Niko Resources (Bangladesh) Ltd. v. Bangladesh Petroleum Exploration & Production Company Limited ("Bapex") and Bangladesh Oil Gas and Mineral Corporation ("Petrobangla")
ICSID · Investment (ICSID and treaty) · Bangladesh · 28 Feb 2020
Why it matters
This ICSID decision is significant for its detailed analysis of an operator's liability under a joint venture agreement for blowouts, including the application of industry standards and the distinction between direct and consequential damages. It also addresses the binding effect of the JVA's limitation of liability on assignors (the Government and Petrobangla) and clarifies that the second blowout during relief well drilling was not caused by Niko's breach.
Summary
The case arises from two blowouts in 2005 at the Chattak gas field in Bangladesh, operated by Niko Resources (Bangladesh) Ltd. under a Joint Venture Agreement (JVA) with BAPEX. The first blowout occurred on 7 January 2005 during drilling of the Chattak 2 well, caused by Niko's failure to properly design the well and manage shallow gas, leading to an uncontrolled gas release. The second blowout happened on 24 June 2005 while drilling a relief well (Chattak 2A) to control the first, but the Tribunal found no breach by Niko for that event. The Tribunal applied the JVA, which required Niko to act as a prudent operator and follow petroleum industry standards (API RP 59 and RP 64). It found Niko breached its obligations by inadequate well design, failure to set casing at a safe depth, and insufficient training of the drilling team. The Tribunal also addressed the limitation of liability under Article 27.2 of the JVA, which excludes consequential damages but not direct losses like escaped gas. It held that the Government and Petrobangla, as assignors of rights to BAPEX, are bound by this limitation. The decision on quantum of damages for other losses (e.g., lost production, environmental damage) was reserved for a later phase. The case is notable for its thorough treatment of causation and liability in oil and gas operations, and for clarifying the scope of contractual limitations on liability in investment arbitration.
The detail
Parties: Niko Resources (Bangladesh) Ltd. v. Bangladesh Petroleum Exploration & Production Company Limited ("Bapex") and Bangladesh Oil Gas and Mineral Corporation ("Petrobangla")
Case number: ICSID Case No. ARB/10/11
Outcome: The Tribunal found Niko liable for the first blowout (Chattak 2) but not for the second blowout (Chattak 2A). Niko must compensate BAPEX for direct loss and damage caused by the first blowout, including escaped gas; quantum reserved for later phase.
Applicable law: Joint Venture Agreement (JVA) between Niko and BAPEX, Bangladesh Contract Act 1872 (Section 73), ICSID Convention, and petroleum industry standards (API RP 59 and RP 64).
Issues in play: The case involved the interpretation of the JVA's limitation of liability clause (Article 27.2) excluding consequential damages, and the application of Section 73 of the Bangladesh Contract Act on remoteness of damages. The Tribunal had to distinguish between direct and consequential losses from the blowouts.
Read the full decision at italaw ↗
Locus Standi links to the source decision and publishes its own plain-language summary. It does not reproduce the text of the award.