Quadrant’s Damages Expert Testifies in Nicaraguan Exploratory Oil Project Arbitration
Quadrant Economics’ damages expert, Dr. Flores, was retained by the Republic of Nicaragua (“Respondent”) in an arbitration initiated by The Lopez Goyne Family Trust, et. al. (“Claimants”) under the Dominican Republic-Central American Free Trade Agreement and ICSID rules (ICSID Case No. ARB/17/44). This dispute involved the revocation of a concession contract to extract oil and gas for a pre-operational, exploratory oil project. Claimants alleged that Nicaragua’s conduct with respect to the concession contract constituted an unlawful expropriation and a failure to accord fair and equitable treatment.
The Claimants, along with its subcontractor, incurred exploration costs, resulting in the drilling of three exploratory wells, but had not established any oil reserves as of the valuation date. Claimants sought damages using a variety of different valuation methodologies: Claimants expert’s Discounted Cash Flow (“DCF”) Model, Claimants’ sunk costs, the DCF Model from the Claimants’ subcontract’s presentation for prospective financing, and Claimants subcontractor’s sunk costs. Dr. Flores gave testimony that valuation using the DCF method was not appropriate in this case as this oil project was not a ‘going concern’ under the World Bank Guidelines on the Treatment of Foreign Direct Investment. Dr. Flores also gave testimony that sunk costs were not an indicator of value for an exploratory oil project. In the event that Claimants’ methods were adopted by the Tribunal, Dr. Flores also provided detailed corrections to Claimants’ DCF model and sunk cost calculations using in-depth research of exploratory oil projects. Quadrant’s team worked with Respondent’s technical oil expert, Ryder Scott, to prepare expert reports on these issues.
The Tribunal (President: Prof. Luca G. Radicati di Brozolo; Co-arbitrators: Mr. José A Martínez de Hoz, Prof. Brigitte Stern) dismissed claims on their merits. Co-arbitrator for Claimants, Mr. José A. Martínez de Hoz, was nonetheless persuaded of the lack of economic viability of the oil project due to its exploratory status as of the Valuation Date, noting Dr. Flores’ and Ryder Scott’s testimony being persuasive on these points.
Respondent was represented by Foley Hoag LLP. Dr. Flores was supported by a Quadrant team that included Ivan Vazquez and Francisco Sanchez.