1016-00002 · Dunmore Energy Holdings · Correspondence

status-update-beaufort-june-2024.docx DOCUMENT Litigation

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PRIVILEGED AND CONFIDENTIAL — SUBJECT TO LITIGATION PRIVILEGE FOR ADDRESSEE ONLY

CALDERWOOD & HARKNESS LLP Barristers & Solicitors 55 Bishopsgate London EC2N 3AH United Kingdom

Telephone: +44 (0)20 7429 8600 Facsimile: +44 (0)20 7429 8601 www.calderwoodharkness.com

Matter Reference: 1016-00002

20 June 2024

Jonathan Hargreaves, Esq. Managing Partner Beaufort Litigation Capital LLP 14 St. James's Square London SW1Y 4LG United Kingdom

Dear Jonathan,

Re: Periodic Status Update — *Dunmore Energy Holdings Ltd. v. Republic of Valderia*, ICSID Case No. ARB/22/11

Reference: Litigation Funding Agreement dated 28 February 2022 between Dunmore Energy Holdings Ltd. and Beaufort Litigation Capital LLP (the "Funding Agreement")

1. Introduction and Purpose

This letter serves as the periodic status update provided to Beaufort Litigation Capital LLP ("Beaufort") in accordance with our obligations under Clause 7.2 of the Funding Agreement dated 28 February 2022 between Dunmore Energy Holdings Ltd. and Beaufort. We write to bring you current on all material developments — and, equally important, on the absence of certain developments — in the above-referenced proceedings and in related matters bearing on the funded claim.

We confirm that Calderwood & Harkness LLP ("C&H") continues to act as lead counsel to 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. The C&H team working on this matter remains as follows:

• Vivienne St. Claire — Responsible Partner

• Robert Adeyemi — Billing Partner

• Jeffrey Park — Lead Associate

• Audrey Zhou — Working Associate

This letter concerns the ICSID investor-state arbitration claim (Case No. ARB/22/11) brought by DEH against the Republic of Valderia (the "Respondent") arising from the unlawful expropriation of DEH's 30-year oil and gas concession — Concession No. HYD-2012-047, commonly referred to as "Bloque Orinoco Sur" — in the Valderian Orinoco Basin. As you are aware, the proceedings have remained in a state of dormancy since June 2022, and the fourth consecutive renewal of that dormancy was co-signed on 12 June 2024. This letter addresses the implications of that continued dormancy, including certain contractual thresholds under the Funding Agreement that have now been reached, and sets out our recommendations for the path forward.

2. Summary of the Claim

For ease of reference and completeness of the record, we set out below a brief recapitulation of the factual and legal basis of DEH's claim.

2.1 The Claimant and the Concession

DEH, through its wholly-owned Valderian subsidiary Dunmore Valderia upstream S.A. ("DVU"), was the named concessionaire of Concession No. HYD-2012-047, a 1,240 km² onshore concession area located in the Valderian Orinoco Basin (the "Concession"). The Concession was granted by the Valderian Ministry of Energy and Natural Resources on 12 September 2013 for a term of 30 years, with a contractual expiry date of 12 September 2043. At the date of the expropriatory measures described below, approximately 23 years of the concession term remained unexpired.

2.2 Capital Expenditure and Operational Performance

Over the life of the Concession, DEH invested approximately USD 347 million in total capital expenditure, broken down as follows:

By the fiscal year ended 31 December 2020 ("FY2020"), the Concession had achieved substantial operational maturity. Key performance indicators for FY2020 were as follows:

Proved reserves of 87.4 mmboe as at 31 December 2020 were independently certified by Ridgewell Subsurface Consultants Ltd. in their reserves evaluation report dated 15 February 2021.

2.3 The Expropriation

The Republic of Valderia effected the expropriation of the Concession through a series of sequential governmental acts spanning the period from April to September 2021:

(a) Presidential Decree No. 2021-0417 (17 April 2021): Declared all hydrocarbon concessions in the Orinoco Basin to be "strategic national assets" subject to immediate governmental review and potential revocation in the national interest.

(b) Physical occupation (3 May 2021): Valderian military personnel, acting in concert with employees and agents of PetroValderia S.A. (the state-owned national oil company), forcibly occupied the Bloque Orinoco Sur concession area, displacing DVU's operational staff, seizing operational control of all production facilities, wellheads, and pipeline infrastructure, and denying DVU access to the concession area.

(c) Presidential Decree No. 2021-0623 (23 June 2021): Formally revoked Concession No. HYD-2012-047 and transferred all rights, interests, and assets thereunder to PetroValderia S.A., without compensation to DVU or DEH.

(d) Ministerial Resolution No. MEN-2021-089 (5 August 2021): Directed all Valderian financial institutions to freeze accounts held by DVU and to block the repatriation of any funds held on behalf of DVU or its affiliates.

(e) Account freezing (1 September 2021): DVU's bank accounts at Banco Nacional de Valderia were frozen in compliance with Ministerial Resolution No. MEN-2021-089, effectively stripping DVU of all remaining liquid assets in Valderia.

No compensation of any kind has been offered or paid to DEH or DVU at any point since the commencement of the expropriatory measures.

2.4 Claim Quantum

DEH's total claim quantum is USD 867 million, comprising the following components:

2.5 Jurisdictional Basis

DEH's claim is brought pursuant to the bilateral investment treaty between the United Kingdom of Great Britain and Northern Ireland and the Republic of Valderia for the Promotion and Protection of Investments (signed 22 May 2006, entered into force 1 November 2006) (the "UK-Valderia BIT"). The UK-Valderia BIT was extended to the Cayman Islands by virtue of the United Kingdom's territorial extension declaration dated 14 February 2007. Article 8 of the UK-Valderia BIT provides for the submission of investor-state disputes to ICSID arbitration. Both the United Kingdom and the Republic of Valderia are Contracting States to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the "ICSID Convention"), and the jurisdictional requirements for ICSID arbitration are, in our assessment, clearly satisfied.

3. Procedural History and Current Status of ICSID Proceedings

3.1 Pre-Arbitral Steps

A Notice of Dispute was sent to the Republic of Valderia on 14 October 2021 in accordance with Article 8 of the UK-Valderia BIT. That notice triggered the mandatory six-month cooling-off period prescribed by the treaty. The cooling-off period expired on 14 April 2022 without any resolution or substantive engagement by the Respondent.

3.2 Commencement of ICSID Proceedings

DEH's Request for Arbitration was filed with the International Centre for Settlement of Investment Disputes ("ICSID") on 15 March 2022. The Request was registered by the ICSID Secretary-General on 8 April 2022, and the case was assigned Case No. ARB/22/11.

3.3 Constitution of the Tribunal

DEH nominated Professor Ingrid Svensson (Swedish national; Professor of International Investment Law, University of Uppsala) as its party-appointed arbitrator. As of the date of this letter, the Respondent has not nominated an arbitrator and the tribunal has not been constituted. The question of tribunal constitution has been held in abeyance in connection with the dormancy of the proceedings, as described below.

3.4 Respondent's Legal Representation

The Republic of Valderia is represented by:

(a) Ortega & Bernal, Abogados (local Valderian counsel), led by Dr. Alejandro Bernal Quiroga; and

(b) Harcastle Fenton LLP (international counsel, London), led by Charles Winterbottom QC.

