Arbitrations against the Republic of Tunisia/ETAP
International arbitration proceedings against the Republic of Tunisia and ETAP (Entreprise Tunisienne d’Activités Pétrolières), the national oil company of Tunisia.
The fully owned subsidiaries of Zenith Energy have initiated international legal proceedings against the Republic of Tunisia and/or ETAP (the “Arbitrations”).
The cumulative total amount claimed across the Arbitrations currently stands at approximately US$140 million.
In the interests of preserving its cash reserves at a time of intensive expansion and development activity, Zenith is seeking financing from a specialised arbitration fund to cover all costs in connection with the Arbitrations from commencement to the rendering of potential awards on a non-recourse basis.
Arbitration before the International Centre for Settlement of Investment Disputes in Washington DC (the “ICSID Arbitration”) – cumulative claimed amount approximately US$48 million.
Zenith’s fully owned subsidiaries (together, the “Investors“) have submitted a request for arbitration against the Republic of Tunisia before the ICSID with a total cumulative claimed amount of at least approximately US$48 million.
The request for Arbitration before the ICSID was submitted in accordance with article 8 of the Agreement signed between the government of the United Kingdom of Great Britain and Northern Ireland and the government of the Tunisian Republic in 1989 for the Promotion and Protection of Investments.
The ICSID Arbitration was launched following a series of actions undertaken by the Tunisian government to the material detriment of the commercial interests of the Investors in the Republic of Tunisia, including, inter alia, unreasonable, and arbitrary obstructions in relation to the development of the Sidi El Kilani and Ezzaouia concessions.
More specifically, these include actions in contravention to, inter alia, the terms of the Sidi El Kilani and Ezzaouia licenses respectively, and unjustified obstructions for processing the sale of produced oil.
Prior to initiating the Arbitration, Zenith and its subsidiaries had, in good faith, applied their best efforts towards engaging constructively with the relevant bodies in the Republic of Tunisia to address these matters. However, in view of the unsuccessful nature of these efforts to date, the Investors have been compelled, to safeguard their commercial interests and legal rights, to launch the ICSID Arbitration.
On July 10, 2023, the Company announced that it had successfully obtained a “conservative seizure” for an amount equivalent to approximately US$6.5 million deposited in a bank account under the name of ETAP in Switzerland (the “Conservative Seizure”).
The Conservative Seizure was granted in view of ETAP’s failure to comply with its contractual obligations and pay for oil produced and sold by one of the Company’s subsidiaries.
The Conservative Seizure was undertaken to avoid the risk of funds being dissipated or diverted while legal proceedings are ongoing.
The ICC Arbitration was commenced by the Company following the Conservative Seizure.
On November 29, 2023, the Company announced that the ICC appointed Arbitral Tribunal for the arbitration claim launched against Entreprise Tunisienne d’Activités Pétrolières (“ETAP”), the national oil company of the Republic of Tunisia (the “ICC Arbitration”), had rejected ETAP’s request to include the Tunisian State as co-defendant and condemmed ETAP to pay approximately EUR 120,000 in costs.
On December 6, 2023, the Company announced that its fully owned subsidiary, Canadian North Africa Oil and Gas Limited (“CNAOG”) had initiated an ICC arbitration case seated in Paris against the Republic of Tunisia (the “CNAOG ICC Arbitration”), in relation to the purchase of CNPC Tunisia.
Claim
The Company has formalised a claim for damages in the amount of US$85.8 million (the “Claimed Amount”) in connection with the CNAOG ICC Arbitration.
The Claimed Amount has been assessed by a third-party expert consultant in consideration of the following:
- CNAOG’s lost production revenue and associated profitability, during a period of high energy prices, from the SLK Concession until its initial expiry in December 2022.
- The volume of crude oil produced from the Concession and allocated to and received by CNAOG upon the completion of the Acquisition.
- Unpaid invoices for oil production by ETAP, the national oil company of Tunisia.
