Texas-Based Oil Company Loses Arbitration in Long-Running Feud With Republic of Georgia
14 July, 2020
An unusual dispute is flaring between a Texas energy firm and the state-owned oil company of Georgia, a battle that combines elements of corporate intrigue, international law and U.S. national security.
On one side is Georgia, a U.S. ally and NATO partner that signed an oil exploration contract with the Texas company in the mid-1990s, soon after gaining independence from the Soviet Union.
The opposing party is Frontera Resources, an oil and gas firm founded by former Houston Mayor and U.S. deputy energy secretary Bill White. Frontera has faced financial problems and was last year delisted from the London Stock Exchange, while its activities in Georgia have been “dogged by controversy.”
The relationship has blown up in acrimony, with Georgian officials accusing Frontera of failing to honor a recent international arbitrator’s ruling stemming from a contract dispute in which the Caucasus nation prevailed. The Georgian Oil & Gas Corp. has terminated the contract.
“Frontera has engaged in an unprecedented attack against the Georgian Government and the Georgian people,” George Bakhtadze, the Georgian corporation’s director general, said in a recent interview. “Frontera appears determined to damage U.S. – Georgian relations.”
Frontera has said Georgia is distorting the arbitration results, but has not elaborated or commented further publicly. The company did gain support from two U.S. Senators who waded into the fray, accusing Georgia of fostering an anti-American business climate.
The May 15 letter from Sens. Ted Cruz (R-Texas) and John Cornyn (Texas) and two Texas congressmen to top Trump administration officials also claimed that Georgia has troubling ties to the Russian government.
Some observers disagree, saying the allegations of Russian influence are “generally dismissed by diplomats dealing with Tbilisi. (Georgia’s capital).” And other U.S. government analysts say the opposite is true: Georgia is a key U.S. partner in countering Russian influence in the strategically vital Black Sea region.
A recent article published by the U.S. Naval Institute, for example, called the Black Sea “Russia’s gateway to the world” and urged the United States to “partner with Georgia to expand U.S. influence in the Black Sea region and reduce Russia’s sphere of influence.”
After it gained independence from the Soviet Union in 1991, Georgia looked westward, and in 1997 signed a contract with Frontera Resources to explore and produce crude oil.
Frontera had been formed a year earlier but by 2010 was known as a “failing firm.” With its incorporation in the Cayman Islands, the notorious tax shelter, and operational headquarters in Houston, the company pinned much of its hopes on Georgia.
“Frontera’s future revenues depend on operating results from its operations in the Republic of Georgia.” Frontera said in its 2015-16 financial statements.
But the company ran into trouble in the young democracy, where it was often seen as “exploiting Georgia’s oil and gas reserves.”
By 2018, Frontera was failing to pay many of its Georgian workers, who held two protests the following year in Tblisi.
Some news organizations that cover Georgia have even called Frontera a “scofflaw American oil company.”
Frontera’s relationship with the Georgian government was also disintegrating, and in 2018, two Georgian state oil and gas entities filed an appeal at the International Arbitration Tribunal. They accused the company of violating its contract by refusing “to return to the state land they were no longer using for extraction.”
After Frontera responded with a counterclaim, the tribunal ruled unanimously in Georgia’s favor in April, declaring that Frontera had materially breached the contract and ordering the firm to immediately relinquish the 5,000 square kilometers in dispute and to pay damages.
International arbitration is an increasingly attractive option for solving legal disputes across borders, a recent study shows. And Frontera’s apparent refusal to comply with the pro-Georgia ruling runs counter to the views of legal experts, who say these decisions must be respected because they are considered neutral and binding.
This principal is “very important,” according to Aceris Law, a boutique international arbitration law firm, in “cross-border transactions.”
On one side is Georgia, a U.S. ally and NATO partner that signed an oil exploration contract with the Texas company in the mid-1990s, soon after gaining independence from the Soviet Union.
The opposing party is Frontera Resources, an oil and gas firm founded by former Houston Mayor and U.S. deputy energy secretary Bill White. Frontera has faced financial problems and was last year delisted from the London Stock Exchange, while its activities in Georgia have been “dogged by controversy.”
The relationship has blown up in acrimony, with Georgian officials accusing Frontera of failing to honor a recent international arbitrator’s ruling stemming from a contract dispute in which the Caucasus nation prevailed. The Georgian Oil & Gas Corp. has terminated the contract.
“Frontera has engaged in an unprecedented attack against the Georgian Government and the Georgian people,” George Bakhtadze, the Georgian corporation’s director general, said in a recent interview. “Frontera appears determined to damage U.S. – Georgian relations.”
Frontera has said Georgia is distorting the arbitration results, but has not elaborated or commented further publicly. The company did gain support from two U.S. Senators who waded into the fray, accusing Georgia of fostering an anti-American business climate.
The May 15 letter from Sens. Ted Cruz (R-Texas) and John Cornyn (Texas) and two Texas congressmen to top Trump administration officials also claimed that Georgia has troubling ties to the Russian government.
Some observers disagree, saying the allegations of Russian influence are “generally dismissed by diplomats dealing with Tbilisi. (Georgia’s capital).” And other U.S. government analysts say the opposite is true: Georgia is a key U.S. partner in countering Russian influence in the strategically vital Black Sea region.
A recent article published by the U.S. Naval Institute, for example, called the Black Sea “Russia’s gateway to the world” and urged the United States to “partner with Georgia to expand U.S. influence in the Black Sea region and reduce Russia’s sphere of influence.”
After it gained independence from the Soviet Union in 1991, Georgia looked westward, and in 1997 signed a contract with Frontera Resources to explore and produce crude oil.
Frontera had been formed a year earlier but by 2010 was known as a “failing firm.” With its incorporation in the Cayman Islands, the notorious tax shelter, and operational headquarters in Houston, the company pinned much of its hopes on Georgia.
“Frontera’s future revenues depend on operating results from its operations in the Republic of Georgia.” Frontera said in its 2015-16 financial statements.
But the company ran into trouble in the young democracy, where it was often seen as “exploiting Georgia’s oil and gas reserves.”
By 2018, Frontera was failing to pay many of its Georgian workers, who held two protests the following year in Tblisi.
Some news organizations that cover Georgia have even called Frontera a “scofflaw American oil company.”
Frontera’s relationship with the Georgian government was also disintegrating, and in 2018, two Georgian state oil and gas entities filed an appeal at the International Arbitration Tribunal. They accused the company of violating its contract by refusing “to return to the state land they were no longer using for extraction.”
After Frontera responded with a counterclaim, the tribunal ruled unanimously in Georgia’s favor in April, declaring that Frontera had materially breached the contract and ordering the firm to immediately relinquish the 5,000 square kilometers in dispute and to pay damages.
International arbitration is an increasingly attractive option for solving legal disputes across borders, a recent study shows. And Frontera’s apparent refusal to comply with the pro-Georgia ruling runs counter to the views of legal experts, who say these decisions must be respected because they are considered neutral and binding.
This principal is “very important,” according to Aceris Law, a boutique international arbitration law firm, in “cross-border transactions.”