Madagascar Oil initiates arbitration

 Madagascar Oil has begun international arbitration proceedings against the government of Madagascar in an attempt to salvage four oil blocks facing expropriation.

The Aim-quoted company said it filed arbitration claims to the Paris-based International Chamber of Commerce on April 29 claiming breach of contract by the Madagascar government.

However, Laurie Hunter, chief executive, said he remained “optimistic” a resolution could be achieved.
“We are committed to negotiating a resolution with the government … Today’s announcement is simply a mechanism for us to protect our shareholders’ interests in the event that we are unsuccessful in a negotiated settlement,” said Mr Hunter.
Madagascar Oil is one of a number of London-quoted resource companies which have recently faced expropriation abroad as governments seek to capitalise on sharply rising commodity prices.

Churchill Mining, an Aim-quoted coal company operating in Indonesia, is currently in legal proceedings to try and salvage its mining licence which had been cancelled by a local court. In March Oxus Gold, which has been on Aim since 2001, said it would initiate arbitration proceedings against the government of Uzbekistan after it suspected the government of wanting to liquidate its gold mine there.

Madagascar Oil’s arbitration comes after months of political standoff. In December the government announced it was interested in acquiring the company’s four oil blocks via compulsory purchase.

The company’s showpiece Tsimiroro block, which is estimated to hold 965m barrels of mostly heavy oil, is currently the subject of a government audit to determine its valuation.

According to media reports, the government was interested in acquiring the oil concessions, particularly Tsimiroro, for a joint-venture with a Hong-Kong based China International Fund called the Madagascar Development Corporation, launched last December. Both Madagascar’s ministry of mines and CIF declined to comment on the matter.
In March, Madagascar Oil declared force majeure and froze its contracts.

The company said it had spent $215m developing its assets, though the government has previously indicated it would pay about $100m for the concessions
.
Madagascar Oil raised £50.5m, at 95p per share, when it listed on Aim last November but was forced to suspend shares three weeks later at 74p.

Aim shares can generally be suspended for a maximum of six months, although that can be extended by market regulators.