Oct. 5 (Bloomberg) -- A World Bank arbitration panel ordered Ecuador to pay Occidental Petroleum Corp., the largest onshore crude producer in the continental U.S., $1.77 billion to settle a contract dispute.
The International Centre for Settlement of Investment Disputes, known as ICSID, said Ecuador breached Los Angeles-based Occidental’s contract by failing “to accord fair and equitable treatment,” according to a document on ICSID’s website. Ecuador’s Attorney General Diego Garcia said today the South American country “categorically rejects” the decision and may seek its annulment, according to an e-mailed statement.
Ecuador stripped Occidental of its oil concession in 2006 over an alleged contract breach, prompting the company’s complaint to the panel. In May 2009, Ecuador’s government said it would refuse to comply with the court if it ruled in favor of the company.
“Ecuador categorically rejects this decision,” Attorney General Garcia said. The South American country is studying the panel’s ruling and plans to comment further on Oct. 8, Garcia said in the statement.
The settlement is “a nice positive” for Occidental, said Leo Mariani, an analyst for RBC Capital Markets in Austin, Texas. The long-term effects will depend on whether Ecuador adheres to the verdict, Mariani said in an interview. “That’s the problem -- are they really going to honor” the decision?
Mariani has the equivalent of a hold rating on Occidental and doesn’t own any of its stock.
The settlement would be more than Occidental’s net income for any of the three previous quarters, according to data compiled by Bloomberg. Occidental has concentrated this year on drilling in onshore U.S. fields.
The company plans to spend $5.5 billion in the U.S. in 2012, with an emphasis on prospects in California and the Permian Basin in Texas, according to a slide presentation accompanying its second-quarter earnings release. About 37 percent of the company’s revenue comes from outside the U.S.
Melissa Schoeb, vice president of corporate communications at Occidental, confirmed the amount of the award in an e-mailed statement today.
The statement was released after the close of trading in U.S. markets. Occidental rose less than 1 percent to $85.32 after the close of regular trading.
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