CALDERWOOD & HARKNESS LLP Solicitors & International Arbitration Counsel 55 Bishopsgate, London EC2N 3AH, United Kingdom Tel: +44 (0)20 7946 0123
October 18, 2024
Ms. Helen Okafor Director, Energy & Resources Commonwealth Capital Bank plc 1 Broadgate London EC2M 2QS United Kingdom
Re: Dunmore Energy Holdings Ltd. — Request for Extension of Standstill Agreement USD 175,000,000 Senior Secured Project Finance Facility dated March 20, 2016 Calderwood & Harkness LLP Matter No. 1016-00002
Dear Ms. Okafor,
1. Introduction and Purpose of This Letter
We write on behalf of our client, Dunmore Energy Holdings Ltd. ("DEH"), a Cayman Islands exempted company with its registered office at 4th Floor, Harbour Place, 103 South Church Street, George Town, Grand Cayman KY1-1002, Cayman Islands, and its principal business office at 27 Curzon Street, London W1J 5HT, United Kingdom. Calderwood & Harkness LLP acts as legal counsel to DEH in all matters relating to the above-referenced facility and the associated international arbitration proceedings described herein.
This letter is written on behalf of DEH in its capacity as guarantor under the Facility Agreement (as defined below) and as the sole (100%) parent of the borrower, Dunmore Valderia upstream S.A. ("DVU"), a sociedad anónima incorporated under the laws of the Republic of Valderia with its registered office at Avenida Libertador 1480, Piso 12, Puerto Valdés, Valderia.
The purpose of this letter is to formally request, on behalf of DEH and DVU, an extension of the Standstill Agreement currently in effect between Commonwealth Capital Bank plc ("CCB") on the one hand and DEH and DVU on the other, which, under its most recent extension, is presently due to expire on March 31, 2025. Specifically, DEH respectfully requests that CCB agree to extend the Standstill Agreement for a further period of twelve (12) months, such that the extended expiry date would be March 31, 2026.
In making this request, we wish to acknowledge at the outset the cooperative and constructive approach that CCB has taken since the Standstill Agreement was first entered into on December 22, 2021. DEH greatly values the relationship it has with CCB's Energy & Resources team and recognizes that the standstill arrangements have been essential in allowing all parties to preserve their respective interests while DEH pursues recovery of the expropriated assets through international arbitration and diplomatic channels. We trust that the detailed update provided in this letter will demonstrate that DEH's position remains strong and that an extension of the standstill continues to serve the mutual interests of both parties.
The balance of this letter sets out the relevant background, the current status of the ICSID arbitration and related diplomatic consultations, the basis for DEH's confidence in a successful recovery, and the specific terms proposed for the extension.
2. Background: The Facility Agreement
For completeness and ease of reference, we briefly summarize the key terms of the underlying financing arrangement.
On March 20, 2016, DVU, as borrower, entered into a Senior Secured Project Finance Facility Agreement (the "Facility Agreement") with CCB, as sole lender, in the amount of USD 175,000,000 (one hundred seventy-five million United States dollars) (the "Facility"). DEH executed the Facility Agreement in its capacity as guarantor of DVU's obligations thereunder.
The Facility was structured as a senior secured project finance facility and was used to finance DEH's oil and gas development operations in the Valderian Orinoco Basin under Concession No. HYD-2012-047, a thirty (30) year hydrocarbon concession granted by the Republic of Valderia on September 12, 2013, pursuant to the Valderian Hydrocarbons Law of 2009. The concession (referred to as "Bloque Orinoco Sur") covers an area of approximately 1,240 km² onshore within the Orinoco Basin, with an original expiry date of September 12, 2043.
The principal terms of the Facility Agreement are as follows:
(a) Borrower: Dunmore Valderia upstream S.A. ("DVU")
(b) Guarantor: Dunmore Energy Holdings Ltd. ("DEH"), as 100% parent of DVU
(c) Facility Amount: USD 175,000,000
(d) Interest Rate: SOFR plus 4.25% per annum
(e) Original Maturity Date: March 20, 2026
(f) Security Package:
(i) A first-priority lien on all DVU assets, including the concession assets under Concession No. HYD-2012-047 (Bloque Orinoco Sur), the central processing facility known as CPF Orinoco Sur, a 68-kilometre gathering pipeline, and 22 development wells;
(ii) A parent guarantee from DEH in respect of all amounts outstanding under the Facility;
(iii) An assignment of all concession receivables payable to DVU under Concession No. HYD-2012-047.
