What is the basis of claims of Excalibur Ventures LLC against Gulf Keystone?
On 17 December 2010, Excalibur Ventures LLC (“Excalibur”) commenced an International Chamber of Commerce (“ICC”) arbitration in New York and in the English Commercial Court against Gulf Keystone and two of its subsidiaries (the “Companies”) asserting certain contractual and non-contractual claims and claiming entitlement to an interest of up to 30% in the Companies’ blocks in the Kurdistan Region of Iraq.
The allegations and claims made by Excalibur are being vigorously disputed by Gulf Keystone and are being contested through the due process of law. We believe that the Company’s vigorous defence against all the claims of Excalibur is being conducted in the best interests of all the shareholders of Gulf Keystone Petroleum Ltd.
On 8 April 2011, the Companies obtained an injunction in the English Commercial Court restraining Excalibur from pursuing the ICC arbitration proceedings. The injunction continues until final determination of the English Commercial Court proceedings in London or until further order. As part of the judgment of the English Commercial Court, costs were awarded to the Companies.
When do you expect the final court ruling in the litigation against Excalibur Ventures LLC?
The date for the trial at the English Commercial Court in London will be set after the hearing on 26 July 2011. The Company will provide an update on these legal proceedings at an appropriate time.
Can you explain the process of awarding third party rights in the Company’s Production Sharing Contracts?
The Kurdistan Regional Government (“KRG”) is a party to the four Production Sharing Contracts (“PSCs”) signed by Gulf Keystone in relation to its assets in the Kurdistan Region of Iraq. According to the PSCs related to the Shaikan block and the Akri-Bijeel block, the KRG has a right to exercise the Option of Third Party Participation, i.e. to nominate the Third Party Participant and award the Third Party Interest. In addition, the KRG has back-in-rights in both the Shaikan block and the Akri-Bijeel block. Should the KRG exercise these rights in full, it is anticipated that the Company’s interest in the Shaikan and the Akri-Bijeel blocks will be 51 percent and 12.8 percent respectively.
Pursuant to the provisions of the respective PSCs, the Company’s past costs in relation to the Third Party Interest will be reimbursed to Gulf Keystone by the nominated Third Party Participant.
For the avoidance of doubt, there are no Third Party Participation or back-in rights applicable to the PSCs related to the Ber Bahr and Sheikh Adi blocks.
It is the KRG’s prerogative to conduct negotiations with the aim of nominating the Third Party Participant and awarding the Third Party Interest. Gulf Keystone is not party to these negotiations and we expect to be notified once these negotiations have concluded.
After the KRG has exercised its right by having nominated the Third Party Participant and awarded the Third Party Interest in the Shaikan and Akri-Bijeel PSCs, the respective PSCs will have to be amended accordingly since the nominated Third Party Participant will be assigned the Third Party Interest and will become a party to the respective PSCs. Gulf Keystone, as the Operator of the Shaikan PSC and the partner under the Akri-Bijeel PSC, will then issue an appropriate announcement.
What is your position regarding the acceptance by the government of Iraq of the Production Sharing Contracts which Gulf Keystone signed with the Kurdistan Regional Government?
Gulf Keystone’s Production Sharing Contracts (“PSCs”) in respect of the Shaikan, Sheikh Adi, Ber Bahr and Akri-Bijeel blocks were signed with the Kurdistan Regional Government (“KRG”) under the rights conferred on the KRG under the Constitution of Iraq and are consistent with the Kurdistan Region Oil and Gas Law. In addition, these PSCs are supported by an international legal opinion, which is available on the KRG website.
More recently, an article was published on the website of the International Law Office, supporting the legality of PSCs signed by the KRG. Click here to view the article.
There are still a number of practical steps required, including the passing of the Federal Law of Oil and Gas of Iraq and the Iraq Revenue Sharing Law. We are hopeful that the new federal government in Baghdad will make the passing of these laws a priority in 2011.
Gulf Keystone views the resumption of oil exports from the Kurdistan Region of Iraq in February 2011 and the announcement by the KRG of the first export payment to the KRG in May 2011 as an extremely positive development.
