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Dave Forest

Dave Forest

Dave is Managing Geologist of the Pierce Points Daily E-Letter.

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Resource Lawsuits Against Governments: $53.4B And Counting

$53.4 Billion In Resource Lawsuits

It isn’t just miners that are having trouble with the Philippines government these days.

Oil and gas firms also got into it with the Asian nation this past Wednesday. When Shell filed a $1.2 billion arbitration claim against the Philippines government before a World Bank tribunal.

The suit relates to taxes levied by national authorities on a Shell-led natural gas-to-power project in the country. With the tax department here apparently going against an agreement that the government would be responsible for taxes proportional to its 60% profits interest in the facility.

Government auditors instead forced Shell and partners to pay that bill. Which the major is now seeking to be returned through an arbitration decision.

Such legal action against governments is actually becoming an interesting trend across the natural resources world lately.

And those court cases could be incredibly profitable for some investors.

Just look at another case in court this week. A lawsuit brought against the government of Argentina over the 2012 nationalization of oil and gas firm YPF.

Lawyers in New York have brought the case on behalf of a group of Argentinean oil and gas operators. Who claim that the high-profile nationalization of YPF caused share prices of their own companies to crater — and eventually did them in, when worried lenders called in debts over fears of the political climate in Argentina. Related: Is This The Next Big Headache For Oil Prices?

These plaintiffs are seeking billions in compensation from the government. And it’s not just them who would benefit from the settlement — with the case actually being bankrolled by “litigation investors” Burford Capital.

Burford has been pursuing this unusual strategy since 2009. Having raised a few hundreds of millions of capital they use to fund third-party lawsuits, in exchange for a piece of any settlement gained.

Burford’s principals obviously see big potential in the emerging resource litigation space. Not surprising, given the substantial sums of money involved in these cases.

In fact, the billions at stake in the above lawsuits are dwarfed by the upside in another energy case winding its way through the courts — a $50 billion suit brought against the Russian government by shareholders of now-defunct Yukos Oil.

The Yukos plaintiffs actually won a $50 billion decision against Russia in a 2014 Dutch tribunal ruling — which found that Russia had wrongfully destroyed Yukos’ value, and illegally transferred its assets to state firms.

But that award was overturned by the Hague courts earlier this year, when judges ruled the original tribunal didn’t have jurisdiction to make the decision.

At the same time, the Yukos shareholders are pursuing legal action against Russia in New York courts. With lawyers arguing last week that they want to slow those proceedings, while they attempt to have the Dutch award reinstated through appeal.

All of which means very big money on the line. And mining companies are also going after governments for a piece of this pie — with another very big case going on right now in the minerals space.

That’s a lawsuit by former Venezuela gold developer Crystallex International. Which was in Delaware court last week trying to enforce a billion-dollar settlement it recently won over nationalization of its projects. Related: Is This A Game Changer For The US Oil Industry?

A World Bank tribunal awarded Crystallex $1.39 billion in damages this part April — when judges found the Venezuela government broke treaties with Canada by seizing control of the 16 million-ounce Las Cristinas gold deposit from Crystallex, a Canadian firm.

But Crystallex now claims it’s been unable to enforce the award. Because the Venezuelan government subsequently transferred $2.8 billion out of its U.S. entities — a move Crystallex says was done solely to avoid this money being seized for payment of the settlement.

The company is asking the courts to order the transfers reversed, and the money returned to America — where it can be seized and paid out. An uncertain proposition even in the event of a favorable decision from Delaware judges — but one that would be immensely profitable for Crystallex shareholders if it does succeed.

With all this going on, watch for more lawsuits being brought over resource wrongdoing by governments globally — with the current legal environment seemingly supportive of such actions. The right decisions could see some plaintiffs, and their backers, go from pennies to penthouse overnight.

Here’s to being suitable.

By Dave Forest

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