As of the date of the expropriation events described in Section 3 below, the outstanding principal on the Facility was USD 112,400,000 (one hundred twelve million four hundred thousand United States dollars). Interest continues to accrue on this amount at the contractual rate, subject to the terms of the Standstill Agreement.
3. The Expropriation Events and Event of Default
The circumstances giving rise to the current standstill arrangement are well known to CCB, but we restate them here for completeness and for the purposes of this formal request.
Beginning in early 2020, the Republic of Valderia undertook a series of actions that collectively constituted the unlawful expropriation of DEH's investment in the Bloque Orinoco Sur concession. These actions may be summarized chronologically as follows:
(a) On January 15, 2020, President Héctor Luján Montalvo was inaugurated as President of the Republic of Valderia. His administration came to power on a platform of "resource sovereignty," which included stated policy objectives of reasserting state control over the nation's hydrocarbon resources and renegotiating or revoking concessions held by foreign investors.
(b) On March 2, 2021, the Ministry of Energy and Natural Resources, under the direction of Minister Claudia Ríos Salazar, issued a formal "Notice of Review" of all foreign-held hydrocarbon concessions in the Republic of Valderia. The notice stated that the Ministry would undertake a comprehensive assessment of the legal and economic terms of such concessions and reserved the right to modify, suspend, or revoke them in the national interest. The notice was served upon DVU at its registered office in Puerto Valdés.
(c) On April 17, 2021, President Luján Montalvo signed Presidential Decree No. 2021-0417, entitled the "Decreto sobre la Nacionalización de Activos Hidrocarburíferos Estratégicos" ("Decree on the Nationalization of Strategic Hydrocarbon Assets"). This decree declared the nationalization of DEH's concession, along with several other foreign-held concessions, on the stated basis that such assets constituted "strategic resources essential to the sovereignty and economic welfare of the Valderian people." The decree made no provision for compensation to the affected concession holders.
(d) On May 3, 2021, personnel of the Valderian military, acting in coordination with representatives of PetroValderia S.A. (the 100% state-owned national oil company of the Republic of Valderia), physically occupied the CPF Orinoco Sur processing facility. DEH and DVU staff—including expatriate technical personnel and local Valderian employees—were denied access to the facility, and DVU's operational control of the concession assets was terminated de facto. DEH's personnel were given fewer than 48 hours to vacate the facility, and no arrangements were made for an orderly handover or inventory of assets.
(e) On June 23, 2021, President Luján Montalvo signed Presidential Decree No. 2021-0623, entitled the "Decreto sobre la Transferencia de Derechos de Concesión a PetroValderia S.A." ("Decree on the Transfer of Concession Rights to PetroValderia S.A."). This decree formally transferred all rights, interests, and obligations under Concession No. HYD-2012-047 from DVU to PetroValderia, purportedly with immediate effect and without the consent of DVU or DEH. No compensation was offered or provided.
(f) On August 5, 2021, the Ministry of Energy and Natural Resources issued Ministerial Resolution No. MEN-2021-089, revoking all operating licenses held by DVU in connection with the Bloque Orinoco Sur concession. The revocation was stated to be effective immediately. Once again, no compensation was offered or provided.
(g) On September 1, 2021, DVU's bank accounts at Banco Nacional de Valderia were frozen by order of the Attorney General of the Republic of Valderia, Dr. Renata Villamizar Ochoa, purportedly in connection with a criminal investigation into alleged regulatory non-compliance by DVU. DEH understands that no criminal charges have ever been filed and regards the account freeze as a further element of the expropriation.
As a direct result of these actions, the entirety of the collateral securing the Facility—including the concession rights, CPF Orinoco Sur, the 68 km gathering pipeline, the 22 development wells, and the assigned concession receivables—was seized, transferred to, or otherwise placed under the control of the Valderian state or its instrumentalities. The assignment of concession receivables to CCB was rendered nugatory, as PetroValderia assumed operational control and no further receivables accrued to DVU.
On November 1, 2021, CCB formally declared a technical default under Section 9.1(k) of the Facility Agreement, on the grounds of the expropriation of collateral securing the Facility. DEH did not contest the declaration of default, recognizing the de facto reality that the collateral had been expropriated, but emphasized to CCB at the time that the expropriation was unlawful under international law and that DEH intended to pursue all available remedies for recovery.
