International Petroleum Transaction
Question No. 1 – (value 12%)
Little Oil Ltd. (“LOL”), a small international exploration company based in Scotland, recently acquired Block 5 in the exclusive economic zone (EEZ) of the Democratic Republic of São Tomé and Príncipe. Big Tex Oil Company (“BTOC”) contacts LOL about farming into LOL’s
position in Block 5. LOL is excited that BTOC is interested, since LOL will need financial help in drilling the exploration well required by the Petroleum Agreement with the Government of São Tomé and Príncipe. LOL has lots of data and information concerning Block 5, and Jim Hill,
LOL’s chief geologist, wants to send a copy of such data to BTOC as soon as possible. Just before the package is to be sent to BTOC, the BTOC business development manager asks Jim
Hill if LOL will require BTOC to sign a confidentiality agreement before BTOC receives the data. Jim Hill doesn’t know much about confidentiality agreements, and certainly doesn’t want
to do anything that scares away BTOC, but he also doesn’t want to put LOL at risk. Since LOL has no in-house counsel, Jim Hill consults you regarding the following:
a. Why is a confidentiality agreement needed to show BTOC data regarding Block 5?
b. What risks does LOL have if there is no signed confidentiality agreement?
c. BTOC has suggested using the AIPN Model Form Confidentiality Agreement and you are concerned about Clauses 6.2 and 7 which provide as follows: “6.2 The Parties recognize that persons authorized to review the Confidential Information under Article 4.2 may form mental impressions (i.e., impressions not written or otherwise reduced to a record) regarding the Confidential Information. The
use of these mental impressions by those persons shall not be a violation of the restriction contained in Article 6.1.”
“7. The liability of the Parties to each other for breach of this Agreement shall be limited to direct actual damages only. Such direct actual damages shall be the sole and exclusive remedy, and all other remedies or damages at law or in equity are waived except such equitable relief as may be granted under Article 12. In no event
shall the Parties be liable to each other for any other damages, including loss of profits or incidental, consequential, special, or punitive damages, regardless of negligence or fault.”
Explain what these clauses are for and what risk they may present to LOL if they are included in the confidentiality agreement?
Question 2 – (value 10%)
BTOC wants LOL to include a dispute resolution clause in the confidentiality agreement that provides for binding arbitration in London, England to resolve any disputes under the confidentiality agreement. Jim Hill, LOL’s Chief Geologist, doesn’t know anything about arbitration and consults you again. He wants to know:
a. Why should LOL agree to arbitration, especially in England, instead of just resolving any disputes in the courts of São Tomé and Príncipe?
b. What key elements should be included in the arbitration clause in the confidentiality agreement?
Question 3 – (value 8%)
BTOC is definitely interested in acquiring a portion of LOL’s interest in Block 5, however BTOC needs some time to full evaluate all of the data regarding Block 5 and the Petroleum Agreement, a production sharing contract, for Block 5, and then obtain their parent company’s
management approval for a Farmout Agreement. Jim Hill asks you:
a. Can a Memorandum of Understanding be legally binding?
b. What are the risks to LOL if they sign such a Memorandum of Understanding?
c. LOL’s parent company, Big Little Oil Company (“Big”) is currently in talks with another exploration company about a possible merger. Could the merger, if it happens, impact the Memorandum of Understanding?
Question 4 – (value 12%)
BTOC has noticed that the Petroleum Agreement for Block 5 provides for settlement of disputes through binding arbitration under ICSID rules and that São Tomé and Príncipe is a signatory to the ICSID Convention. However BTOC also notices that the Petroleum Agreement does not
contain a waiver of sovereign immunity clause. BTOC asks for an explanation and Jim Hill asks you: