NAFTA rules in favor of oil firms regarding oil investment case

ExxonMobil and partner Murphy oil recently won its case against a Canadian petroleum board after the North American Free Trade Agreement (NAFTA) arbitration panel ruled in favor of the two oil firms.

Both companies, together with other partners have been investing in oil exploration and production in the Labrador and Newfoundland provinces of Canada. Years ago, the provinces have demanded that both firms put aside a sum for research activities in the area, prompting Mobil and Murphy to lodge a complaint.

A representative from the Dept. of International Trade stated that it is not quite happy about the ruling.

NAFTA’s decision will have to be reviewed further according to Me’shel Gulliver Belanger, adding that it was too technical.  She said that her group is studying NAFTA’s decision and will be coming out with its next course of action.

The complaint indicates that Canada-Newfoundland Offshore Petroleum Board are demanding Mobil and Murphy to put up millions of cash for research in Labrador and Newfoundland in connection with the firms’ oil project Hibernia as well as Terra Nova.  If there is any amount left after R&D spending, same shall be placed in a separate fund.

This means that the complainants are required to set aside an annual R&D budget, even if there is no existing need for it or even if the provinces are capable of financing their own R&D activities.

Canada insists, however, that the demand for a R&D budget is quite fair, and that it is authorized to impose it on firms planning to invest in oil exploration and production in their region.

Based on website news, Mobil and Murphy’s win came out of NAFTA’s 2-1 decision.

The same source indicated that the U.S. and Canada received a notice from NAFTA that Labrador and Newfoundland’s demand for R&D budget constitutes a violation of Article 1106 of the trade agreement.  The Article bans states from imposing performance requirements on investors.

The NAFTA board has not made a final decision as regards the penalty to be imposed, but the complainants filed for $50 million in damages.

According to Cassels Brock trade lawyer Lawrence Herman, the result could not be interpreted as an absolute victory on the part of Mobile and Murphy since the panel junked the oil firms’ other claim that they were deprived of fair treatment.

Herman is also optimistic that the panel will impose a reduced amount of penalty considering the 2:1 split decision.