3.5 Dormancy of Proceedings

The ICSID proceedings have been suspended — that is, in a state of dormancy — since 17 June 2022. The suspension was requested jointly by the parties, with the stated purpose of allowing time for state-to-state diplomatic consultations between the UK Foreign, Commonwealth & Development Office ("FCDO") and the Valderian Ministry of Foreign Affairs to explore a negotiated resolution. The dormancy has been renewed four times, in accordance with the chronology set out below:

A copy of the fourth dormancy renewal letter to the ICSID Secretary-General dated 12 June 2024 is enclosed with this letter for your records. The next dormancy review date falls on 12 December 2024, at which point the parties will need to decide whether to seek a further renewal or to request the reactivation of the proceedings.

4. Status of Diplomatic Consultations

The state-to-state diplomatic consultations between the UK FCDO and the Valderian Ministry of Foreign Affairs, conducted principally through Ambassador Diego Fuentes Castillo (Valderian Ambassador to the Court of St. James's), remain formally ongoing. However, we must report candidly that these consultations have not produced any meaningful progress towards a resolution of the underlying dispute.

No formal settlement proposal has been received from the Republic of Valderia at any point during the two-year dormancy period. While the diplomatic channel remains nominally open, C&H has not been made aware of any substantive offer, framework for negotiation, or indication that the Valderian government is prepared to engage constructively on the question of compensation.

Through informal channels and through communications with Castaño Herrera & Asociados (specifically, Dr. Gabriel Castaño Herrera, a local Valderian lawyer who has been assisting C&H in monitoring developments in Valderia), we understand that the government of President Héctor Luján Montalvo has not signalled any willingness to reverse the nationalisation measures or to offer compensation to DEH or other affected concessionaires. To the contrary, the Minister of Energy, Ms. Claudia Ríos Salazar, has publicly reiterated the government's "resource sovereignty" position on multiple occasions, most recently in a press conference on 4 June 2024 in which she described the nationalisation of Orinoco Basin concessions as "irreversible and in the permanent interest of the Valderian people."

C&H's assessment is that the diplomatic consultations are unlikely to yield a resolution in the near term. While we remain supportive of a negotiated outcome if one can be achieved, we are of the growing view that continued dormancy may not serve the Claimant's interests and that the strategic calculus should be reassessed at or before the December 2024 review date. We elaborate on this point in Section 10 below.

5. Funding Agreement — 24-Month Dormancy Threshold

5.1 Contractual Position

We draw your attention to an important contractual milestone that has now been reached under the Funding Agreement. As you will be aware, Clause 12.3(b) of the Funding Agreement dated 28 February 2022 provides Beaufort with a termination right exercisable upon 90 days' written notice to DEH in the event that the funded proceedings "remain dormant, stayed, or otherwise suspended for a continuous period exceeding twenty-four (24) calendar months." This right is not subject to any cure period and is exercisable at Beaufort's sole discretion.

5.2 Reaching the 24-Month Threshold

The 24-consecutive-month threshold is measured from 17 June 2022, being the date of the initial joint dormancy request to the ICSID Secretary-General. Accordingly, the 24-month threshold was reached on 17 June 2024 — three days before the date of this letter. As of today, the ICSID proceedings have been dormant for approximately 24 months and 3 days.

5.3 Current Position

We note that, as of the date of this letter, Beaufort has not exercised its termination right under Clause 12.3(b), and C&H understands from our most recent discussions with you that there is no current intention on Beaufort's part to do so. We are grateful for Beaufort's continued confidence in the claim and in the legal team working on it.

DEH values the funding relationship with Beaufort and the commitment that Beaufort has demonstrated throughout what has been an unexpectedly prolonged period of procedural inactivity. For completeness, we reiterate the key commercial terms of the Funding Agreement:

(a) Committed funding amount: GBP 8,500,000 (approximately USD 10,455,000 at the GBP/USD 1.23 exchange rate prevailing at the date of execution of the Funding Agreement).

(b) Success fee: 22% of net recovery, calculated after deduction of all legal costs and disbursements.

5.4 Request for Confirmation

We would be grateful to receive written confirmation from Beaufort that it does not presently intend to exercise its termination right under Clause 12.3(b). Such confirmation would assist DEH in its strategic planning and in its discussions with other stakeholders, including Commonwealth Capital Bank plc (as discussed in Section 7 below) and the FCDO.

In connection with the above, C&H will prepare a more detailed strategic memorandum setting out the options available to DEH and the costs and risks associated with each path forward. We also recommend scheduling a call in the near term with the DEH principals — Sir Malcolm Dunmore, KBE (Chairman) and Priya Nandakumar (CEO) — to discuss the path forward in a collaborative manner. We would welcome Beaufort's participation in such a call and will propose dates in due course.

6. Adverse Costs Insurance

We confirm that the adverse costs insurance policy procured in connection with the ICSID proceedings remains in full force and effect. The relevant details are as follows:

Insurer: Oakshield Underwriting Syndicate Ltd. (Lloyd's Syndicate)

Policy Number: OUS-2022-ARB-4417

Coverage Limit: GBP 3,000,000

Named Insured: Dunmore Energy Holdings Ltd.

Effective Date: 1 March 2022

Policy Period: Subject to annual renewal

The policy was last renewed in March 2024 and the current policy period runs to 28 February 2025. We note that the extended dormancy of the proceedings may raise questions from Oakshield at the next renewal date regarding the status and prospects of the claim. C&H will coordinate with Oakshield in advance of the February 2025 renewal to provide the necessary reporting under the policy and to ensure continuity of coverage. We do not anticipate any material difficulty in securing renewal, given the strength of the merits (as discussed in Section 9 below) and the fact that no adverse costs exposure has crystallised during the dormancy period. However, it is possible that the premium may be adjusted to reflect the extended period of cover without substantive progression of the case. We will keep Beaufort informed of any premium implications.

7. Related Matters — Commonwealth Capital Bank plc Standstill

We wish to bring to Beaufort's attention the current status of DEH's arrangements with its project finance lender, Commonwealth Capital Bank plc ("CCB"), as this matter has a direct bearing on the recoverable position and is therefore relevant to Beaufort's exposure and interests under the Funding Agreement.

7.1 Background. DVU was the borrower under a USD 175,000,000 senior secured project finance facility (the "CCB Facility") pursuant to a facility agreement dated 20 March 2016 between DVU (as borrower), DEH (as guarantor), and Commonwealth Capital Bank plc (as lender and security agent). The CCB Facility was secured against the assets of the Concession, including the concession rights themselves, production revenues, and all physical infrastructure.

As at the date of expropriation (using 3 May 2021 as the relevant date), the outstanding principal amount under the CCB Facility was USD 112,400,000. The applicable interest rate is SOFR plus 4.25% per annum.

7.2 Technical Default and Standstill

Following the expropriation, CCB declared a technical default on 1 November 2021, citing an Event of Default under Section 9.1(k) of the facility agreement — specifically, the expropriation, nationalisation, or compulsory acquisition of collateral. The declaration of default entitled CCB to accelerate the outstanding amounts and to enforce its guarantee against DEH.

In order to preserve the status quo and to avoid the cascading consequences of acceleration and enforcement, DEH entered into a standstill agreement with CCB on 22 December 2021 (the "Standstill Agreement"). The Standstill Agreement has been extended periodically since its initial execution, and the current standstill period expires on 31 March 2025.

