s London and Singapore offices. Shoker has extensive experience in major infrastructure/energy projects as well as banking and general financings across Europe, the Middle East and Asia. He has represented a wide range of clients, including governments, export credit agencies, sponsors, project companies, investors and contractors on infrastructure transactions and projects.  His experience includes advising the NOGA in respect of Bahrain’s gas supply agreements.

Reza Mohtashami is counsel in the international arbitration group of Freshfields Bruckhaus Deringer. He has practised in a number of jurisdictions, including England, New York and France. He has advised and represented clients in arbitrations under the ICSID, ICC, LCIA, UNCITRAL and Cairo Regional Centre Rules. He specialises in investment treaty arbitration and disputes in the energy and telecoms industries. He has published articles on international arbitration, including a handbook on “ICSID – Procedural Issues’’, as part of UNCTAD’s Course on Dispute Settlement in International Trade, Investment and Intellectual Property.