DISPUTE
Singapore-based Medco Strait Services, a subsidiary of Indonesian energy giant PT Medco Energi Internasional, has secured a victory in an international arbitration against two global oil and gas firms related .to their dispute in the management of an East Java oil field.
In a statement released on Tuesday Medco Energi announced that a United Nations Commission on International Trade Law (UNCITRAL) Arbitration Tribunal had awarded Medco Strait Services US$24 million pursuant to its claims against Singapore Petroleum Ltd. and Australia’s Cue Energy Resources Ltd. The companies have been involved in years of disputes related to their investment in East Java’s Jeruk oil field.
“We are pleased with the arbitration tribunal award that confirms our position as having acted in good faith and in full adherence to our contractual obligations,” Medco Energi CEO Roberto Lorato said.
A copy of the referred arbitral tribunal decision, however, was not available on the UNCITRAL website on Tuesday. In January 2006, Medco Energi bought a 25 percent interest in the Jeruk field, a part of the Sampang energy block located in the Madura Strait, offshore East Java.
From the proportion, 18.2 percent came from Singapore Petroleum and the remaining 6.8 percent from Cue Energy. Under a follow-up agreement, Medco Energi agreed to assume a proportional share of investment costs at the Jeruk field. Its investment portion was originally estimated to be at around $35 million.
Therefore, Medco Energi was entitled to disburse in advance the investment to Singapore Petroleum and Cue Energy as the direct holders of participating interest in the Sampang block.
The same agreement also stipulates that Singapore Petroleum and Cue Energy are obliged to refund Medco Energi’s disbursements once the Oyong field, another oil iield in the Sampang, block owned by both companies, starts production. However, Medco Energi’s investment plan was impaired in 2008 when the exploration activities in the Jeruk field were stopped.
The stoppage was triggered by the decision of Australia-based oil and gas contractor Santos, which serves as Sampang block operator, to review the development scenarios of Jeruk field.
“In 2011, the Oyong Held had already started production, where by Cue Energy and Singapore Petroleum have fully recovered all of their costs related to the Jeruk field,” Medco Energi states in its 2011 annual report.
“In view of this development, the company [Medco Energi] reversed the allowance for impairment of the investment in the Jeruk Project of approximately $14.4 million to reflect the estimated recoverable amount of the Jeruk investment.”
Because there was no settlement found between all parties, Medco Energi decided in August 2012 to send a notice of arbitration to Singapore Petroleum and Cue Energy in an effort to recover its claims from these two companies totaling $35.06 million for the J eruk project.
The figure was later revised to $33.16 million. In March 2014, the arbitration court issued an interim award, instructing Singapore Petroleum and Cue Energy to refund the excess investment at the J eruk field to Medco Energi. As of January 2015, the two companies had refunded suchja cash call worth $1.6 million to Medco Energi.
Moreover, Singapore Petroleum and Cue Energy were also instructed to recover all of Medco Energi’s investment for the Jeruk field once they had received all their shares of investment cost at the Jeruk field.
As there was still no firm settlement between all parties, Medco Energi took the case once again to international arbitration in July 2015, before the UNCITRAL eventually decided to award the company with a total refund of $24 million.
Throughout 2016, Medco Energi recorded a significant jump in its net profit to $184.7 million compared to a net loss of $188.1 million in the previous year. Nonetheless, Medco Energi has been struggling to service debts from various acquisitions it has made recently.
Jakarta Post, Page-18, Wednesday, May 24, 2017
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