7.3 Proposed Extension

C&H intends, on behalf of DEH, to seek a further 12-month extension of the Standstill Agreement, which would extend the standstill period to 31 March 2026. We have had preliminary discussions with CCB's primary contact for this matter, Helen Okafor (Director, Energy & Resources, Commonwealth Capital Bank plc), and our initial indications are that CCB is amenable to a further extension, subject to satisfactory reporting on the status of the ICSID proceedings and the diplomatic consultations.

7.4 Relevance to Beaufort

We draw Beaufort's attention to the fact that the expiry of the Standstill Agreement without renewal — or any enforcement action by CCB against DEH under the guarantee — would materially affect the recoverable position in the arbitration and is therefore directly relevant to Beaufort's interests. Specifically, any recovery obtained in the ICSID arbitration would be subject to priority repayment of CCB's outstanding amounts, which will continue to accrue interest during the dormancy period. The maintenance of the standstill is therefore an important element of the overall strategy, and C&H will keep Beaufort closely informed of developments in this regard.

8. Expert Retention Status

We provide below a summary of the current status of expert retentions in the arbitration.

8.1 Damages/Quantum Expert

Pemberton Valuation Advisory LLC (New York) remains retained as DEH's damages and quantum expert. The lead expert is Dr. Elaine Cho, CFA, ASA, supported by Marcus Whitfield as the principal supporting analyst. Pemberton's engagement has been placed on a work-on-hold basis during the dormancy period in order to preserve costs. However, we can confirm that the DCF valuation model underlying the lost future profits claim has been substantially prepared, and a preliminary damages report is in advanced draft form. The preliminary report covers all three heads of claim (sunk CAPEX, lost future profits, and consequential damages) and can be finalised and updated within approximately six to eight weeks of reactivation. An update to current commodity price assumptions will be required at that time (see Section 10 below).

8.2 Petroleum Engineering Expert

Ridgewell Subsurface Consultants Ltd. (Calgary) remains retained as DEH's petroleum engineering expert. The lead expert is Dr. Alistair Greaves, P.Eng. Ridgewell's reserves evaluation report, which certifies proved reserves of 87.4 mmboe and probable reserves of 42.1 mmboe as at 31 December 2020, has been completed and is available for submission as part of DEH's memorial. The report was prepared in accordance with the Petroleum Resources Management System (PRMS) published by the Society of Petroleum Engineers and has been independently reviewed. Dr. Greaves remains available to provide supplementary expert testimony as required.

8.3 Respondent's Quantum Expert

We note for Beaufort's information that the Respondent has retained Northbridge Economic Consulting Ltd. (London) as its quantum expert. The lead expert on behalf of the Respondent is understood to be Dr. Henrik Johansson. No expert report has been filed by the Respondent, given the dormancy of the proceedings, and we have no visibility into the substance of Northbridge's instructions or analysis at this stage.

8.4 Financial Records

DEH's corporate auditors, Ashworth & Palliser LLP (London), continue to hold and maintain all relevant financial records, including audited financial statements for DVU and DEH for the fiscal years 2013 through 2021, management accounts, and supporting documentation for the capital expenditure figures forming part of the claim quantum. These records remain available for production in the arbitration and for review by Pemberton in connection with the finalisation of the damages report.

9. Assessment of Merits and Recovery Prospects

9.1 Merits. C&H's assessment of the merits of DEH's claim remains strong and has not materially changed since our last periodic update. We summarise our views below.

Direct expropriation (Article 5, UK-Valderia BIT): The claim of direct expropriation is, in our assessment, well-founded and presents favourable prospects for success. The taking of the Concession was effected through three sequential and unambiguous governmental acts — Presidential Decree No. 2021-0417, Presidential Decree No. 2021-0623, and Ministerial Resolution No. MEN-2021-089 — which collectively resulted in the total and permanent deprivation of DEH's investment without any offer or payment of compensation. The physical occupation of the concession area by Valderian military forces and PetroValderia personnel on 3 May 2021, and the subsequent freezing of DVU's bank accounts, leave no room for the Respondent to argue that the measures were anything other than a direct expropriation. The case law from ICSID tribunals in analogous disputes (including, by way of example, Crystallex International Corporation v. Bolivarian Republic of Venezuela, ConocoPhillips Petrozuata B.V. v. Bolivarian Republic of Venezuela, and Tidewater Inc. v. Bolivarian Republic of Venezuela) supports DEH's position.

Fair and equitable treatment / Full protection and security (Article 3, UK-Valderia BIT): DEH's supporting claims under Article 3 of the BIT add further strength to the overall case. The Respondent's conduct — including the abrupt revocation of a long-term concession in which DEH had invested approximately USD 347 million, the failure to afford any due process or administrative review, and the deployment of military force to dispossess DVU — constitutes a clear breach of the fair and equitable treatment standard and a failure to accord full protection and security to DEH's investment.

Anticipated defences: We have assessed the defences likely to be advanced by the Respondent and consider them to be weak on the facts of this case. Specifically:

(a) Police powers / regulatory authority: The Respondent may contend that the nationalisation measures fell within the legitimate exercise of sovereign regulatory powers. However, the measures were not non-discriminatory, were not taken for a bona fide public purpose, were not proportionate, and — critically — were not accompanied by payment of compensation.

(b) Essential security: Any reliance on an essential security exception would require the Respondent to demonstrate a genuine threat to its essential security interests, which is not supported by the factual record.

(c) Denial of benefits: A denial of benefits defence under the BIT would require the Respondent to show that DEH lacked substantial business activities in the territory of the UK or the Cayman Islands. Given DEH's principal business office in London and its substantive management and operational activities, such a defence is unlikely to succeed.

9.2 Quantum and Recovery Prospects

The claim quantum of USD 867 million is, in our assessment, supported by robust evidence, including a detailed DCF valuation model prepared by Pemberton Valuation Advisory, independently certified reserves data from Ridgewell Subsurface Consultants, and comprehensive documentation of capital expenditure. While quantum in investor-state arbitrations is always subject to challenge and adjustment by the tribunal, we consider the overall quantum to be well-supported and defensible.

We note that any recovery obtained in the arbitration will be subject to the following deductions and priorities:

(a) Repayment of outstanding amounts under the CCB Facility (currently USD 112,400,000 plus accrued interest);

(b) Payment of legal costs and disbursements incurred in the prosecution of the claim; and

9.3 Minority Equity Holder

For completeness, we confirm that Meridian Growth Partners Fund III, L.P. (a 26% equity holder in DEH, managed by Meridian Growth Partners LLC, New York) continues to support the prosecution of the claim. Meridian has been kept informed of developments through DEH's board and has not raised any objection to the current strategy or to the continued dormancy of the proceedings.

10. Next Steps and Recommendations

In light of the matters discussed in this letter, and in particular the reaching of the 24-month dormancy threshold, the continued absence of progress in diplomatic consultations, and the approaching December 2024 dormancy review date, C&H recommends the following near-term steps:

1. Strategy call with DEH principals and Beaufort. We recommend scheduling a strategy call at the earliest convenient opportunity among C&H, Beaufort, and DEH's principals — specifically, Sir Malcolm Dunmore, KBE (Chairman) and Priya Nandakumar (CEO) — to discuss whether to continue the dormancy of the proceedings or to seek reactivation at the 12 December 2024 review date. We propose the weeks of 8 July or 15 July 2024 for this call and will circulate a detailed agenda in advance.

