Primeline Turns Against CNOOC

Maritime Activity Reports, Inc.

May 25, 2016

 Primeline Energy Holdings Inc. announces that it has sent a letter to China National Offshore Oil Corporation (CNOOC) and CNOOC China Limited (CCL) (together CNOOC Group) giving formal notice of its intention to commence arbitration proceedings against CNOOC Group under the provisions of the Petroleum Contract for Block 25/34.

The CNOOC Arbitration relates to Primeline’s continuing disputes with CNOOC Group with regard to the development, production and sales of gas from the LS36-1 Gas Field (LS36-1). Primeline has appointed an arbitrator and will file the formal Notice of Arbitration in accordance with the UNCITRAL Arbitration Rules 1976 and the arbitration agreement under the Petroleum Contract for Block 25/34.
The CNOOC Arbitration is separate from the previously announced China International Economic and Trade Arbitration Commission (CIETAC) arbitration proceedings  by Primeline against Zhejiang Gas Natural Gas Development Company Limited in respect of claims for payment of unpaid and partially paid gas sale invoices. 
Subsequent to the commencement of the Zhejiang Gas Arbitration, Zhejiang Gas filed a request with the Zhejiang Province Hangzhou Intermediate Peoples’ Court challenging the validity of Primeline’s reliance on the arbitration provisions in the contract relating to the sale of gas from LS36-1 (Gas Sales Contract). 
The basis of the challenge is that, as Primeline is not a signatory to the Gas Sales Contract but sells through CCL as agent, there is no jurisdictional basis for Primeline to initiate the Zhejiang Gas Arbitration and only CCL could institute such arbitration. 
Primeline has received a notice from CIETAC that the Zhejiang Gas Arbitration has been suspended until this challenge is resolved by the court. Primeline considers that it has a clear right under Section 402 of the Chinese Contract Law to institute the Zhejiang Gas Arbitration in view of the failure by its agent, CCL, to institute arbitration proceedings in accordance with the Gas Sale Contract and therefore considers Zhejiang Gas’ move to be simply an attempt to delay the Zhejiang Gas Arbitration. 
Primeline has filed a defence against the application by Zhejiang Gas. A wholly owned subsidiary of CNOOC owns 30% of Zhejiang Gas and CNOOC, together with its partners (including Primeline), supplies a substantial proportion of the natural gas market in Zhejiang Province.
Following the challenge, Primeline wrote to CCL to reaffirm its position that had CCL enforced the terms and conditions of the Gas Sales Contract and led the Zhejiang Gas Arbitration, Primeline would not face the same jurisdictional challenge from Zhejiang Gas. However, CCL has failed to file arbitration against Zhejiang Gas upon Primeline’s numerous requests made after CCL’s attempts to settle the disputes with Zhejiang Gas failed.
The subject of the CNOOC Arbitration include claims in respect of CCL’s mismanagement in relation to the development of LS36-1 and breach of fiduciary duties as agent under the Gas Sales Contract. Further details will be disclosed at a later stage by a separate announcement once the full Notice of Arbitration has been filed.
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