IN THE MATTER OF AN ARBITRATION UNDER THE TREATY BETWEEN THE UNITED STATES OF AMERICA AND THE REPUBLIC OF ECUADOR CONCERNING THE ENCOURAGEMENT AND RECIPROCAL PROTECTION OF INVESTMENT SIGNED ON 27 AUGUST 1993 (THE “BIT”) - and - THE UNCITRAL ARBITRATION RULES 1976 - between - MURPHY EXPLORATION & PRODUCTION COMPANY – INTERNATIONAL “Claimant” and THE REPUBLIC OF ECUADOR “Respondent,” and together with Claimant, the “Parties” PARTIAL FINAL AWARD 6 May 2016 Tribunal: Me Yves Derains Professor Kaj Hobér Professor Bernard Hanotiau, Presiding Arbitrator Registry: Permanent Court of Arbitration Secretary to the Tribunal: Ms. Sarah Grimmer Murphy Exploration & Production Company – International v. The Republic of Ecuador Partial Final Award 6 May 2016 Page i of x TABLE OF CONTENTS I. THE PARTIES AND THEIR REPRESENTATIVES ............................................... 1 II. OVERVIEW OF THE DISPUTE ................................................................................. 1 III. PROCEDURAL HISTORY .......................................................................................... 3 A. Commencement of these Proceedings .............................................................................. 3 B. Jurisdictional Phase of these Proceedings ........................................................................ 5 C. Merits Phase of these Proceedings ................................................................................... 6 IV. STATEMENT OF FACTS ............................................................................................ 9 A. Murphy’s relationship with Canam and Murphy Ecuador ............................................... 9 B. The Ecuadorian oil industry ............................................................................................. 9 C. The original investment in Ecuador under the service contract model .......................... 10 D. The Participation Contract .............................................................................................. 17 E. The increase in global oil prices ..................................................................................... 23 F. The enactment of Law 42 and the issuance of Decree No. 1672 (“Law 42 at 50%”) ......................................................................................................... 24 G. The issuance of Decree No. 662 (“Law 42 at 99%”) ..................................................... 25 H. Post Law 42 developments ............................................................................................. 27 I. Murphy’s sale of Murphy Ecuador to Repsol ................................................................ 33 J. The Consortium’s settlement with Ecuador ................................................................... 34 K. The Murphy ICSID Arbitration ...................................................................................... 35 V. REQUESTS FOR RELIEF ......................................................................................... 36 VI. JURISDICTION .......................................................................................................... 37 A. Respondent’s Position .................................................................................................... 38 B. Claimant’s Position ........................................................................................................ 44 C. Analysis of the Tribunal ................................................................................................. 49 VII. MERITS ........................................................................................................................ 60 1. Whether the fair and equitable treatment standard under the Treaty exceeds the scope of the customary international law minimum standard ........................................ 60 A. Claimant’s Position ........................................................................................................ 60 B. Respondent’s Position .................................................................................................... 62 C. Analysis of the Tribunal ................................................................................................. 64 2. Whether Ecuador violated Claimant’s legitimate expectations ..................................... 66 A. Claimant’s Position ........................................................................................................ 66 B. Respondent’s Position .................................................................................................... 70 C. Analysis of the Tribunal ................................................................................................. 76 Murphy Exploration & Production Company – International v. The Republic of Ecuador Partial Final Award 6 May 2016 Page ii of x VIII. CLAIMANT’S RIGHT TO CLAIM COMPENSATION ........................................ 92 I. Summaries of the Parties’ Positions ........................................................................... 93 1. Whether Claimant Claims Losses in its Own Right or Solely for the Losses of Murphy Ecuador .......................................................................................................................... 93 A. Claimant’s Position ........................................................................................................ 93 B. Respondent’s Position .................................................................................................... 94 2. Whether the SPA Prevented the Settlement by Repsol YPF, or Murphy Ecuador’s successor, of Claimant’s Claims .................................................................................... 95 A. Claimant’s Position ........................................................................................................ 96 B. Respondent’s Position .................................................................................................. 100 3. Whether the Repsol Settlement Agreement Binds Claimant ......................................... 104 A. Claimant’s Position ...................................................................................................... 104 B. Respondent’s Position .................................................................................................. 107 4. Whether this Case Involves a Risk of Double Recovery ............................................... 109 A. Respondent’s Position .................................................................................................. 109 B. Claimant’s Position ...................................................................................................... 110 II. Analysis of the Tribunal ............................................................................................. 111 1. Claimant’s entitlement under the Treaty to claim for losses to its indirect investment 111 2. The effect of clause 12.7 of the SPA ............................................................................. 113 3. What claims were pursued in the Repsol ICSID Arbitration and what claims were settled by the Repsol Settlement Agreement? ...................................................... 122 IX. QUANTUM OF COMPENSATION ........................................................................ 129 1. Appropriate Standard of Compensation ....................................................................... 129 A. Claimant’s Position ...................................................................................................... 129 B. Respondent’s Position .................................................................................................. 130 C. Analysis of the Tribunal ............................................................................................... 131 2. Restitution of the Law 42 Payments ............................................................................. 132 A. Claimant’s Position ...................................................................................................... 132 B. Respondent’s Position .................................................................................................. 133 C. Analysis of the Tribunal ............................................................................................... 136 3. Lost Cash Flows from March 2009 to January 2012 ................................................... 141 A. Claimant’s Position ...................................................................................................... 141 B. Respondent’s Position .................................................................................................. 143 C. Analysis of the Tribunal ............................................................................................... 146 4. Interest .......................................................................................................................... 158 A. Claimant’s Position ...................................................................................................... 158 B. Respondent’s Position .................................................................................................. 159 Murphy Exploration & Production Company – International v. The Republic of Ecuador Partial Final Award 6 May 2016 Page iii of x C. Analysis of the Tribunal ............................................................................................... 160 X. COSTS OF ARBITRATION ...................................................................................