Following constructive discussions between the parties, CCB and DEH/DVU entered into the initial Standstill Agreement on December 22, 2021, under which CCB agreed to forbear from exercising its remedies under the Facility Agreement for a defined period, subject to certain conditions. The Standstill Agreement has been extended periodically since that date, with the current extension running until March 31, 2025.
4. DEH's Operational Context Prior to Expropriation
In order to underscore the substantial value of the underlying assets and the strength of DEH's investment treaty claim, it is important to briefly contextualize the scale and success of DEH's operations in Valderia prior to the expropriation.
DEH, through DVU, invested heavily in the development of the Bloque Orinoco Sur concession. Between 2014 and the date of the expropriation in 2021, total capital expenditure amounted to approximately USD 347 million, comprising the following principal categories:
(a) Exploration and development drilling: approximately USD 211 million, encompassing 7 exploration wells (of which 5 were commercially viable) and 22 development wells;
(b) Surface infrastructure and pipeline construction: approximately USD 89 million, principally for the construction of CPF Orinoco Sur (with a design capacity of 35,000 bbl/day) and the 68 km gathering pipeline connecting the development wells to the processing facility; and
(c) Seismic acquisition and geological studies: approximately USD 47 million, including 3D seismic acquisition over approximately 800 km² within the concession area.
By the time of the expropriation, the Bloque Orinoco Sur concession had proven to be a commercially successful operation. Key operational and financial metrics include the following:
• Proved reserves (as at December 31, 2020): 87.4 million barrels of oil equivalent (mmboe), independently certified by Ridgewell Subsurface Consultants Ltd. (Calgary, Alberta, Canada). Probable reserves of an additional 42.1 mmboe were also identified.
• Peak production: 24,800 barrels per day (bbl/day), achieved in September 2020.
• Average production (FY2020): 21,200 bbl/day.
• Production at the time of expropriation: approximately 18,600 bbl/day.
• CPF Orinoco Sur processing capacity: 35,000 bbl/day, providing significant headroom for future production growth and demonstrating that DEH's investment was far from mature at the time of the taking.
• FY2020 gross revenue from Valderian operations: USD 128.6 million.
• FY2020 EBITDA: USD 41.3 million, representing an EBITDA margin of approximately 32.1%.
These figures demonstrate that the assets expropriated by the Valderian state were substantial, productive, and commercially successful. DEH's investment was the product of a sustained, multi-year programme of exploration, development, and capital investment, and the operational track record provides a strong factual foundation for the quantum of DEH's claim in the ICSID proceedings. The value of what was taken from DEH—and, by extension, what was lost to CCB as secured creditor—is significant and well-documented.
5. Status of ICSID Arbitration Proceedings (Case No. ARB/22/11)
We now turn to the status of the international arbitration proceedings that DEH has initiated in pursuit of compensation for the expropriation.
5.1 Filing and Registration
On March 15, 2022, DEH filed a Request for Arbitration with the International Centre for Settlement of Investment Disputes ("ICSID"), pursuant to Article 36 of the ICSID Convention. The Request was registered by the ICSID Secretary-General on April 8, 2022, and assigned Case No. ARB/22/11 (Dunmore Energy Holdings Ltd. v. Republic of Valderia).
5.2 Jurisdictional Basis
The claim is brought against the Republic of Valderia under 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 BIT"). DEH's standing as a protected investor under the BIT derives from its incorporation in the Cayman Islands, which is a British Overseas Territory covered by the United Kingdom's territorial extension declaration dated February 14, 2007, notifying the Republic of Valderia that the BIT extends to the Cayman Islands. Both the United Kingdom and the Republic of Valderia are Contracting States to the ICSID Convention, and accordingly, ICSID has jurisdiction ratione personae over the dispute.
5.3 Substantive Claims
DEH claims breaches by the Republic of Valderia of the following provisions of the UK-Valderia BIT:
(a) Article 5 (Expropriation): DEH contends that the Republic of Valderia expropriated DEH's investment without the payment of prompt, adequate, and effective compensation, in violation of Article 5 of the BIT. The measures described in Section 3 above constitute, individually and collectively, a direct expropriation of DEH's concession rights and associated assets.
