The essence of the dispute relates to Farmin Agreements which the non-Pioneer participants of the Block H Joint Venture (ROC EG, Atlas Petroleum International Limited ("Atlas") and Osborne Resources Limited ("Osborne")) entered into in 2004 with Pioneer by which that company gained equity in the Block H Production Sharing Contract.
At the time of the farmins, Pioneer committed to pay ROC EG's share of the costs of two wells to be drilled in Block H in consideration for which Pioneer earned a 20% interest in the Block from ROC EG and ROC EG retained a 15% interest which was to be free carried by Pioneer through the two wells. Immediately after it entered into the Farmin Agreement with ROC, Pioneer also entered into broadly similar farmin arrangements with the other Block H co-venturers. The first of the two farmin wells, H-1 (Bravo), was drilled in June 2004 and Pioneer thereby discharged its responsibility in that regard. However, ROC EG maintains that Pioneer has breached its obligations with regard to the second farmin well.
In August 2005, all the participants in the Block H Joint Venture, including Pioneer, resolved to drill the H-2 (Aleta) well in satisfaction of the Joint Ventures minimum work obligations for the first renewal of the exploration period under the Production Sharing Contract. That well would also have discharged Pioneers obligations to ROC EG under the Farmin Agreement. The Government of the Republic of Equatorial Guinea subsequently approved the drilling of the H-2 (Aleta) well and, until early this year, all participants in the Block H Joint Venture were proceeding on the basis that the well would be drilled, although the precise timing of the well was subject to rig availability.
Earlier this year, Pioneer indicated that it did not wish to proceed with the drilling of the H-2 (Aleta) well and did not consider itself bound to fund either its own share of the costs of drilling the well or the carried share of the other co-venturers interests, including ROC EG. Pioneer further indicated to ROC that there were two reasons for its change of view: the enactment last year of a new Hydrocarbons Law by the Republic of Equatorial Guinea and escalating costs of drilling the well. ROC's view is that Pioneer is not entitled to take the position it has.
In order to seek clarification of certain procedural matters under the terms of the Joint Venture Agreement which governs Joint Venture operations, Pioneer commenced arbitration actions against ROC EG, Atlas and Osborne, on 14 June 2007. Subsequently, ROC EG notified Pioneer of claims for breach of Pioneers contractual obligations under the Farmin Agreement between ROC EG and Pioneer and further advised Pioneer of its intention to pursue its claims through arbitration. ROC understands that the other non-Pioneer co-venturers are also intending to move to arbitration with Pioneer. Until these disputes are resolved, it is unlikely that the drilling of the Aleta-1 well will proceed.
Commenting on the arbitration proceedings, ROC Chief Executive Officer, Dr John Doran, stated that:
"Although matters that go to arbitration are often perceived to be of an extremely complex nature, the reality of the Block H arbitration situation is really quite simple, Pioneer wants to cut and run from its farmin commitment and ROC doesn't believe that it is entitled to do that. Nothing more. Nothing less. That simple."
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