2. Formal written confirmation from Beaufort. As discussed in Section 5 above, we would be grateful to receive formal written confirmation from Beaufort regarding its position on the termination right under Clause 12.3(b) of the Funding Agreement. A brief letter or email from you confirming that Beaufort does not presently intend to exercise the termination right would be sufficient and would be greatly appreciated.

3. CCB standstill extension. C&H intends to prepare and submit a standstill extension request to Commonwealth Capital Bank plc well in advance of the current standstill expiry on 31 March 2025. We will seek a further 12-month extension to 31 March 2026. We will coordinate with Helen Okafor at CCB and will keep Beaufort informed of the outcome.

4. Evaluation of strategic alternatives. In connection with the recommended strategy call, C&H will prepare a comprehensive analysis of the strategic alternatives available to DEH, including: (i) reactivation of the ICSID proceedings, with constitution of the tribunal and progression to the memorial phase; (ii) parallel approaches to PetroValderia S.A. for direct negotiation of a commercial resolution; and (iii) consideration of Valderian domestic litigation options, with input from Castaño Herrera & Asociados (Dr. Gabriel Castaño Herrera). Each alternative will be assessed against the criteria of cost, timeline, likelihood of recovery, and impact on Beaufort's position under the Funding Agreement.

5. Update to DCF model. C&H will instruct Pemberton Valuation Advisory LLC to update its DCF model to reflect current commodity prices and forward curves. The original model assumed a Brent crude oil price of USD 65 per barrel. As at the date of this letter, Brent crude is trading at approximately USD 85 per barrel. While any update will be subject to further refinement at the time of memorial preparation, a preliminary update will assist in assessing the current value of the lost future profits claim and in informing settlement discussions, if any.

6. Monitoring of diplomatic consultations. C&H will continue to monitor the UK-Valderia diplomatic consultations through FCDO channels and through our local contacts in Valderia. We will report any material developments immediately to Beaufort and to DEH.

In addition to the above, C&H will prepare a separate internal memorandum on dormancy risks and strategic options, which we anticipate will be completed in July 2024. A redacted version of that memorandum will be shared with Beaufort as appropriate under the information-sharing provisions of the Funding Agreement.

11. Costs Update

In accordance with Clause 7.4 of the Funding Agreement, we provide a summary overview of costs incurred to date and amounts drawn from Beaufort's GBP 8,500,000 funding commitment.

As Beaufort will appreciate, costs have been modest during the dormancy period, reflecting the limited substantive work required while the proceedings have been suspended. The principal costs incurred during the dormancy period relate to periodic status reporting, dormancy renewal correspondence with ICSID and co-respondent counsel, monitoring of diplomatic developments, coordination with CCB regarding standstill renewals, and maintenance of expert retentions on a work-on-hold basis.

The substantial majority of the committed funding budget has been preserved for the substantive phases of the arbitration, including preparation and filing of the claimant's memorial, document production, expert report finalisation, and the oral hearing. We consider this budgetary position to be favourable and consistent with prudent management of the funded claim.

A detailed breakdown of costs incurred and amounts drawn will be provided in our next formal billing report, which will be submitted in accordance with the schedule set out in Schedule 3 to the Funding Agreement. Should Beaufort require an interim costs summary in advance of that report, we are happy to provide one upon request.

12. Closing

We are grateful for Beaufort's continued support and patience during what has been an unexpectedly extended period of dormancy. We appreciate that the passage of time without substantive progress is a source of legitimate concern, and we share that concern. At the same time, we remain confident in the strength of DEH's claim — both on the merits and on quantum — and in the prospect of a favourable recovery for all stakeholders.

We wish to assure you that the C&H team remains fully committed to this matter and is prepared to move swiftly to reactivate and progress the arbitration when the strategic decision is made to do so. In the meantime, Jeffrey Park and Audrey Zhou are available at your convenience to address any detailed questions that Beaufort may have regarding the factual record, the procedural history, or any other aspect of the case.

We look forward to hearing from you regarding the confirmation requested at Section 5 above, and to scheduling the recommended strategy call with DEH's principals. As noted, we propose the weeks of 8 July or 15 July 2024 and would welcome Beaufort's preferred dates.

We shall revert in due course with the strategic memorandum and updated costs report.

Yours sincerely,

Vivienne St. Claire Partner Calderwood & Harkness LLP 55 Bishopsgate, London EC2N 3AH United Kingdom

Direct line: +44 (0)20 7429 8644

Email: v.stclaire@calderwoodharkness.com

cc:

Sir Malcolm Dunmore, KBE — Chairman, Dunmore Energy Holdings Ltd.

Priya Nandakumar — CEO, Dunmore Energy Holdings Ltd.

Thomas Rearden — CFO, Dunmore Energy Holdings Ltd.

Robert Adeyemi — Partner, Calderwood & Harkness LLP

Enclosures:

1. Copy of the fourth dormancy renewal letter to the ICSID Secretary-General dated 12 June 2024 (co-signed by Vivienne St. Claire and Charles Winterbottom QC)

2. Summary table of dormancy renewal chronology

This letter and its enclosures are privileged and confidential and are subject to litigation privilege. They are intended solely for the addressee. If you have received this letter in error, please notify Calderwood & Harkness LLP immediately and destroy all copies. Unauthorised use, disclosure, or distribution is strictly prohibited.

Category	Amount (USD)
Exploration and development drilling	211,000,000
Surface infrastructure and pipeline	89,000,000
Seismic acquisition and geological studies	47,000,000
Total capital expenditure	347,000,000
Metric	FY2020 Value
Gross revenue	USD 128.6 million
EBITDA	USD 41.3 million
Average daily production	21,200 bbl/day
Peak daily production (September 2020)	24,800 bbl/day
Proved reserves (as at 31 December 2020)	87.4 mmboe
Head of Claim	Amount (USD)	Basis
Sunk capital expenditure	347,000,000	Documented CAPEX over concession life
Lost future profits	312,000,000	23-year DCF model; USD 65/bbl Brent assumption; 10% WACC
Consequential damages — financing costs	87,000,000	Interest accrued and costs arising from CCB default
Consequential damages — reputational harm	74,000,000	Documented impairment of DEH's business relationships and market standing
Consequential damages — sunk Phase II pre-development expenditure	47,000,000	Pre-development costs for Phase II renewable energy project within the concession area
Total	867,000,000
Dormancy Action	Date	Signatories
Initial joint dormancy request	17 June 2022	Vivienne St. Claire (C&H) / Charles Winterbottom QC (Harcastle Fenton)
First renewal	15 December 2022	Vivienne St. Claire / Charles Winterbottom QC
Second renewal	14 June 2023	Vivienne St. Claire / Charles Winterbottom QC
Third renewal	13 December 2023	Vivienne St. Claire / Charles Winterbottom QC
Fourth renewal (most recent)	12 June 2024	Vivienne St. Claire / Charles Winterbottom QC

