Contract analysis

I. EXECUTIVE SUMMARY This memorandum is an internal, privileged work product prepared for the file by the Calderwood & Harkness LLP ("C&H") deal team in connection with the arbitration claim of Dunmore Energy Holdings Ltd. ("DEH") against the Republic of Valderia (the "Respondent") under the auspices of the International Centre for Settlement of Investment Disputes ("ICSID"), registered as ICSID Case No. ARB/22/11. T

II. BACKGROUND AND FACTUAL CONTEXT FOR QUANTUM

II.A. The Investment Dunmore Energy Holdings Ltd. ("DEH") is a Cayman Islands exempted company, incorporated under the laws of the Cayman Islands, with its registered office at 4th Floor, Harbour Place, 103 South Church Street, George Town, Grand Cayman KY1-1002. DEH maintains its principal business office at 27 Curzon Street, London W1J 5HT, United Kingdom. DEH is an international energy company engaged in oil and g

II.B. Ownership Structure of DEH The beneficial ownership structure of DEH as of the date of expropriation was as follows: The Dunmore Family Trust is the controlling shareholder, with Sir Malcolm Dunmore serving as both the founder and the chairman of DEH's board of directors. Meridian Growth Partners Fund III, L.P. ("Meridian Fund III") is a private equity fund that invested in DEH in connection with the original d

II.C. Operational History and Production Profile DEH's investment in the Bloque Orinoco Sur progressed through three distinct phases over the period from 2013 to 2021: Exploration Phase (2013–2016). Following the grant of the Concession in September 2013, DVU undertook an extensive exploration program across the Concession Area. This included the acquisition of a comprehensive 3D seismic survey covering approximately

II.D. The Expropriation The expropriation of DEH's investment in Valderia occurred through a series of escalating governmental actions over the period from January 2020 to September 2021, culminating in the total deprivation of DEH's investment without any compensation. The following timeline summarizes the key events: January 15, 2020 — Presidential Inauguration. President Héctor Luján Montalvo was inaugurated as Pr

II.E. Project Finance Facility DEH's development of the Bloque Orinoco Sur was financed in part through a senior secured project finance facility provided by Commonwealth Capital Bank plc ("CCB"). The key terms of the facility are summarized below: The facility was secured by a first-priority lien on all of DVU's assets (including the Concession, the CPF, the pipeline, all production equipment, and all associated rec

III. LEGAL STANDARD FOR COMPENSATION

III.A. Article 5 of the UK-Valderia BIT (2006) The applicable legal framework for the assessment of compensation in this case is Article 5 of the Agreement Between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Republic of Valderia for the Promotion and Protection of Investments, signed on May 22, 2006, and entered into force on November 1, 2006 (the "UK-Valderia

Article 5 of the BIT provides, in relevant part, that neither Contracting Party shall expropriate or nationalize investments of nationals or companies of the other Contracting Party except for a public purpose related to the internal needs of that Party, on a non-discriminatory basis, in accordance with due process of law, and against "prompt, adequate, and effective compensation." The BIT further provides that such

III.B. Applicable Jurisprudence on Quantum The quantum of compensation for the expropriation of an investment under international law is governed by well-established principles. The foundational principle is the Chorzów Factory standard (PCIJ, Series A, No. 17, 1928), which holds that the obligation to provide reparation requires the State responsible for an internationally wrongful act to place the injured party in

III.C. Distinction Between Lawful and Unlawful Expropriation The distinction between lawful and unlawful expropriation is material to the quantum analysis. Under international law: (a) A lawful expropriation — one that is undertaken for a genuine public purpose, on a non-discriminatory basis, in accordance with due process, and accompanied by prompt, adequate, and effective compensation — gives rise to an obligation

IV. COMPONENT 1: SUNK CAPITAL EXPENDITURE — USD 347,000,000

IV.A. Overview The first component of DEH's claim is the total capital expenditure invested by DEH and DVU in the Bloque Orinoco Sur Concession between 2014 and 2021. The total sunk capital expenditure is USD 347,000,000. This figure represents the aggregate of all exploration, development, and infrastructure capital deployed by the investor in reliance on the legal framework of the Concession, the Hydrocarbons Law,

IV.B. Exploration and Development Drilling — USD 211,000,000 The largest sub-component of sunk capital expenditure relates to the costs of exploration and development drilling. The total cost of exploration and development drilling incurred by DVU was USD 211,000,000, covering the following activities: (a) The drilling of seven (7) exploration wells during the exploration phase (2013–2016), including mobilization and

IV.C. Surface Infrastructure and Pipeline Construction — USD 89,000,000 The second sub-component of sunk capital expenditure relates to the costs of surface infrastructure and pipeline construction. The total cost incurred was USD 89,000,000, covering the following: (a) Design, procurement, and construction of the CPF Orinoco Sur (the central processing facility), with a nameplate capacity of 35,000 bbl/day, includin

IV.D. Seismic Acquisition and Geological Studies — USD 47,000,000 The third sub-component of sunk capital expenditure relates to the costs of seismic data acquisition and geological studies. The total cost incurred was USD 47,000,000, covering the following: (a) Acquisition of a comprehensive 3D seismic survey over approximately 800 km² of the Concession Area, including data acquisition, processing, and interpretatio

IV.E. Adjustments and Methodology Notes The historical cost figures set forth above are drawn from DVU's audited financial statements as prepared by Ashworth & Palliser LLP. The following methodological notes apply: (a) Depreciation adjustment. The gross capital expenditure figures of USD 347,000,000 represent the unadjusted historical cost of the investment. Under the historical cost approach, these figures may be a

V. COMPONENT 2: LOST FUTURE PROFITS (DISCOUNTED CASH FLOW) — USD 312,000,000

V.A. Overview and Methodology Selection The second and principal component of DEH's claim is the value of the lost future profits from the Bloque Orinoco Sur Concession, quantified using the discounted cash flow ("DCF") methodology. The DCF is the primary valuation methodology for determining the fair market value of a going concern with an established production history, independently certified reserves, and a defin

V.B. Key Assumptions The DCF model is built on a series of key assumptions relating to the production profile, commodity prices, operating costs, fiscal terms, and discount rate. Each of these assumptions is described below. It is emphasized that these assumptions are preliminary and are subject to refinement by Pemberton Valuation Advisory upon completion of the full expert model.