(b) Article 3 (Treatment of Investments): DEH contends that the Republic of Valderia breached the standards of fair and equitable treatment and full protection and security guaranteed under Article 3 of the BIT, through the arbitrary, discriminatory, and disproportionate measures taken against DEH's investment.
5.4 Pre-Arbitration Cooling-Off Period
Prior to the filing of the Request for Arbitration, DEH sent a formal Notice of Dispute to the Republic of Valderia on October 14, 2021, pursuant to Article 8 of the UK-Valderia BIT. This triggered the mandatory six (6) month cooling-off period prescribed by the BIT. The cooling-off period expired without resolution on April 14, 2022, and DEH thereafter proceeded to file its Request for Arbitration.
5.5 Constitution of the Tribunal
As of the date of this letter, the tribunal has not been constituted. Professor Ingrid Svensson (Swedish national, Faculty of Law, University of Uppsala) has been nominated as Claimant's arbitrator. The Respondent has not yet nominated its arbitrator, and no presiding arbitrator has been appointed. The failure to constitute the tribunal is directly attributable to the dormancy of the proceedings, as described below.
5.6 Dormancy and Diplomatic Consultations
The ICSID proceedings have been dormant since June 17, 2022, at the joint request of both DEH and the Republic of Valderia, pending state-to-state diplomatic consultations between the United Kingdom Foreign, Commonwealth & Development Office and the Valderian Ministry of Foreign Affairs (conducted on the Valderian side by Ambassador Diego Fuentes Castillo). The dormancy has been renewed on four occasions:
(i) December 15, 2022;
(ii) June 14, 2023;
(iii) December 13, 2023; and
(iv) June 12, 2024.
The next dormancy review date is December 12, 2024. DEH will make a decision at or before that date as to whether to seek a further renewal of the dormancy or to reactivate the proceedings. The status of the diplomatic consultations, which is discussed further in Section 8 below, will be a key factor in that decision.
5.7 Legal Representation
DEH is represented in the ICSID proceedings by:
• Calderwood & Harkness LLP (London) — lead counsel; and
• Castaño Herrera & Asociados (Puerto Valdés, Valderia) — local Valderian counsel, led by Dr. Gabriel Castaño Herrera (lead partner) and Lic. Isabella Montoya Ruiz (associate).
The Respondent, the Republic of Valderia, is represented by:
• Ortega & Bernal, Abogados (Puerto Valdés, Valderia) — Dr. Alejandro Bernal Quiroga; and
• Harcastle Fenton LLP (London) — Charles Winterbottom QC and Dr. Marie-Laure Dupont.
6. DEH's Claim Quantum — Basis for Confidence in Recovery
A central factor in DEH's request for a continued standstill is the substantial quantum of the ICSID claim, which significantly exceeds the outstanding amount under the Facility.
6.1 Total Claim Quantum
DEH's total claim quantum in the ICSID proceedings is USD 867,000,000 (eight hundred sixty-seven million United States dollars), broken down as follows:
(a) Sunk Capital Expenditure: USD 347,000,000
This component reflects the historical cost of DEH's investment, adjusted for depreciation, and comprises the three categories of capital expenditure detailed in Section 4 above: USD 211 million in exploration and development drilling, USD 89 million in surface infrastructure and pipeline construction, and USD 47 million in seismic acquisition and geological studies.
(b) Lost Future Profits: USD 312,000,000
This component represents the discounted present value of the future profits that DVU would have earned over the remaining twenty-three (23) year term of Concession No. HYD-2012-047 (expiring September 12, 2043), calculated on a discounted cash flow ("DCF") basis. The DCF model employs a Brent crude oil price assumption of USD 65 per barrel and a weighted average cost of capital ("WACC") of 10%, and is based on proved reserves of 87.4 mmboe as independently certified by Ridgewell Subsurface Consultants Ltd.
(c) Consequential Damages: USD 208,000,000
This component comprises the following sub-categories of loss:
(i) Financing costs: USD 87,000,000, including costs and interest attributable to the CCB Facility that DEH has continued to bear as a consequence of the expropriation;
(ii) Reputational harm: USD 74,000,000, reflecting the adverse impact on DEH's business reputation and its ability to secure future concessions and financing in the energy sector; and
(iii) Sunk pre-development expenditure on Phase II: USD 47,000,000, representing expenditure incurred by DEH in respect of the Phase II renewable energy component of the concession, which was at the pre-development stage at the time of the expropriation and which has been entirely lost as a result of the taking.
