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Final Award on Consent

THE UNDERSIGNED ARBITRATORS, having been duly designated in accordance with the arbitration agreement dated April 3, 2016 entered into between Claimants J.C. Walter, III, Carole Walter Looke, J.C. Walter, Jr., Ltd., F. Fox Benton, III, Moreno Energy, Inc., William C. Oehmig, The Cain 1988 Descendants’ Trust, Mary H. Cain, Mary H. Cain Marital Trust, Robert D. Jolly, Howard Chapman, Ruth B. Smalley, Arthur L. Smalley, III, Tom E. Smalley, Barbara Beth Frank Sharman Trust, Janis Kay Frank Henry Trust and Margaret Weaver (collectively "Claimants") and Respondents Marathon E.G. LPG Limited ("MEGLPG"), Marathon Oil Corporation ("Marathon") and Alba Equatorial Guinea Partnership, L.P. ("AEGP") (collectively "Respondents") and having been duly sworn, and whereas Claimants and Respondents (collectively the "Parties") agree to the entry of a Consent Award on the terms set forth below in full and final settlement of this arbitration proceeding, we do hereby issue this FINAL AWARD ON CONSENT as agreed by the Parties.

JURISDICTION AND PLEADINGS

1.
On December 16, 2015, Claimants filed Plaintiffs’ Original Petition in a Texas state district court asserting claims for declaratory relief, breach of contract, breach of fiduciary duty and aiding and abetting breach of fiduciary duty against Respondents.
2.
On January 8, 2016, Respondents removed the above-described lawsuit to federal court. Thereafter, the Parties announced to the federal court that they had agreed to arbitrate their disputes in the case and, on January 28, 2016, the federal court ordered the Parties to arbitrate.
3.
On April 15, 2016, Claimants commenced a private arbitration proceeding against Respondents (the "Arbitration"). In Claimants’ First Amended Statement of Claims, Claimants asserted claims for declaratory relief breach of contract, breach of fiduciary duty and aiding and abetting breach of fiduciary duty against Respondents. Claimants alleged that Respondents’ refusal to allocate accrued foreign taxes or creditable foreign tax expenditures to Claimants so that Claimants could claim or use those foreign tax credits associated with those foreign tax expenditures breached the Agreement of Limited Partnership of Alba Equatorial Guinea Partnership, L.P. (the "AEGP Agreement"), violated the applicable Treasury Regulations and violated Respondents’ fiduciary duties owed to Claimants.
4.
In Claimants’ First Amended Statement of Claims, Claimants sought actual damages, pre-judgment interest, and attorneys’ fees with respect to Respondents’ alleged breaches of the AEGP Agreement and violations of the Treasury Regulations and of their fiduciary duties owed to Claimants. Claimants also sought declaratory relief.
5.
In Respondents’ Response to Claimants’ First Amended Statement of Claims, Respondents asserted various defenses to Claimants’ claims and a breach of contract counterclaim.

PROCEDURAL BACKGROUND

6.
Following consultations with the Parties, the International Centre for Dispute Resolution, a division of the American Arbitration Association (‘TCDR’), appointed Stephen D. Gardner and Paula Junghans as co-arbitrators and Edna Sussman as the chair in this Arbitration.
7.
As reflected in Preliminary Hearing Order No. 1, dated October 11, 2016, the Parties stipulated that the arbitration shall be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association as in effect on October 1, 2013 as supplemented by the Procedures for Large, Complex Commercial Disputes and the International Commercial Arbitration Supplementary Procedures as amended and in effect April 1, 1999 (the "AAA Rules").
8.
The Parties were represented by counsel throughout the proceedings. Claimants were represented by HAGANS MONTGOMERY & RUSTAY, P.C. and CHAMBERLAIN HRDLICKA, WHITE, WILLIAMS & AUGHTRY, and Respondents were represented by KING & SPALDING, LLP.
9.
The Parties engaged in a pre-hearing exchange of information and the exchange of expert reports.
10.
The Parties have informed the Arbitration Panel (the "Panel") that the Parties have reached an agreement settling their disputes in this Arbitration. Based upon the facts developed during discovery and the agreement of the Parties, the Parties jointly request that the Panel sign this Final Award on Consent in accordance with Rule 48 of the AAA Rules. The Panel hereby GRANTS the Parties’ request and signs the following Final Award on Consent. The statements and terms of the Final Award on Consent below are as agreed between the Parties.

FINAL AWARD

11.
The Parties agree, and based upon the Parties’ agreement the Panel finds, that Claimants and MEGLPG made material modifications to the AEGP Agreement after January 1, 2007. The Parties also agree, and based upon the Parties’ agreement the Panel also finds, that there were changes in ownership of AEGP that occurred after January 1, 2007 for purposes of Treasury Regulation § 1,704-l(b)(4)(viii).
12.
Claimants represent, the Parties agree, and based upon the Parties’ agreement the Panel finds that, at all times from January 1, 2011 to the present, Claimants have owned the following Class 2 Limited Partner Interests in AEGP:

Class 2 Limited Partner NameClass 2 Limited Partner Interest Percentage
J.C. Walter, III 16.179100%
Carole Walter Looke 9.916220%
J.C. Walter, Jr., Ltd. 26.095320%
F. Fox Benton, III 0.814250%
Moreno Energy, Inc. 22.367410%
William C. Oehmig 1.962055%
Cam 1988 Descendants’ Trust 9.810270%
Mary H. Cain 4.905135%
The Mary H. Cain Marital Trust 4.905135%
Robert D. Jolly 0.270760%
Howard Chapman 0.270760%
Ruth B. Smalley (Ruth B. Smalley has a life Estate in the Class 2 Limited Partner Interests of Arthur L. Smalley, III and Tom E. Smalley) 0%
Arthur L. Smalley (subject to Ruth B. Smalley life estate) 0.135380%
Tom E. Smalley (subject to Ruth B. Smalley life estate) 0.135380%
Barbara Beth Frank Sharman Trust 0.135380%
Janis Kay Frank Henry Trust 0.135380%
Margaret Weaver1.962055%
99.99999%

13.
The Parties agree, and based upon the Parties’ agreement the Panel finds, that Claimants are Class 2 Limited Partners in AEGP for U.S. federal income tax purposes.
14.
The Parties engaged in discovery during the Arbitration. The Parties agree that, during discovery, the Parties discovered facts supporting Claimants’ position that AEGP should have allocated certain creditable foreign tax expenditures ("CFTEs") to Claimants. The Parties agree, and based upon the Parties’ agreement the Panel finds, that such factual information also supports application of the Treasury Regulation § 1,704-1 (b)(4)(viii) issued in 2006, as subsequently amended from time to time, to AEGP and to the allocations to Claimants of the CFTEs for the years 2011 and forward.
15.
The Parties agree, and based upon the Parties’ agreement the Panel finds, that the amounts of CFTEs that should be allocated to Claimants collectively for the following years are as follows:

2011: $8,774,879

2012: $8,939,296

2013: $8,412,289

2014: $6,207,183

2015: $813,023

16.
The Parties agree, and based upon the Parties’ agreement the Panel finds, that Treasury Regulation § 1,704-1 (b)(4)(viii) issued in 2006, as subsequently amended from time to time, applied to AEGP and to the allocations to Claimants of the CFTEs for the years 2011 forward.
17.
The Parties have adopted amendments to Section 8 of the AEGP Agreement that they agree clarify their intent to allocate certain CFTEs to Claimants. The Parties agree that, as part of the Second Amendment to Agreement of Limited Partnership of Alba Equatorial Guinea Partnership, L.P., and the Parties’ Settlement Agreement and Release, and on the terms more fully set forth therein, they have agreed that the AEGP income tax returns from January 1, 2011 through the remaining term of the AEGP Agreement (currently through 2035) will allocate to Claimants half of the CFTEs that are taken into account in determining Alba Net Cash Flow After Payout, and a corresponding allocation to Claimants of an additional amount of gross income equal to the amount of CFTEs so allocated to them.
18.
The Parties agree, and based upon the Parties’ agreement the Panel finds, that Claimants are successors in interest to Walter International, Inc. ("Walter") and its wholly-owned subsidiary, Walter International Equatorial Guinea, Inc. ("WIEG"), which made capital contributions and previously owned the Class 2 Limited Partnership interests in AEGP.
19.
The Parties have executed a Settlement Agreement and Release that they agree resolves the disputes in the Arbitration. The Parties agree that, in the Settlement Agreement and Release, on the terms more fully set forth therein, they have agreed, among other things, that the proper reporting entity will (1) amend MEGLPG’s tax returns and AEGP’s U.S. Return of Partnership Income (Form 1065) for years 2011 through 2014; (2) file Form 1065 for AEGP for tax years 2015 through 2035; (3) amend Form 1099-MISC for 2015 for each Class 2 Limited Partner to reduce Claimants’ Miscellaneous Income by the amounts of income included on the Form 1065 for AEGP for 2015; (4) allocate the CFTEs listed in Paragraph 15 above to Claimants for all of those years; (5) for 2016 and subsequent years, and pursuant to the Second Amendment to Partnership Agreement, allocate to Claimants half of the CFTEs that are taken into account in determining Alba Net Cash Flow After Payout, matched by an allocation to Claimants of an additional amount of gross income equal to the amount of CFTEs so allocated to them; and (6) amend such other tax returns and information statements as may be necessary to conform to the foregoing changes.
20.
Any and all claims asserted by the Parties are herein dismissed by consent, and this award and the Parties’ above-referenced Settlement Agreement and Release are in full settlement of all claims submitted to this Arbitration.
21.
Each party shall bear its own attorneys’ fees and costs incurred in connection with these arbitration proceedings.
22.
The administrative fees and expenses of the International Centre for Dispute Resolution, totaling $40,529.21 and the compensation and expenses of the Arbitrators, totaling $368,527.98, shall be borne equally by the Parties. The Parties agree that Claimants shall reimburse Respondents the sum of $1,100 for fees and expenses previously incurred by Respondents.
23.
This Final Award on Consent may be signed in counterparts and issued in several duplicate originals, all of which taken together will constitute one and the same Final Award on Consent.
We hereby certify that, for purposes of Article I of the New York Convention of 1958, on the Recognition and Enforcement of Foreign Arbitral Awards, this Final Award on Consent was made in Houston Texas, United States of America.
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