PRIVILEGED AND CONFIDENTIAL — SUBJECT TO LITIGATION PRIVILEGE FOR ADDRESSEE ONLY
CALDERWOOD & HARKNESS LLP Barristers & Solicitors 55 Bishopsgate London EC2N 3AH United Kingdom
Telephone: +44 (0)20 7429 8600 Facsimile: +44 (0)20 7429 8601 www.calderwoodharkness.com
Matter Reference: 1016-00002
20 June 2024
Jonathan Hargreaves, Esq. Managing Partner Beaufort Litigation Capital LLP 14 St. James's Square London SW1Y 4LG United Kingdom
Dear Jonathan,
Re: Periodic Status Update — *Dunmore Energy Holdings Ltd. v. Republic of Valderia*, ICSID Case No. ARB/22/11
Reference: Litigation Funding Agreement dated 28 February 2022 between Dunmore Energy Holdings Ltd. and Beaufort Litigation Capital LLP (the "Funding Agreement")
1. Introduction and Purpose
This letter serves as the periodic status update provided to Beaufort Litigation Capital LLP ("Beaufort") in accordance with our obligations under Clause 7.2 of the Funding Agreement dated 28 February 2022 between Dunmore Energy Holdings Ltd. and Beaufort. We write to bring you current on all material developments — and, equally important, on the absence of certain developments — in the above-referenced proceedings and in related matters bearing on the funded claim.
We confirm that Calderwood & Harkness LLP ("C&H") continues to act as lead counsel to 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. The C&H team working on this matter remains as follows:
• Vivienne St. Claire — Responsible Partner
• Robert Adeyemi — Billing Partner
• Jeffrey Park — Lead Associate
• Audrey Zhou — Working Associate
This letter concerns the ICSID investor-state arbitration claim (Case No. ARB/22/11) brought by DEH against the Republic of Valderia (the "Respondent") arising from the unlawful expropriation of DEH's 30-year oil and gas concession — Concession No. HYD-2012-047, commonly referred to as "Bloque Orinoco Sur" — in the Valderian Orinoco Basin. As you are aware, the proceedings have remained in a state of dormancy since June 2022, and the fourth consecutive renewal of that dormancy was co-signed on 12 June 2024. This letter addresses the implications of that continued dormancy, including certain contractual thresholds under the Funding Agreement that have now been reached, and sets out our recommendations for the path forward.
2. Summary of the Claim
For ease of reference and completeness of the record, we set out below a brief recapitulation of the factual and legal basis of DEH's claim.
2.1 The Claimant and the Concession
DEH, through its wholly-owned Valderian subsidiary Dunmore Valderia upstream S.A. ("DVU"), was the named concessionaire of Concession No. HYD-2012-047, a 1,240 km² onshore concession area located in the Valderian Orinoco Basin (the "Concession"). The Concession was granted by the Valderian Ministry of Energy and Natural Resources on 12 September 2013 for a term of 30 years, with a contractual expiry date of 12 September 2043. At the date of the expropriatory measures described below, approximately 23 years of the concession term remained unexpired.
2.2 Capital Expenditure and Operational Performance
Over the life of the Concession, DEH invested approximately USD 347 million in total capital expenditure, broken down as follows:
By the fiscal year ended 31 December 2020 ("FY2020"), the Concession had achieved substantial operational maturity. Key performance indicators for FY2020 were as follows:
Proved reserves of 87.4 mmboe as at 31 December 2020 were independently certified by Ridgewell Subsurface Consultants Ltd. in their reserves evaluation report dated 15 February 2021.
2.3 The Expropriation
The Republic of Valderia effected the expropriation of the Concession through a series of sequential governmental acts spanning the period from April to September 2021:
(a) Presidential Decree No. 2021-0417 (17 April 2021): Declared all hydrocarbon concessions in the Orinoco Basin to be "strategic national assets" subject to immediate governmental review and potential revocation in the national interest.
(b) Physical occupation (3 May 2021): Valderian military personnel, acting in concert with employees and agents of PetroValderia S.A. (the state-owned national oil company), forcibly occupied the Bloque Orinoco Sur concession area, displacing DVU's operational staff, seizing operational control of all production facilities, wellheads, and pipeline infrastructure, and denying DVU access to the concession area.
(c) Presidential Decree No. 2021-0623 (23 June 2021): Formally revoked Concession No. HYD-2012-047 and transferred all rights, interests, and assets thereunder to PetroValderia S.A., without compensation to DVU or DEH.
(d) Ministerial Resolution No. MEN-2021-089 (5 August 2021): Directed all Valderian financial institutions to freeze accounts held by DVU and to block the repatriation of any funds held on behalf of DVU or its affiliates.
(e) Account freezing (1 September 2021): DVU's bank accounts at Banco Nacional de Valderia were frozen in compliance with Ministerial Resolution No. MEN-2021-089, effectively stripping DVU of all remaining liquid assets in Valderia.
No compensation of any kind has been offered or paid to DEH or DVU at any point since the commencement of the expropriatory measures.
2.4 Claim Quantum
DEH's total claim quantum is USD 867 million, comprising the following components:
2.5 Jurisdictional Basis
DEH's claim is brought pursuant to the bilateral investment treaty between the United Kingdom of Great Britain and Northern Ireland and the Republic of Valderia for the Promotion and Protection of Investments (signed 22 May 2006, entered into force 1 November 2006) (the "UK-Valderia BIT"). The UK-Valderia BIT was extended to the Cayman Islands by virtue of the United Kingdom's territorial extension declaration dated 14 February 2007. Article 8 of the UK-Valderia BIT provides for the submission of investor-state disputes to ICSID arbitration. Both the United Kingdom and the Republic of Valderia are Contracting States to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the "ICSID Convention"), and the jurisdictional requirements for ICSID arbitration are, in our assessment, clearly satisfied.
3. Procedural History and Current Status of ICSID Proceedings
3.1 Pre-Arbitral Steps
A Notice of Dispute was sent to the Republic of Valderia on 14 October 2021 in accordance with Article 8 of the UK-Valderia BIT. That notice triggered the mandatory six-month cooling-off period prescribed by the treaty. The cooling-off period expired on 14 April 2022 without any resolution or substantive engagement by the Respondent.
3.2 Commencement of ICSID Proceedings
DEH's Request for Arbitration was filed with the International Centre for Settlement of Investment Disputes ("ICSID") on 15 March 2022. The Request was registered by the ICSID Secretary-General on 8 April 2022, and the case was assigned Case No. ARB/22/11.
3.3 Constitution of the Tribunal
DEH nominated Professor Ingrid Svensson (Swedish national; Professor of International Investment Law, University of Uppsala) as its party-appointed arbitrator. As of the date of this letter, the Respondent has not nominated an arbitrator and the tribunal has not been constituted. The question of tribunal constitution has been held in abeyance in connection with the dormancy of the proceedings, as described below.
3.4 Respondent's Legal Representation
The Republic of Valderia is represented by:
(a) Ortega & Bernal, Abogados (local Valderian counsel), led by Dr. Alejandro Bernal Quiroga; and
(b) Harcastle Fenton LLP (international counsel, London), led by Charles Winterbottom QC.
3.5 Dormancy of Proceedings
The ICSID proceedings have been suspended — that is, in a state of dormancy — since 17 June 2022. The suspension was requested jointly by the parties, with the stated purpose of allowing time for state-to-state diplomatic consultations between the UK Foreign, Commonwealth & Development Office ("FCDO") and the Valderian Ministry of Foreign Affairs to explore a negotiated resolution. The dormancy has been renewed four times, in accordance with the chronology set out below:
A copy of the fourth dormancy renewal letter to the ICSID Secretary-General dated 12 June 2024 is enclosed with this letter for your records. The next dormancy review date falls on 12 December 2024, at which point the parties will need to decide whether to seek a further renewal or to request the reactivation of the proceedings.
