British-based gas giant BG Group Plc has won a multi-million-dollar ruling against Argentina in a landmark case in the US Supreme Court.
In a long-running case against Argentina for losses occurred during a 2002 gas-price freeze, the US Supreme Court ruled on Wednesday that the Argentine government must pay BG Group $185 million in compensation.
Amid an economic crisis in 2001-2002, Argentina moved to freeze gas prices and change the basis of gas prices from US dollars to pesos, causing the bankruptcy of then-BG-controlled Metrogas.
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The British company had said the Argentine government’s move to freeze gas prices shortly after it announced a sovereign debt default of some $100 billion in December 2001 caused a sharp drop in the value of BG’s 45% stake in Metrogas, bankrupting the company.
In 2012, BG sold its stake in Metrogas to YPF SA and Integra Gas Distribution LLC.
The victory has been a long one in coming for BG. In 2007, a US tribunal back at least part of BG’s loss claims, while a federal district court confirmed the $185-million award. However, the Washington, DC Federal Appeals Court later overruled the district court—arguing that BG should have first pursued its claims in Argentina.
Wednesday’s Supreme Court ruling reinstated the $185 million award, in a 7-2 vote, arguing that the federal appeals court was wrong to throw out the arbitration award.
The ruling sets an unclear precedent for the future, as it essentially argues that BG’s contract with Argentina should be read as though it were a domestic US contract.
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The victory for BG in the Argentina case comes as the company is experiencing disappointing results largely due to the ongoing crisis in Egypt.
BG Group has warned that production this year and next would fall short of expectations, calling its guidance for 2014 disappointing due to ongoing problems in Egypt.
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In late January, BG Group said it was unable to fully meet its obligations to deliver gas to Egyptian LNG, and “given the current levels of domestic diversions and the continued uncertainty around the level of future diversions, the company has served force majeure notices to buyers and lenders.”
By James Burgess of Oilprice.com
