10 Oct 2012 Cases

Compass Lexecon Client Awarded $1.77 Billion In The Largest Ever Reported Bilateral Investment Treaty Decision

2 minute read


Compass Lexecon's Professor Joseph P. Kalt served as the expert for claimant Occidental Petroleum Corporation, which last week obtained an arbitration award of US $1.77 billion (plus back interest) against the Republic of Ecuador (Ecuador). The award is reported to be the largest single bilateral investment treaty award ever issued by the International Centre for the Settlement of Investment Disputes (ICSID). The underlying dispute involved Occidental's claim that Ecuador's 2006 unilateral termination of the company's contracts to develop and produce oil resources located in a region of the country designated as Block 15 wrongfully deprived Occidental of the economic benefits that it would otherwise have earned under the contract. Based on a tribunal finding that Ecuador's actions were "tantamount to expropriation," a central issue in the dispute was the disparate economic valuations of Block 15 set forth by the two parties.

In its decision that overwhelmingly supported Claimant's positions on how best to assess the economic value of the Block 15 contract, the Tribunal repeatedly referenced its agreement with the opinions of Professor Kalt with regard to key valuation factors such as the use of discounted cash flow (DCF) as the appropriate and most reliable valuation methodology to in this case, estimates of potential reserves available to the company, risking of reserves and associated future cash flows, and assessment of actual market price expectations. Professor Kalt's Compass Lexecon team was led by Stephen Makowka in our Boston office and included Christina Gomez, Will Medina, and Nandana Thomas. Claimants were represented by David Rivkin at Debevoise & Plimpton LLP and Gaëtan J. Verhoosel at Covington & Burling LLP.

Beyond this case, Compass Lexecon's economists and financial experts have worked in all areas of international arbitration, delivering independent economic analysis, valuation opinions, damages assessments, regulatory opinions, expert reports and arbitration testimony. Our international arbitration team includes economists based in Europe, Latin America, and the United States. A number of members of our team are listed among the most renowned expert witnesses in Who's Who Legal. In addition, we have the capability of drawing upon an extensive network of specialist affiliates for additional capabilities in specific industries and niche areas, including within our corporate parent.

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