The Arbitral Tribunal hearing the dispute between Sonatrach, Algeria's State-owned oil company, and Repsol and Gas Natural over the Gassi Touil project declared that the termination by Sonatrach of its agreement with the two Spanish energy companies was “lawful and justified”. The Tribunal held that Sonatrach was entitled to retain all of the installations, equipment and works completed by Repsol and Gas Natural before the termination of the agreement, valued at US$580 million. The Tribunal also awarded Sonatrach 60% of its costs and rejected the Spanish companies' US$3.6 billion counterclaim because of their responsibility for the delays in the project.

The dispute arose from an agreement entailing the development of existing gas fields in Gassi Touil, the construction of a gas liquefaction plant and upstream facilities, as well as the commercialisation of the liquefied gas. The project was named one of the "top 10 billion dollar oil deals of the summer" by a leading oil & gas magazine.

Sonatrach terminated the agreement and initiated arbitration proceedings in August 2007, after Repsol and Gas Natural sought to impose new contractual terms and refused to meet a 2009 deadline, stating that completion of the project before 2012 was unlikely.

"There is no reason why State-owned companies should tolerate significant delays in their projects," commented Emmanuel Gaillard, head of Shearman & Sterling's international arbitration practice and lead Counsel to Sonatrach. "It was a sound decision for Sonatrach to elect to enforce its right to have the contractually-set deadlines abided by."

Contact: Emmanuel Gaillard l +33.1.53.89.70.00 l