U.S. court confirms judgement against Pemex in KBR contract dispute

A U.S. appeals court has affirmed a judgement worth almost half a billion dollars won by the American engineering, procurement and construction company KBR against Mexico’s state-owned oil company Pemex. 

KBR informed on Tuesday that in a decision in ongoing litigation involving COMMISA, KBR’s Mexican subsidiary, the United States Second Circuit Court of Appeals affirmed a judgment in excess of $465 million for COMMISA against PEMEX Exploracion y Produccion (PEP).

The court confirmed a $300 million arbitration award for COMMISA and upheld a lower court ruling that added $106 million to the judgement that also includes $59 million of interest.

This result follows a decade of litigation involving two offshore natural gas treatment, processing and reinjection platforms which COMMISA built for PEP, platforms which have been working and in use by PEP since 2004 but for which COMMISA was never fully compensated, KBR explained.

Namely, KBR’s subsidiary COMMISA was hired by PEP back in 1997 to build two oil platforms in the Gulf of Mexico.

According to papers from the U.S. Second Circuit Court of Appeals, difficulties arose, in part over PEP’s insistence that the platforms be fully constructed before being put into place in the Gulf of Mexico, something COMMISA considered impractical given the weight of the completed platforms.

The conflict reached climax in March 2004 when PEP, alleging that COMMISA had failed to meet contractual milestones and had abandoned the project, gave notice of its intent to administratively rescind the contract. PEP seized the platforms, which were 94 percent complete; ejected COMMISA from the work sites; and gave notice by letter of its intention to administratively rescind the contracts.

COMMISA filed a demand for arbitration with the International Chamber of Commerce (ICC) in December 2004 which, in 2009, found that Pemex breached its contracts and awarded COMMISA $300 million in damages.

In August 2010, U.S. District Judge Alvin Hellerstein in Manhattan confirmed the award. Pemex appealed the award to the Second Circuit Court and challenged the award in the Mexican court where it was nullified.

The case was then sent back to Hellerstein by the Second Circuit in order to consider the effect of Mexican ruling. Hellerstein declined to defer the decision and once again confirmed the award.

“We are pleased the Court affirmed this substantial judgment for KBR’s subsidiary COMMISA, an amount long overdue for work performed decades ago,” said Stuart Bradie, President and CEO of KBR.

Bradie also added: “While PEP may seek rehearing or apply to the U.S. Supreme Court for review, KBR believes this decision moves us much closer to final resolution.”

Offshore Energy Today Staff

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