Placed in between warring factions, and black gold turns to mud

APPOINTED BY NORTH AMERICAN LISTED COMPANY TO THE BOARD OF A JERSEY JOINT-VENTURE COMPANY FINANCING OIL EXPLORATION AND PRODUCTION IN IRAQ

MY INVOLVEMENT

Oil and gas exploration in Iraqi Kurdistan. Recommended to North American investor (a listed company) by their lawyer and appointed by that investor to the board of the joint venture company (JVco), a joint venture between that investor and a UK based oil and gas exploration group with strong Middle Eastern connections. The JVco served as the conduit through which the shareholders’ investment funds flowed into the exploration, and later production, activities in Iraqi Kurdistan of the operating subsidiary (OpCo), a subsidiary of JVco. The co-investor also acted as the oilfield operator under contractual arrangements entered into with OpCo.  Prior to appointing me to the JVco Board, the North American investor had commenced arbitration proceedings against JVco and the co-investor. Initially, I had been excluded by my co-directors on the JVco board from any knowledge of or involvement in the arbitration via the creation, immediately prior to my board appointment, of an arbitration committee of the JVco board comprising all the directors except me, to which the board delegated the management of the arbitration proceedings. I fought against that exclusion with legal argument and succeeded in persuading my fellow board members (all appointed by the co-investor) and their London legal advisers to disband the committee, allowing me improved visibility and opportunity to ensure proper governance. The arbitration award was granted in favour of the claimant investor, my appointor, leading to a challenge by the respondents and to enforcement action by the claimant. My role then included co-ordinating JVco’s approach to its litigation strategy and managing the tensions between the expectations of the claimant, as my appointor to the JVco board, and my duties in law (as a director) to JVco itself in relation to company-confidential information and legal professional privilege. Subsequently reacting to a recommendation by the oilfield operator to OpCo that the oil find had proved to be uneconomic and to proposals by the board of OpCo to put OpCo into liquidation, raising concerns about the basis of the recommendation and inconsistencies between that recommendation and the expert’s report on which it was based, identifying the fact that OpCo had simply accepted the recommendation without independent thought, and meeting the proposed liquidator the day before the Court heard the winding up application. I put the liquidator on notice of my concerns from the perspective of JVco to see that value realised from the production licence ends up in the right hands and I sought from him, and received, assurances about the way the liquidation would be conducted. The role is ongoing.

OUTCOME

Overcame my exclusion from involvement in the dispute, so enabling me to oversee governance and ensure that JVco acted properly, to the benefit of my appointing shareholder. Oil was found and production commenced. Monitored ongoing funding requirements endeavouring to ensure adequacy of information on costs from the oilfield operator. Ultimately, the production was declared not to be commercially viable and was halted. My appointing shareholder takes the view that further funding required to render the find commercially viable is beyond the reach of the JV investors and favours the liquidation, its protection enhanced now by the appointment of liquidators of OpCo from a Big Four firm. Now monitoring the outcome for my appointor as the structure is unwound.