4. Status of Diplomatic Consultations
The state-to-state diplomatic consultations between the UK FCDO and the Valderian Ministry of Foreign Affairs, conducted principally through Ambassador Diego Fuentes Castillo (Valderian Ambassador to the Court of St. James's), remain formally ongoing. However, we must report candidly that these consultations have not produced any meaningful progress towards a resolution of the underlying dispute.
No formal settlement proposal has been received from the Republic of Valderia at any point during the two-year dormancy period. While the diplomatic channel remains nominally open, C&H has not been made aware of any substantive offer, framework for negotiation, or indication that the Valderian government is prepared to engage constructively on the question of compensation.
Through informal channels and through communications with Castaño Herrera & Asociados (specifically, Dr. Gabriel Castaño Herrera, a local Valderian lawyer who has been assisting C&H in monitoring developments in Valderia), we understand that the government of President Héctor Luján Montalvo has not signalled any willingness to reverse the nationalisation measures or to offer compensation to DEH or other affected concessionaires. To the contrary, the Minister of Energy, Ms. Claudia Ríos Salazar, has publicly reiterated the government's "resource sovereignty" position on multiple occasions, most recently in a press conference on 4 June 2024 in which she described the nationalisation of Orinoco Basin concessions as "irreversible and in the permanent interest of the Valderian people."
C&H's assessment is that the diplomatic consultations are unlikely to yield a resolution in the near term. While we remain supportive of a negotiated outcome if one can be achieved, we are of the growing view that continued dormancy may not serve the Claimant's interests and that the strategic calculus should be reassessed at or before the December 2024 review date. We elaborate on this point in Section 10 below.
5. Funding Agreement — 24-Month Dormancy Threshold
5.1 Contractual Position
We draw your attention to an important contractual milestone that has now been reached under the Funding Agreement. As you will be aware, Clause 12.3(b) of the Funding Agreement dated 28 February 2022 provides Beaufort with a termination right exercisable upon 90 days' written notice to DEH in the event that the funded proceedings "remain dormant, stayed, or otherwise suspended for a continuous period exceeding twenty-four (24) calendar months." This right is not subject to any cure period and is exercisable at Beaufort's sole discretion.
5.2 Reaching the 24-Month Threshold
The 24-consecutive-month threshold is measured from 17 June 2022, being the date of the initial joint dormancy request to the ICSID Secretary-General. Accordingly, the 24-month threshold was reached on 17 June 2024 — three days before the date of this letter. As of today, the ICSID proceedings have been dormant for approximately 24 months and 3 days.
5.3 Current Position
We note that, as of the date of this letter, Beaufort has not exercised its termination right under Clause 12.3(b), and C&H understands from our most recent discussions with you that there is no current intention on Beaufort's part to do so. We are grateful for Beaufort's continued confidence in the claim and in the legal team working on it.
DEH values the funding relationship with Beaufort and the commitment that Beaufort has demonstrated throughout what has been an unexpectedly prolonged period of procedural inactivity. For completeness, we reiterate the key commercial terms of the Funding Agreement:
(a) Committed funding amount: GBP 8,500,000 (approximately USD 10,455,000 at the GBP/USD 1.23 exchange rate prevailing at the date of execution of the Funding Agreement).
(b) Success fee: 22% of net recovery, calculated after deduction of all legal costs and disbursements.
5.4 Request for Confirmation
We would be grateful to receive written confirmation from Beaufort that it does not presently intend to exercise its termination right under Clause 12.3(b). Such confirmation would assist DEH in its strategic planning and in its discussions with other stakeholders, including Commonwealth Capital Bank plc (as discussed in Section 7 below) and the FCDO.
In connection with the above, C&H will prepare a more detailed strategic memorandum setting out the options available to DEH and the costs and risks associated with each path forward. We also recommend scheduling a call in the near term with the DEH principals — Sir Malcolm Dunmore, KBE (Chairman) and Priya Nandakumar (CEO) — to discuss the path forward in a collaborative manner. We would welcome Beaufort's participation in such a call and will propose dates in due course.
6. Adverse Costs Insurance
We confirm that the adverse costs insurance policy procured in connection with the ICSID proceedings remains in full force and effect. The relevant details are as follows:
Insurer: Oakshield Underwriting Syndicate Ltd. (Lloyd's Syndicate)
Policy Number: OUS-2022-ARB-4417
Coverage Limit: GBP 3,000,000
Named Insured: Dunmore Energy Holdings Ltd.
Effective Date: 1 March 2022
Policy Period: Subject to annual renewal
The policy was last renewed in March 2024 and the current policy period runs to 28 February 2025. We note that the extended dormancy of the proceedings may raise questions from Oakshield at the next renewal date regarding the status and prospects of the claim. C&H will coordinate with Oakshield in advance of the February 2025 renewal to provide the necessary reporting under the policy and to ensure continuity of coverage. We do not anticipate any material difficulty in securing renewal, given the strength of the merits (as discussed in Section 9 below) and the fact that no adverse costs exposure has crystallised during the dormancy period. However, it is possible that the premium may be adjusted to reflect the extended period of cover without substantive progression of the case. We will keep Beaufort informed of any premium implications.
7. Related Matters — Commonwealth Capital Bank plc Standstill
We wish to bring to Beaufort's attention the current status of DEH's arrangements with its project finance lender, Commonwealth Capital Bank plc ("CCB"), as this matter has a direct bearing on the recoverable position and is therefore relevant to Beaufort's exposure and interests under the Funding Agreement.
7.1 Background. DVU was the borrower under a USD 175,000,000 senior secured project finance facility (the "CCB Facility") pursuant to a facility agreement dated 20 March 2016 between DVU (as borrower), DEH (as guarantor), and Commonwealth Capital Bank plc (as lender and security agent). The CCB Facility was secured against the assets of the Concession, including the concession rights themselves, production revenues, and all physical infrastructure.
As at the date of expropriation (using 3 May 2021 as the relevant date), the outstanding principal amount under the CCB Facility was USD 112,400,000. The applicable interest rate is SOFR plus 4.25% per annum.
7.2 Technical Default and Standstill
Following the expropriation, CCB declared a technical default on 1 November 2021, citing an Event of Default under Section 9.1(k) of the facility agreement — specifically, the expropriation, nationalisation, or compulsory acquisition of collateral. The declaration of default entitled CCB to accelerate the outstanding amounts and to enforce its guarantee against DEH.
In order to preserve the status quo and to avoid the cascading consequences of acceleration and enforcement, DEH entered into a standstill agreement with CCB on 22 December 2021 (the "Standstill Agreement"). The Standstill Agreement has been extended periodically since its initial execution, and the current standstill period expires on 31 March 2025.
7.3 Proposed Extension