6.2 Expert Support
DEH has retained leading independent experts to support its quantum case:
• Damages and quantum expert: Pemberton Valuation Advisory LLC, led by Dr. Elaine Cho, CFA, ASA (lead expert) and Marcus Whitfield (supporting analyst). Pemberton has been engaged to prepare a full damages report quantifying each element of DEH's claim in accordance with established international arbitration valuation methodologies.
• Petroleum engineering expert: Ridgewell Subsurface Consultants Ltd. (Calgary, Alberta, Canada), led by Dr. Alistair Greaves, P.Eng. Dr. Greaves independently certified the reserve figures underlying the DCF analysis and will provide expert testimony on reserves, production profiles, and the technical aspects of the concession.
6.3 Significance for CCB
The claim quantum of USD 867 million substantially exceeds the outstanding principal on the Facility of USD 112.4 million by a factor of more than 7.7 times. This provides a strong basis for confidence that, upon a successful resolution of the ICSID proceedings—whether by arbitral award, negotiated settlement, or diplomatic resolution—DEH will have ample resources to satisfy its obligations to CCB in full, including accrued interest and any other amounts due under the Facility Agreement.
We note further that the Respondent's quantum expert, Northbridge Economic Consulting Ltd. (Dr. Henrik Johansson), has not yet filed any expert report, given the dormancy of the proceedings. Accordingly, DEH's quantum analysis remains uncontested at this stage. While DEH fully expects that the Respondent will seek to challenge the quantum in due course, the strength of the underlying factual record and the quality of the expert evidence provide DEH with substantial confidence in the robustness of its claim.
7. Litigation Funding and Adverse Costs Protection
DEH has taken prudent steps to ensure that the prosecution of the ICSID claim is funded on a basis that does not deplete the resources available to service or repay the CCB Facility. The key elements of DEH's funding arrangements are as follows.
7.1 Third-Party Litigation Funding
DEH has secured third-party litigation funding from Beaufort Litigation Capital LLP (Jonathan Hargreaves, Managing Partner, 14 St. James's Square, London SW1Y 4LG, United Kingdom). The funding agreement was executed on February 28, 2022 (the "Funding Agreement"), and its principal terms are as follows:
• Committed amount: GBP 8,500,000 (eight million five hundred thousand pounds sterling), equivalent to approximately USD 10,455,000 at the prevailing exchange rate of GBP/USD 1.23 at the date of execution.
• Success fee: Beaufort is entitled to a success fee of 22% of net recovery (after deduction of costs and disbursements) in the event of a successful outcome.
The availability of external litigation funding ensures that DEH's legal costs and disbursements in prosecuting the ICSID claim—including counsel fees, expert fees, ICSID administrative costs, and hearing expenses—are ring-fenced and funded from an external source. This arrangement preserves DEH's own resources and ensures that the pursuit of the arbitration does not impair DEH's ability to satisfy its obligations to CCB upon recovery.
7.2 Adverse Costs Insurance
DEH has also placed after-the-event ("ATE") adverse costs insurance with Oakshield Underwriting Syndicate Ltd. (Sundial Indemnity Co.), under Policy No. OUS-2022-ARB-4417, with a coverage limit of GBP 3,000,000 (three million pounds sterling). This policy protects DEH against the risk of an adverse costs order in the event that the ICSID claim is ultimately unsuccessful, thereby further insulating DEH's financial position.
7.3 Beaufort Termination Right
We note, in the interests of transparency, that the Funding Agreement contains a contractual termination right in favour of Beaufort, exercisable if the ICSID proceedings remain dormant for more than twenty-four (24) consecutive months. The relevant threshold date—twenty-four months from the commencement of dormancy on June 17, 2022—was June 17, 2024. This date has passed.
However, Beaufort has not exercised its termination right and has given no indication of any intention to do so. To the contrary, Beaufort continues to engage constructively with DEH and Calderwood & Harkness regarding the case strategy and has expressed its continued confidence in the merits and commercial viability of the claim. DEH regards Beaufort's decision not to exercise its termination right, notwithstanding the passage of the threshold date, as a significant indicator of the funder's assessment of the strength and value of the case.