- The value of the 45% interest in the renewal of the SLK Concession, representing a breach of CNAOG’s right to renew its previously existing 22.5% interest in SLK, as well as the 22.5% interest held by Kuwait Foreign Petroleum Exploration Company K.S.C.C, which relinquished its interest in the Concession before its initial expiry.
The CNAOG ICC Arbitration is to be distinguished from the parallel arbitrations initiated by the Company, being the ICC Arbitration against ETAP, announced to the market on November 1, 2023, for a total amount of US$6.5 million, and to the arbitration pending before the International Centre for Settlement of Investment Disputes in Washington DC (“ICSID Arbitration”) , for a total cumulative claimed amount of at least US$48 million, announced on June 7, 2023, following various breaches of bilateral trade agreements committed by the Republic of Tunisia.
The Company continues to hold ownership of the Robbana and El Bibane concessions.
The El Bibane concession is located 16 kilometres offshore from the port of Zarzis in the Gulf of Gabes, covering an area of approximately 228 square kilometres and in approximately 7-8 meters water depth. The field was discovered by Marathon Oil Corporation in 1982. However, it was not developed until 1998. Upon initial development, a peak production of 4,500 bopd was achieved. The reservoir is located in the cretaceous Zebbag fractured dolomite formation at approximately 2,150 metres below surface.
Zenith has acquired a 100% working interest in El Bibane.
A total of three wells remain active within El Bibane: EBB-5, EBB-4 and EBB-3RE2. A total of 6 wells plus 4 sidetracks have been drilled.
EBB-5 currently produces approximately 80-100 barrels of condensate per day (API 49/50) with 5.5-6 MMSCF of natural gas from well EBB-5, which is re-injected into the formation via well EBB-4.
It is expected that, by utilising new technologies, well EBB-4 may achieve commercial production of natural gas in addition to its current use as an injector well.
EBB-3 suffered string damage and has been temporarily shut-in, having previously produced at a rate of between approximately 500-600 barrels of oil per day (35 API) prior to production being suspended. The low oil price environment during 2020 and the material investment required to restore production from this well have prevented the necessary repair work from being implemented.
Zenith has already obtained market quotations for the well intervention required to restore production from well EBB-3 for an amount of approximately US$3.5 million.
In the event of a successful well intervention in EBB-3, the Company expects to produce approximately 500 barrels of oil equivalent per day from El Bibane.
Candax commissioned an independent reserves evaluation, as of December 31, 2019, for the contingent reserves (1C) of El Bibane which evaluated remaining oil in place as 25.7 MMSTBO and 6.5 BCF of natural gas.
Zenith has commissioned a new Competent Person’s Report, in compliance with Canadian securities laws, specifically the COGE Handbook and National Instrument 51-101 – Standards of Disclosure for Oil and Gas Activities, in order to obtain an updated reserves evaluation for the El Bibane concession.
The Robbana concession, covering 48 square kilometres and located onshore in the island of Djerba in the southern Gulf of Gabes, was discovered in 1988, achieving a peak production of 500 bopd in 1994. The ROB-1 well encountered two hydrocarbon-bearing reservoirs in the Cretaceous Upper Meloussi Sandstone formation. Only two wells have been drilled in Robbana since discovery, ROB-1 which is still in production and ROB-2 which is temporarily abandoned.
Robbana currently produces approximately 25 barrels of oil per day from ROB-1, having previously produced approximately 50 barrels of oil per day prior to an unsuccessful well intervention.
Studies have suggested that an infill well, to be drilled in the proximity of well ROB-1, is expected to produce approximately 200 barrels of oil per day.
Candax commissioned an independent reserves evaluation, as of December 31, 2019, for the contingent reserves 1C of Robbana which evaluated remaining oil in place as 10.99 MMSTBO. The study noted specifically noted that the Middle Triassic sandstones of the Ras Hamra formation present a very significant high-risk high reward exploration objective.
Zenith has commissioned a new Competent Person’s Report, in compliance with Canadian securities laws, specifically the C OGE Handbook and National Instrument 51-101 – Standards of Disclosure for Oil and Gas Activities, in order to obtain an updated reserves evaluation for Robbana.
Robbana expires on November 4, 2034.
