Georgian oil and gas companies call on Frontera not to politicise legal dispute

The Georgian Oil and Gas Corporation (GOGC) and the Georgian State Agency of Oil and Gas (SAOG) call on Frontera Resources Georgia Corporation (FRGC) to refrain from 'unscrupulous actions, disseminating misinformation' pertaining to the actual outcomes of arbitration proceedings, and hence ‘politicising what is a legal dispute’.

The GOGC says that Frontera must respect the verdict of the Arbitral Tribunal - the dispute resolution institute agreed by the parties - and ensure its enforcement. 

In order to protect the public and interested parties from misunderstandings, or misleading information, we call on Frontera to consent to the revocation of the status of confidential document for the arbitral award and consequently to its disclosure”, reads the statement.

The GOGC says that it is ‘essential and regrettable’, that instead of immediate verdict enforcement, Frontera launched a ‘misleading and State image damaging’ information campaign that involved basically misinforming US Congress members, ‘friends of Georgia’, who relied on the information provided by the company, and were fairly outraged by the actions of an ally like Georgia infringing on the interests of an American company. 

This reaction would have been understandable if the information provided by Frontera had not been false. It is unfortunate that Frontera acts as an unscrupulous business entity. However, it is doubly unfortunate and extremely harmful that its dishonesty damages the partnership between Georgia and the United States, as well as hinders Georgia’s vital process of rapprochement with European Union and NATO and sabotages the State’s foreign policy. The Georgian side once again calls on Frontera to respect the April 17, 2020 award of the United Nations-backed Hague Permanent Arbitration Court and consent to its disclosure”, reads the statement.

Contractual dispute and arbitration

In April 2020 the government of Georgia announced that the International Arbitration Tribunal had upheld the vast majority of claims filed by the Georgian government against the US oil and gas firm Frontera Resources. Georgia had accused the company of violating the terms of their contract, signed in 1997. They claimed that Frontera refused to return state land they were no longer using for extraction.

After Georgia filed the appeal at the International Arbitration Tribunal in January 2018, Frontera responded with a counterclaim, claiming $3.5 billion in damages. The company accused the government of trying to take resource-rich lands from them.

The GOGC statement reads that the tribunal upheld their claim that Frontera committed a ‘material breach of the contract’ by refusing to give up the land. These lands, the statement reads, comprise ‘99 per cent of the entire contract area’.

On January 15, 2018 GOGC and SAOG commenced arbitration proceedings against FRGC by filing a request for arbitration with the Hague Permanent Court of Arbitration with respect to a dispute arising out of breach by FRGC of its obligations under the PSC. The PSC provides for disputes to be resolved in accordance with the parties’ agreement before a neutral forum under the UN-sponsored arbitration rules (UNCITRAL). This dispute resolution mechanism is a fundamental tenet of the rule of law.

On April 17, 2020, the Arbitration Tribunal rendered its final award. It ruled unanimously that Frontera had committed a material breach of the PSC and ordered FRGC and Frontera Resources US LLC (a co-defendant in the proceedings) to pay to the claimants the amount of mineral usage tax and vast majority of the costs incurred by the claimants in connection with the arbitration, which equals to approximately US $6 million in total”, says the GOGC.

According to the government, all of Frontera’s counterclaims were dismissed.

From the beginning of the proceeding, GOGC committed to honour and respect any award rendered by the Arbitral Tribunal, and to refrain from unilaterally exercising rights under the PSC pending the final arbitration award. Moreover, the original PSC had a 10-year exploration period that was extended twice to a total of 20 years, which expired in November 2017, thus triggering FRGC’s obligations to relinquish the exploration territories located outside the existing Exploitation/Development Area. 

“The allegations to the effect that SAOG and GOGC were eager to take control of these exploration territories are thus nonsensical”, reads the statement of the GOGC.