C&H intends, on behalf of DEH, to seek a further 12-month extension of the Standstill Agreement, which would extend the standstill period to 31 March 2026. We have had preliminary discussions with CCB's primary contact for this matter, Helen Okafor (Director, Energy & Resources, Commonwealth Capital Bank plc), and our initial indications are that CCB is amenable to a further extension, subject to satisfactory reporting on the status of the ICSID proceedings and the diplomatic consultations.
7.4 Relevance to Beaufort
We draw Beaufort's attention to the fact that the expiry of the Standstill Agreement without renewal — or any enforcement action by CCB against DEH under the guarantee — would materially affect the recoverable position in the arbitration and is therefore directly relevant to Beaufort's interests. Specifically, any recovery obtained in the ICSID arbitration would be subject to priority repayment of CCB's outstanding amounts, which will continue to accrue interest during the dormancy period. The maintenance of the standstill is therefore an important element of the overall strategy, and C&H will keep Beaufort closely informed of developments in this regard.
8. Expert Retention Status
We provide below a summary of the current status of expert retentions in the arbitration.
8.1 Damages/Quantum Expert
Pemberton Valuation Advisory LLC (New York) remains retained as DEH's damages and quantum expert. The lead expert is Dr. Elaine Cho, CFA, ASA, supported by Marcus Whitfield as the principal supporting analyst. Pemberton's engagement has been placed on a work-on-hold basis during the dormancy period in order to preserve costs. However, we can confirm that the DCF valuation model underlying the lost future profits claim has been substantially prepared, and a preliminary damages report is in advanced draft form. The preliminary report covers all three heads of claim (sunk CAPEX, lost future profits, and consequential damages) and can be finalised and updated within approximately six to eight weeks of reactivation. An update to current commodity price assumptions will be required at that time (see Section 10 below).
8.2 Petroleum Engineering Expert
Ridgewell Subsurface Consultants Ltd. (Calgary) remains retained as DEH's petroleum engineering expert. The lead expert is Dr. Alistair Greaves, P.Eng. Ridgewell's reserves evaluation report, which certifies proved reserves of 87.4 mmboe and probable reserves of 42.1 mmboe as at 31 December 2020, has been completed and is available for submission as part of DEH's memorial. The report was prepared in accordance with the Petroleum Resources Management System (PRMS) published by the Society of Petroleum Engineers and has been independently reviewed. Dr. Greaves remains available to provide supplementary expert testimony as required.
8.3 Respondent's Quantum Expert
We note for Beaufort's information that the Respondent has retained Northbridge Economic Consulting Ltd. (London) as its quantum expert. The lead expert on behalf of the Respondent is understood to be Dr. Henrik Johansson. No expert report has been filed by the Respondent, given the dormancy of the proceedings, and we have no visibility into the substance of Northbridge's instructions or analysis at this stage.
8.4 Financial Records
DEH's corporate auditors, Ashworth & Palliser LLP (London), continue to hold and maintain all relevant financial records, including audited financial statements for DVU and DEH for the fiscal years 2013 through 2021, management accounts, and supporting documentation for the capital expenditure figures forming part of the claim quantum. These records remain available for production in the arbitration and for review by Pemberton in connection with the finalisation of the damages report.
9. Assessment of Merits and Recovery Prospects
9.1 Merits. C&H's assessment of the merits of DEH's claim remains strong and has not materially changed since our last periodic update. We summarise our views below.
Direct expropriation (Article 5, UK-Valderia BIT): The claim of direct expropriation is, in our assessment, well-founded and presents favourable prospects for success. The taking of the Concession was effected through three sequential and unambiguous governmental acts — Presidential Decree No. 2021-0417, Presidential Decree No. 2021-0623, and Ministerial Resolution No. MEN-2021-089 — which collectively resulted in the total and permanent deprivation of DEH's investment without any offer or payment of compensation. The physical occupation of the concession area by Valderian military forces and PetroValderia personnel on 3 May 2021, and the subsequent freezing of DVU's bank accounts, leave no room for the Respondent to argue that the measures were anything other than a direct expropriation. The case law from ICSID tribunals in analogous disputes (including, by way of example, Crystallex International Corporation v. Bolivarian Republic of Venezuela, ConocoPhillips Petrozuata B.V. v. Bolivarian Republic of Venezuela, and Tidewater Inc. v. Bolivarian Republic of Venezuela) supports DEH's position.
Fair and equitable treatment / Full protection and security (Article 3, UK-Valderia BIT): DEH's supporting claims under Article 3 of the BIT add further strength to the overall case. The Respondent's conduct — including the abrupt revocation of a long-term concession in which DEH had invested approximately USD 347 million, the failure to afford any due process or administrative review, and the deployment of military force to dispossess DVU — constitutes a clear breach of the fair and equitable treatment standard and a failure to accord full protection and security to DEH's investment.
Anticipated defences: We have assessed the defences likely to be advanced by the Respondent and consider them to be weak on the facts of this case. Specifically:
(a) Police powers / regulatory authority: The Respondent may contend that the nationalisation measures fell within the legitimate exercise of sovereign regulatory powers. However, the measures were not non-discriminatory, were not taken for a bona fide public purpose, were not proportionate, and — critically — were not accompanied by payment of compensation.
(b) Essential security: Any reliance on an essential security exception would require the Respondent to demonstrate a genuine threat to its essential security interests, which is not supported by the factual record.
(c) Denial of benefits: A denial of benefits defence under the BIT would require the Respondent to show that DEH lacked substantial business activities in the territory of the UK or the Cayman Islands. Given DEH's principal business office in London and its substantive management and operational activities, such a defence is unlikely to succeed.
9.2 Quantum and Recovery Prospects
The claim quantum of USD 867 million is, in our assessment, supported by robust evidence, including a detailed DCF valuation model prepared by Pemberton Valuation Advisory, independently certified reserves data from Ridgewell Subsurface Consultants, and comprehensive documentation of capital expenditure. While quantum in investor-state arbitrations is always subject to challenge and adjustment by the tribunal, we consider the overall quantum to be well-supported and defensible.
We note that any recovery obtained in the arbitration will be subject to the following deductions and priorities:
(a) Repayment of outstanding amounts under the CCB Facility (currently USD 112,400,000 plus accrued interest);
(b) Payment of legal costs and disbursements incurred in the prosecution of the claim; and
(c) Payment of the 22% success fee to Beaufort, calculated on the net recovery after deduction of costs.
9.3 Minority Equity Holder
For completeness, we confirm that Meridian Growth Partners Fund III, L.P. (a 26% equity holder in DEH, managed by Meridian Growth Partners LLC, New York) continues to support the prosecution of the claim. Meridian has been kept informed of developments through DEH's board and has not raised any objection to the current strategy or to the continued dormancy of the proceedings.
10. Next Steps and Recommendations
In light of the matters discussed in this letter, and in particular the reaching of the 24-month dormancy threshold, the continued absence of progress in diplomatic consultations, and the approaching December 2024 dormancy review date, C&H recommends the following near-term steps:
