Esso Exploration and Production Nigeria Limited and Shell Nigeria Exploration and Production Company Limited v. Nigerian National Petroleum Corporation

At a glance

Parties

Esso Exploration and Production Nigeria Limited and Shell Nigeria Exploration and Production Company Limited (together "Esso") v. Nigerian National Petroleum Corporation (NNPC)

Case no.

No. 14cv8445 (S.D.N.Y.)

Court

U.S. District Court, Southern District of New York; Senior U.S. District Judge William H. Pauley III

Forum and rules

Petition to confirm a foreign award under the New York Convention (Article V(1)(e))

Underlying award(s)

Nigerian-seated arbitral award of USD 1.799 billion under the 1993 Erha Production Sharing Contract, set aside by the Nigerian courts

Treaty

Contract arbitration clause (clause 21 of the 1993 Production Sharing Contract); New York Convention

Sector

Oil and gas (offshore production sharing)

Outcome

NNPC's motion to dismiss granted and the Third Amended Petition dismissed (4 September 2019). The Court found personal jurisdiction but, in its discretion, refused to confirm the award because it had been set aside in Nigeria. Esso's adverse-inference motion was denied.

Amount

Award: USD 1.799 billion; valued at USD 2,669,405,616 when the Third Amended Petition was filed. Nothing confirmed.

The dispute

Esso and NNPC signed a Production Sharing Contract in 1993 for the Erha oil field off Nigeria. Esso had the exclusive right to allocate the oil produced into Royalty, Cost, Tax and Profit Oil and to prepare the tax returns. After a Presidential Investment Committee concluded that Nigeria had been deprived of USD 646.3 million, NNPC lifted more oil than its share ("overlifting") from late 2007 or early 2008. It also filed its own tax returns instead of Esso's. In arbitration seated in Nigeria, the panel rejected NNPC's objection that this was a non-arbitrable tax dispute and awarded Esso USD 1.799 billion. The Nigerian Federal High Court then set the award aside, and the Court of Appeal largely upheld that decision. Esso petitioned to confirm the award in New York. NNPC moved to dismiss for lack of personal jurisdiction, on forum non conveniens grounds, and because the award had been set aside at the seat.

Key holdings

1. NNPC is an alter ego of Nigeria, so it has no due process rights and the Court has personal jurisdiction over it. The Court relied on four points: the President's influence over the overlifting; Nigeria's control of NNPC's board, executives, contracts and budget; shared premises; and the commingled JPMorgan accounts in New York. The Court rejected the "fraud or injustice" prong. pp. 9–20
2. Even if due process applied, NNPC had sufficient minimum contacts with the United States, and exercising jurisdiction was reasonable. NNPC attended the 1991 Houston roadshow, solicited bids and directed contract negotiations to Houston, visited the United States during performance, and had Erha oil purchasers pay U.S. dollars into New York accounts. Agreeing to an arbitration clause with an affiliate of an American company was not by itself a contact. pp. 20–33
3. Forum non conveniens dismissal denied. This is a summary confirmation proceeding with no trial, and the Iragorri factors favor keeping the case in New York. Figueiredo did not require dismissal at this late stage. pp. 33–36
4. The Court declined to use its inherent power to turn the Court of Appeal's reinstatement of the non-monetary parts of the award (tax returns and lifting allocations) into a USD 1.8 billion damages judgment. It called that "a bridge too far". pp. 38–39
5. Applying the four Pemex considerations, the Court found that the Nigerian set-aside does not offend basic U.S. standards of justice. It called this a close call. NNPC had objected from the start that the dispute was a non-arbitrable tax matter, and the laws relied on predated the dispute. Esso still has appeals pending in Nigeria. Only the expropriation factor, by analogy, favored Esso. Recognition of the award was refused under Article V(1)(e). pp. 39–46
6. Expected delays in the Nigerian appeals (Esso estimated four to six more years) are not a denial of due process that justifies confirming an award that has been set aside. p. 47
7. Esso's motion to have 12 facts deemed established as a discovery sanction was denied, mostly as moot. The Court nonetheless criticized NNPC for stonewalling the production of the Committee documents. pp. 48–50

Procedural history

1. 21 May 1993Esso and NNPC sign the Erha Production Sharing Contract.
2. 20 May 2008President Yar'Adua orders NNPC to lift more oil, following the Committee's recommendation. NNPC had already begun overlifting in December 2007 or January 2008.
3. July 2009Esso commences arbitration in Nigeria. Hearings are held in 2011, and the panel awards USD 1.799 billion.
4. The Nigerian Federal High Court issues the FIRS Decision and the Set Aside Decision, which vacates the award. The Court of Appeal upholds the set-aside but reinstates the non-monetary contractual parts of the award. Esso's further appeals remain pending.
5. Esso petitions the S.D.N.Y. to confirm the award and later files a Third Amended Petition. Jurisdictional discovery follows.
6. 1 February 2019Oral argument held.
7. 4 September 2019Opinion & Order: NNPC's motion to dismiss is granted, confirmation is refused, and the case is closed.

Tribunal, counsel and experts

Decided by

• William H. Pauley III Judge, U.S. District Court, Southern District of New York

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Keywords

• New York Convention Article V(1)(e)
• award set aside at seat
• Pemex
• public policy exception
• alter ego
• Bancec
• personal jurisdiction
• minimum contacts
• Foreign Sovereign Immunities Act
• forum non conveniens
• Erha oil field
• overlifting
• production sharing contract
• tax arbitrability
• Nigeria
• oil and gas
• adverse inference
• stabilization clause

Summary generated with AI from the published documents — refer to the award for the authoritative text.