DEH's robust funding position further supports the rationale for extending the standstill, as it demonstrates that DEH has the financial resources and institutional support necessary to prosecute the claim to a successful conclusion.
8. Diplomatic Consultations and Prospects for Resolution
As noted in Section 5.6 above, the ICSID proceedings have been dormant since June 17, 2022, pending state-to-state diplomatic consultations between the United Kingdom and the Republic of Valderia.
8.1 Status of Diplomatic Consultations
These consultations are being conducted on the UK side by the Foreign, Commonwealth & Development Office and on the Valderian side by the Ministry of Foreign Affairs, with Ambassador Diego Fuentes Castillo serving as the principal Valderian interlocutor. While the details of the diplomatic discussions are not fully within DEH's knowledge or control—given the sovereign-to-sovereign nature of the channel—DEH has been kept broadly informed of their progress through its engagement with relevant UK government officials.
While no binding outcome has been announced, the continuation of these talks over a sustained period indicates that both states maintain a willingness to seek a diplomatic resolution of the dispute. DEH is encouraged by the fact that the diplomatic channel has not been abandoned by either side and believes that a negotiated resolution, if achievable, would likely yield a faster and more certain outcome than contested arbitration proceedings.
8.2 Right to Reactivate Proceedings
DEH reserves the right to reactivate the ICSID proceedings at any time, and it will carefully consider whether to do so at the next dormancy review date of December 12, 2024, should the diplomatic channels prove unproductive or should circumstances otherwise warrant a return to contested proceedings. In the event the proceedings are reactivated, the tribunal would be constituted (with the Respondent nominating its arbitrator and a presiding arbitrator being appointed), and the case would proceed through the standard ICSID procedural stages, including written submissions, a jurisdictional and merits hearing, and an eventual award.
8.3 Alternative Strategic Options
In parallel with the diplomatic consultations and the ICSID proceedings, DEH continues to evaluate alternative strategic options for achieving a resolution. These include:
(a) Direct negotiation with the Valderian government or PetroValderia S.A. regarding a compensation arrangement or other settlement; and
(b) If necessary, enforcement actions in multiple jurisdictions against Valderian sovereign assets, in the event that an ICSID award is obtained but not voluntarily complied with by the Republic of Valderia.
8.4 Commitment of DEH's Principals and Shareholders
DEH's key principals remain fully committed to pursuing the claim to a successful resolution:
• Sir Malcolm Dunmore, KBE (Chairman and 62% equity holder via the Dunmore Family Trust) continues to provide strategic leadership and has been closely involved in all major decisions relating to the ICSID proceedings and the diplomatic consultations.
• Priya Nandakumar (Chief Executive Officer, 8% direct equity holder) oversees DEH's day-to-day operations and its engagement with external advisers and stakeholders.
• Thomas Rearden (Chief Financial Officer, 4% direct equity holder; formerly Managing Director at Galloway Merchant Bank) continues to oversee the financial dimensions of the case, including the management of the Beaufort funding arrangement and the ongoing financial reporting to CCB. Mr. Rearden remains available as the primary point of contact for CCB and liaises with your team directly.
• Meridian Growth Partners Fund III, L.P. (26% equity holder), managed by Meridian Growth Partners LLC (a Delaware limited liability company), also supports the continued pursuit of the claim and the extension of the standstill.
9. Equity Structure of DEH
For CCB's records and credit assessment purposes, we confirm the current equity structure of DEH as follows:
DEH is an exempted company incorporated under the laws of the Cayman Islands. DVU, the borrower under the Facility Agreement, is 100% owned by DEH.
DEH's corporate auditors are Ashworth & Palliser LLP, with offices at 20 Moorgate, London EC2R 6DA, United Kingdom.
There have been no changes to DEH's equity structure since the last information provided to CCB, and no changes are currently contemplated.
10. The Extension Request
On behalf of DEH, we now formally set out the terms of the proposed extension.
We respectfully request that CCB agree to extend the Standstill Agreement for a further period of twelve (12) months, from the current expiry date of March 31, 2025 to March 31, 2026.
The proposed terms for the extension are as follows:
(a) All existing terms and conditions of the Standstill Agreement, as originally entered into on December 22, 2021 and as periodically extended thereafter, shall remain in full force and effect during the extension period, save as expressly modified by the extension agreement.
