Legal Consultant: ICSID Could be Just the Start of Oxy Battle

US oil company Occidental (NYSE: OXY) "probably will win the case" it filed against Ecuador's government with the International Center for Settlement of Investment Disputes (ICSID) over the mid-May cancellation of its block 15 contract, a legal consultant told BNamericas.

However, the true challenge for Oxy would lie in enforcing a favorable ICSID ruling, Jose Luis Vittor, said a foreign legal consultant for US law firm Bracewell & Guiliani's Latin America business practice group.

"The issue then becomes that you have an award for an international tribunal, and there are investment treaties and relationships," he said. "How [will Oxy] enforce this award?"

Oxy would have a difficult time securing an award after the trial from Ecuador's government.

"It's very tough because you have to take the award back to Ecuador and try to enforce it through the internal legal system," Vittor said.

Instead, Oxy would only have the satisfaction of a ruling in its favor if it wins, he said.

"A favorable award for Oxy only will say Oxy was right and had a legitimate claim against the government of Ecuador, but will not address the framework and the perception of uncertainty looking forward for investors," Vittor said.

If Oxy wins, Ecuador likely would file motions claiming a lack of ICSID jurisdiction in order to secure a dismissal as other sovereign defense parties have attempted. ICSID almost certainly would not accept the argument, Vittor said, citing recent ICSID cases as a precedent.

The arbitration process will be lengthy, he said.

Ecuador cancelled Oxy's contract on the block, alleging the US company transferred a 40% stake in block 15 to Canadian oil firm EnCana (NYSE: ENC) in 2000 without government permission. The government also claims Oxy overproduced some wells and did not comply with the block's investment plan.

Oxy responded by filing the ICSID claim in July.

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