V.B.1. Production Profile The production profile for the DCF model is derived from the following inputs: (a) Starting production rate: 18,600 bbl/day, being the actual production rate at the Bloque Orinoco Sur at the time of expropriation in April 2021. This rate reflects the natural decline from the peak production of 24,800 bbl/day achieved in September 2020 and the average FY2020 production of 21,200 bbl/day. (b)

V.B.2. Commodity Price Assumption The commodity price is a critical input to the DCF model, as it determines the revenue stream from oil production. The following price assumptions will be used: (a) Base case: Brent crude price of USD 65 per barrel ("/bbl"), reflecting the long-term consensus forecast as of the valuation date of April 17, 2021. This assumption is intended to represent a reasonable, forward-looking es

V.B.3. Operating Costs and Royalties The operating cost assumptions for the DCF model will be derived from DVU's historical cost structure, as reflected in its audited financial statements: (a) Operating expenditure ("opex") per barrel: To be derived from DVU's historical operating cost data, including direct lifting costs, field operating expenses, maintenance costs, transportation costs, and general and administrat

V.B.4. Discount Rate (WACC) The projected future free cash flows will be discounted to the valuation date at a weighted average cost of capital ("WACC") of 10%. The WACC is intended to reflect the total risk associated with the projected cash flows, including: (a) The risk-free rate, based on the yield on long-term U.S. Treasury bonds as of the valuation date; (b) An equity risk premium, reflecting the additional ret

V.B.5. Terminal Value No terminal value is assumed beyond the expiry date of the Concession on September 12, 2043. All cash flows are projected to terminate at the end of the concession term, and no residual or salvage value is attributed to the assets at that date. Instead, decommissioning and abandonment costs will be deducted from the projected cash flows in the final years of the concession term, reflecting DVU's

V.C. DCF Computation Summary Based on the key assumptions set forth above, the DCF computation produces the following result: • Projection period: 23 years (April 17, 2021 to September 12, 2043) • Projected cash flows: Net free cash flows after royalties (12.5%), operating expenditures, capital maintenance expenditures, Valderian corporate income tax (34%), and PetroValderia's 10% carried interest • discount rate: 10

V.D. Cross-Check: Comparable Transactions In addition to the DCF as the primary valuation methodology, Pemberton will perform a cross-check of the DCF result using comparable upstream oil and gas transactions in the Caribbean basin and Latin America. This cross-check is a standard component of a damages expert report and serves to validate the reasonableness of the DCF result by reference to actual market data. The c

V.E. Role of Ridgewell Subsurface Consultants Ltd. Ridgewell Subsurface Consultants Ltd. has been retained to provide an independent petroleum engineering opinion in support of the quantum claim. The lead expert is Dr. Alistair Greaves, P.Eng., based at Ridgewell's offices at 700 – 6th Avenue SW, Suite 1400, Calgary, AB T2P 0T8, Canada. Dr. Greaves is a registered professional engineer with extensive experience in up

VI. COMPONENT 3: CONSEQUENTIAL DAMAGES — USD 208,000,000

VI.A. Overview The third component of DEH's claim comprises consequential damages arising from losses that are causally connected to the expropriation but fall outside the direct fair market value of the Concession. Total consequential damages claimed are USD 208,000,000. Consequential damages are recoverable under the full reparation standard applicable to unlawful expropriations. As discussed in Section III.C above

VI.B. Financing Costs — USD 87,000,000 The first sub-component of consequential damages relates to the financing costs incurred and to be incurred by DEH as a direct result of the expropriation and the consequent default under the CCB project finance facility. As described in Section II.E above, DVU was the borrower under a USD 175,000,000 senior secured project finance facility provided by Commonwealth Capital Bank

VI.C. Reputational Harm — USD 74,000,000 The second sub-component of consequential damages relates to the reputational harm suffered by DEH as a result of the high-profile expropriation of its principal producing asset. DEH has suffered material and quantifiable reputational damage in the global energy investment community as a direct consequence of the expropriation. The evidence supporting this claim includes the f

VI.D. Sunk Phase II Renewable Energy Pre-Development Expenditure — USD 47,000,000 The third sub-component of consequential damages relates to pre-development expenditure incurred by DEH in connection with a planned Phase II renewable energy component within the Bloque Orinoco Sur Concession Area. Prior to the expropriation, DEH had commenced pre-development work on a Phase II project that envisaged the construction o

VII. SUMMARY QUANTUM TABLE The following table presents the total claim quantum of USD 867,000,000, broken down by component and sub-component, with the applicable valuation methodology for each: Arithmetic verification: • Component 1 + Component 2 + Component 3: USD 347,000,000 + USD 312,000,000 + USD 208,000,000 = USD 867,000,000 • Consequential damages sub-check: USD 87,000,000 + USD 74,000,000 + USD 47,000,000 =

VIII. INTEREST In addition to the principal quantum of USD 867,000,000, DEH will claim compound pre-award interest from the date of expropriation (April 17, 2021) to the date of any eventual award by the ICSID tribunal. The purpose of pre-award interest is to compensate the investor for the time value of money — the economic reality that a dollar today is worth more than a dollar tomorrow — and to ensure that the awa