(b) CCB shall continue to forbear from exercising any and all remedies available to it under the Facility Agreement in respect of the Event of Default declared on November 1, 2021 under Section 9.1(k) thereof (expropriation of collateral), for the duration of the extension period.
(c) The outstanding principal amount of USD 112,400,000, together with all accrued and accruing interest at the contractual rate of SOFR plus 4.25% per annum, shall remain outstanding and shall not be accelerated or otherwise demanded for payment during the extension period, pending resolution of the ICSID proceedings or a negotiated settlement of DEH's claim against the Republic of Valderia.
(d) DEH's parent guarantee, as executed in connection with the Facility Agreement, shall remain in full force and effect throughout the extension period.
(e) All security interests granted under the Facility Agreement, including the first-priority lien on DVU's assets and the assignment of concession receivables, shall remain in place and shall continue to be recognized by the parties to the extent enforceable, notwithstanding the de facto expropriation of the underlying collateral by the Republic of Valderia.
We note that the original maturity date of the Facility is March 20, 2026, which is broadly aligned with the requested extension period expiring March 31, 2026. The proposed extension therefore does not seek to extend the standstill beyond what would have been the natural life of the Facility in any event.
11. Periodic Reporting Commitment
In recognition of CCB's legitimate interest in being kept informed of all material developments affecting the prospects of recovery, DEH proposes to provide CCB with periodic written status reports during the extension period.
Specifically, DEH undertakes to provide reports at intervals of no less than every six (6) months during the extension period. Each report will cover the following matters:
(a) The status of the ICSID proceedings, including whether the dormancy has been renewed or the proceedings have been reactivated;
(b) The progress of the UK-Valderia diplomatic consultations, to the extent known to DEH;
(c) Any material developments in the claim, including updates to the quantum analysis, any expert reports filed, or any settlement discussions or proposals;
(d) The status of the Beaufort Litigation Capital LLP funding arrangement, including confirmation that the funding remains in place and any material changes to its terms;
(e) Any developments that may affect the security package under the Facility Agreement or DEH's overall financial position; and
(f) Any other matters reasonably requested by CCB.
In addition to the periodic reports, DEH will promptly notify CCB upon the occurrence of any material adverse development, including, without limitation:
• Any exercise by Beaufort of its termination right under the Funding Agreement;
• Any action by the Republic of Valderia, PetroValderia S.A., or any other Valderian governmental authority that materially affects the ICSID claim or the prospects of recovery;
• Any adverse ruling, order, or procedural development in the ICSID proceedings; or
• Any material change in DEH's financial condition or equity structure.
DEH proposes that Thomas Rearden (CFO, DEH) and Helen Okafor (Director, Energy & Resources, CCB) continue to serve as the primary points of contact for ongoing liaison between the parties. Mr. Rearden remains available for regular discussions with your team and will ensure that CCB receives timely and comprehensive updates.
12. Justification Summary — Why the Extension Is Warranted
For CCB's convenience, we summarize the principal reasons why the requested extension of the Standstill Agreement is warranted and in the mutual interests of both parties:
• Substantial claim quantum: The ICSID claim of USD 867 million far exceeds the outstanding principal on the CCB Facility of USD 112.4 million, providing substantial headroom for recovery and repayment. Even if the ultimate recovery were discounted significantly from the claimed amount, it would in all likelihood be more than sufficient to satisfy DEH's obligations to CCB.
• Strong legal merits: The claim is well-founded in law, based on the expropriation of DEH's investment without prompt, adequate, and effective compensation, in breach of Articles 3 and 5 of the UK-Valderia BIT. The factual record is well-documented and the legal principles governing unlawful expropriation under international investment law are well-established.
• Robust expert evidence: DEH's claim is supported by leading independent experts in damages and quantum analysis (Pemberton Valuation Advisory LLC) and petroleum engineering (Ridgewell Subsurface Consultants Ltd.), and the Respondent's quantum case remains uncontested at this stage.
• Secured litigation funding: Third-party litigation funding of GBP 8.5 million from Beaufort Litigation Capital LLP remains in place, ensuring that the costs of prosecuting the ICSID claim do not deplete DEH's resources available for repayment of the Facility.
• Adverse costs protection: ATE insurance with Oakshield Underwriting Syndicate Ltd. (GBP 3 million limit) protects DEH against the downside risk of an adverse costs order.
• Ongoing diplomatic consultations: State-to-state diplomatic consultations between the UK and Valderia are continuing and may yield a resolution faster than contested arbitration proceedings.