1. Strategy call with DEH principals and Beaufort. We recommend scheduling a strategy call at the earliest convenient opportunity among C&H, Beaufort, and DEH's principals — specifically, Sir Malcolm Dunmore, KBE (Chairman) and Priya Nandakumar (CEO) — to discuss whether to continue the dormancy of the proceedings or to seek reactivation at the 12 December 2024 review date. We propose the weeks of 8 July or 15 July 2024 for this call and will circulate a detailed agenda in advance.
2. Formal written confirmation from Beaufort. As discussed in Section 5 above, we would be grateful to receive formal written confirmation from Beaufort regarding its position on the termination right under Clause 12.3(b) of the Funding Agreement. A brief letter or email from you confirming that Beaufort does not presently intend to exercise the termination right would be sufficient and would be greatly appreciated.
3. CCB standstill extension. C&H intends to prepare and submit a standstill extension request to Commonwealth Capital Bank plc well in advance of the current standstill expiry on 31 March 2025. We will seek a further 12-month extension to 31 March 2026. We will coordinate with Helen Okafor at CCB and will keep Beaufort informed of the outcome.
4. Evaluation of strategic alternatives. In connection with the recommended strategy call, C&H will prepare a comprehensive analysis of the strategic alternatives available to DEH, including: (i) reactivation of the ICSID proceedings, with constitution of the tribunal and progression to the memorial phase; (ii) parallel approaches to PetroValderia S.A. for direct negotiation of a commercial resolution; and (iii) consideration of Valderian domestic litigation options, with input from Castaño Herrera & Asociados (Dr. Gabriel Castaño Herrera). Each alternative will be assessed against the criteria of cost, timeline, likelihood of recovery, and impact on Beaufort's position under the Funding Agreement.
5. Update to DCF model. C&H will instruct Pemberton Valuation Advisory LLC to update its DCF model to reflect current commodity prices and forward curves. The original model assumed a Brent crude oil price of USD 65 per barrel. As at the date of this letter, Brent crude is trading at approximately USD 85 per barrel. While any update will be subject to further refinement at the time of memorial preparation, a preliminary update will assist in assessing the current value of the lost future profits claim and in informing settlement discussions, if any.
6. Monitoring of diplomatic consultations. C&H will continue to monitor the UK-Valderia diplomatic consultations through FCDO channels and through our local contacts in Valderia. We will report any material developments immediately to Beaufort and to DEH.
In addition to the above, C&H will prepare a separate internal memorandum on dormancy risks and strategic options, which we anticipate will be completed in July 2024. A redacted version of that memorandum will be shared with Beaufort as appropriate under the information-sharing provisions of the Funding Agreement.
11. Costs Update
In accordance with Clause 7.4 of the Funding Agreement, we provide a summary overview of costs incurred to date and amounts drawn from Beaufort's GBP 8,500,000 funding commitment.
As Beaufort will appreciate, costs have been modest during the dormancy period, reflecting the limited substantive work required while the proceedings have been suspended. The principal costs incurred during the dormancy period relate to periodic status reporting, dormancy renewal correspondence with ICSID and co-respondent counsel, monitoring of diplomatic developments, coordination with CCB regarding standstill renewals, and maintenance of expert retentions on a work-on-hold basis.
The substantial majority of the committed funding budget has been preserved for the substantive phases of the arbitration, including preparation and filing of the claimant's memorial, document production, expert report finalisation, and the oral hearing. We consider this budgetary position to be favourable and consistent with prudent management of the funded claim.
A detailed breakdown of costs incurred and amounts drawn will be provided in our next formal billing report, which will be submitted in accordance with the schedule set out in Schedule 3 to the Funding Agreement. Should Beaufort require an interim costs summary in advance of that report, we are happy to provide one upon request.
12. Closing
We are grateful for Beaufort's continued support and patience during what has been an unexpectedly extended period of dormancy. We appreciate that the passage of time without substantive progress is a source of legitimate concern, and we share that concern. At the same time, we remain confident in the strength of DEH's claim — both on the merits and on quantum — and in the prospect of a favourable recovery for all stakeholders.
We wish to assure you that the C&H team remains fully committed to this matter and is prepared to move swiftly to reactivate and progress the arbitration when the strategic decision is made to do so. In the meantime, Jeffrey Park and Audrey Zhou are available at your convenience to address any detailed questions that Beaufort may have regarding the factual record, the procedural history, or any other aspect of the case.
We look forward to hearing from you regarding the confirmation requested at Section 5 above, and to scheduling the recommended strategy call with DEH's principals. As noted, we propose the weeks of 8 July or 15 July 2024 and would welcome Beaufort's preferred dates.
We shall revert in due course with the strategic memorandum and updated costs report.
Yours sincerely,
Vivienne St. Claire Partner Calderwood & Harkness LLP 55 Bishopsgate, London EC2N 3AH United Kingdom
Direct line: +44 (0)20 7429 8644
Email: v.stclaire@calderwoodharkness.com
cc:
Sir Malcolm Dunmore, KBE — Chairman, Dunmore Energy Holdings Ltd.
Priya Nandakumar — CEO, Dunmore Energy Holdings Ltd.
Thomas Rearden — CFO, Dunmore Energy Holdings Ltd.
Robert Adeyemi — Partner, Calderwood & Harkness LLP
Enclosures:
1. Copy of the fourth dormancy renewal letter to the ICSID Secretary-General dated 12 June 2024 (co-signed by Vivienne St. Claire and Charles Winterbottom QC)
2. Summary table of dormancy renewal chronology
This letter and its enclosures are privileged and confidential and are subject to litigation privilege. They are intended solely for the addressee. If you have received this letter in error, please notify Calderwood & Harkness LLP immediately and destroy all copies. Unauthorised use, disclosure, or distribution is strictly prohibited.
Category | Amount (USD)
Exploration and development drilling | 211,000,000
Surface infrastructure and pipeline | 89,000,000
Seismic acquisition and geological studies | 47,000,000
Total capital expenditure | 347,000,000
Metric | FY2020 Value
Gross revenue | USD 128.6 million
EBITDA | USD 41.3 million
Average daily production | 21,200 bbl/day
Peak daily production (September 2020) | 24,800 bbl/day
Proved reserves (as at 31 December 2020) | 87.4 mmboe
Head of Claim | Amount (USD) | Basis
Sunk capital expenditure | 347,000,000 | Documented CAPEX over concession life
Lost future profits | 312,000,000 | 23-year DCF model; USD 65/bbl Brent assumption; 10% WACC
Consequential damages — financing costs | 87,000,000 | Interest accrued and costs arising from CCB default
Consequential damages — reputational harm | 74,000,000 | Documented impairment of DEH's business relationships and market standing
Consequential damages — sunk Phase II pre-development expenditure | 47,000,000 | Pre-development costs for Phase II renewable energy project within the concession area
Total | 867,000,000
Dormancy Action | Date | Signatories
Initial joint dormancy request | 17 June 2022 | Vivienne St. Claire (C&H) / Charles Winterbottom QC (Harcastle Fenton)
First renewal | 15 December 2022 | Vivienne St. Claire / Charles Winterbottom QC
Second renewal | 14 June 2023 | Vivienne St. Claire / Charles Winterbottom QC
Third renewal | 13 December 2023 | Vivienne St. Claire / Charles Winterbottom QC
Fourth renewal (most recent) | 12 June 2024 | Vivienne St. Claire / Charles Winterbottom QC

PRIVILEGED AND CONFIDENTIAL — SUBJECT TO LITIGATION PRIVILEGE FOR ADDRESSEE ONLY

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