Breach of Loan Agreement and Agreement to Provide

An adverse economic climate, heightens the likelihood of commercial litigation and business disputes as well as shareowner lawsuits. This includes stress from drop in oil prices and environment-related lawsuits.

ALLEGATIONS

Plaintiff Private Investor and defendant U.S. Oil Company (HSG client), the owner of a major oil field in Indonesia, entered into an agreement pursuant to which Private Investor agreed to fund and provide remediation services for the field and to loan money to U.S. Oil company for purchase of an oil storage vessel. Private Investor subsequently sued U.S. Oil Company for money allegedly due under the loan agreement and for possession of the crude oil storage vessel under the terms of a collateral marine agreement. U.S. Oil Company counterclaimed, contending that Private Investor had materially breached the loan agreement by failing to fund and provide the remediation services. U.S. Oil Company retained HSG to investigate the allegations and to analyze the economic damages suffered by U.S. Oil Company as a result of Private Investor’s failure to fund and provide the remediation services, which would have resulted in substantially increased production from the field.

ANALYSIS

Private Investor appeared to have intentionally breached its obligations to fund and provide remediation services to U.S. Oil Company so that U.S. Oil Company would be unable to repay its loans in a timely manner. Private Investor did this in an effort to force U.S. Oil Company to sell the field to Private Investor at a diminished price.
U.S. Oil Company was damaged by Private Investor’s failure to provide the agreed-upon funding and remediation services.
U.S. Oil Company’s damages included two components, i.e. lost production revenues through the date on which U.S. Oil Company sold a majority interest in the field to a third party and the diminution in the sale price of the field upon the sale to the third party.
Using Private Investor’s estimates of increased production from the field to be achieved by the remediation operations, HSG calculated a range of damages at various production levels, oil prices, and capital costs.

RESULTS

A resolution satisfactory to HSG’s defendant client was reached after expert reports were filed.

Testifying Resources

HSG Evaluates Appropriateness of Directors’ and Officers’ M&A Due Diligence

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