• Right to reactivate: DEH retains the right to reactivate the ICSID proceedings at any time, including at the next dormancy review date of December 12, 2024, and will do so if the diplomatic channel proves unproductive.
• Limited alternative recovery options for CCB: Enforcement of the CCB Facility during this period would prejudice CCB's own interests, as the collateral securing the Facility has been expropriated by a sovereign state and there is limited recourse to domestic collateral. The ICSID recovery remains the most viable—and indeed the primary—path to repayment of the Facility in full.
• Alignment with original maturity: The original maturity date of the Facility is March 20, 2026, which is broadly aligned with the requested extension expiry of March 31, 2026. The proposed extension does not seek to extend the standstill materially beyond the originally contemplated tenor of the lending relationship.
• Shareholder commitment: DEH's principal shareholders, including Sir Malcolm Dunmore, KBE (62%), and Meridian Growth Partners Fund III, L.P. (26%), remain fully committed to pursuing the claim to a successful conclusion.
13. Request for Response
We respectfully request that CCB confirm its agreement to the proposed extension at the earliest convenience and, ideally, prior to December 31, 2024, in order to allow sufficient lead time before the current standstill expiry on March 31, 2025. An early indication of CCB's position would be welcomed, as it will assist DEH in planning its strategy for the ICSID dormancy review date of December 12, 2024.
DEH is prepared to make its principals—including Thomas Rearden (CFO) and, if desired, Sir Malcolm Dunmore (Chairman) and Priya Nandakumar (CEO)—available for a meeting or call with CCB's Energy & Resources team at CCB's convenience to discuss the extension request in greater detail and to answer any questions that CCB may have.
Should CCB wish to propose alternative or additional terms for the extension, DEH is open to negotiation and would be pleased to engage in constructive discussions to arrive at an arrangement that is acceptable to both parties.
Please direct any initial response or queries to the undersigned at Calderwood & Harkness LLP, or to Thomas Rearden directly at DEH.
14. Reservation of Rights
This letter is written and delivered on a without prejudice basis to any rights that DEH, DVU, or CCB may have under the Facility Agreement, the Standstill Agreement, or otherwise at law or in equity. Nothing in this letter, nor any discussion or correspondence arising from it, shall be construed as:
(a) an admission of any liability on the part of DEH or DVU;
(b) a waiver by DEH or DVU of any right, claim, or defence available to them under the Facility Agreement, the Standstill Agreement, or any other agreement or instrument, or at law or in equity; or
(c) a waiver by CCB of any right, claim, or remedy available to it under the Facility Agreement, the Standstill Agreement, or any other agreement or instrument, or at law or in equity.
All rights of all parties are expressly reserved.
15. Confidentiality
This letter and its contents are confidential and are subject to legal professional privilege. We respectfully request that CCB treat the information contained herein—including, without limitation, information regarding the ICSID proceedings, the Beaufort litigation funding arrangement, DEH's quantum analysis, and DEH's strategic considerations—as strictly confidential and refrain from disclosing any such information to third parties without the prior written consent of DEH.
To the extent that CCB is required by law, regulation, or the rules of any applicable regulatory authority to disclose any information contained in this letter, we request that CCB provide DEH with reasonable advance notice of any such required disclosure, to the extent legally permissible, and limit the scope of disclosure to the minimum required.
We trust that the foregoing provides CCB with a comprehensive and transparent account of the current position and a clear basis for agreeing to the requested extension. We remain at your disposal to provide any further information or clarification that may be required and look forward to CCB's response.
Yours sincerely,
CALDERWOOD & HARKNESS LLP
By: ________
Vivienne St. Claire Partner Calderwood & Harkness LLP 55 Bishopsgate, London EC2N 3AH United Kingdom
On behalf of Dunmore Energy Holdings Ltd.
cc:
Sir Malcolm Dunmore, KBE — Chairman, Dunmore Energy Holdings Ltd.
Priya Nandakumar — Chief Executive Officer, Dunmore Energy Holdings Ltd.
Thomas Rearden — Chief Financial Officer, Dunmore Energy Holdings Ltd.
Robert Adeyemi — Billing Partner, Calderwood & Harkness LLP
Enclosures: None enclosed with this letter. For reference, the following documents are available upon request from Calderwood & Harkness LLP: