Lawyers, other representatives, expert(s), tribunal’s secretary

Award

FREQUENTLY USED ABBREVIATIONS AND ACRONYMS
[CA] [EL] Legal Authority [Claimant] [Respondent]
[CE] [E] Exhibit [Claimant] [Respondent]
Amended Request for Arbitration Claimant's Amended Request for Arbitration, dated 18 July 2008
Arbitration Rules ICSID Rules of Procedure for Arbitration Proceedings (2006)
BIT or the Treaty Agreement between the Republic of France and the Republic of Ecuador Concerning the Encouragement and Reciprocal Protection of Investment
Brattle ER II The Brattle Group Expert Report, prepared by James Dow and Richard Caldwell, dated 4 May 2015 (
Brattle ER III The Brattle Group Expert Report, prepared by James Dow and Richard Caldwell, dated 16 October 2015
Cl. PHB Q. Claimant's Post Hearing Brief on Quantum, dated 29 January 2016
Cl. Rep. M. Claimant's Reply to Respondent's Counter-Memorial, dated 12 April 2012
Cl. Rep. PHB Q. Claimant's Reply Post Hearing Brief on Quantum, dated 29 February 2016
Combe WS II Witness Statement of Laurent Combe, dated 19 December 2014
Combe WS III Witness Statement of Laurent Combe, dated 24 July 2015
Consolidated Expert Report Parties Annotated Comments on the Independent Expert Report
Resp. C-Mem. Q. Respondent's Counter-Memorial on Quantum, dated 4 May 2015
Crick WS II Witness Statement of John Crick, dated 19 December 2014
Crick WS III Witness Statement of John Crick, dated 24 July 2015
d'Argentré WS IV Witness Statement of Eric d'Argentré, dated 3 July 2013
d'Argentré WS V Witness Statement of Eric d'Argentré, dated 19 December 2014
d'Argentré WS VI Witness Statement of Eric d'Argentré, dated 24 July 2015
Decision on Jurisdiction Decision on Jurisdiction, dated 30 June 2011
Decision on Liability Decision on Remaining Issues on Jurisdiction and on Liability, dated 12 September 2014
Decision on Perenco's First Dismissal Application Decision on Perenco's Application for Dismissal of Ecuador's Counterclaims, dated 18 August 2017
Decision on Provisional Measures Decision on Provisional Measures, dated 8 May 2009
Decision on Reconsideration Decision on Ecuador's Reconsideration Motion, dated 10 April 2015
Ecuador or the Respondent Republic of Ecuador
First Dismissal Application Claimant's Application to Dismiss the Counterclaims, dated 18 April 2017
GSI ER I GSI Environmental Inc. Expert Report, dated 20 September 2012
GSI ER II GSI Environmental Inc. Expert Report, dated 12 July 2013
ICSID Convention Convention on the Settlement of Investment Disputes Between States and Nationals of Other States, dated 18 March 1965
ICSID or the Centre International Centre for the Settlement of Investment Disputes
Independent Expert Mr. Scott MacDonald, from Ramboll, appointed as the Tribunal's independent expert by Procedural Order No. 16, dated 6 July 2016
Independent Expert Report or Report Mr. Scott MacDonald's Expert Report, dated 19 December 2018
Interim Decision on Counterclaim Interim Decision on the Environmental Counterclaim, dated 11 August 2015
Intertek I Expert Report of Geoffrey R. Egan, Intertek, dated 28 September 2012
Intertek II Expert Report of Geoffrey R. Egan, Intertek, dated 3 July 2013
JOAs Novation of Joint Operating Agreement in respect of Block 7, Oriente Basin, Ecuador, dated 12 December 2002 (Exhibit CE-31), and Novation of Joint Operating Agreement in respect of Block 21, Oriente Basin, Ecuador, dated 12 December 2002 (CE-32)
Kalt ER III Expert Report of Joseph P. Kalt, dated 19 December 2014
Kalt ER IV Expert Report of Joseph P. Kalt, dated 24 July 2015
Loose ER VI Expert Report of Hernan Perez Loose, dated 19 December 2014
Loose ER VII Expert Report of Hernan Perez Loose, dated 24 July 2015
Luna WS III Witness Statement of Pablo Luna, dated 22 February 2013
Memorial/Cl. Mem. Q Claimant's Memorial on Quantum, dated 19 December 2014
Palacios WS I Witness Statement of Derlis Palacios, dated 30 November 2011
Palacios WS III Witness Statement of Derlis Palacios, dated 23 July 2012
Participation Contracts/PSCs Participation Contracts for Blocks 7 and 21 (Exhibit CE-17/CE-CC-28: Block 7 and Exhibit CE-10/CE-CC-13: Block 21)
Parties Claimant and the Respondent
Perenco or the Claimant Perenco Ecuador Limited
Pinto WS I Witness Statement of Germánico Pinto, dated 28 November 2011
Pinto WS II Witness Statement of Germánico Pinto, dated 25 July 2012
Quantum Closing Quantum Closing hearing held in The Hague on 21 April 2016
Quantum Hearing Hearing on Quantum held in Paris from 9-13 November 2015
Quantum Rejoinder Respondent's Rejoinder on Quantum, dated 16 October 2015
Quantum Reply/Cl. Rep. Q. Claimant's Reply on Quantum, dated 24 July 2015
Rejoinder Ecuador's Rejoinder to Perenco's Second Application to Dismiss Ecuador's Counterclaims, dated 26 April 2018
Reply Perenco's Reply in Support of its Second Application to Dismiss Ecuador's Counterclaims, dated 5 April 2018
Request for Arbitration Claimant's Request for Arbitration, dated 30 April 2008
Resp. PHB Q. Respondent's Post Hearing Brief on Quantum, dated 29 January 2016
Resp. Rep. PHB Q. Respondent's Reply Post Hearing Brief on Quantum, dated 29 February 2016
Resp. PHB CC Respondent's Post-Hearing Brief on Counterclaims, dated 6 November 2013
Response Ecuador's Response to Perenco's Second Application to Dismiss Ecuador's Counterclaims, dated 15 March 2018
RPS ER IV Expert Report of RPS, dated 4 May 2015
RPS ER V Expert Report of RPS, dated 16 October 2015
Saltos WS I Witness Statement of Wilfrido Saltos, dated 28 September 2012
Second Dismissal Application Perenco's Second Application to Dismiss Ecuador's Counterclaims, dated 30 January 2018
Settlement Agreement Settlement agreement between Burlington and Ecuador, dated 1 December 2017
Strickland ER I Expert Report of Richard F. Strickland, dated 19 December 2014
Strickland ER II Expert Report of Richard F. Strickland, dated 24 July 2015
Tr. (day) (MacDonald) (date) [page:line] Transcript of the Independent Expert Hearing held in The Hague from 11-12 March 2019
Tr. [J.] [P.M.] [M.][page:line] Transcript of the hearing on jurisdiction / on provisional measures / hearing on merits
Tr. Q. (day) [page:line] Transcript of the Hearing on Quantum held in Paris from 9-13 November 2015
Tr. Q. (6) [page:line] Transcript of the Quantum Closing hearing held in The Hague on 21 April 2016

I. INTRODUCTION

A. Parties

1.
The Claimant is Perenco Ecuador Limited and is hereinafter referred to as "Perenco" or the "Claimant."
2.
The Respondent is the Republic of Ecuador and is hereinafter referred to as "Ecuador" or the "Respondent."
3.
The Claimant and the Respondent are hereinafter collectively referred to as the "Parties." The Parties' respective representatives and their addresses are listed above on page (i).

B. Procedural History

4.
On 30 June 2011, the Tribunal issued its Decision on Jurisdiction ("Decision on Jurisdiction").
5.
On 12 September 2014, the Tribunal issued its Decision on Remaining Issues on Jurisdiction and on Liability ("Decision on Liability").
6.
On 26 November 2014, the Tribunal issued Procedural Order No. 12 fixing the calendar for the quantum phase.
7.
In accordance with the calendar, on 19 December 2014, the Claimant filed its Memorial on Quantum ("Memorial"). It was accompanied by the witness statements of Messrs. Didier Lafont, Laurent Combe, John Crick, Rodrigo Márquez Pacanins, and François Perrodo (all second witness statements) and Mr. Eric d'Argentré (fifth witness statement); and the expert reports of Dr. Richard Strickland (first expert report), Professor Joseph P. Kalt (third expert report), and Dr. Hernán Perez Loose (sixth expert report).
8.
On 10 March 2015, the Tribunal issued Procedural Order No. 13 regarding the Respondent's request for production of documents.
9.
On 10 April 2015, the Tribunal issued its Decision on Ecuador's Reconsideration Motion ("Decision on Reconsideration").
10.
On 4 May 2015, the Respondent filed its Counter-Memorial on Quantum ("Counter - Memorial"). It was accompanied by the witness statements of Messrs. Christian Dávalos (fifth witness statement) and Gabriel Freire (first witness statement); and the expert reports of Professor Juan Pablo Aguilar (sixth expert report); The Brattle Group (second expert report); and RPS (fourth expert report).
11.
On 12 June 2015, the Tribunal issued Procedural Order No. 14 regarding the Claimant's request for production of documents.
12.
On 24 July 2015, the Claimant filed its Reply on Quantum ("Quantum Reply"). It was accompanied by the witness statements of Messrs. Laurent Combe, John Crick and Rodrigo Márquez Pacanins (all third witness statements), and Mr. Eric d'Argentré (sixth witness statement); and the expert reports of Dr. Richard Strickland (second expert report), Professor Joseph P. Kalt (fourth expert report), and Dr. Hernán Perez Loose (seventh expert report).
13.
On 11 August 2015, the Tribunal issued its Interim Decision on the Environmental Counterclaim ("Interim Decision on Counterclaim").
14.
On 16 October 2015, the Respondent filed its Rejoinder on Quantum ("Quantum Rejoinder"). It was accompanied by the expert reports of Professor Juan Pablo Aguilar (seventh expert report), The Brattle Group (third expert report), and RPS (fifth expert report).
15.
On 23 October 2015, the Tribunal issued Procedural Order No. 15 concerning the organization of the hearing on quantum.
16.
A hearing on quantum was held in Paris from 9-13 November 2015 ("Quantum Hearing"). Present at the hearing were:

Tribunal
H.E. Judge Peter Tomka President
Mr. Neil Kaplan CBE QC SBS Co-Arbitrator
Mr. J. Christopher Thomas QC Co-Arbitrator

Assistants to the Tribunal Members :
Ms. Lucille Kante Assistant to Mr. Neil Kaplan CBE QC SBS
Ms. Emily Choo Wan Ning Assistant to Mr. J. Christopher Thomas QC

ICSID Secretariat
Mr. Marco Tulio Montañés-Rumayor Secretary of the Tribunal

For the Claimant :

Counsel

Mr. Mark W. Friedman Debevoise & Plimpton LLP
Ms. Ina C. Popova Debevoise & Plimpton LLP
Mr. Thomas H. Norgaard Debevoise & Plimpton LLP
Ms. Terra L. Gearhart-Serna Debevoise & Plimpton LLP
Ms. Z.J. Jennifer Lim Debevoise & Plimpton LLP
Ms. Laura Sinisterra Debevoise & Plimpton LLP
Support Personnel
Ms. Prasheela Vara Debevoise & Plimpton LLP
Mr. Sébastien Darid Debevoise & Plimpton LLP
Mr. Gaspard de Monclin Debevoise & Plimpton LLP
Ms. Sarah Lee Harvard Law School
Parties
Mr. Roland Fox Perenco
Mr. François Hubert Marie Perrodo Perenco
Witnesses
Mr. Laurent Combe Perenco
Mr. John Crick Perenco
Mr. Eric d'Argentré Perenco
Mr. Didier Lafont Petroceltic
Mr. Rodrigo Márquez Pacanins MQZ Renewables
Mr. François Hubert Marie Perrodo Perenco
Experts
Prof. Joseph P. Kalt Compass Lexecon
Mr. Stephen Makowka Compass Lexecon
Dr. Hernán Pérez Loose Coronel y Pérez Abogados
Dr. Richard F. Strickland The Strickland Group

For the Respondent :
Parties
Dr. Procurador Diego Carrión García Procuraduría General del Estado
Dra. Blanca Gómez de la Torre Procuraduría General del Estado
Ms. Diana Moya Procuraduría General del Estado
Counsel
Prof. Eduardo Silva Romero Dechert (Paris) LLP
Prof. Pierre Mayer -
Mr. José Manuel García Represa Dechert (Paris) LLP
Mr. Timothy Lindsay Dechert (Paris) LLP
Ms. Maria Claudia Procopiak Dechert (Paris) LLP
Ms. Gabriela González Giráldez Dechert (Paris) LLP
Mr. David Attanasio Dechert (Paris) LLP
Ms. Mónica Garay Dechert (Paris) LLP
Mr. Antonio Gordillo Dechert (Paris) LLP
Ms. Ruxandra Esanu Dechert (Paris) LLP
Ms. Maria Quijada Dechert (Paris) LLP
Ms. Katherine Marami Dechert (Paris) LLP
Ms. Peggy Alvarez Varas Dechert (Paris) LLP
Ms. Djamila Rabhi Dechert (Paris) LLP
Ms. Sara María Moreno Sánchez Dechert (Paris) LLP
Ms. Verena Wieditz Dechert (Paris) LLP
Ms. Antonia Pascali
Witnesses
Mr. Christian Dávalos Witness
Mr. Gabriel Freire Witness
Experts
Mr. Juan Pablo Aguilar Universidad San Francisco de Quito
Mr. Gene Wiggins RPS Knowledge Reservoir
Mr. Sheldon Gorell RPS Knowledge Reservoir
Prof. James Dow The Brattle Group
Mr. Richard Caldwell The Brattle Group
Mr. Tom Dorrington Ward The Brattle Group

17.
Interpretation to and from English and Spanish was provided. The Quantum Hearing was also sound-recorded and transcribed verbatim, in real time, in both English and Spanish. Copies of the sound recordings and the transcripts were delivered to the Parties.
18.
At the end of the Quantum Hearing, the Tribunal and the Parties held a procedural discussion in relation to post-hearing matters. After consulting with the Parties, the Tribunal fixed a calendar for post-hearing submissions, including a hearing on closing arguments.
19.
On 29 January 2016, the Parties filed their Post-Hearing Briefs ("PHBs") pursuant to Procedural Order No. 15.
20.
On 29 February 2016, the Parties filed their Reply Post-Hearing Briefs ("Reply PHBs").
21.
A hearing on closing arguments was held at The Hague on 21 April 2016 ("Quantum Closing"). Present at the hearing were:

Tribunal
H.E. Judge Peter Tomka President
Mr. Neil Kaplan CBE QC SBS Co-Arbitrator
Mr. J. Christopher Thomas QC Co-Arbitrator

Assistants to the Tribunal Members :
Ms. Lucille Kante Assistant to Mr. Neil Kaplan CBE QC SBS
Ms. Emily Choo Wan Ning Assistant to Mr. J. Christopher Thomas QC

ICSID Secretariat
Mr. Marco Tulio Montañés-Rumayor Secretary of the Tribunal

For the Claimant :
Counsel
Mr. Mark W. Friedman Debevoise & Plimpton LLP
Ms. Ina C. Popova Debevoise & Plimpton LLP
Ms. Z.J. Jennifer Lim Debevoise & Plimpton LLP
Ms. Laura Sinisterra Debevoise & Plimpton LLP
Support Personnel
Ms. Mary Grace McEvoy Debevoise & Plimpton LLP
Parties
Mr. Roland Fox Perenco

For the Respondent :
Parties
Dr. Procurador Diego Carrión García Procuraduría General del Estado
Dra. Blanca Gómez de la Torre Procuraduría General del Estado
Ms. Diana Moya Procuraduría General del Estado
Counsel
Mr. Eduardo Silva Romero Dechert (Paris) LLP
Mr. Pierre Mayer
Mr. Philip Dunham Dechert (Paris) LLP
Mr. José Manuel García Represa Dechert (Paris) LLP
Ms. Maria Claudia Procopiak Dechert (Paris) LLP
Mr. David Attanasio Dechert (Paris) LLP
Ms. Ruxandra Esanu Dechert (Paris) LLP
Expert
Mr. Richard Caldwell The Brattle Group

22.
On 6 July 2016, the Tribunal issued Procedural Order No. 16 concerning the appointment of Mr. Scott MacDonald as the Tribunal's independent expert ("Independent Expert") pursuant to the Interim Decision on Counterclaim.
23.
From 1 November 2016 to 5 November 2016, the Parties and the Independent Expert visited the place connected with the dispute relating to the environmental counterclaim pursuant to ICSID Arbitration Rule 37(1).
24.
On 18 April 2017, Perenco filed an application to dismiss the environment and infrastructure counterclaims ("First Dismissal Application").
25.
On 23 May 2017, Ecuador filed its observations on Perenco's First Dismissal Application.
26.
On 12 June 2017, Perenco filed a reply on its First Dismissal Application.
27.
On 4 July 2017, Ecuador filed a rejoinder on Perenco's First Dismissal Application.
28.
On 18 August 2017, the Tribunal issued its Decision on Perenco's Application for Dismissal of Ecuador's Counterclaims ("Decision on Perenco's First Dismissal Application").
29.
On 30 January 2018, Perenco filed a second application to dismiss the counterclaims ("Second Dismissal Application").
30.
On 15 March 2018, Ecuador filed observations on Perenco's Second Dismissal Application ("Response").
31.
On 5 April 2018, Perenco filed a reply on its Second Dismissal Application ("Reply").
32.
On 27 April 2018, Ecuador filed a rejoinder on the Claimant's Second Dismissal Application ("Rejoinder").
33.
On 30 July 2018, the Tribunal informed the Parties of its decision, by a majority, to reject Perenco's Second Dismissal Application, with reasons to be given in the Award.
34.
On 19 December 2018, the Independent Expert issued his report ("Independent Expert Report" or "Report").
35.
On 20 December 2018, Perenco filed a request for the Tribunal to decide on production of documents.
36.
On 2 January 2019, Ecuador filed observations on Perenco's request for the Tribunal to decide on production of documents.
37.
On 15 January 2019, the Tribunal issued Procedural Order No. 17 concerning production of documents.
38.
On 6 February 2019, the Tribunal issued Procedural Order No. 18 concerning the organization of the hearing on the Independent Expert Report.
39.
On 23 February 2019, the Parties filed their observations on the Independent Expert Report.
40.
On 11 to 12 March 2019, a hearing on the Independent Expert Report was held in The Hague ("Expert Hearing"). Present at the hearing were:

Tribunal
H.E. Judge Peter Tomka President
Mr. Neil Kaplan CBE QC SBS Co-Arbitrator
Mr. J. Christopher Thomas QC Co-Arbitrator

Assistant :
Ms. Emily Choo Wan Ning Assistant to Mr. J. Christopher Thomas QC

Tribunal's Independent Expert
Mr. Scott MacDonald Tribunal's Expert, Ramboll
Mr. Jose Sananes Ramboll

ICSID Secretariat
Mr. Marco Tulio Montañés-Rumayor Secretary of the Tribunal

For the Claimant :
Counsel
Mr. Mark W. Friedman Debevoise & Plimpton LLP
Ms. Ina C. Popova Debevoise & Plimpton LLP
Ms. Laura Sinisterra Debevoise & Plimpton LLP
Ms. Sarah Lee Debevoise & Plimpton LLP
Ms. Mary Grace McEvoy Debevoise & Plimpton LLP
Ms. Anisha Sud King & Spalding LLP
Parties
Mr. Jonathan Parr Perenco
Ms. Josselyn Briceno Perenco
Ms. Samita Mehta ConocoPhillips
Experts
Mr. John Connor GSI
Mr. Gino Bianchi GSI

For the Respondent :
Counsel
Prof. Eduardo Silva Romero Dechert (Paris) LLP
Mr. José Manuel García Represa Dechert (Paris) LLP
Mr. Philip Dunham Dechert (Paris) LLP
Ms. Maria Claudia Procopiak Dechert (London) LLP
Ms. Gabriela González Giráldez Dechert (Paris) LLP
Support Personnel
Mr. Ricardo Montalvo Lara Dechert (Paris) LLP
Ms. Anne Driscoll Dechert (Paris) LLP
Parties
Dr. Iñigo Salvador Crespo Attorney General for the Republic of Ecuador
Dra. Claudia Salgado Levy National Director of International Litigation and Arbitration at Attorney General Office of Ecuador
Experts
Mr. José Francisco Alfaro Rodriguez IEMS
Mr. Scott Crouch DiSorbo (formerly at RPS)
Ms. Martha Pertusa TRC Environmental (formerly at RPS)

41.
On 19 April 2019, the Parties filed their submissions on costs.
42.
On 10 May 2019, the Parties filed their reply submissions on costs.
43.
The Tribunal deliberated in person at several meetings (held on the following dates: 24-26 April 2016, 26-27 November 2016, 10-11 June 2017, 25-26 November 2017, 27-28 January 2018, 13-15 March 2019, and 3 June 2019) as well as by other means.
44.
On 30 August 2019, the Tribunal declared the proceeding closed pursuant to ICSID Arbitration Rule 38(1).

C. General Remarks

45.
The Tribunal acknowledges at the outset that this arbitration has taken a very long time. However, there are many reasons for this which the Tribunal believes are worth noting at the outset.
46.
Two key reasons arose from the damages estimates in both the primary claim and in the environmental and infrastructure counterclaims. With respect to the former, the Tribunal concluded after the Quantum Hearing that consideration of the damages claimed by Perenco required further in-depth work and the adjustment of the financial models that had been used by the Parties' experts during the quantum phase.
47.
In the counterclaims proceedings, which continued separately, the Parties were requested to attempt to negotiate a settlement based on the findings of law and fact made in the Tribunal's Interim Decision on Counterclaim, failing which the Tribunal would appoint an independent expert to assist in evaluating Blocks 7 and 21 ("Blocks") and estimating any environmental damage assessed in accordance with the Interim Decision on Counterclaim. A negotiated settlement proved not to be possible. It took the Parties some time to jointly identify a suitable independent expert who could be appointed by the Tribunal, as contemplated in the Interim Decision on Counterclaim.
48.
This Independent Expert was to assess the work performed by the Parties' experts and to conduct further sampling in Ecuador in accordance with the Tribunal's findings set out in the Interim Decision on Counterclaim. This work was conducted from August to mid-December 2017 and the Independent Expert Report was not received until 19 December 2018. Thereafter, the Tribunal gave the Parties an opportunity to insert comments into the Independent Expert Report as well as to submit general comments on his work, and convened a two-day hearing in The Hague at which the Independent Expert provided a 90-minute presentation of his findings and responded to the Parties' written comments, after which the Parties were given opportunities to put questions to the Independent Expert. The Tribunal then deliberated in respect of the counterclaims, considered the Parties' submissions on costs, and finalised this Award.
49.
In light of the foregoing, in the Tribunal's view, it made sense to deal with all outstanding damages issues in a single Award.
50.
The Tribunal acknowledges that this has been too slow a process for at least one of the Parties, but when substantial amounts have been claimed (approximately US$1.5 billion in the principal claim and US$2.5 billion in the counterclaim), careful consideration and due deliberation is required.
51.
Relatedly, the Tribunal considers it appropriate to recount the principal steps taken in this long arbitration:

(a) The Request for Arbitration was filed on 30 April 2008.

(b) This was registered on 4 June 2008.

(c) An Amended Request for Arbitration was filed on 28 July 2008.

(d) The Tribunal was constituted on 21 November 2008.

(e) The first session was held on 7 February 2009.

(f) The Request for Provisional Measures was filed on 19 February 2009.

(g) A hearing on provisional measures was held in Paris on 19 March 2009 which resulted in a 41-page decision of the Tribunal on 8 May 2009 ("Decision on Provisional Measures").

(h) One arbitrator resigned on 16 December 2009 and the proceedings were suspended. The arbitrator was replaced by Mr. Neil Kaplan CBE QC SBS on 13 January 2010.

(i) The late Lord Bingham, who presided over the first phase of the arbitration, resigned due to ill health on 17 February 2010. H.E. Judge Peter Tomka was appointed by the Chairman of the Administrative Council on 6 May 2010.

(j) A hearing on jurisdiction was held in The Hague on 2-4 November 2010. The Tribunal rendered its first Decision on Jurisdiction, some 44 pages, on 30 June 2011.

(k) While the primary claim was in train, on 5 December 2011, Ecuador filed counterclaims for alleged environmental harm and infrastructure damages. This was fully briefed by the Parties and a hearing was held in The Hague commencing 9 September 2013 and concluding on 17 September 2013.

(l) After further briefing by the Parties, the hearing on the merits of the primary claim coupled with the remaining jurisdictional issues which had been set over to the merits phase, was heard in The Hague commencing on 8 November 2012 and concluding on 16 November 2012. The Decision on Liability, running to 234 pages, was dispatched to the Parties on 12 September 2014. Some delay in the rendering of this decision was occasioned by the translation of the English original into Spanish.

(m) On 19 December 2014, Ecuador sought a reconsideration of the Tribunal's Decision on Liability. After receiving submissions from the Parties, the request was considered and then dismissed in a 24-page decision on 10 April 2015.

(n) On 11 August 2015, an Interim Decision on Counterclaim running to 187 pages and which also had to be translated into Spanish running to 211 pages was dispatched to the Parties.

(o) As noted above, the Tribunal instructed the Parties to consider the findings of law and fact made in the Interim Decision on Counterclaim with a view to encouraging them to negotiate a settlement in light of the Tribunal's findings. The Parties agreed to do so but were unable to arrive at a settlement. As a result, the Tribunal proceeded to act in accordance with the alternative process envisaged in the Interim Decision on counterclaim, namely, that it would appoint its own expert to evaluate the environmental condition of the two Blocks.

(p) The damages phase of this arbitration was heard for one week in Paris commencing 9 November 2015.

(q) The oral closing submissions on damages was heard in The Hague on 21 April 2016.

(r) Immediately following the closing submissions on damages, the Tribunal conducted its first set of in-person deliberations on quantum. In the course of doing so, it concluded that having regard to the work undertaken by the Parties' quantum experts up to closing submissions, the further elaboration of that work was in order and correspondence on this matter with the Parties ensued.

(s) Shortly after the Quantum Hearing for the primary claim, having consulted on the matter, on 25 April 2016, the Parties jointly proposed to the Tribunal the appointment of Mr. Scott MacDonald of Ramboll as the Tribunal-appointed expert to conduct the sampling contemplated by the Tribunal in the event that the Parties could not agree on a settlement of the environmental counterclaim. The Tribunal conferred with Mr. MacDonald as to how he would approach the exercise in light of the Tribunal's instructions laid out in the Interim Decision on Counterclaim.

(t) On 6 July 2016, Mr. MacDonald was appointed as the Tribunal's Independent Expert by Procedural Order No. 16.

(u) From 1 November 2016 to 5 November 2016, Mr. MacDonald visited Ecuador to inspect the two Blocks for purposes of working out his subsequent work plan.

(v) The Tribunal continued its quantum deliberations at a meeting held on 25 and 26 November 2016 and further analytical work ensued.

(w) On 7 February 2017, the Burlington tribunal rendered its Decision on Reconsideration and Award.1 After reflection, the Tribunal decided to seek the Parties' views as to what, if anything, in that award was relevant to the Tribunal's consideration of the matters before it, given that Burlington and Perenco constituted the members of the Consortium which operated Blocks 7 and 21 and many of the facts are common to the two disputes. Submissions on the point were received from the Parties on 18 April 2017.

(x) Also on 18 April 2017, Perenco filed its First Dismissal Application. Perenco submitted with respect to the environmental and infrastructure counterclaim that the Burlington award was res judicata for the Parties to the present proceeding and thus the Tribunal's Interim Decision on Counterclaim had been overtaken by the Burlington tribunal's determinations of the Consortium's liability (as established in a claim brought by Ecuador against Perenco's fellow Consortium member and alleged privy, Burlington). It asserted that therefore the environmental expert's work should be terminated.

(y) The Tribunal laid down a schedule for further submissions on the point by both Parties, which was transmitted to the Parties on 3 May 2017, after the Parties failed to agree on a schedule.

(z) On 23 May 2017, Ecuador filed a response to Perenco's First Dismissal Application.

(aa) On 10 and 11 June 2017, the Tribunal held an in-person deliberation on quantum in The Hague.

(bb) On 13 June 2017, Perenco submitted a reply on Ecuador's response to Perenco's First Dismissal Application.

(cc) On 4 July 2017, Ecuador submitted a rejoinder thereto.

(dd) On 18 August 2017, the Tribunal dismissed Perenco's First Dismissal Application.

(ee) Meanwhile, starting on August 2017, Mr. MacDonald and his team began conducting field work at identified sites for the purpose of preparing the sampling activities.

(ff) On 30 January 2018, Perenco filed its Second Dismissal Application. This was on the basis that Burlington's settlement with Ecuador, and payment in full of Burlington and Perenco's joint debt on the counterclaims, extinguished whatever joint liability Perenco as well as Burlington had to Ecuador, and rendered Ecuador's further pursuit of the counterclaims moot.

(gg) On 5 February 2018, following the Tribunal's invitation, Ecuador provided its comments on the Second Dismissal Application and proposed an alternative briefing schedule following the Parties' failure to agree on a briefing schedule.

(hh) On 8 February 2018 and on 12 February 2018, the Parties provided further comments on the way forward with the Second Dismissal Application.

(ii) On 15 February 2018, the Tribunal laid down the briefing schedule after considering the Parties' comments and decided that Mr. MacDonald's work was to continue. There would be no disclosure in relation to the application nor an oral hearing.

(jj) Pursuant to this, on 15 March 2018, Ecuador filed its response to Perenco's Second Dismissal Application.

(kk) On 5 April 2018, Perenco filed its Reply.

(ll) On 26 April 2018, Ecuador filed its Rejoinder.

(mm) On 30 July 2018, the Tribunal issued its Decision on Perenco's Second Dismissal Application, deciding, by a majority, to reject the application.

(nn) On 19 December 2018, after receiving the Independent Expert Report, the Tribunal dispatched it to the Parties to seek their comments thereon. After receiving the Parties' comments thereon, and as requested by the Parties, the Tribunal held a hearing on the Independent Expert Report on 11-12 March 2019. The Tribunal also met on 13-15 March 2019 and 3 June 2019 for the final in-person meetings.

(oo) On 19 April and 10 May 2019, the Tribunal received the Parties' costs submissions and reply costs submissions in the form requested by the Tribunal.

52.
The following comments are apropos :

(a) There have been a total of 7 hearings in this case;

(b) The pleadings in this case have been voluminous and have run to not less than 3816 pages;

(c) There have been no less than 55 witness statements running to not less than 1028 pages excluding exhibits;

(d) The experts' reports in this case total 53. They run in total to no less than 2539 pages excluding exhibits;

(e) The evidential record in this arbitration, excluding the items listed above, exceeds 125,302 pages; and

(f) There have been numerous interlocutory skirmishes between the Parties, unfortunately caused by lack of agreement between them on a number of procedural issues, which have occupied the Tribunal's time.

53.
As recorded above, since the completion of the written and oral pleadings, the Tribunal has deliberated in-person as well as by electronic means. This has been a complex and hard-fought case. The Tribunal has considered all the points raised by the Parties even though it has only referred to the most important submissions and points for purposes of its Award.
54.
Part II of this Award contains the Tribunal's assessment of the damages due to Perenco for the breaches of Treaty and contract. Part III contains the Tribunal's assessment of the damages payable by Perenco to Ecuador for the environmental damage caused by the Consortium's operations. Part IV contains the Tribunal's consideration of the infrastructure counterclaim by Ecuador. Part V contains the Tribunal's decision on the Parties' respective claims and submissions on costs. This Award follows on from the Tribunal's 30 June 2011 Decision on Jurisdiction, the 12 September 2014 Decision on Liability, the 10 April 2015 Decision on Reconsideration, the 11 August 2015 Interim Decision on Counterclaim, the decisions on Perenco's two requests for dismissal of the Respondent's counterclaims of 18 August 2017 and of 30 July 2018, and all of them should be read with and taken as an integral part of this Award.

II. DAMAGES CLAIMED IN RELATION TO THE BREACH OF THE TREATY AND THE PARTICIPATION CONTRACTS

A. The Parties' Positions in the Damages Phase

55.
The damages phase follows from the Tribunal's Decision on Liability in which the dispositif declared that the following breaches had occurred: (i) breach of the Block 7 and 21 Participation Contracts2 in respect of Law 42 at 99%, (ii) breach of the Block 21 Participation Contract as a result of the declaration of caducidad ; (iii) breach of Article 4 of the Treaty3 in respect of Law 42 at 99%, and (iv) breach of Article 6 of the Treaty as a result of the declaration of caducidad.4

1. The Claimant's Position

56.
With Ecuador's responsibility having been engaged, Perenco initially requested an Award of US$1,572 billion in damages.5
57.
Relying upon the testimony of Mr. John Crick (an advisor to the Chief Executive Officer of Perenco6), the expert reports of Dr. Richard Strickland, and the expert economic and financial reports of Professor Joseph Kalt of Compass Lexecon, Perenco claimed that it is entitled to US$1,572 billion, calculated on an ex post basis, to compensate it for its losses arising out of Ecuador's breaches of its international law and contractual obligations.
58.
Perenco's Request for Arbitration had sought declarations that obligations under the Treaty and the Participation Contracts had been breached, an order that Ecuador declare null and void the relevant measures, the reinstatement of Perenco's rights under the Participation Contracts, an order that Ecuador abide by and perform the terms of the Participation Contracts, and damages.7 Perenco had also sought Provisional Measures against Ecuador, seeking to restrain any action to collect Law 42 dues as well as any action to amend, rescind, terminate or repudiate the Participation Contracts.8
59.
Due to various events, the nature of the relief sought changed over time. Ultimately, when it came to the quantum phase, Perenco no longer sought reinstatement of its rights under the Participation Contracts, which had been terminated in July 2010, but instead sought damages "in an amount that would wipe out all the consequences of Respondent's illegal acts and re-establish the situation which would have existed if those acts had not been committed, valued as of the date of the award, in the amount of US$1.6984 billion, subject to updating closer to the date of the award."9 This amount was then adjusted to US$1,572 billion.10
60.
This figure of US$1,572 billion was further adjusted downwards to US$1,423 billion as of 18 April 2016. During closing arguments at the Quantum Closing, counsel for the Claimant stated that:

"…with current oil prices, Perenco, in an extension scenario, we have to confess, likely would not have pursued the Coca and Payamino waterfloods. … in the but-for world, Perenco would be developing these waterfloods as we speak at this time, and in today's world of relatively low oil prices, those wells would likely not be economic. Perenco, therefore, has to be true to the ex post principles that it has espoused, and we feel it's a matter of integrity, and, therefore, we would leave those projects to the side or suggest that you do in valuing damages in an extension case."11

61.
Perenco also requests that post-award interest be at commercial, annually compounding rates, that Ecuador pay all legal and related costs, and all amounts paid by Ecuador pursuant to the Award be net of any Ecuadorian tax or other fiscal obligations. Finally, Perenco also seeks dismissal of Ecuador's counterclaims.
62.
As the damages phase progressed, Professor Kalt helpfully set out his view of the principal points that divided the Parties. As shown in the table extract from his fourth expert report:12

Revised Kalt Damages$1,572.4
Key Brattle AssumptionsStandalone Effect on Damages ($Millions)
Ex Ante Valuation -$874.9
RPS Production Levels -$910.0
No Stabilization of Law 42 at 50% -$724.4
No Block 7 Extension -$626.0
Remaining Effect of Other Assumptions -$44.513

2. The Respondent's Position

63.
The Respondent has requested the following different forms of relief, depending upon the Tribunal's findings on key issues. In sum and primarily, it requests that no compensation be awarded to Perenco in order to account for the unpaid amounts of Law 42 dues that Perenco owes Ecuador.14 However, should the Tribunal be inclined to award any compensation at all, such compensation should be calculated in accordance with Ecuador's submissions.15
64.
In response to Professor Kalt, the Respondent's experts, Professor James Dow and Mr. Richard Caldwell of The Brattle Group ("Brattle"), presented a "waterfall chart" (the "Waterfall Chart") depicting the effects on quantum of certain decisions which Ecuador contended the Tribunal should take in relation to various aspects of the claim as presented by Perenco. The Respondent's initial version of the Waterfall Chart (dated 15 September 2015) was later updated to reflect the situation as of 18 April 2016.16
65.
Were the Tribunal to accept each of Ecuador's criticisms of Perenco's case on damages, the amount estimated by Professor Kalt would be reduced significantly:

B. The Main Issues that Separated the Parties

66.
At the Quantum Hearing and at the Quantum Closing, it became clear that the main issues that separated the Parties in relation to the estimation of damages are relatively few.
67.
The Respondent's Waterfall Chart (above) identified five main issues that divided the Parties:

1. The general approach to the valuation of damages: i.e., whether damages are to be assessed ex ante or ex post, and whether on a 'layering' basis;

2. Whether in the 'but for' world, there would have been an extension of the Block 7 Contract (which was due to expire in August 2010), and if so, the nature of such an extension and its terms;

3. Whether, in estimating the damages for expropriation, the Tribunal should accept Mr. Crick's 'but for' drilling programme for both Blocks 7 and Block 21 or RPS' more modest drilling programme;

4. Whether all, or just a portion, of the effects of Law 42 at 99% should be assumed away in the 'but for' analysis; and

5. Whether a 'true-up' in favour of Ecuador should be applied, the effect of which would be to adjust the damages owed to Perenco.

68.
By the time of the closing day's submissions, counsel for Perenco had narrowed the list to four issues: (i) restitution, "under which Perenco's damages should be calculated at Award date rather than breach date"; (ii) production, "whereby the number of wells Perenco would have drilled and the volumes of oil they would have produced should be based on Mr. Crick's forecast and not those of RPS"; (iii) absorption, "pursuant to which Perenco's contractual right to absorption of all Law 42 amounts should be valued rather than ignored"; and (iv) extension, "by which Perenco should be accorded value for the extension of the Block 7 Contract to which it was entitled and that it and Ecuador both wanted and would have agreed absent Ecuador's breaches."17

C. The Tribunal's Starting Point

69.
The Tribunal begins by recalling that it is well understood in the jurisprudence on damages generally, that the assessment of damages whether in contract, tort or under a treaty, is "not an exact science."18 Nor is it an exercise in economic theory to which the Tribunal was much subjected by the Parties in this case. The Tribunal did not find the extensive reference to economic theory developed principally in the analysis of U.S. judicial decisions to be helpful to it when estimating a reasonable figure to compensate Perenco for the damage which it has suffered as a result of Ecuador's breaches. The Tribunal found the debate over "opportunistic" and "efficient" breach, however interesting to economists, legal theorists and judges in the United States, to be of no real value to the Tribunal and irrelevant to its task of deciding the quantum of damages to which Perenco was entitled.19 That said, the Tribunal has profited from the experts' highly professional work on the key issues that the Tribunal has ultimately had to decide in arriving at this Award.
70.
The Tribunal will begin by setting out in general terms how it intends to deal with the principal issues identified by the Parties. In view of the various determinations made in this Award and the adjustments that had to be made to the financial models employed by the experts to incorporate such changes, the Tribunal considers it to be unnecessary to recite all of the arguments advanced by the Parties.
71.
Certain issues are addressed at the outset. These concern: (i) the date(s) of valuation of damages; (ii) the Tribunal's decision to employ two valuation dates; and (iii) the use of contemporaneous evidence. Having addressed these issues, the Tribunal will then summarise its general approach to the balance of the issues relating to the quantification of damages.

1. The Date of Valuation

72.
Perhaps the most significant issue that divided the Parties concerned the date(s) of valuation. Perenco and its expert (on instructions) chose a single date, namely, the date of the expropriation on 10 July 2010. Contending that the expropriation was unlawful and having regard to the restitutionary relief that it initially had sought, Perenco argued that it should be entitled to the higher of the value of Perenco's interests in the two Blocks: as of the date of the declaration of caducidad or as of the date of the Award.20 In this regard, Perenco's expert, Professor Kalt, described what he saw as the inter-related nature of the various breaches found by the Tribunal; this led him to aggregate the breaches and to treat them as culminating in the formal taking of Perenco's interests in the Participation Contracts effected by the declaration of caducidad.
73.
The valuation issue was bound up in the Parties' debate over so-called 'layering'. While Perenco argued for a single date (based on the expropriation), for its part, Ecuador and its experts (on instructions) asserted that Perenco and Professor Kalt had wrongly grouped together various independent breaches occurring over approximately two and a half years as if the Tribunal had found a creeping expropriation; this despite the Tribunal's having explicitly rejected Perenco's claim on that point and having held that the coactivas and Ecuador's taking over the operatorship of the Blocks after Perenco had suspended operations could not be counted towards a finding of indirect or creeping expropriation.21 As counsel for Ecuador put it in closing argument:

"…to be clear, Decree 662 was not enacted, as Perenco suggests implicitly in its arguments, with the intention of expropriating at some later point [,] here in 2010, Perenco's investments. This is not a case of creeping expropriation. What you need to do is calculate from October 2007 onwards and then, to avoid double-counting, calculate from July 2010 onwards without double-computing the impact of Decree 662."22

74.
In accordance with Article 36(1) of the ILC Articles on the Responsibility of States for Internationally Wrongful Acts (the "ILC Articles"), the Tribunal considers that it should award compensation insofar as such damage is not made good by restitution, which compensation should cover "financially assessable damages including loss of profits insofar as it is established." The Tribunal recalls that it is well-established that the burden of proving damages lies with the claiming party.23 In the absence of a creeping or indirect expropriation effected by a series of discrete measures, the orthodox approach is for a claimant to identify the damages caused by each breach at the time of its occurrence.24 It is moreover the case that the focus of the inquiry must be on damages proximately caused by the breaches found by the Tribunal.25
75.
The Tribunal thus does not consider Brattle's efforts to value the impact of Decree 662, the first unlawful act, on Perenco's interests in the Blocks to be wrong in principle. Quite the contrary. The Tribunal agrees with Ecuador as to the suitability, in the circumstances of the present case, of valuing the breaches as and when they occurred, rather than focusing exclusively on the last completed breach. The Tribunal considers that counsel for Ecuador's characterisation of the facts, quoted above at paragraph 73, is correct. Even during the provisional measures phase of this proceeding, counsel for Ecuador confirmed that their client had no intention at that time to expropriate Perenco's interests in the Blocks. The Tribunal adverted to this intention not to expropriate in the Decision on Liability when discussing whether the Ministry should have stayed its hand in declaring caducidad during the pendency of these arbitral proceedings.26
76.
As previously held by the Tribunal, Perenco failed to make out a creeping expropriation claim and its attempt now to employ in its stead what it called an "inter-linked course of conduct" is unavailing.27 The breaches are of course inter-linked in that each is a part of the dispute as it evolved, but each has to be examined at its own time and in its own context. This is particularly the case when it is recalled that certain acts claimed to be in breach of contract or of the Treaty were not accepted as such by the Tribunal. For example, while the Tribunal accepted that Perenco could lawfully suspend operations under the exceptio non adempleti contractus doctrine, it also accepted that the State could in such circumstances lawfully intervene in the Blocks so as to safeguard their operating continuity and productivity after the Consortium suspended operations.28 Similarly, the Tribunal held that the coactiva dispute, which arose when Perenco's decision not to pay Law 42 dues led Ecuador to seek to liquidate the claimed 2008 tax debt, resulted from the acts of both Parties. The Tribunal held that neither of these acts could be counted towards Perenco's theory of a creeping expropriation.29
77.
The Tribunal recalls further that when analysing whether Perenco had made out its claim of a breach of the Treaty in relation to Law 42 at 50%, the Tribunal adverted to the conflation of different events occurring at different times.30 The Tribunal has had the same sense in the quantum phase of the proceeding. It considers that Decree 662 and caducidad, separated as they were by a period of over two years, cannot be lumped together so as to land on a single date that is then used to value the breaches' collective impact.
78.
Not only did the Tribunal differentiate in its Decision on Liability between Decree 662, the first completed breach, and caducidad, the last completed breach, it also distinguished between Decree 662 and the other fair and equitable treatment breaches that followed before Perenco suspended operations. The Ministry declared caducidad a year later after requesting Perenco to return to the Blocks on four separate occasions, requests that Perenco refused to countenance unless Ecuador complied with the Tribunal's Decision on Provisional Measures. It was only after the Ministry gave these warnings and Perenco refused to resume operations that the Ministry made a declaration of caducidad.31 To point this out is not to excuse the Ministry – the Tribunal has agreed with Perenco that the caducidad amounted to an expropriation under Article 6 of the Treaty – but rather to make the point that Perenco's decision to suspend operations compelled the government to intervene to protect the Blocks and their production, and the warnings that Perenco should resume operations or face a declaration of caducidad were based on one of the grounds for termination listed in Article 74 of the Hydrocarbons Law.32
79.
Of specific relevance to the proposed single date of valuation based on the "inter-linked course of conduct" argument, the Tribunal notes that the fair and equitable treatment breaches themselves were not treated as all in one package in the Decision on Liability. In addition to rejecting the creeping expropriation contention, the Tribunal differentiated between the offending measures as follows:

"606….Decree 662 marked the beginning of a series of other measures in breach of Article 4 taken in relation to the Participation Contracts, namely: (i) demanding that the contractors agree to surrender their rights under their participation contracts and migrate to what for a considerable period of time was an unspecified model, such that the contractors were unable to discern precisely what they were being asked to move to; (ii) escalating negotiating demands, in particular in April 2008 when the President unexpectedly suspended the negotiations and rejected what had recently been achieved in a Partial Agreement in respect of one of the blocks; (iii) making coercive and threatening statements, including threats of expulsion from Ecuador; and (iv) taking steps to enforce Law 42 against Perenco (and Burlington) for non-payment of dues claimed to be owing, a portion of which has been held to be in breach of Article 4, and when no payments were made, forcibly seizing and selling the oil produced in Blocks 7 and 21 in order to realise the claimed Law 42 debt. This set the stage for the Consortium's suspension of operations and ultimately the declaration of caducidad which formally terminated the Consortium's rights in the two blocks.

607. The Tribunal has already noted that Ecuador has not contested the Claimant's assertion that Decree 662 was intended to force a renegotiation of the participation contracts in order to migrate Petroecuador's counterparties to service contracts. In the Tribunal's view, moving beyond 50% to 99% with the application of Decree 662 amounted to a breach of Article 4 of the Treaty and the measures, taken collectively, just listed also constituted breaches of Article 4." [Double emphasis added.]

80.
As the underlined and italicised passages indicate, the Tribunal distinguished between Decree 662 and the measures that followed. This is not to suggest that none of these were related to the others, but the Tribunal was alive to the fact that some of the breaches (and other alleged breaches which were not accepted as such) arose out of complex interactions between the Consortium and/or the individual acts of its members, Perenco and Burlington, and the State.33
81.
The facts and the findings were thus somewhat more complicated than the way in which they have sometimes been treated in the course of the quantum pleadings. The Tribunal has accordingly found it necessary to revert to specific prior findings from time to time so as to provide context for certain findings made in this Award.
82.
Quite apart from the issues of context and timing, the Tribunal considers that Decree 662 had the effect of converting the Participation Contracts into de facto service contracts (and, as Perenco pointed out during the quantum phase, imperfect ones at that, because they provided no protection against lower oil prices34), but the decree did not purport to interfere with the Contracts' operation below the reference price.35 Perenco continued to both hold and exercise those contractual rights up to the date of its decision to suspend operations (and thereafter, in that Ecuador credited Perenco's account with revenues derived from sales of crude oil while it operated the Blocks after the Consortium suspended operations and up to the declaration of caducidad).36
83.
Thus, the Tribunal did not see a set of inter-linked measures so closely connected in time as to convince it to aggregate them and employ the single valuation date for which Perenco contended. Nor did it consider that the challenges of valuing the breaches individually was of such complexity as to require the damages estimation exercise to default to a single date of valuation.
84.
Tribunals are not bound to accept a party's proposed date of valuation. In Sempra, for example, while the tribunal ultimately agreed with the claimant's proposed date, it observed:

"209. The Tribunal will accordingly use December 31, 2001 as the proper valuation date. This is not because it believes that the Claimant's argument should be given any deference, but simply because the explanation given shows that there was an investment decision made in good faith. Neither does the Tribunal share the interpretation which the Claimant has given to CMS with regard to the payment of certain deference in the choice of a valuation date. It is apparent that in CMS no acts or decisions taken by the claimant after the injunction raised any doubt about the date which triggered the events complained of."37

85.
Having regard to all of the circumstances and to its prior findings, the Tribunal therefore prefers the kind of 'layering' analysis proposed by Ecuador's experts, albeit with important modifications to Brattle's approach. The Tribunal intends to value the first completed breach and then adjust it in certain ways for reasons explained below. It will then turn to the subsequent breaches and do the same (if there is evidence of financially assessable damage proximately caused by each breach). It considers that this approach is consonant with international law and legal practice.
86.
The Tribunal notes that bound up in the Parties' debate over 'layering' were arguments as to whether Brattle acted consistently with their declared intention to value the breaches separately on an ex ante basis. Perenco criticised Brattle for its having focused on the two breaches of Decree 662 and caducidad specified in the Decision on Liability's dispositif without estimating the economic effects of the intervening breaches (demanding that contracts migrate to services contracts, making escalating contractual demands, and making coercive and threatening statements).38 Yet, the Tribunal would note that this criticism overlooks the point noted above at paragraph 74 that it is not incumbent upon a respondent to make a claimant's case on damages; that burden is the claimant's.39 Indeed, a respondent is entitled to simply challenge the claimant's approach if it sees fit to do so without proffering an alternative estimation of the damages that might be payable. Perenco was put on notice of the 'layering' approach by the Respondent's first responsive pleading in the damages phase.40 The fact that Brattle did not attempt to value escalating contract demands, for example, did not preclude Perenco from seeking to do so.41 However, while it criticised Brattle's approach in its Quantum Reply, Perenco continued to base its damages case on a single valuation date, thus running the risk that the Tribunal might be persuaded by Brattle's approach and thus be presented with no attempt to value the breaches arising between Decree 662 and caducidad.
87.
As for certain other criticisms of Brattle's 'layering' approach, such as Perenco's observation that Brattle's avowed ex ante approach to valuing the impact of Decree 662 on Perenco was not adhered to when Brattle used ex post information to make its 'true-up' argument, these are addressed below.
88.
For its part, Ecuador maintained that the dispute between the Parties evolved over time. Therefore, it argued that its experts were right to estimate the effects of separate breaches occurring at different times in order to avoid double counting. Brattle estimated the impact of Decree 662 as of 4 October 2007, then estimated the impact of caducidad on the already diminished (but also already compensated) value of Perenco's interests in the Blocks.
89.
Ecuador observed in this respect that Brattle's valuation as of the date of Decree 662 accorded with Perenco's contemporaneous calculations performed in October 2007, just days after Decree 662 was promulgated. With regard to Law 42 at 50%, Perenco calculated that the NPV for its interests in the two Blocks through to their date of expiry amounted to US$239.4 million42; Brattle's initial NPV calculation of the interests was US$265.7 million43 but this was later adjusted upwards in its Reply Report to either US$282.2 million (using RPS' capital costs) or US$295.8 million (using Professor Kalt's costs). With regard to Decree 662, Perenco's contemporaneous NPV calculation for its interests in the two Blocks was US$154.6 million44; Brattle's initial values were US$107.7 million45 and this was later updated by Brattle to come to US$127.6 million (using RPS's costs) or US$127.5 million (using Professor Kalt's costs).
90.
In disputing Ecuador's attempt to use an earlier date in assessing damages, Perenco argued that 'layering' was conceptually flawed in this case because Ecuador's breaches were inter-related. Such inter-related breaches led to layering being rejected in SAUR.46 Here, each of Ecuador's breaches was inextricably linked to the others (and it was irrelevant, in Perenco's view, that the Tribunal did not find a creeping expropriation).47 The principle of full reparation warranted the use of a single valuation date in order to capture the cumulative effect of the breaches and thereby grant Perenco proper restitution. Brattle's approach was inconsistent with the principle that a breaching State could not be given credit for actions that depressed the value of the investment prior to expropriation (as recognised in Occidental II).48
91.
Perenco argued further that Brattle admitted that they applied 'layering' in a way that reduced Perenco's damages at every turn. Professor Dow conceded that if 'layering' were done in a different order, Perenco's damages would be higher.49 Perenco contended that Professor Dow and Mr. Caldwell also admitted on cross-examination that they had essentially transferred only the "good" risk and imposed on Perenco the "bad" risk: they had ignored actual high oil prices after Decree 662 in estimating Perenco's anticipated revenues, but reduced Perenco's damages by offsetting the actual Decree 662 payments based on those higher oil prices, and then deprived Perenco of the coactiva -seized oil's actual market price.50 Brattle's approach also presumed that in setting an ex ante price, a willing buyer would have foreseen the whole sequence of later events —including, ultimately, oil seizure— yet Mr. Caldwell admitted that "nobody standing in October '07 would have predicted all the set of the chain of events that would actually occur."51
92.
Perenco added that Brattle's various 'stabilisation' scenarios made no sense. Professor Dow and Mr. Caldwell admitted that their lump-sum 'side payment' for Decree 662 amounted to continuing to apply Decree 662 to Perenco, even though the purpose of damages was to wipe out the effects of Decree 662.52 It could not be assumed that Perenco would have ceded all of its future upside for a single payment in October 2007. In addition, the notion that Perenco's expectations were immutable as of October 2007 was inconsistent with the fact that Perenco continued to operate in Ecuador after Decree 662.
93.
Moreover, Brattle had not explained why any 'hypothetical tax threshold' between 50% and 99% was at all appropriate when the Tribunal's task was to eliminate Decree 662 in its entirety. Brattle's 'stabilisation' scenarios were built on variations of what Ecuador contended were the parties' assumed pre-contractual expectations of the economy of the Contracts, but Mr. Caldwell could not even articulate the rationale for using such expectations to determine the damages to which Perenco was entitled under the Treaty.53
94.
Ecuador responded to Perenco's contentions as follows.
95.
First, at the Quantum Hearing, Ecuador presented the Waterfall Chart showing the different components of damages claimed by Perenco and illustrating the impact of correcting each component.54 Perenco did not challenge the figures in the Waterfall Chart.55
96.
Second, in response to Perenco's criticism that 'layering' was invalid because of the inter-related nature of Ecuador's breaches, Perenco did not explain why the breaches were inter-related and why interrelation would matter at all to 'layering'.56 Professor Kalt acknowledged for the first time at the Quantum Hearing that he himself had done a monthly layering in his ex ante analysis, which stood in contradiction to his and Perenco's criticism on 'layering'.57 Professor Kalt's 'mark-to-market' contingent contract justification for his ex ante calculation was entirely new at the Quantum Hearing and entirely different from the logic advanced in his Fourth Expert Report.58
97.
In respect of Perenco's criticism that neither Ecuador nor Brattle addressed the fact that the Tribunal found other breaches apart from Decree 662 and caducidad, Ecuador asserted that Brattle's 16 October 2015 Expert Report (at paragraphs 88 to 90) addressed this at length and it was Perenco who chose not to cross-examine Brattle's experts on this point during the Quantum Hearing.59
98.
In respect of SAUR 's rejection of 'layering', Ecuador explained that that tribunal rejected 'layering' because in that case the first-in-time breach had already deprived the investment of all value, which was not the case here.60 In Occidental II, the two breaches found by that tribunal were only weeks apart and hence the issue was not even discussed.61 In contrast, in the present case the two principal breaches occurred in 2007 and 2010.
99.
Finally, in respect of Perenco's claim that Brattle had admitted that they applied 'layering' in a way that reduced Perenco's damages at every turn, Ecuador argued that this illustrated Perenco's confusion of rather simple economics. Perenco's sole criticism was directed at Brattle's calculation of the 'true-up', which was ex post (i.e., considering actual prices) while calculating damages to Perenco ex ante. As Brattle explained, "the true up adopts an ex-post perspective inherently, since it must look back and assess what Law 42 amounts were actually paid by the Consortium and which levies remain outstanding."62 There was nothing unsound in this calculation and Professor Kalt never took issue with it. Brattle further explained that imposing on Perenco the change in oil prices when it chose to withhold taxes was appropriate, while also acknowledging that the allocation of risks was ultimately an issue for the Tribunal (hence the sensitivity calculations of the 'true-up').
100.
As noted above in paragraph 77, the Tribunal has decided that it is appropriate to seek to value the damages caused by different breaches occurring at different times. To the extent that the Tribunal accepts that there were any deficiencies in the way in which Brattle performed the exercise, these can be remedied in the damages calculation.
101.
Having concluded thus, the Tribunal would also note at this point that Perenco had also contended, in tandem with its single valuation date approach, that an ex post approach should be taken where there is an unlawful expropriation and the value of the investment had increased.63 Ecuador disagreed. In light of the Tribunal's analysis above, and its layering / "clean sheet" approach (discussed below), the Tribunal does not consider it necessary to delve into the arguments on this point.

2. Has Perenco demonstrated any loss or damage proximately caused by the post-Decree 662 fair and equitable treatment breaches?

102.
As noted in paragraphs 74 and 85 above, the Tribunal will award damages for any quantifiable financial losses proximately caused by the breaches determined by it in the merits phase. Damages will be awarded for Decree 662 and the declaration of caducidad. This raises the question whether the other breaches of fair and equitable treatment suffered by Perenco after Decree 662 but before the expropriation have been shown to result in cognisable harm.
103.
To reiterate, these breaches are: "(i) demanding that the contractors agree to surrender their rights under their participation contracts and migrate to what for a considerable period of time was an unspecified model, such that the contractors were unable to discern precisely what they were being asked to move to; (ii) escalating negotiating demands, in particular in April 2008 when the President unexpectedly suspended the negotiations and rejected what had recently been achieved in a Partial Agreement in respect of one of the blocks; (iii) making coercive and threatening statements, including threats of expulsion from Ecuador; and (iv) taking steps to enforce Law 42 against Perenco (and Burlington) for non-payment of dues claimed to be owing, a portion of which has been held to be in breach of Article 4, and when no payments were made, forcibly seizing and selling the oil produced in Blocks 7 and 21 in order to realise the claimed Law 42 debt."64
104.
However, with the exception of the sales of oil seized and sold pursuant to the coactivas, which must be adjusted in the 'true-up' exercise to be consistent with the Tribunal's finding on Decree 662, it appears that neither Party's experts undertook the exercise of quantifying damages attributable to those breaches during the pleadings phase. Therefore, it might be that these are breaches for which proximate damage has not been estimated and therefore no damages can be awarded.65 This is the position taken by Brattle.66
105.
The Tribunal understands that Professor Kalt's view was that breaches (i) and (iii) listed above "would be expected to adversely affect Perenco's investment and production decisions."67 The Tribunal agrees, but it also considers that this already occurred when Decree 662 took effect and Perenco stopped drilling in both Blocks (except for Oso 23). Since the Tribunal has found that wells would have been drilled in both Blocks after Decree 662 and Perenco will be compensated for the cash flows associated with those 'but for' wells as well as for the loss of the opportunity to negotiate the extension of Block 7 (see Sections II.D.3 and II.F below), in the Tribunal's view, Professor Kalt's concerns on these particular points are met.
106.
As for the coactivas issue, the Tribunal will reflect in the Award a sum of damages flowing from Perenco's being credited for the depressed auction price received for the seized oil rather than the market value. The Parties spent considerable time over the course of this proceeding addressing the impact of the coactivas. There is record evidence on the amounts of oil seized, the prices at which it was sold and the amounts that were credited to Perenco. However, the analysis is complicated by the fact that after submitting its claim to arbitration, Perenco (and Burlington) stopped paying Law 42 dues and instead began to deposit them in an account located outside of Ecuador. Given that Perenco failed in its attempt to prove a breach of contract and Treaty for Law 42 at 50%, the Tribunal considers that there is some merit to Ecuador's 'true-up' claim. It follows that some accounting for Perenco's non-compliance with Law 42 must be performed. In the Tribunal's view, this issue is best addressed as part of its discussion of Ecuador's 'true-up' claim below.
107.
In sum, the Tribunal considers that the financial impact of the non-Decree 662 breaches has either been accounted for in the 'but for' analysis of Decree 662 as of 4 October 2007 or was not quantified by the expert reports submitted with the Claimant's pleadings on quantum.

3. Use of a 'clean sheet' for the valuation of the expropriation damages

108.
The Tribunal has accepted Ecuador's submission that the use of a single date for valuing the damages is not appropriate in the circumstances of this case. The Tribunal recalls that Brattle defended its 'layering' approach based on the need to safeguard against double-counting:

"We then estimated the FMV of Perenco's interests in July 2010, when Ecuador declared Caducidad. The Tribunal deemed Caducidad to amount to expropriation. Our estimate of the July 2010 FMV of Perenco's interests netted off the impact of Decree 662, reflecting our separate quantification of the damages due in relation to it in the first step. Netting off the impact of Decree 662 was necessary to avoid double-counting."68

109.
The Tribunal agrees that double-counting must be avoided, but it has arrived at a different solution from that proposed by Brattle.
110.
This results from the Tribunal's seeing merit in Perenco's concern that estimating the damages as of the first completed breach could be unfair to it. Depending upon how the compensation for the first completed breach is calculated, it is possible, as Professor Kalt contended, that factoring in the effects of Decree 662 could have a price-depressing impact on Perenco's rights that ended up being expropriated.
111.
Having carefully reflected on the Parties' submissions, the Tribunal has concluded that the fairest approach to take in the circumstances of the present case is the following: Since at the time of the first breach it was by no means certain that an expropriation would follow Decree 662 some 33 months later, the Tribunal will calculate the damages proximately caused by Decree 662 for the period 4 October 2007 to 20 July 2010. This is on the basis that Decree 662 was the only compensable breach for that period of time.
112.
In principle, the Tribunal would have also awarded any damages proximately caused by the subsequent fair and equitable treatment breaches, but it has already found that the Claimant did not adduce evidence of the financial impact of the post-Decree 662 fair and equitable treatment breaches. Therefore, no damages can be awarded for those breaches. But since Perenco's rights were brought to an end by the act of caducidad, the Tribunal will re-estimate the loss of those rights according to then-prevailing market conditions and industry expectations (as well as in light of the hypothetical increased production in the two Blocks in the 'but for' scenario).
113.
Having arrived at this approach, the Tribunal's initial thinking was that this would be done based on the ratio between the total number of months between October 2007 and July 2010 and the total number of months from October 2010 until contract expiry. However, a simple temporal pro-rating would lead to a biased result that could assign a lower value to cash flows that would have been generated during the October 2007 to July 2010 period than should be the case.69 In the circumstances, therefore, the Tribunal has added up the discounted cash flows in the October 2007 damages model through to July 2010. This ensures that the value for the October 2007 layer of damages reflects the actual discounting and contribution of pre-July 2010 cash flows to the October 2007 fair market value and also accounts for the full cost of any pre-July 2010 CAPEX.
114.
The result is an initial award of damages for Decree 662's impact during the roughly 33-month period between the first completed breach and the last breach. Then, because of the effect of the expropriation, a new valuation is performed, based on pricing and market information available as of the date of the expropriation. The initial award of damages attributable to Decree 662 is capped at that point; this then requires the Tribunal to make certain determinations as to the nature of the contractual rights that were terminated. These are included in the calculation and the value of the one-month interest in Block 7 as well as the approximately 10-year period left on Block 21 will be estimated.
115.
The Tribunal has taken this approach because it accepts Professor Kalt's concern about valuing an asset whose value had already been diminished. Thus, rather than valuing what might be called the 'below reference price' contractual rights, in theory compensated by the prior award of damages, as of the day before the expropriation, the Tribunal will establish a new valuation of the totality of the contractual rights that were taken away from Perenco, based on the prevailing market conditions. This analysis will be ex ante, but it will allow the Tribunal to consider all relevant actual market developments as well as employ the assumptions as to what Perenco would have done in both Blocks during the prior period and what it would have done in the remainder of the Blocks' lives.
116.
Unlike the situation in ADC v. Hungary, where the value of the airport concession rights at issue had crystallised after the submission of the claim to arbitration and before the date of the award70, the Tribunal finds itself in the midst of a period stretching between caducidad and the date of expiry. Having regard to the Parties' extensive debate over the use of ex ante versus ex post valuation data, the Tribunal is concerned about the degree of randomness associated with employing the date of the Award as the valuation date since a single significant event can have dramatic effects on valuation given the volatility of the oil market. In the circumstances of this case, the Tribunal will employ an ex ante willing buyer-willing seller approach using the price of oil prevailing at the time of the expropriation (approximately US$76/bbl WTI as of July 2010).
117.
In line with its conclusions that:

(i) there were no inter-linked breaches such as to justify the use of a single date of valuation;71

(ii) it is in principle appropriate to seek to value the damages caused by the different breaches occurring at the relevant times; and

(iii) the contemporaneous evidence of value is a useful check against the Tribunal's estimates;

the Tribunal considers that an approach using the well-accepted ex ante approach to valuation as the primary point of reference is reasonable and appropriate in the circumstances. (It uses the word "primary" because of the fact that with the passage of time between the commencement of this arbitration and the rendering of this Award, Petroamazonas has operated the Blocks and inevitably the testimonial and expert evidence pertaining to the operation of Block 21, in particular, has mixed ex ante with ex post data. In the circumstances, the Tribunal has no interest in attempting to 'unscramble the egg' by drawing a strict line between these data.)

4. The Role of Contemporaneous Evidence of Value

118.
The Tribunal is strengthened in its belief that estimating the damages attributable to each breach and in chronological order is the correct approach to be taken in the circumstances of this case, by the availability of Perenco's contemporaneous net present value (NPV) calculations of the impact of Law 42 at both 50% and 99% on both Blocks. These calculations were performed immediately after Decree 662's announcement.72 The spreadsheet for Block 21, for example, which was disclosed by Perenco in the documents production phase and reviewed by Brattle, shows that the NPV calculation for Block 21 ran, as would be expected, to Block 21 Contract's expiry date of 2021.73
119.
These documents of the Claimant's own making are, in the Tribunal's view, good evidence of the Blocks' estimated value with Law 42 at 50% and 99% in light of the existing and expected market circumstances at the time of the first breach. Brattle studied Perenco's calculations and adjusted them; Perenco had, for example, used July 2007 WTI prices rather than the higher prices prevailing in early October 2007. In fact, Brattle ended up arriving at somewhat higher NPV calculations than Perenco itself did at the time.74
120.
In its Reply Post-Hearing Brief, Perenco downplayed the significance of its NPV calculations, describing them as "back-of-the-envelope, hurried calculations to understand Decree 662's immediate impact."75
121.
Ecuador had addressed this contention in its closing submissions at the Quantum Closing. Slides 122 and 123 of Ecuador's presentation showed that the calculations were closely comparable to Perenco's other valuations, made prior to Decree 662's coming into effect, as to the Blocks' value and indeed in one case what Perenco – acting as a possible willing purchaser – might be willing to pay Burlington for the latter's interests in the Blocks just one month before Decree 662's promulgation.76 In counsel's submission:

"This confirms that the allegedly hurried calculation of BR-26 is not such hurried valuation. It actually follows from a September 2007 valuation, that's consistent, and then it's much higher than the March 2007 valuation. These were prepared with plenty of time, not in a hurry. And as you can see at the bottom of the table, we have put Brattle's valuation. Brattle's valuation of Block 7, 111.3 million, is within 10 percent of Perenco's own valuations in October and September 2007 and higher than their earlier valuation of March 2007.
The same happens with Block 21."77

122.
The Tribunal considers that Perenco's analysts would have had a good preliminary understanding of Decree 662's impact on the company's interests in the Blocks. The email chain's distribution list contains the names of seven Perenco employees who were involved in analysing Decree 662, including Eric d'Argentré, Perenco's Country Manager for Ecuador. Obviously, the calculations were based on the information available to the company at the time. This necessarily has to be the case when projecting into the future with a new factor added into the mix. But the projections were being made by employees with knowledge of (i) the Participation Contracts' terms; (ii) the Blocks' performance to date and their characteristics and potential; (iii) Perenco's and the Consortium's intentions; and (iv) wider industry market expectations at the time.
123.
During 2007, in the months leading up to Decree 662, Perenco: (i) produced its Mid-Term Outlook in March; (ii) valued Burlington's interests in the Blocks with a view to a potential purchase in September; and (iii) analysed the effect of Decree 662 in October 2007.78 The Tribunal notes that Professor Kalt commented in his December 2014 expert report that in his experience, "investors in oil and gas properties and contracts routinely use DCF analysis in the course of business to provide them with measures of how much they should value an investment and, in certain cases, how much they should be willing to pay, or be paid, for oil and gas development projects."79 The Tribunal accepts this and is therefore inclined to use Perenco's contemporaneous analysis of the impact of Decree 662 as a check on its own estimation of the Blocks' values.
124.
Professor Kalt initially testified that he recalled having seen Perenco's internal calculations of Law 42's effect at 50% and 99% on its interests in the Blocks but then indicated that he was not sure whether he had seen Perenco's spreadsheets. In any event, he stated that he did not find it relevant to discuss them in his reports.80 This was an understandable position for him to take because it was consistent with his view that the single date approach to valuation should be taken. Since the Tribunal has not taken the 'single date' approach, however, it considers Perenco's NPV calculations to be relevant evidence of its view of the Blocks' values in October 2007 with and without Law 42 at 99%. Obviously, that value would change over time depending upon a host of factors, but it is a good way to check the results that the Tribunal arrives at.

5. Summary of the Tribunal's General Approach

125.
The point of departure therefore is the Tribunal's view that it must estimate the damages proximately caused by each breach and that this must be done as of the date of their occurrence. Accordingly, the Tribunal considers primarily on an ex ante basis (and referring to contemporaneous evidence where possible):

(i) the financial impact of Decree 662 on Perenco's interests in the Blocks as of the date of the first completed breach, 4 October 2007, with a view to estimating the compensation for the damage caused by that breach;

(ii) and in relation to the foregoing, Decree 662's specific impact on Perenco's drilling plans at the time so as to estimate what they would have been through to contract expiry for both Blocks in the 'but for' world (because this issue drives the expected levels of production and hence the projections of cash flows in the 'but for' world);

(iii) the damages to which Perenco is entitled as a result of the termination of its contractual rights in relation to Blocks 7 and 21;

(iv) whether, in the 'but for' world, Perenco would have enjoyed an extension of its operatorship in Block 7 after August 2010;

(v) Ecuador's 'true-up' submissions to determine whether any damages calculated under the foregoing heads need to be adjusted; and

(vi) the applicable rates of interest (to the date of the Award and to the date of payment of the Award).

126.
Based on its various findings and conclusions, the Tribunal will then estimate the quantum of damages that should be awarded to Perenco using a 'harmonised model' that draws from the work of both sides' financial experts.

D. The Quantum of Damages for Decree 662, the First Completed Breach

127.
The Tribunal did not find a breach of contract or of treaty for Law 42 at 50% and therefore no damages can flow for Law 42 dues at 50%, at least until the promulgation of Decree 662, for the simple fact that no unlawful act was committed until 4 October 2007.81 The question is whether or how the analysis changes as of that date. This affects the analysis on the drilling programme and in turn the volume of oil produced in the 'but for' scenario.

1. Economy of the contracts – Whether Law 42 would have been completely absorbed

(a) Perenco's Position

128.
Perenco argued that the economy of the Contracts was the specific contractual bargain reflected in the economic clauses of the Contracts themselves, which guaranteed Perenco's full exposure to oil prices regardless of IRR.82 Dr. Pérez Loose and Professor Aguilar both agreed that, under Ecuadorian law, the 'economy' of a contract designates the balance of rights and obligations that determined the economic benefits of the contract for the parties.83 This also defined the risks that each party would bear during the performance of the contract.84
129.
The evidence confirmed that Law 42 triggered the clauses. Perenco would have exercised its 'absorption' rights in a 'but for' world. The Tribunal must assume that Ecuador would have honoured its legal obligations in good faith.
130.
Perenco argued that it had not lost its 'absorption' rights whether on grounds of res judicata or waiver. First, the Tribunal has not expressly decided the issue and has not rejected it. The Tribunal found only that Perenco had not established that Ecuador breached Perenco's 'absorption' rights before Decree 662. Ecuador's argument, that the Tribunal's decision to reject Perenco's claim that it was futile to exercise its rights when Law 42 applied at 50% should be applied mutatis mutandis to the situation where Law 42 applied at 99%, is incorrect because the Tribunal held that pursuing the clauses was indeed futile after Decree 662.
131.
Second, Perenco had not waived those rights. Perenco had paid the Law 42 dues on a 'bajo protesta' ('without prejudice ') basis. It had invoked the Renegotiation Clauses through its December 2006 letters. Perenco also claimed a breach of the clauses in this arbitration. Even if Perenco's attempts to invoke the clauses were not exercised sufficiently vigorously in relation to Law 42 at 50%, this did not amount to a waiver of its rights under Ecuadorian law. Dr. Pérez Loose's testimony that nothing obliged Perenco to exercise the rights within a particular time was unchallenged.85 The evidence and testimony of Perenco's witnesses also confirmed that Perenco continued to seek discussions with Ecuador through various avenues. Seeking an abatement of Law 42 was one of the key objectives that Perenco's CEO set for the Ecuador team in 2007.86 Mr. Combe and Mr. d'Argentré both testified that they did intend to further assert Perenco's absorption rights, but were attempting to find the right opportunity to do so.87 This was confirmed by Mr. Márquez.88
132.
Ecuador's argument that the clauses mandated nothing more than negotiation must be rejected based on the Tribunal's findings and the evidence. The Tribunal had already rejected Ecuador's contention that the Renegotiation Clauses mandated only that the Parties negotiate a mutually agreeable offset.89 The Tribunal found that the absorption clauses "did stipulate the ultimate result, namely, a change in the parties' respective participations 'which absorbs the increase or decrease in the tax burden.'"90 Ecuador conflated the clauses' mandated result (full absorption) and the precise means to reach that result (good-faith negotiations). The December 2006 letters confirm Perenco's contemporaneous understanding of the absorption clauses, for example: "the Consortium will present the numbers which illustrate [the] economic impact on the Contract[s], in order to determine the percentage of participation which should be adjusted in favor of the Contractor."91
133.
Ecuador's alternative partial absorption theory was not what the Contracts provide. They required that the correction absorb the increase or decrease in the tax burden, not only an increment of the new tax.

(b) Ecuador's Position

134.
Ecuador stated that its position throughout this arbitration has been that since the economy of the contract was never disturbed, the invocation of the Participation Contracts' taxation modification clauses would not have led to an adjustment of Perenco's participation, and therefore no damages are due.92 Ecuador argued that the economy of the contract was a mathematical-economic equation underlying Clauses 8.1 of the Participation Contracts which was either the Consortium's expected average revenue of US$15/bbl or the Consortium's expected internal rate of return of around 15%.93 Perenco's claim to full absorption found no support in the Participation Contracts themselves (noting in this regard that the Tribunal had found that the Renegotiation Clauses "did not stipulate how the correction factor was to be calculated").94 Further, Perenco's reliance on Ecuador's alleged past practice in relation to VAT, SOTE and ECORAE charges is entirely misplaced.
135.
Even if the Tribunal were to consider that modification was necessary so that the Consortium might enjoy some form of unspecified 'upside' potential on oil prices, such modification would not simply be to absorb the difference between Law 42 at 50% and 99% but only to absorb such amount necessary to provide the Consortium with the 'upside' exposure to oil prices to which the Tribunal appeared to consider that the Consortium was entitled. As Brattle explained, on this theory, Law 42 would apply to the Consortium at a rate of 81% for Block 21 and 99% for Block 7, but even at those rates, no modification of the X factors was necessary.95
136.
It argued further that since the Tribunal found that once Law 42 at 50% was implemented, "it was incumbent upon [Perenco] to make its case … at that time"96 and since Perenco did not do so, it was too late to do so in the quantum phase by arguing it would have invoked its rights "but for" Decree 662.97 Ecuador considered that Perenco was relying on self-serving evidence, "non-credible ex post facto testimonies" such as Mr. Márquez's statement that Perenco was simply waiting for the right opportunity to discuss the matter properly.98 The simple truth was that, whether it believed the process was futile or not, Perenco had determined not to seek the application of the Renegotiation Clauses with respect to Law 42 at 50%.99
137.
Ecuador argued therefore that Perenco could not now seek to invoke the Renegotiation Clauses in the quantum phase to claim full absorption of Law 42.

(c) The Tribunal's Decision

138.
The issue is whether the damages to be awarded in respect of Decree 662 should be calculated (i) for the entirety of the 99% of the extraordinary revenues set by the Decree; (ii) for the additional 49% (i.e. above Law 42 at 50%) of the above-reference price value required to be collected by Decree 662; or (iii) on some other basis.
139.
The Tribunal begins by recalling that its Decision on Liability contains a finding that bears on this issue. At paragraph 703, it stated:

"In the end, the narrow question for the Tribunal is whether Perenco, having sought the aid of the Tribunal, could then take comfort that its refusal to pay the 2008 Law 42 dues to Ecuador would protect it in this arbitration without any potentially adverse consequences. The Tribunal has carefully considered the Parties' positions. It considers that Perenco had a right to expect that Ecuador would desist from enforcing the coactivas during the pendency of the arbitration. It also considers that in deciding to withhold all Law 42 amounts claimed in 2008, Perenco assumed that the Tribunal would accept its claims that none of the Law 42 dues claimed by the State were permissible under the Contracts or the Treaty. Given that Perenco has not made out its claims in respect of Law 42 at 50%, the Tribunal holds that even though Ecuador should have complied with the Decision on Provisional Measures, the coactivas ought not to be included in the Tribunal's analysis of the measures said collectively to constitute an indirect expropriation… In addition, to the extent that Perenco has succeeded in its claim that the application of Decree 662 at 99% violated Article 4 of the Treaty, as found at paragraphs 606-607 above, the enforcement of the coactivas to collect the claimed additional 49% constituted a breach of the fair and equitable treatment standard, but it was not an expropriation of the investment.)"100 [Emphasis added.]

140.
The precise wording of this finding precludes awarding damages for Law 42's effect prior to the first breach. But the Tribunal also found that futility was proven as of 4 October 2007.101 Beyond that, the Tribunal did not pass on what might be considered in the damages phase with respect to the possible exercise of the tax modification clauses (except to note how the contracts' provisions were expected to operate).102
141.
For the purposes of its damages analysis, the Tribunal considers that it must be assumed that if Perenco exercised its contractual rights in the 'but for' scenario, Ecuador would have responded in good faith by negotiating an absorption of the additional tax burden effected by Decree 662. After considering the evidence, the Tribunal finds that in the 'but for' scenario for the period after Decree 662 came into effect, Perenco would have sought an offset. But having regard to the evidence as whole, the Tribunal is not convinced that Perenco would have sought the complete elimination of Law 42 (i.e. stabilisation at 0%). Rather, it would have sought to undo the effect of Decree 662 and, to the extent reasonably possible, Law 42.
142.
The Tribunal's reasoning in this respect is straightforward: (i) it was clear to all that Ecuador was moving away from participation contracts and could be expected to require that any new contracts that it might grant would not follow that model; (ii) even in the 'but for' world, this change in the country's hydrocarbons exploitation policy would exist as a lawful fact; (iii) the Block 7 Participation Contract was approaching its expiry (in August 2010) and Perenco was well aware of that fact and the need to adjust its expectations in order to have any chance of obtaining an extension of its operatorship in Block 7; and (iv) it is common ground between the Parties and was well understood at the time that Block 7 was the more valuable of the two Blocks.
143.
In these circumstances, the Tribunal believes that Perenco would have recognised that the extraordinary returns generated under the Participation Contracts due to the significant increase in oil prices starting in the early 2000s were, for Ecuador, practically-speaking unsustainable, having regard to the financial implications of the windfalls that had been generated from the country's finite hydrocarbon resources under this form of contract. Moreover, Perenco's interest in obtaining a contractual extension for Block 7 would have provided a strong incentive for it to moderate its demands in seeking the full absorption of Law 42. In short, the Tribunal believes that in the 'but for' world, Perenco would have been most likely to seek a negotiation under the tax modification clauses that would have reduced the State's take of the extraordinary revenues, whilst maximising the company's chances of its obtaining an extension of its operatorship of Block 7.
144.
The Tribunal thus holds that after Decree 662 entered into effect, Perenco would have been prompted to trigger negotiations and the Parties would have agreed to Law 42 being stabilised at 33% starting 5 October 2008, to be applied prospectively, for both contracts.
145.
The Tribunal adds that while it might be that in the 'but for' world Perenco would use the occasion of the tax modification negotiations simultaneously to seek a Block 7 extension, it cannot be safely assumed that Ecuador would have agreed to an extension. The extension issue is therefore addressed separately below.
146.
The Tribunal holds that Perenco's interests in the two Participation Contracts would be adjusted to a stabilised Law 42 rate of 33% as of 5 October 2008 through to contract expiry.

2. Estimating the Direct Financial Impact of Law 42 at 99%

147.
In terms of valuing the direct financial impact of Decree 662, Perenco's NPV calculation performed just after Decree 662 was promulgated permitted the Tribunal to perform a rough estimate of the value of the company's interests in the Blocks by subtracting the total value of the revenues foregone in the remaining years of the Contracts in order to arrive at an estimate of the residual value of Perenco's interests (what might be termed the "below Decree 662 reference price" value). This was also valued by Brattle and the results are as follows:
Points of differencesPerenco in 2007Brattle (1stReport)103Brattle (2ndReport)104– Updated usingRPS's CostsBrattle (2ndReport)105– Updated using Prof.Kalt's Costs
Value of Block 7 with Law 42 NPV: $122.1 million FMV: $109.1 million FMV: $111.3 million FMV: $114.5 million
Value of Block 21 with Law 42 NPV: $117.3 million FMV: $156.6 million106 FMV: $170.9 million FMV: $181.3 million
Total Value of Blocks with Law 42(c.f. Perenco's 2007 calculations)$239.4 million$265.7 million(+$26.3 million)$282.2 million(+ $42.8 million)$295.8 million(+$56.4 million)
Value of Block 7 with Decree 662 NPV: $84.1 million FMV: $58.8 million FMV: $59.1 million FMV: $58.8 million
Value of Block 21 with Decree 662 NPV: $70.5 million FMV: $48.9 million107*** FMV: $68.5 million FMV: $68.7 million
Total Value of Blocks with Decree 662(c.f. Perenco's 2007 calculations)$154.6 million$107.7 million(-$46.9 million)$127.6 million(-$27 million)$127.5 million(-$27.1 million)
Fall in value of Block 7 due to Decree 662 $38 million $50.3 million $52.2 million $55.7 million
Fall in value of Block 21 due to Decree 662 $46.8 million $107.7 million $102.4 million $112.6 million
Total Loss in Value (c.f. Perenco's 2007 calculations)$85 million$158 million(+$73 million)$154 million(+$69 million)$167 million(+$82 million)
148.
In the Tribunal's view, these estimates provide a useful check against the damages estimate.
149.
To arrive at a final amount calculated on an ex ante basis, it is necessary to estimate how many wells Perenco would have drilled in the 'but for' world. Here the Parties' oilfields experts (Perenco's Mr. Crick, acting not as an independent expert, but rather as a fact witness with certain technical expertise, and RPS, Ecuador's technical experts) held very different views as to what that drilling activity would have been undertaken but for Decree 662, an issue to which the Tribunal now turns.

3. Decree 662's Impact on Perenco's Drilling Plans for Block 7 and Block 21

150.
The evidence is that the decree led to a virtually immediate stoppage in the Consortium's drilling operations.108 In Exhibit BR-26, the Perenco email which contained the results of the company's NPV calculations, there was some discussion about continuing with the plan to drill Oso 23.109 But this was the sole exception to the cessation of drilling activity. Charts depicting the company's well-drilling history produced at the Tribunal's request after the Quantum Hearing showed that while Perenco drilled 11 wells in Block 21 in 2005, 13 in 2006 and one in 2007, it did not drill any wells in 2008 or in the first half of 2009 (whereupon it suspended operations).110 Likewise, for Block 7, Perenco drilled six wells in 2005, 11 in 2006 and five in 2007, but it did not drill any wells in 2008 or in the first half of 2009.111
151.
The Tribunal has no doubt that but for Decree 662, in the absence of its securing an extension of the Block 7 Participation Contract, Perenco would have drilled more wells in Block 7 up to August 2009 (one year before the Contract's expiry, whereupon Perenco would have ceased drilling wells due to the need to ensure an adequate payback before contract expiry112). As for Block 21 (which, at the time of Decree 662's promulgation, still had some 14 years left before the Contract expired), the Tribunal has to estimate a reasonable drilling programme for that Block, which programme might reasonably be expected to extend past the declaration of caducidad.
152.
This exercise is also potentially bound up in the evaluation of the drilling activities after the declaration of caducidad in that there are two periods with which the Tribunal is concerned: (i) from 4 October 2007 to 20 July 2010; and (i) from 21 July 2010 to contract expiry. This means weighing the Consortium's actual plans up to 4 October 2007 which were then put on hold and considering what would, on a balance of probabilities, likely have happened in both blocks had Decree 662 not been promulgated. This will be used for the first period. The Tribunal will then perform a further estimate as to what would have happened after the declaration of caducidad.
153.
This necessarily raises the question of the fate of the Block 7 Contract because Mr. Crick indicated that the Consortium would have continued drilling in Block 7 at least up to August 2009. He testified that this was when, in the absence of an extension, Perenco would stop drilling new wells due to the need to enjoy a suitable payback period before surrendering Block 7 to Ecuador.113 Accordingly, the Tribunal will first consider whether, in the 'but for' world, Perenco would have enjoyed an extension of its operatorship in Block 7 after August 2010.

(a) The question of an extension of the Block 7 Contract after August 2010

154.
With good reason, the Parties have argued this issue at considerable length, since it accounted for a substantial portion of Perenco's revised claim of a total of US$1,493 billion in damages. (See Brattle's Waterfall Chart reproduced above at paragraph 65.) As already noted, Perenco's rights under the contract to the Block 7 Oso Field were the most valuable of Perenco's Ecuadorian assets.114
155.
According to the Contract, Perenco's interest in Block 7 was to expire on 16 August 2010, and as events transpired, this occurred some 27 days after the declaration of caducidad was issued.115
156.
The Contract contained a clause that permitted the Contract to be extended in certain circumstances:

"Clause 6.2 Production Period : In this case, the Production Period shall last until August sixteenth (16), two thousand ten (2010); this term may be extended, provided that it is in the State's best interest, for the following reasons:

• When the Production area is located far from existing hydrocarbon production infrastructure, with the prior approval of the Ministry of Energy and Mines and for a period of up to five (5) years;

• When the Contractor proposes significant new investments during the last five (5) years of the Production Period, with the prior agreement of the Ministry of Energy and Mines and the approval of the CEL, provided that adequate amortization periods are required for those investments;

• If the Commercially Exploitable Hydrocarbon Deposits are discovered as an exclusive result of new exploration work performed by the Contractor, the Production Period shall be extended with the prior agreement of the Ministry of Energy and Mines and the approval of the CEL."116

(i) Perenco's Position

157.
Perenco argued vigorously that its contractual rights would not have expired, but rather in the 'but for' world it would have been permitted to operate the field in some form or another. In this regard, it pointed to evidence of other extensions granted by Ecuador to operators during the relevant period.117 It also noted that even during the time that it operated under Decree 662 at 99%, it was negotiating an alternative arrangement with Petroecuador – the so-called Acta – and that the parties had arrived at an agreement which was not consummated because Perenco's fellow consortium member, Burlington, having decided to withdraw from Ecuador, refused to agree to its terms. As the Tribunal found, this refusal of its fellow Consortium member was essentially held against Perenco by Ecuador.118

[1] Ecuador did not have unfettered discretion whether or not to grant an extension

158.
Perenco argued first that the evidence showed that a good faith exercise of Ecuador's discretion under Clause 6.2 would more likely than not have led to an extension of Perenco's Block 7 operatorship. Ecuador did not have unfettered discretion to refuse to extend Perenco's Block 7 operatorship. As Dr. Pérez Loose testified, a fair reading of Clause 6.2 would be that when any of the three circumstances for extension were met,119 the State's best interest was presumptively satisfied and Ecuador was obliged to grant an extension.120

[2] The Parties could have agreed to extend on different terms

159.
Perenco also contested Ecuador's reading of Clause 6.2 to the effect that it permitted only an extension of the expiration date of Block 7 Contract, and no amendments of any of the contract's other terms, as being both unsupported by the contractual language and unrealistic. It was indeed discredited by Ecuador's own sweeping practice of extending the operatorships of existing contractors on amended contractual terms.121
160.
Ecuador had not contested the fact that it was prepared to extend Perenco's Block 7 operatorship on different terms from the existing ones, and that it would have done so had it complied with its international and contractual obligations. Ecuador's witnesses such as Messrs. Dávalos, Palacios, Pinto, and Chiriboga repeatedly acknowledged during the merits phase that they wanted Perenco to continue operating in Block 7.122 As for Perenco's witnesses, they confirmed that the extension was a high priority for the company and that they believed that they could have reached an agreement with Ecuador but for the unlawful acts. This was corroborated by contemporaneous internal documents and correspondence with Ecuador and was not tested on cross-examination.123
161.
The Parties' mutual interest in extending Perenco's operations in Block 7 was consistent with the longstanding historical practice in the upstream oil industry generally, and especially in Ecuador, to extend the contracts of incumbent operators. According to Mr. Dávalos' testimony on redirect examination, Ecuador apparently declined to extend contracts only twice over the past three decades.124
162.
In 2010 alone, Ecuador executed seven amended oil contracts, extending the terms of six of the original contracts by between six and fifteen years.125
163.
Ultimately, Perenco was open to concluding a reasonable services contract for the extension period. Perenco argued that Ecuador did not deny that it would be reasonable to assume that the extension terms would have been somewhere between the parties' initial negotiating positions, and somewhat closer to Ecuador's initial position than to Perenco's, a reasonable proxy for which is effectively Law 42 at 37.5%. The Eni (AGIP) services contract extension provides strong support for this conclusion. That was a services contract in a neighbouring block in which Ecuador agreed to an eleven-year extension. Perenco specifically considered an AGIP-type contract as part of its contemporaneous extension strategy. Therefore, that contract is a good benchmark for the terms that Ecuador would have accepted for an extension. Perenco noted that Brattle's reports offered no opinion on any extension case.

[3] Extension would have been in Ecuador's best interests

164.
As for Ecuador's argument that it would have been negligent for the State to extend Perenco's operatorship of Block 7 because the economic proposition was unattractive, Perenco argued that Ecuador's assertion relied on a flawed economic analysis. In Perenco's view, Professor Dow's analysis assessed the value of a Block 7 extension to only extend to the acceleration of investment and production, but failed to assess the benefits of partnering with experienced private contractors. In any event, Professor Dow also undervalued the benefit of such acceleration.
165.
At the Quantum Hearing, Professor Dow conceded that a contract extension would have resulted in benefits to Ecuador exceeding the amount paid to Perenco and would thus be in Ecuador's best interest.126 Professor Dow admitted that Ecuador's costs of capital during the 2008 to 2010 period were likely to be much higher than Perenco's 12% cost of capital and that in his calculations of the extension value he failed to account for the high opportunity costs of Ecuador's having to invest its own capital in the oil industry instead of in the public sector.127
166.
Further, Ecuador failed to adduce any evidence to support its claims that its policy to migrate to services contracts and Perenco's allegedly unsatisfactory environmental practices meant that extending Perenco's operatorship was not in Ecuador's interest.128

[4] Perenco had met the conditions for extension under Clause 6.2

167.
Perenco asserted further that it had met the two conditions for extension under Clause 6.2.
168.
First, its discovery of oil in the Hollín reservoir in the Oso field met the requirement of discovery of new "Commercially Exploitable Hydrocarbon Deposits." These were "those deposits of Crude Oil which, in the judgment of the Contractor, are commercial deposits and are included in an approved Development Plan or an Additional Development Plan." Perenco did not need to discover new fields. It was immaterial that Perenco had not raised its discovery of the Oso Hollín deposit as a possible ground for extension in its September 2007 Budget Committee Meeting ("BCM").
169.
Second, it proposed significant new investments during the last five years of the Contract. Perenco had proposed drilling up to 16 further wells in its 2006 Oso Plan of Development and their positive results would have led to substantial further investment which would in turn have been grounds for an extension of the Contract. In September 2007, Perenco also planned to propose additional projects in exchange for a Block 7 extension. Even during the 2008 negotiations, Perenco agreed to a minimum investment of US$110 million in Block 7.

[5] Perenco would have drilled 70 new wells in the event of an extension to 2018

170.
On the assumption that Block 7 would have been extended, albeit on different terms, Mr. Crick's 'but for' drilling plan for Block 7 focused mainly on the Oso Field. Perenco observes that not only did it propose precisely the 70 wells included in Mr. Crick's programme in its 2008 Internal Review, but Petroamazonas has now drilled some 105 new wells in Oso, and based on its April 2014 Oso Development Plan, it intends to drill 28 more.129 Petroamazonas is on track to drill roughly double the number of Oso wells that Mr. Crick planned.130 This was confirmed at the Quantum Hearing by Mr. d'Argentré131 and Mr. Crick.132
171.
Mr. Crick's analysis was reviewed by Dr. Strickland, the Claimant's independent expert in these proceedings. His C.V. includes 37 years' experience performing and supervising reservoir engineering and geological projects including field studies, economic valuations, audits and field unitizations.133
172.
Dr. Strickland reviewed Mr. Crick's plan and noted that these numbers were based on a development plan that Perenco created in late 2008 and appeared reasonable in light of the much greater development of the field that Petroamazonas had since undertaken.134 Since 2009, Petroamazonas had drilled 142 wells in Block 7, 105 of which have been in Oso.135
173.
Perenco argued that these developments would be carried out during an extension of Perenco's Block 7 operatorship to 2018. The most recent data received from Ecuador in June 2015 indicated that Petroamazonas would shortly be turning its attention to the precise reservoirs that Mr. Crick has slated for waterflooding.136
174.
Mr. Crick's latest and revised numbers for the production volumes in Block 7 were:137
BLOCK 7
Original TermWith Extension
From Existing Wells from 01/08/2009 to 16/08/2010 from 01/08/2009 to 16/08/2018
Coca Payamino 1 605 545 9 693 365
Other block 7 2 651 148 13 818 821
Net Gain
from new Wells from 01/12/2007 to 16/08/2010 from 01/12/2007 to 16/08/2018
Coca Payamino Coca Payamino 20 448 190
Other block 7 13 473 339 Other block 7 78 533 142
Block 7 Totals 17 730 032 122 493 518

[6] Form and value of an extension

175.
Perenco argued that given the essentially unrebutted evidence that Ecuador and Perenco would have agreed to an extension in Block 7, the only question remaining was the economic terms on which such extension would have been granted. Since the 2008 acta terms were the product of what the Tribunal has already held to be coercion,138 terms agreed without such coercion would naturally have been more favourable to Perenco.139
176.
In Perenco's submission, the Quantum Hearing demonstrated the reasonableness of Professor Kalt's approach to estimating the extension's value. Ecuador did not deny that it would be reasonable to assume that the extension terms would have been somewhere between the parties' initial negotiating positions, and somewhat closer to Ecuador's initial position than to Perenco's, a reasonable proxy for which is effectively Law 42 at 37.5%.140
177.
Perenco's approach towards determining the value of the contract extension is therefore a reasonable proxy for the value that would have been generated in a fair negotiation between the parties had Ecuador never acted unlawfully. Perenco has even assumed that Ecuador would have done better in the negotiations and adjusted the bid-and-ask meeting point to the lower quartile of the difference between Perenco's 'best case' scenario (no Law 42) and Ecuador's 'best case' scenario (Law 42 at 50%).141
178.
In Perenco's submission, the AGIP services contract extension142 provides strong support for this conclusion.143 That was a services contract (hence consistent with Ecuador's claimed policy direction) in a neighbouring block in which Ecuador agreed to an 11-year extension, so it was nearly 40% longer than the period of the extension that Perenco claims in this arbitration. Perenco specifically considered an AGIP-type contract as part of its contemporaneous "extension strategy."144 Therefore, the contract is a good benchmark for the terms Ecuador would have accepted for an extension. Whether it is used to corroborate Professor Kalt's approach145, or as a substitute approach, the result is comparable.
179.
Relying upon Professor Kalt's analysis, Perenco argued that the quantum of damages owed to Perenco in respect to the extension of Block 7 is in the area of US$600 to 625 million (US$626 million based on Law 42 at 37.5% or US$604 million based on the AGIP contract, used as a proxy for which Perenco and Ecuador would have agreed in the 'but for' world).146

(ii) Ecuador's Position

180.
Ecuador argued that Block 7 would not have been extended for a variety of reasons, including: (i) Ecuador had the discretion to grant or not an extension, but not to extend it on different terms; (ii) it would not have been in the State's interests to grant the extension; and (iii) Perenco had not met the requirements to trigger the exercise of discretion under Clause 6.2 of the Contract. The issue before the Tribunal was whether the Participation Contract should somehow be extended, not whether it would have been renegotiated into an AGIP-kind of services contract. Moreover, the facts showed that renegotiation failed due to, among other reasons, Burlington's decision not to engage in a renegotiation but rather to exit Ecuador.147

[1] Ecuador enjoyed ample discretion to grant or not an extension of the Block 7 Participation Contract

181.
Ecuador argued that the Quantum Hearing demonstrated that Clause 6.2 of the Block 7 Participation Contract encompassed two layers of discretion – the State: (i) "may" extend the existing contract; and (ii) "if and when it is in the State's best interest" – which discretion was triggered, if and only if, at least one of the three technical requirements under Clause 6.2 was satisfied.
182.
As to the first layer of discretion, the wording of Clause 6.2 of the Contract was clear ("… this term may be extended, if and when it is in the State's best interest, for the following reasons …" [Emphasis added.]). This granted ample discretion to Ecuador to decide whether to extend, or not, the term of the existing Contract's Production Period. In Ecuador's view, Dr. Pérez Loose was unable to escape the language of Clause 6.2148 and Mr. Perrodo had candidly recognised Ecuador's discretionary power to grant or not an extension.149
183.
Ecuador criticised Perenco's proposed interpretation for failing to give effect to the expressed intention of the parties150; it did not give effect to Clause 6.2 as a whole151 as Dr. Pérez Loose ultimately acknowledged under cross-examination152; and the word "shall" in sub-clause 6.2.3 could not override the word "may" in the chapeau of Clause 6.2 which commanded the entire provision. Sub-clause 6.2.3 related to the act of obtaining the prior agreement of the Ministry of Energy and Mines, and the approval of the Special Bidding Committee.
184.
Perenco also could not prove a purported practice in Ecuador of extending all oil contracts because there was no such practice. As Dr. Dávalos had testified, there were two instances (Texaco and Sinopec) when Ecuador had not granted an extension because they were not in its best interests.153 Even if there were such a practice, this could not legally override the discretion that Ecuador held under Clause 6.2.
185.
Finally, Perenco could not rely on the good faith principle under Ecuadorian law to transform the word "may" into "shall."

[2] An extension of the Block 7 Participation Contract would not have been in the State's best interest

186.
Clause 6.2 provided a second layer of discretion reserved to the State, given that the Production Period may only be extended "if and when it is in the State's best interest." As Dr. Aguilar explained, in establishing the public interest, the State must see first whether the event has occurred. If that occurred, the next step was to decide whether or not it was appropriate to extend the Contract.154 Extending the Participation Contract would not have been in Ecuador's best interests for the following reasons.
187.
First, Ecuador had chosen at the relevant time to adopt a policy of migration from participation contracts to services contracts. Contrary to Perenco's contention, Ecuador's witnesses had testified to the failed renegotiation of the Participation Contracts and not to the potential extension of the Block 7 Participation Contract.155 Even if Perenco argued that it would have accepted a different model for the extension of its Block 7 operatorship, Perenco had only calculated the Block 7 extension value based on Law 42 at 37.5%; this must mean that this was an extension under a participation contract (as Law 42 only applied to such contracts), Perenco's last minute change of the basis of its valuation to employ AGIP's services contract must be therefore be dismissed outright.
188.
Second, it would have been uneconomical for Ecuador. Ecuador was not just guided by economic gain, but by a plethora of objectives. Perenco's expert, Dr. Pérez Loose, was forced to retract his proposition that the State's interests were reduced to obtaining the largest amount of oil possible, as he ultimately admitted that they encompassed other issues, such as health, the environment, defence, etc.156 Perenco could not rely on ex post facto evidence from its own witnesses as to the purported benefits of an extension, and that it was a high priority for Perenco, to argue that Parties would have agreed on the extension.157
189.
Third, Perenco was not a responsible environmental steward, and it would likely be held liable for having caused contamination in the Blocks.

[3] Perenco did not meet the technical requirements under Clause 6.2

190.
Perenco suggested that Ecuador had not disproved at the Quantum Hearing that the two technical requirements in Clause 6.2 invoked by Perenco were met. On the one hand, the burden of proof falls on Perenco. On the other hand, and as shown by Ecuador in its Post-Hearing Brief158, Perenco failed to demonstrate that it satisfied even one of the technical requirements under Clause 6.2.
191.
In this respect, Perenco failed to show that it had discovered new Commercially Exploitable Hydrocarbon Deposits as an exclusive result of new exploration work pursuant to Clause 6.2.3. The evidence adduced at the Quantum Hearing confirmed that Perenco benefited from existing log data already showing the presence of oil in the Hollín. Mr. Combe also confirmed that BP, Perenco's predecessor in the Block, had conducted the first exploration activities at Oso in the 1980s.159 The presence of oil was confirmed in 1988160 and Perenco was in possession of this information before it drilled Oso 3.161
192.
Therefore, Perenco had not included this alleged discovery when it drilled the Oso 3 well in the Hollín reservoir as part of its strategy for extension in the September 2007 Budget Committee Meeting. Nor did it allocate any value to an extension when it calculated the NPV of its investment in 2007.
193.
Perenco did not propose significant new investments before the Participation Contract's expiry in order to qualify for an extension. The Quantum Hearing confirmed that Perenco knew full well that an extension of the Production Period was uncertain. As a consequence, from 2007 onwards, Perenco acted accordingly and accelerated investments and project development to ensure payback within the contract's term:

"Q. So, Mr. Perrodo, is it fair to say that, from 2007, absent a contract extension, Perenco would only make investments in Block 7 that could be amortized or paid back before August 2010?

A. […] my decision was to, you know, make as much money as possible in case, you know, we wouldn't be granted an extension, which is clearly not what we wished for, but that's the reason why we decided to accelerate the developments."162

[4] Even in a hypothetical extension scenario, Mr. Crick's drilling programme would not have occurred

194.
Ecuador further criticises Perenco's Block 7 extension scenario, with the 127-well163 waterflood project advocated by Mr. Crick, as being yet another "cynical attempt by Perenco to grossly inflate" its claim.164 Mr. Crick had based his forecast on a flawed methodology. This flaw was most readily apparent from the significant discrepancy between Mr. Crick's forecasted production and the actual production from the Oso field.
195.
The only 2 single well pilot projects undertaken at the Lobo and Coca-Payamino fields failed to establish the continuity of the Napo U formation rock, the cornerstone for a successful waterflood project. Confronted with the fact that the pilot well at Lobo did not have the same impact on two equidistant wells, Mr. Crick conceded that this could be due to the discontinuity of the formation rock in this field.165 Dr. Strickland was also forced to acknowledge that the results from the limited study undertaken (i.e., one injector well in each of the Lobo and Payamino fields) show heterogeneity (or discontinuity) in the tested Napo reservoir.166
196.
Perenco's subsequent attempt to argue that Mr. Crick's "5-spot" development pattern would de-risk the development and account for any discontinuities only reinforced the inconclusive results obtained by the Consortium. Perenco was equally misplaced in seeking to support Mr. Crick's 127-well waterflood project through documents reflecting the risky investments proposed by the Consortium during the contract extension negotiations.167 In fact, Ecuador argued, these documents: (i) showed that the Consortium was only contemplating a maximum of 29 waterflood wells in an extension scenario;, and (ii) did not even mention a '5-spot' development pattern.168
197.
Ecuador argued that Perenco persisted with Mr. Crick's 37-well waterflood project in the Basal Tena reservoir in Coca-Payamino without even having undertaken any pilot testing in this reservoir and notwithstanding Mr. d'Argentré's acknowledging that, for a waterflood project to work, the concept must first be proved in the reservoir.169 Even Dr. Strickland had to concede that, "[i]n the Basal Tena, […] the waterflood reserves are more uncertain there because no pilot has been instigated" causing "greater uncertainty,"170 thereby further undermining Mr. Crick's waterflood project.
198.
Further, ex post data, on which Perenco so heavily relied, did not support waterflooding as a viable development strategy in Block 7. Indeed, Ryder Scott —a company specialised in waterflood projects171— had not once mentioned it in its reports to Petroamazonas.
199.
Finally, Perenco was incorrect in alleging that Mr. Combe and Mr. d'Argentré provided support for Mr. Crick's waterflood project. Mr. Combe never even addressed waterflooding.172 Mr. d'Argentré did, but his testimony could hardly be presented as supporting Mr. Crick's extensive waterflood project given that: (i) he did not know how many wells Mr. Crick was proposing to drill as part of this project; and (ii) he did not think Mr. Crick was proposing a lot of development in those fields, because they were already developed.173 Perenco failed to point to any evidence indicating that the Consortium partners were considering to embark upon Mr. Crick's extensive and costly waterflood project in the northern part of the Block. Mr. Combe conceded that the Consortium "envisioned that all the development or future development would be around Oso."174

[5] Form and value of an extension

200.
Ecuador argued that both sides' experts confirmed at the Hearing the unreasonableness of Perenco's extraordinarily high extension value (presenting over 40% of Perenco's claimed damages). The DCF analysis should not include a hypothetical extension, even more so when Perenco's contemporaneous assumptions did not assign any value to a potential extension.
201.
In assessing the purported value of a hypothetical extension, Professor Kalt did not apply the terms of the Actas de Acuerdo Parcial of 2008. Instead, Perenco came up with its own terms for a new contract.175 Professor Kalt did not calculate a value for a renegotiated services contract (in light of Ecuador's policy to migrate to services contracts), and therefore Perenco failed to discharge its burden of proof.
202.
On the economics of extension, the issue was not whether extension could have created benefits for Ecuador, but what price Ecuador would have been willing to pay for those benefits. Perenco's terms assumed that Ecuador would have agreed to pay more than the economic benefits it could have expected from an extension. Brattle amply demonstrated that it would have made no economic sense for Ecuador to agree to an extension on Perenco's terms because they gave "more than 100 percent share of the [value generated by the extension] for the Contractor."176
203.
Ecuador framed the issue as follows: Ecuador would agree to pay Perenco on top of the standard return an additional US$626 million for Perenco to continue operating Block 7 until 2018 when Ecuador was due to receive the fields for free in August 2010 (i.e. at contract expiration) and any contractor could have taken over the operations then – only if Perenco offered Ecuador benefits no other contractor could. The only unique benefit Perenco could articulate at the Quantum Hearing was Mr. Crick's purported knowledge of the fields – and that Ecuador would have granted an 800% IRR which Professor Kalt asserted would be worth $968 million.177 However, this would already be part of the costs in Brattle's model, together with the other benefits that any other operator could provide. Thus, Ecuador's cost of borrowing is irrelevant: Ecuador could contract with another private contractor, as it did with YPF in Block 21.
204.
In response to Perenco's criticism that "Professor Dow's analysis wrongly assumed that Ecuador could have reaped all of the extension benefits – except acceleration – for free",178 Ecuador explained that a zero NPV (for the acceleration) did not mean that the costs are zero, but the costs had already been factored into the calculation (through the discount rate). Brattle had assumed that Ecuador would pay for an extension the standard return (discount rate) offered to contractors (i.e. 12%).
205.
Finally, Ecuador pointed out that Perenco's claim (to justify its unrealistic extension terms) that Ecuador agreed in the AGIP contract to a 25% rate of return on invested capital was misleading because (i) the 25% rate of return in the AGIP contract relates exclusively to investments in exploration or secondary recovery techniques, i.e. high-risk investments179; and (ii) for production from existing fields, the AGIP contract sets a $35 tariff/barrel produced. The AGIP contract was thus not a good comparable to Block 7.

(iii)The Tribunal's Decision

206.
The Tribunal has carefully considered this important issue and begins by setting out some general findings that have guided its analysis.
207.
First, it takes note of the submissions concerning the precise wording of Clause 6.2 of the Participation Contract. It accepts Ecuador's argument that the State had a substantial measure of discretion when it came to deciding whether to grant an extension. Perenco itself accepted that Clause 6.2 was discretionary and the Tribunal did not find persuasive Dr. Pérez Loose's attempt to narrow the scope of Ecuador's discretion so as to make contract extension virtually mandatory.180
208.
Second, the Tribunal considers that even in the 'but for' world an "extension" would at its best, from Perenco's perspective, not have entailed an extension of the existing Participation Contract, but rather the Parties would have agreed that a new model would govern their relationship. Given the way in which the Parties' arguments developed, the Tribunal considers that Perenco essentially conceded this to be the case.181 Hence its argument that a services contract in some form would be granted and Law 42 at 37.5% was used as a proxy for the specific terms that the Parties could have agreed for the extension period had Ecuador not acted unlawfully.182 Third, the Tribunal takes note of Ecuador's evidence that some contracts were not extended.183 This however is not very compelling evidence; Mr. Dávalos, when cross-examined on this point, was able to identify only two such instances of non-extension over the past three decades.184 Moreover, Ecuador did not tender any witnesses to testify that the State would not have extended the operatorship at issue in the instant case and given that earlier in the proceeding, different witnesses, including former ministers, conceded that Ecuador wanted Perenco to continue to operate, the absence of such testimony is telling.
209.
The record evidence in fact suggests a willingness on the State's part to deal with incumbent operators. As counsel for Perenco pointed out in closing argument:

"… in 2010, Ecuador executed seven amended contracts, extending the terms of all of them, and in 2014, Ecuador extended the terms of three expiring Services Contracts with another three operators. Thus, even if Ecuador had discretion to grant an extension, so long as it was exercised in good faith, the facts compel a conclusion that Ecuador would, indeed, have extended Perenco's term in Block 7."185

210.
The evidence of extensions also accords with common sense. There are considerations of convenience resulting from the incumbent's knowledge of and experience with the unique operating characteristics of each oilfield, the operator's access to a lower cost of capital than that which the State could achieve186, the professional relationships between operators and their counterparts in the State's regulatory apparatus, and so on.
211.
The Tribunal is convinced that there is substantial evidence that, all other things being equal, senior officials and ministers of Ecuador would have preferred that Perenco continue its operatorship of Block 7 rather than its leaving the Block. There is a substantial body of evidence on the record to support this finding in addition to the general evidence showing that Ecuador tended to extend operatorships.187
212.
The fundamental problem for the extension claim is that it is not possible, on the evidence before it, for the Tribunal to know what contractual terms might have been arrived at in a successful negotiation but for the unlawful acts. Having regard to the situation in the last quarter of calendar year 2008, the Tribunal recalls that, as Perenco asserted in its pleadings during the merits phase, it did sign the Minutes of Partial Agreement (the actual title of the Actas), and did what it could to reach a solution acceptable to all parties.188 But it faced Burlington's disinterest, Ecuador's insistence that both members of the Consortium agree to the new arrangement, and the fact that the minutes themselves did not constitute a binding legal agreement.
213.
In this regard, the Tribunal recalls what Perenco asserted during the merits phase of the arbitration:

The Minutes were, rather, without prejudice minutes of the parties' negotiations, which set forth certain commercial issues on the basis of which the parties agreed to continue their negotiations. RMP WS ¶¶ 31-33, 58-59. The Minutes contained an express reservation of all rights; they stated on their face that they were not binding; and they expressly referred to the need for all parties (including Burlington) to execute duly agreed contractual modifications before any of the points recorded in the Minutes could take effect. See RMP WS ¶ 32; see also, e.g., E-84, p. 2 ("The parties declare that the information contained in the present Minutes of Partial Agreement... will not be binding."); ibid. p. 2 ("The parties declare that these agreements will be incorporated into the general negotiations that will take place in the following days and will concern mainly the following points: Arbitration and Mediation Clause...."); E-87, ¶ 6 and E-89, ¶ 8 ("For the application and validity of this agreement the parties shall negotiate and execute the Transitory Participation Contracts...."); E-87, p. 2 ("This agreement is without prejudice and does not constitute a waiver of the rights to which Perenco Ecuador Limited and PETROECUADOR believe they are entitled....") and E-89, p. 2 ("The agreements contained in these minutes are without prejudice and do not constitute a waiver of the rights to which Perenco Ecuador Limited and PETROECUADOR believe they are entitled...."). It was perfectly clear to all concerned that no binding agreement modifying the Contracts could be reached without Burlington's agreement. See also GCZ WS ¶ 24 (acknowledging the Minutes were subject to Burlington approval).189 [Emphasis added.]

214.
Indeed, when defending its inability to persuade Burlington to continue negotiations, Perenco argued that "Burlington cannot be faulted for refusing to accept the vague, incomplete and risky substitute contract it was being offered and to take on faith that its economic interests would be preserved. "190 [Emphasis added.]
215.
This is the fundamental difficulty facing this claim. The October 2008 Acta, which is the last indication of an apparent shared 'in principle' intention to establish a contractual basis for the Consortium's continued operation of Block 7, was in the form of "minutes" and itself was not put into final legal form. The intention of the parties at the time was that, if finally agreed, the Acta would be a transitory agreement that would be succeeded by some form of services contract. But the final expression of the Acta itself, let alone the expression of the parties' respective rights and obligations in the contract that would follow, were never reduced to writing. In the end, the Tribunal considers that Perenco's characterisation of the Acta as a "vague, incomplete and risky substitute contract" illustrates the inherent difficulties of choosing a proxy for the Block 7 extension scenario.
216.
Perenco saw the AGIP Contract as a proxy for what would have happened to Block 7 and adverted to the fact that it had considered a contract of this type as part of its extension negotiation strategy.191 This part of its damages claim therefore married together the financial aspects of that contract with Mr. Crick's 'but for' drilling programme for Block 7.
217.
But this approach founders on Perenco's concession that there is no record evidence that Ecuador ever considered that the AGIP Contract could be a model for an extension of the Block 7 operatorship for Perenco.192 For all of these reasons, the idea of employing a services contract like the Block 10 AGIP Contract as a proxy for what might or might not have been agreed for Block 7 is, in the end, a bridge too far for the Tribunal.
218.
The Tribunal has also taken note of the fact that much of Perenco's damages analysis is based on what Petroamazonas has done since it assumed operation of the Blocks. But the Tribunal is not convinced that the economics of the operations of Petroamazonas, a State– owned entity, provides an appropriate "apples to apples" comparator of what Perenco would have done in the 'but for' scenario.193
219.
As a matter of law, the Tribunal is also mindful of the fact that the decisions of international courts, tribunals, and claims commissions show that while financially assessable damages are to be awarded, the adjudicator must seek to avoid awarding speculative damages. As the BG Group tribunal noted:

"…Damages that are 'too indirect, remote, and uncertain to be appraised' are to be excluded. In line with this principle, the Tribunal would add that an award for damages which are speculative would equally run afoul of "full reparation" under the ILC Draft Articles."194

220.
Having regard to all of the circumstances, therefore, the Tribunal considers that it is too remote, uncertain and ultimately too speculative to accept Perenco's extension argument, particularly when Perenco itself accepted that it is necessary to use other contractual models as a proxy for what might have been agreed between the Parties. At the end of the day, it simply cannot be ruled out that the Parties might have been unable to arrive at an agreement or for its own reasons the State might have simply decided in an exercise of its lawful discretion not to extend the Block 7 contract. There is, therefore, in the present circumstances an insufficient degree of confidence as to the terms of a contract that might have been concluded such that there could be an estimate of lost cash flows.
221.
All of that said, the Tribunal is firmly of the view that Perenco has adduced persuasive evidence that it suffered a loss of opportunity and further that this loss is compensable. The Tribunal notes in this regard that the Burlington tribunal found that the claimant in that case did not make out its 'loss of opportunity' claim. But this points to a key difference in the facts before the Burlington tribunal and those before the present Tribunal. The Burlington tribunal appears to have been influenced by the fact that Burlington itself appeared to have assigned a zero value to the chance of a contract extension in 2007.195 The evidence before the present Tribunal is quite different. As the Tribunal's Decision on Liability found, Perenco sought ways to preserve its presence in Ecuador and to arrive at some form of accommodation with the State.196 Indeed, the Tribunal found that Ecuador's holding Burlington's recalcitrance against Perenco constituted a breach of the Treaty.197 It also appears that Burlington and Perenco argued over the course of action to be followed.198 In these circumstances, the Tribunal is of the view that in the 'but for' world of dealings between Perenco and Ecuador, there was a real opportunity for the incumbent operator to extend its operation of Block 7, which opportunity was lost due to the unlawful conduct of the State.
222.
The loss of opportunity is thus established and compensable and the Tribunal's estimate of that loss is addressed below in Section II.I.10.
223.
The upshot of the foregoing analysis is that since the Tribunal has found that it cannot assume that the extension of Block 7 would have been based on the AGIP contract or some other proxy, Mr. Crick's drilling plans for Block 7 for the period after the date of the Block 7 Contract's expiry on 16 August 2010 cannot be taken into consideration. With the Participation Contract's having come to an end shortly after the expropriation, there is no basis for considering the hypothetical drilling plans that might have been implemented had the Contract been extended.199
224.
The Tribunal turns to the 'but for' drilling scenarios.

(b) Block 7 'but for' drilling programme from Decree 662 to August 2010

225.
Since the Block 7 Participation Contract expired in August 2010 and in light of the Tribunal's finding above, the Tribunal is concerned only with the impact of Decree 662 upon the Consortium's drilling activities in Block 7 up to August 2010.

(i) Perenco's position

226.
Having regard to the August 2010 contract expiry scenario, Mr. Crick estimated that 21 new wells (of a total of 70 new wells in the extension scenario) would be drilled. Perenco notes that, as Mr. Crick explained, for the Oso 19-26 grouping, the average well had a 6-month payback period and outperformed even the "high case" predicted at the time of drilling.200 In fact, Oso 23, the last well that Perenco drilled shortly after Decree 662 was promulgated, was the best well yet.201
227.
Perenco argued that with three years remaining on the Block 7 Contract, in October 2007 it was far from being in a "shut-down mode" and the Consortium was not intending to limit Block 7 drilling to Oso wells which were expected to pay out the drilling investment by mid-2007. Following completion of the 8 firm Oso wells in the 2006 Plan of Development ("POD"), the Consortium would have begun drilling the 8 contingent wells contemplated by the Plan; those wells would have been re-categorised as "firm" wells. Perenco noted in this regard that it was common practice in Ecuador to budget only "firm" wells, with the operator later submitting budget adjustments when the "contingent" wells were moved into the "firm" category.202
228.
Both Mr. Combe and Mr. d'Argentré testified that the September 2007 BCM presentation showed that Perenco had substantially expanded its estimates of Oso's oil in place and planned to move more personnel to Oso and to build a new camp to accommodate them, and further that the Consortium had constructed the infrastructure backbone for further Oso development.203 Perenco needed time to process the "exciting results" from the firm wells before choosing additional locations.204 A rig was available to keep drilling.205
229.
But for Decree 662, Perenco argued, it would have continued to drill one well per month in Oso, just as it was doing at the time that Decree 662 came into effect and it would have continued this drilling programme for as long as it remained profitable to do so.206 Perenco asserted that this ought not to be controversial: further Oso wells would undeniably produce new reserves207 and Perenco indisputably had previously achieved a one-well-per-month drilling schedule in Oso.208
230.
No reasonable operator, amid rising oil prices and excellent results, would decide not to drill further wells.209 As soon as contract renegotiations were underway, Perenco proposed initially 33, then 70, new Oso drilling locations – hardly a hallmark of disappointment (as alleged by RPS).210 Perenco would have continued drilling further wells so long as they would pay for themselves and make a return prior to contract expiry. Such further drilling would have been particularly attractive given the high oil price environment, and given the fact that estimates of the amount of oil in Oso "only grew with each new batch of wells."211 (Perenco noted in this regard that Petroamazonas' estimates for Oso have continued this trend, indeed coming in much higher than Perenco's highest estimate.212)
231.
The only "uncertainty" was whether Oso was "excellent or merely very good."213 While RPS asserted that the Oso field was not as promising as Mr. Crick asserted on the basis of four of the 13 Main Hollín wells that were already off production prior to June 2007, Dr. Strickland explained that in any given field, the number of "bad" wells can be expected to exceed the number of "good" wells.214 For RPS to imply that Oso was somehow a poor performer based on the number of wells that had been taken off production was seriously misleading. The only reason for halting drilling at Oso was Decree 662's promulgation.215
232.
As for the Lobo and Coca-Payamino fields, Mr. Crick also forecasted waterflood developments.216 These were noted in Perenco's 2008 Internal Review and in the September 2007 BCM.217 Dr. Strickland explained that this meant that produced water would be re-injected into the reservoir. He reviewed the Perenco pilot waterflood results and found that they showed the required good communication between the wells to implement a waterflood development. He further confirmed that Mr. Crick's methodology was consistent with industry practice and the proposed waterflood projects should be successful.218 (Perenco also contended that this was validated by Ryder Scott, which had produced a reserves report for Petroamazonas in June 2013.219)
233.
The foregoing analysis was reviewed by Dr. Strickland who concluded that Mr. Crick's methodology was consistent with that employed by other buyers and sellers of international oil and gas assets and was applicable to the particular fields under review. Dr. Strickland's own production numbers were:220

Block 7Existing Wells Forecast Expected Ultimate Recovery (MMStb) Initial Production to 8/16/2018
Forecast Method
Field NameRate TimeRate CumAverage of
MMStbMMStbMethods
Oso19.919.8
Lobo6.56.5
Coco-Payamino67.167.1
All Others22.722.7
Sum of Block 7 Fields116.2116.1116.2
Analysis of John Crick118.5

234.
Dr. Strickland noted that Mr. Crick had used Petroamazonas' own production rates and used decline curve analysis. Dr. Strickland conducted an analysis of wells in Coca-Payamino, Oso and Lobo and combined Mono and Gacela. In applying the ' production performance analysis'/'decline curve analysis' methodologies,221 Dr. Strickland found that the 'Water to Oil Ratio vs Cumulative' method did not result in trends that could be conscientiously extrapolated to make a reliable forecast.222 He instead summed up the results obtained using the 'Rate vs Time' and 'Rate vs Cumulative' methodologies to obtain the Expected Ultimate Recovery ("EUR") for Block 7.
235.
All the fields except Lobo exhibited good trends under both methodologies. Lobo was the exception because that field was still being developed with the drilling of additional wells, such that the decline curve had not yet settled. Dr. Strickland made what he called a conservative extrapolation for Lobo. He then summed the EURs for the fields calculated under each technique to determine the cumulative EUR for existing wells in Block 7. He averaged the EUR calculated and compared it to Mr. Crick's calculated EUR. Dr. Strickland found that Mr. Crick's EUR (118.5 MMStb) was a very close match to Dr. Strickland's EUR of 116.6 MMStb (higher only by 2%).223 Mr. Crick's forecasts for the existing wells were thus in his view valid and reliable.
236.
In response to RPS's argument that these developments were too uncertain and risky, during the Quantum Hearing both Mr. Crick and Dr. Strickland testified that the proposed "5-spot" development pattern for the waterfloods would effectively de-risk the development and account for any minor discontinuities in the reservoirs.224

(ii) Ecuador's Position

237.
In Ecuador's view, the Quantum Hearing demonstrated that the Consortium did not intend to extend its drilling campaign at Oso beyond its 8-well commitment (i.e., up to Oso 26).225 The only additional drilling that the Consortium was envisaging beyond that was in the form of "risky" investments intended at the time to satisfy the investment requirement to be considered for an extension of the Block 7 Participation Contract. The Consortium, in short, was in a shut-down mode unless and until it was granted an extension.226 RPS's conclusion that the Consortium would only have drilled up to 3 wells reflected the strategy set out in the September 2007 BCM and other contemporaneous documents227, that is, that there would be no further drilling of the Oso Main Hollín reservoir beyond Oso 26, and the focus instead would be on "new investment" projects to be undertaken if negotiations for the extension of the Block 7 Participation Contract succeeded.
238.
In response to Perenco's maintaining that even in the absence of an extension being granted it would have drilled 21 new wells at Oso from January 2008 onwards, Ecuador argued that there was no contemporaneous support for this drilling campaign. The September 2007 BCM made no reference to any drilling beyond Oso 26, even though Mr. d'Argentré acknowledged at the Quantum Hearing that such meetings were the forum for discussing further drilling.228 He insisted that "the technical people on the background were exchanging information and discussing future wells."229 Yet Perenco failed to provide proof of such discussions, which only confirmed the lack of evidence in support of its development programme. It was repeatedly made clear that drilling beyond Oso 26 was only envisaged in an extension scenario.230
239.
Ecuador argued further that Perenco's reliance upon the proposed construction of a new camp at Oso as proof of the intention to engage in further drilling was misplaced, because it was not the "infrastructure backbone for further Oso development"231, but rather was foreseen to rationalise existing production operations in Block 7.232
240.
As conceded by Dr. Strickland at the Quantum Hearing, the commercially exploitable boundaries (or outer edges) to the south, east and north of the Oso field had all been reached by August 2006.233 By late 2007, it only remained to be determined how far the Main Hollín reservoir extended to the west following the promising, yet still preliminary, results from Oso 21. As pointed out by RPS, faced with this uncertainty, Perenco had decided upon the safer option of infill drilling for the last three Oso wells contemplated on the eve of Decree 662, rather than investing in further (riskier) wells to probe the western flank of that field. Perenco was thus in a "shut-down mode" pending an extension being secured for Block 7.
241.
In fact, on the eve of Decree 662, Block 7 was not the success story that Perenco was now presenting. First, Perenco misleadingly relied on the Oso mapping update following the results of Oso 21 to suggest that the Consortium "substantially expanded its estimates of Oso's oil in place based on drilling results."234 However, this increase was only reflected in the maps and was not further mentioned nor quantified during the September 2007 BCM.235 More importantly, if the Consortium was as enthusiastic about Oso at the time as Perenco contended, the increase of oil in place would have encouraged the Consortium to schedule further drilling beyond January 2008. But it did not do so.
242.
Second, Perenco disregarded the fact that it was not only a matter of some disappointing results, but of the location of the disappointing wells in question. RPS referred in this respect to the "poor results of the first 18 wells drilled in Oso field, particularly the results of the four failed Main Hollín wells."236 These 4 wells, which were probing for the edges237, indicated limited potential to the north, south, east, and southwest of the Oso field. As a result, Oso 21 and 23 were drilled in an apparent effort to test the northwest extension of the reservoir. As explained by RPS, the mixed results that these wells yielded, coupled with the looming contract expiry in 2010 and the poor quality of the seismic data in the western flank, would have persuaded the Consortium to limit additional drilling to three infill wells (Oso 24, 25 and 26), i.e., between Oso 21 and 23, and wells drilled of the main northern drilling pad (Oso 9). Once Petroamazonas took over operations, it benefited from new seismic data which allowed it to further step-out drilling to the north and to the west.238
243.
Further, the development programme would have required both an amendment to the Oso Development Plan and further authorisations from the Ecuadorian authorities.239 It would also have required an extensive upgrade to the Block 7 facilities.240 Not only would the looming contract expiry date not have allowed the Consortium to amortise the US $35 million necessary to undertake this upgrade, but there was also no evidence to show that the Consortium was even considering such a heavy investment absent an extension of the Block 7 Participation Contract.241
244.
In contrast to Mr. Crick's estimates and Dr. Strickland's numbers, RPS's numbers were:242

4-Oct-07 (Case 1) "Rest of Block 7" – Risked
Reserves Class/Category Description Reserves, MMStb
1P Producing Existing Wells at 04-Oct-2007 7.10
1P Undeveloped Three "but for" new wells 1.38
Total 1P 8.48
2P Producing Existing Wells at 04-Oct-2007 8.55
2P Undeveloped Three "but for" new wells 1.84
Total 2P 10.39
20-Jul-10 (Case 2) "Rest of Block 7" - Risked and Adjusted *
Reserves Class/Category Description Reserves, MMStb
1P Producing Existing Wells at 20-Jul-2010 0.18
Total 1P 0.18
2P Producing Existing Wells at 20-Jul-2010 0.18
Total 2P 0.18
4-Oct-07 (Case 1) Coca-Payamino – Risked
Reserves Class/Category Description Reserves, MMStb
1P Producing Existing Wells at 04-Oct-2007 3.88
Total 1P 4.61
2P Producing Existing Wells at 04-Oct-2007 3.88
Total 2P 4.61
20-Jul-10 (Case 2) Coca-Payamino - Risked and Adjusted *
Reserves Class/Category Description Reserves, MMStb
1P Producing Existing Wells at 20-Jul-2010 0.11
Total 1P 0.11
2P Producing Existing Wells at 20-Jul-2010 0.11
Total 2P 0.11

245.
RPS asserted that its forecast for the existing wells was based on a well-by-well analysis consistent with industry valuation practice.243 The reliability of RPS' analysis was confirmed by the fact that its 2P "most likely" forecast is within 10% of actual production.244 Conversely, the forecast for the three new wells was derived from Perenco's own AFEs245 for these wells. Under Case 2246, RPS forecasted 289,200 barrels of 1P247 and 2P248 oil from the existing wells in Block 7249, a figure undisputed by Perenco.
246.
Ecuador and RPS criticised Mr. Crick's type-curve forecasting methodology (because he first determined the initial oil rate for his new wells, before applying to these (and to the existing) wells a type curve calculated at field level). This could be very imprecise, differing from reality by as much as 45%, as Mr. Crick himself acknowledged.250
247.
Mr. Crick's production figures were also grossly inflated as compared to the actual production of the Blocks. Mr. Crick's forecasting methodology not only failed to accurately forecast the past, but RPS also demonstrated that the results obtained by applying Mr. Crick's decline curve to each of the existing Oso wells from their initial production through to 31 March 2013 significantly exceeded (i.e. inflated) the actual production of the very wells for which Mr. Crick claimed to have obtained an excellent match. RPS undertook an independent check of Crick's forecasts and provided an apples-to-apples comparison with actual production, which resulted in an overstatement of reserves of Oso of 21 MMbo.251
248.
RPS demonstrated that in order to achieve the claimed "excellent match" between his forecast and the actual production of the Perenco wells, Mr. Crick had adjusted the data, thereby discrediting his validation technique.252 For the new wells, Dr. Strickland did not validate Mr. Crick's forecast for those wells, which represented some 99 MMbo out of his total forecast of 122.5 MMbo253. RPS also showed that Petroamazonas (unlike Perenco) had the capacity to handle a significant number of new wells and water production – beyond that of the 56 wells in Mr. Crick's analysis – with no operational restriction.254 Therefore, contrary to what Perenco alleged,255 the divergence between Mr. Crick's forecast and actual production could not be attributed to Petroamazonas' operational policies, but only to his flawed methodology.256

(iii)Perenco's response

249.
In response to Ecuador's and RPS' arguments, Perenco argued that RPS had wrongly criticised Mr. Crick and Dr. Strickland for employing "aggregate" forecasting methods derived from group of wells. Mr. Crick and Dr. Strickland had explained in detail why aggregate methods were better suited to the individually unpredictable Block 7 wells than well-by-well forecasts.257 Petroamazonas' own reserves evaluator, Ryder Scott, had used type curves in its forecasting for these Blocks, just as Mr. Crick had. Mr. Crick's method produced an excellent match to actual production from the wells it was designed to predict.
250.
Despite the earlier criticisms, RPS was forced to admit on cross-examination that Mr. Crick's methods in fact produced more accurate results (2%) than RPS' own results (8%).258 RPS' only criticism was that Mr. Crick should have begun his forecast not in August 2009, but rather at the very beginning of each well's productive life.259 In other words, the method's "good match" —its proven reliability in forecasting the future— should be disregarded because it fails to accurately forecast the past. Yet as RPS readily agreed, the point of 'decline-curve analysis' is "to predict the future."260 RPS had itself not provided a forecast that ran from the start of production of every well; rather, much like Mr. Crick, RPS has chosen a particular point in history (in RPS' case, October 2007) as the start of its forecast and then generated a prediction from that point forward.
251.
RPS did not deny that Dr. Strickland's independent forecast for the existing Block 7 wells, which coincided closely with Mr. Crick's numbers, were reliable and accurate.

(iv) The Tribunal's decision

252.
In the Tribunal's view, it is a given that the Consortium's thinking would have been dominated by the looming contract expiry. The Tribunal believes that the sharply rising price of oil leading up to October 2007 would have induced Perenco to seek to drill as many wells as were economically possible in the Oso field in the time remaining in that Contract. According to Mr. Crick, in the absence of a contract extension, Perenco would have stopped drilling in Block 7 in August of 2009 in order to ensure an adequate payback on the new wells.261 Mr. Crick estimates that Perenco could have drilled 24 wells per year in Block 7. The Tribunal agrees and accepts Mr. Crick's production profiles.
253.
The Tribunal is satisfied that in the 'but for' scenario commencing October 2007, to the extent that it would have engaged in new drilling, Perenco would have concentrated on the more predictable and technically less challenging Oso field rather than the riskier and more expensive waterflooding that Mr. Crick proposed for the Lobo and Coca-Payamino fields. It notes that Mr. Crick himself stated in his second Witness Statement that: "Lobo is one of the two fields, the other being the Coca-Payamino Unified Field, where, in the event of an extension to the Block 7 contract, Perenco was prepared to invest in further development using water injection."262 The Tribunal takes from this statement that drilling in the Coca-Payamino Unified Field would not have occurred unless a contract extension was granted and, in any event, the statement accords with the Tribunal's own sense of the evidence overall.
254.
Therefore, the Tribunal believes that the drilling that would have occurred in Block 7 'but for' Decree 662 would more likely have taken place in the Oso field only.

(v) Conclusion on the estimation of how many Block 7 wells would have been drilled up to August 2009

255.
In the Tribunal's view, the Consortium would have drilled four wells by January 2008 and 19 wells from February 2008 to August 2009. It has therefore used this number and timing of wells in its estimate of the damages suffered by Perenco up to the date of the expropriation.

(c) Block 21 'but for' drilling programme up to caducidad

256.
As noted above, the valuation of this Block is a two-step process. The first step is to value the future cash flows resulting from Decree 662 as of 4 October 2007 (calculated on the assumed basis that the Contract would operate until their date of expiry). The second step requires an estimation of lost future cash flows performed as of 20 July 2010 for Block 21, 20 July 2010 being the date of the declaration of caducidad which took away the remaining lifespan of the Participation Contract.
257.
As discussed previously, the second estimate is performed on a "clean sheet" basis. That is, instead of considering Decree 662's "price-depressing" effect on the value of the assets through to the date of the Contract's expiry, to use Perenco's words, the initial estimated lost cash flows for Block 21 will be cut off as of the date of the second valuation, and damages awarded for that period, whereupon a fresh valuation will be performed based on the conditions prevailing in the market as of the day before the declaration of caducidad was issued, and a second award of damages will be made for the loss of the Contract's remaining life, based upon the market conditions and the operator's assumed expectations in the 'but for' world of July 2010.

(i) Perenco's Position

258.
Perenco points out that at the time of Decree 662's implementation in October 2007, it was only one-third of the way through its Block 21 operatorship, with nearly 14 years left before the Contract's expiry in June 2021. Mr. Crick's 'but for' development programme therefore addressed this lengthy period of time left in the Contract's life. Of the 24 wells estimated, 21 would be infill wells drilled in the central, developed part of the Yuralpa field containing an oil column of at least 90 feet, and the remaining three wells would be located outside of this area.263 In Mr. Crick's opinion, infill wells would have been recommended because of the water coning mechanism. Perenco noted that Ecuador's experts, RPS, accepted that infill drilling would indeed lead to new reserves. Half of RPS' own proposed wells were clearly infill.264
259.
Perenco pointed that in contrast to Mr. Crick's approach, RPS, who had previously claimed in the Burlington case that "additional drilling was not justified in Yuralpa field at all because the field was fully developed [in 2007]"265, had changed its mind in the present proceeding and it now proposed a limited six-well programme.266 Perenco noted that even its minimum investment commitment included in its 2008 negotiations with Ecuador after Decree 662 was promulgated, which contemplated operations on much less favourable economic terms than those contained in the Participation Contract, included seven Yuralpa wells.267
260.
Dr. Strickland evaluated Mr. Crick's forecast as well as RPS's forecasted performance of the six new Yuralpa wells that it opined would have been drilled. He concluded that both programmes were attainable and the question was which was more reasonable. In his opinion, Mr. Crick's development plan was more reasonable in terms of the volumes forecasted and more reflective of what a prudent operator seeking to maximise its production would do, while RPS failed to explain why a prudent operator would cease drilling after six successful wells in such a large field.268
261.
Dr. Strickland had opined that the critical characteristics of the Main Hollín reservoir affecting its ability to produce oil were:269

1. Amount of Oil : There was a large amount of oil in place in the Main Hollín. Since only a low percentage had been recovered to date, the ultimate recovery was likely to be even greater than Mr. Crick predicted. In Dr. Strickland's opinion, if oil prices were high enough, even more oil could be recovered than that forecasted by Mr. Crick.

2. Geology and Depositional Environment : In the Yuralpa field, the vast majority of the oil was found in the upper level of the Main Hollín reservoir, which consists of braided stream channels. The braided stream channels of the Main Hollín had a porosity of 20-25%, which was considered excellent for oil recovery. The braided stream channels also had high permeability. Porosity and permeability were two critical characteristics because they dictate whether oil was capable of moving through the reservoir to the well bore.

3. Water Drive : Yuralpa was a "bottom water drive reservoir." As oil was produced, water replenishes the reservoir pores, resulting in a relatively constant pressure of 3,300 psi. The amount of water produced from a well in a water drive reservoir would increase over time as the invading water reached the well. Typically, the recovery of oil-in-place in water drive reservoirs was high.

4. Viscous Oil : The oil in the Main Hollín was relatively heavy and viscous, which made it easy for the underlying water from the aquifer to break through the oil if pulled upward towards the low-pressure area around well perforations. This would lead to the creation of "water cones."

5. Presence of Shales : Shales, which are a type of low permeability, non-productive rock that impede the movement of fluids, were randomly distributed throughout the Main Hollín. The logs from the Main Hollín confirmed the presence of shales in a number of well bores in Yuralpa and Oso. However, the location and extent of shales could not be accurately predicted in the area between wells based on information from existing wells.

262.
Perenco argued further that RPS wrongly rested its entire development plan for Block 21 on a proposal made at a single Consortium Budget Committee Meeting (BCM) held in September 2007. It was unreasonable to assume that the Consortium would have proposed and approved a full development plan for the 14 years remaining on the Block 21 Contract. Further, RPS' six proposed wells would produce more than one million barrels each. With such productive wells forecasted, it was irrational to assume that the operator would be content to take no further action in the ensuing years.
263.
The Quantum Hearing testimony made clear that Perenco's 'but for' infill wells in Yuralpa would produce new reserves. As Dr. Strickland demonstrated in his presentation, RPS' own model disproved RPS' longstanding denial of water coning and its contention that "there are no areas available that would be a good target for infill drilling."270 In fact, the case for infill wells was even better than what RPS's model had showed: correcting RPS's apparent error in its modeling and using the appropriate 40-acre spacing between existing wells, the simulated infill wells produce even more oil.271
264.
Hence, Perenco argued that Dr. Gorell's "puzzling refusal" to call a "conical shape" a "cone" notwithstanding272, there was no longer any question that infill drilling between the existing wells' water cones would be productive. In fact, RPS explicitly "agreed[d] that you will produce oil [from the infill wells]."273 The only remaining debate concerned not oil production, but the associated water production274, with RPS claiming for the first time in its report filed with the Rejoinder that the water production associated with Mr. Crick's wells would substantially exceed the 120,000 barrels of water per day (bwpd) limit imposed by Mr. Crick.275
265.
Prior to the Quantum Hearing, Perenco had criticised RPS for failing to run the Yuralpa simulation model, which it used to generate its Yuralpa forecasts, in a reasonable way.276 For example, RPS did not assume the behavior of a rational operator who would have allowed the field's fluid offtake rate (the amount of fluid produced through operations) to increase over time.277 RPS's own results indicated that even a modest increase in fieldwide water production significantly increased oil production.278 RPS nevertheless chose to keep fluid offtake levels low, with no explanation as to why Perenco would behave so irrationally.279
266.
As Mr. Crick explained, in a water-drive reservoir such as the Yuralpa Hollín, where a powerful aquifer underlies all the oil and could be expected to encroach into the wells, increasing water-handling capacity was required to maximise the fields' productivity.280 Put simply, to produce greater volumes of oil, the operator must be prepared to produce and handle ever-greater volumes of water. As RPS was aware, Mr. Crick used a field-wide limit of 120,000 barrels per day.281 Yet RPS said nothing about Mr. Crick's proposed limit and provided no explanation for its decision to restrain its own forecast with much lower limits. In fact, Mr. Crick demonstrated that based on the latest data, his initial water estimate was actually pessimistic and the water production from his proposed new wells would be entirely manageable.282 RPS' only technical objection (that the water production associated with Mr. Crick's wells would substantially exceed the 120,000 barrels of water per day limit imposed by Mr. Crick) was thus invalid. Hence, RPS' only technical reason for opposing Mr. Crick's Yuralpa development plan is invalid.
267.
Perenco argued further that in contrast to Mr. Crick's plan, the Quantum Hearing revealed that RPS' own water production estimate was premised on a fundamental error: trusting the full-field Yuralpa model to make an accurate forecast of water production. Dr. Strickland showed that this is what RPS did. The flaw in that approach was that the model contained no water-blocking shales beneath the simulated infill wells (it was therefore a 'worst case' scenario). Such a model would obviously forecast abundant water production, when in reality the presence of shales would substantially reduce water production. Dr. Strickland explained that full field models in a bottom waterdrive reservoir where there are shales that block water production is not a good forecasting tool.283 Actual data proves that the model is empirically wrong: it predicts a much higher water-oil ratio (WOR) than has been actually observed in the field.284
268.
Perenco also contended that RPS misused a graph displaying Yuralpa's WOR as a function of cumulative production. RPS made a water production forecast for both existing and new wells using a WOR graph that records the behavior of existing Yuralpa wells only.285 This made no sense, in that it assumed that the new wells would add no reserves, which is indisputably false.
269.
Finally, in addition to the vindication of Mr. Crick's Yuralpa development plan as a technical matter, the evidence also disproved Ecuador's contention that the outlook in Yuralpa was so "bleak" and "disappointing" that Perenco would simply have given up on the field.286 To the contrary, somewhat lower than expected per-well recoveries compelled Perenco to drill more wells, even marginally profitable ones, in order to recover this investment.287 The wells were still turning a profit, and as Mr. Caldwell of Brattle conceded, if Perenco had a reason to drill even marginal wells, there is no economic reason not to do just that.288 Hence, the 2007 Yuralpa Study's six new wells can only be a minimum, not a maximum —a plan for the next set of work, not the full set of work.289 The 2007 Study itself discusses "new infill wells" and lists further analysis to be completed in support of such wells.290
270.
Dr. Strickland also reviewed Mr. Crick's forecasted production volumes, pursuant to his drilling plan, against a series of tests as well as the actual drilling plans executed by Petroamazonas. He also considered the critical characteristics of the Main Hollín affecting its ability to produce oil as set out at paragraph 261 above.291 Mr. Crick forecasted that the existing wells would recover 52.1 MMStb292 of oil and the new forecasted wells 11.3 MMStb.293
271.
Dr. Strickland noted that the presence of water coning, and the effects of good water-blocking shales, had been documented in Yuralpa.294 Due to the unpredictability of the location and extent of shales, it was difficult to extrapolate individual well performance in the Main Hollín so as to predict reservoir production with reasonable confidence since great differences existed between wells; however, it was easier to determine what the next group of wells would likely produce.295
272.
Dr. Strickland also confirmed that additional oil between wells could be recovered by infill drilling, i.e. placement of new wells, as suggested by Mr. Crick in his development plan for Yuralpa.296 Such additional wells would be needed if the operator was to capture the significant amounts of oil remaining in the Yuralpa field.297
273.
Dr. Strickland tested Mr. Crick's forecasts using four types of 'production performance analysis '/ 'decline curve analysis ':

1. Rate vs Time

2. Type Curve

3. Rate vs Cumulative

4. Water to Oil Ratio vs Cumulative298

274.
He found that Mr. Crick's application of the type-curve analysis was consistent with industry methods of forecasting future production for fields where individual wells were not well-behaved (i.e., where the plotted production data for each do not follow a predictable trend).299 He confirmed that the data from these wells were not well-behaved on a well-by-well basis.300 However, the data was well-behaved on a group or field-wide prediction basis. Dr. Strickland applied the four techniques to a field-wide analysis of all wells as of August 2009 and then to each group of wells according to the year that they were drilled. Comparing Mr. Crick's calculation to his independently calculated estimates, Dr. Strickland found that Mr. Crick's calculations fell within his independent calculations and therefore he was confident that Mr. Crick reasonably and validly calculated the reserves and EUR of existing wells in the Yuralpa field.301
275.
For the new wells that Mr. Crick forecasted in Block 21, Dr. Strickland applied a different methodology because historical information did not exist. He found Mr. Crick's forecasting approach to be consistent with industry practice.302 On the basis that wells drilled later in time would have lower initial rates and per-well EURs, Dr. Strickland plotted the average per-well EUR for the same group of wells and found a well-behaved trend, providing a prediction of the average per-well EUR for the next group of wells drilled in Yuralpa.303 He confirmed that Mr. Crick's forecasts were reasonable, and likely conservative.304 Dr. Strickland's numbers were:305

Block 21 YuralpaExisting Wells Forecast Expected Ultimate Recovery (MMStb)
Well GroupWellsIncludedForecast Method
Rate TimeMMStbRate CumMMStbWOR CumMMStbType Curve MMStb Average of 4 Methods
1Drill 200412.512.413.314.5
2Drill 200520.220.023.723.2
3Drill 2006-715.715.618.318.3
Sum of Groups 1,2 & 348.446.055.356.051.9
4All Perenco Operated47.948.062.653.353.0
Analysis of John Crick52.1

276.
Using Perenco's history-matched numerical model, developed in 2007 and later updated,306 Dr. Strickland confirmed that there was enough oil remaining in un-swept locations to drill the 24 wells forecasted by Mr. Crick.307
277.
Although Mr. Crick's correlation was acknowledged to be imperfect308, Perenco contended that Mr. Crick's correlation was a useful and conservative basis for forecasting the new wells' production. Decline curve analysis was a reliable forecasting tool where, as here, there is every reason to believe that Perenco would continue to undertake the necessary work and investments – just as Petroamazonas has in fact done.309 Although RPS had argued in its Fifth Report that Mr. Crick used an improper averaging technique in creating his type curves, Mr. Crick argued that this was not true and RPS made no attempt to revive this point.310
278.
Perenco asserted further that RPS argued for adoption of a 17% decline rate sourced from Petroamazonas' Block 21 contract with YPF that RPS had itself explicitly rejected in the Burlington proceeding. Having conceded that this rate ought never to have been used, RPS attempted to reach the same steep decline rate by extrapolating the field's decline over a period that included the negative impact of Decree 662.311 On cross-examination, Dr. Gorell agreed that any extrapolation should be sensitive to the import of historical events.312
279.
Perenco submitted further that Mr. Crick's forecasts have been verified by other independent sources, including later estimates from Petroamazonas, Ryder Scott and Dr. Strickland. RPS on the other hand offered no criticism at all of Dr. Strickland's Yuralpa predictions and Ecuador did not cross-examine Dr. Strickland on his forecasting methods or results.313
280.
Based on Mr. Crick's technical work, as reviewed by Dr. Strickland, Professor Kalt then estimated the value of Block 21 foregone by Perenco as a result of Ecuador's Treaty and contractual breaches. He calculated that Perenco's damages arising from Block 21 suffered as a result of the breaches amounted to $501.5 million if valued on an ex ante basis314 and $651.6 million, if valued on an ex post basis.315

(ii) Ecuador's Position

281.
In Ecuador's view, the Consortium would have only drilled up to six, not 24, new wells at Yuralpa.
282.
Ecuador observed that it was not in dispute that the Yuralpa field was Perenco's first greenfield project and that its development was strewn with unforeseen challenges and unexpectedly poor results. As admitted by Mr. Combe, following the sudden and inexplicable loss of its two best producers in 2004, the field never again met the Consortium's 20,000 barrels of oil per day 'ship-or-pay' commitment316, notwithstanding investments substantially higher than originally expected.317 Subsequent consecutive drilling campaigns also yielded disappointing results.
283.
Against this backdrop, Perenco halted drilling in February 2007 (months before Decree 662 was promulgated) and, in an attempt to address the significant challenges encountered at Yuralpa, commissioned a state-of-the-art full-field study. The preliminary results of this study were presented at the September 2007 BCM. This and a slightly refined and final version of the Yuralpa Simulation Study issued by Perenco in June 2008 identified two unswept areas in which the existing wells alone would not have drained the reservoir by 2021. As a result, the September 2007 BCM presentation set out a preliminary programme of between six and eight new wells in the main and south-eastern fringe areas of the field, to be drilled starting in July 2008. This was later reduced to between five and seven wells in the subsequent Simulation Study, in order to effectively sweep the reservoir.318
284.
Accordingly, RPS concluded that six new wells would have been drilled at Yuralpa from July 2008 onwards but for Decree 662: two in the main area of the field, three in the south-eastern fringe and one re-drill towards the south.319 Ecuador rejected the contention that RPS had shifted positions between the Burlington and Perenco arbitrations; the two tribunals had made different findings and hence different perspectives needed to be adopted as a result.320
285.
Perenco's purported 24-well drilling programme, which would have commenced in July 2008, was at odds with Perenco's September 2007 BCM presentation and the Yuralpa Simulation Study issued in June 2008, which contemplated drilling between five and (no more than) seven horizontal wells so as to effectively sweep the two areas which would have been otherwise left undrained by 2021.
286.
Neither the Yuralpa Simulation Study nor any contemporaneous document implied, let alone demonstrated, that there was any significant issue with respect to how Perenco's Geoscience department carried out the Study or constructed its state-of-the-art model. Nor were the conclusions and recommendations criticised or in any way impugned prior to Mr. Crick's testimony. The Study simply did not envisage the need for, or indeed identify the benefit of, proceeding with an extensive infill drilling campaign in the main area of the Yuralpa field and instead focused on further development of the fringe area, where the oil column thickness was inferior to 90 feet.321
287.
Yet, Mr. Crick's evidence was that the Consortium would have set aside the conclusions and recommendations from this in-depth study and instead embark upon a spur-of-the-moment 24 vertical well campaign, commencing with 21 infill wells in the main area of the field. Mr. Crick's justification was because he wanted to do vertical wells.322
288.
Mr. Crick's extensive infill drilling programme was premised on the assumption that water coning was a pervasive occurrence at Yuralpa.323 In Ecuador's view, this was not supported by any document on the record and infill drilling was inconsistent with the recommendations of the Yuralpa Study. RPS demonstrated that, consistent with the Kerr McGee report324, water movement was actually far more complex in the Main Hollín reservoir. As shown in RPS's 4-well sample simulations, each well drilled gave rise to extensive lateral water movement, which extended outward with time and, by interacting with the water movement caused by neighbouring wells, eliminated any "infill" drilling targets.
289.
Neither Mr. Crick nor Dr. Strickland levied any material criticism against RPS' simulation runs or their ultimate conclusion. Dr. Strickland did not outright reject the notion of extensive lateral water movement. Instead, he sought to downplay its impact by purporting to show that even in RPS' 4-well water encroachment model, enough oil remained trapped between wells so as to warrant drilling the fifth "infill" well. This failed for two reasons:

1. Dr. Strickland focused on representations of the 4-well sample at 12, 19 and 25 months into production. However, this overlooked the fact that the actual Yuralpa wells were much older than that. On average, the wells drilled in this area would have been producing between 33 months and 57 months between the commencement and end of Mr. Crick's drilling campaign. These wells would have caused far more extensive water encroachment and left far less recoverable oil between them.

2. The recovery of any such incremental oil, would be accompanied by the production of large amounts of water.325 The aggregate water production of 24 such wells would very rapidly surpass the handling capacity of 45,000 bwpd of the field in 2008, thus requiring substantial investment towards an upgrade. Dr. Strickland did not seek to quantify the associated water production.326

290.
Mr. Crick's development plan and his own run of the Yuralpa model would yield far more water than his assumed upgraded handling capacity of 120,000 bwpd. In particular, according to Mr. Crick's development plan, the water production was expected to increase steadily up to 180,000 bwpd in 2021. As a remedy to such increase, Mr. Crick provided for three water shutoff workovers (WSOs) to be carried out per year, starting in 2015. However, as shown by RPS, such WSOs could not achieve the massive reduction in water production that they were credited with.327 In addition, Mr. Crick's own run of the Yuralpa model also yielded water production figures far higher than his stated 120,000 bwpd, which he then sought to cap through over 100 automatic WSOs. As demonstrated by RPS and conceded by Mr. Crick, however, such operations were unrealistic and costly.
291.
RPS also took issue with Mr. Crick's observation that the simulator over-predicted water production. This was true so long as the field operations remained unchanged, but it was not a valid assumption to make if 24 new wells were put into production in the reservoir and the way in which the wells were operated was significantly changed. This meant that a reasonable proportional cutback of liquid production would inevitably require a significant reduction in the total amount of oil produced, something which was ignored by Mr. Crick.328 Moreover, in response to Perenco's argument that since "the model contains no water-blocking shales beneath the simulated infill wells" RPS was using a "worst-case scenario" forecasting tool329, it is not possible to accurately predict the location of shales.330 This meant that Mr. Crick's 24 new wells were just as likely not to encounter shales as they were drilled. Even if the shales could be accounted for prior to any drilling, it was not true that they would have an effect on cumulative water production. Ecuador asserted that such shales would, at best, laterally deviate the otherwise vertical course of water,331 which would increase the amount of mobile water in the field and consequently the amount of water produced by another well.332
292.
RPS further asserted that in addition to not imposing a field wide limit on the total water production, Mr. Crick also changed how the simulation controls the wells by simultaneously changing well minimum production rates and workover procedures, "all in manners which tend to increase oil production."333 RPS found these to be "outrageously optimistic."334
293.
Ecuador also criticised Mr. Crick's type-curve forecasting methodology335 asserting that it can be very imprecise, differing from reality by as much as 45%, as acknowledged by Mr. Crick.336 The initial rate of the wells was incorrectly determined; Mr. Crick purported to derive this rate from an alleged correction between the actual initial rates of 27 Perenco wells and 11 wells drilled by Petroamazonas, but Mr. Crick conceded at the Quantum Hearing that this was not a reliable correction337: its 0.25 coefficient was far below the 0.6 required to find a valid statistical correlation. Moreover, the well data Mr. Crick relied on to derive this "non-correlation" was selected in an inconsistent manner because he had chosen to exclude eight wells out of a total of 35 (23% of the available data) on the ground that he considered them to be "outliers."338 As RPS pointed out, it is statistically unsound to exclude 23% of the data.339
294.
Mr. Crick's attempt to validate his method by reference to "the initial rate from the Petroamazonas wells to predict the performance of the Petroamazonas wells" is plainly unavailing, as it is achieved through a circular (and thus technically incorrect) process.
295.
Despite it being "readily acknowledged" to be flawed340, Perenco sought to re-characterise Mr. Crick's initial rate correlation as a useful and conservative basis for forecasting but Ecuador argued that this relied on statements that Mr. Crick did not actually make at the Quantum Hearing.341
296.
RPS estimated that the aggregate oil production from Block 21 would have totaled 29.64 MMbo through to contract expiry. Such production would have been derived from both the existing wells (22.83 MMbo) and from the six new wells the Consortium would have drilled but for Decree 662 (6.81 MMbo).342 RPS' forecast was derived from the Yuralpa simulation model which represented the culmination of a major phase of geomodelling and simulation work carried out by Perenco's own geoscience department. This model was undoubtedly the best and most up-to-date prediction tool available to the Consortium from late 2007 onwards and is therefore, the most appropriate means of forecasting oil production in Block 21.343

(iii)The Tribunal's Decision

297.
The Tribunal notes that for Block 21, Mr. Crick's plan was that all 24 of his Yuralpa field wells would be drilled in the period commencing January 2008 through to the end of 2009 (assuming two rigs operating, each one taking a month to drill a well344) and he projected no additional drilling from the end of 2009 through to contract expiry in 2021, a period of some 11 years. In his third witness statement, he adjusted his commencement date to July 2008.345 However, he still contemplated all 24 wells being drilled before the declaration of caducidad and none being drilled thereafter.
298.
His 'but for' drilling programme was thus 'front-end loaded'.
299.
The Tribunal has taken note of documentary and oral evidence which showed that:

(1) Block 21 consistently performed below expectations after its first three months of production in 2004.346

(2) This led to Perenco's decision to halt drilling in February 2007, some seven months before Decree 662 came into effect.347

(3) Burlington's parent, ConocoPhillips, produced a Latin America Reserves Review in May 2007 which noted that drilling in Yuralpa had been "currently halted to conduct field study (water production key issue)" and further that "disappointing well results in latter part of 2006 reduced development [drilling] opportunities - Field study currently underway."348

(4) The ConocoPhillips Information Memorandum (also of May 2007) stated that "…due to earlier than expected water breakthrough in the latest wells, further drilling has been put on hold pending the completion of a reservoir and completion practices study."349

(5) Based on the preliminary study being performed by Perenco, ConocoPhillips at this point anticipated nine wells as "potential targets" (four infill and five offset (i.e., flank) locations, but by the September 2007 Budget Committee Meeting (BCM), the number was reduced to five to seven with fewer interior wells.350

(6) Perenco informed the BCM of 26-27 September 2007 that there would be "no investment [in Block 21]… for first half of 2008."351

(7) Perenco's "preliminary programme" in September 2007 was that five to seven wells be drilled.

(8) The final report on the field study was distributed only in June 2008, eight months after Decree 662 came into effect.352

(9) It is conceded by RPS that the field study identified two unswept areas in Block 21 where oil which would not have been drained by the existing wells.353

300.
The real questions for the Tribunal are: (i) given the Yuralpa field's history, at what pace would drilling have occurred in the 'but for' world; and (ii) what would be the financial impact of the water handling required to exploit the wells in Yuralpa.
301.
RPS noted the following points about the Perenco simulation study:

"Base case reserves were 20.3 MMstb. They were calculated using the wells that existed as of October 2007, and using the fluid production rates at that time.
Water handling capacity was 45,000 barrels per day.
Perenco evaluated the potential to increase reserves to 25.7 MMstb by maintaining the current drawdown in the existing wells. This would necessitate increase in water handling to 60,000 barrels per day.

[...]

Perenco evaluated drilling between five and seven wells, which could increase reserves to 32.0 MMstb with the current liquid production rates in existing wells. [...]"354

302.
Based on the evidence before it, the Tribunal considers that in the 'but for' period following 4 October 2007, the Consortium would have been, on the one hand, incentivised to drill by the rising oil prices experienced in the period leading up to October 2007. On the other hand, the Consortium would have been more conservative than Mr. Crick in committing to an ambitious drilling programme, given the hitherto disappointing performance of Block 21. That said, the general view must be that in the 'but for' world, particularly with a relatively long period of time remaining on the Contract and strong oil prices at the time, the Consortium would have drilled all wells that were technically and economically feasible.
303.
In the circumstances, and given Mr. Crick's adjustment in timing, the Tribunal therefore considers that this programme would have commenced no earlier than July 2008.355

Therefore, when estimating the Yuralpa field's value for the purposes of calculating the effect of Decree 662, there would be no increase in the number of Block 21 wells until mid-2008. As for what would happen thereafter, the Tribunal considers that it would be appropriate to assume that Perenco would have drilled six wells between Decree 662 and the declaration of caducidad.

304.
The Tribunal considers that the starting point for the analysis is a model based on the drilling programme as contemplated in 2008 (six wells) in the period leading up to caducidad and to adjust for an increased number of wells.

E. The impact of caducidad's termination of the balance of Perenco's contractual rights

305.
The declaration of caducidad terminated the Participation Contracts. This was done only one month before the Block 7 Participation Contract expired. As already noted, the Tribunal has declined to assume a particular contractual model that might have governed the Parties' relationship in relation to Block 7 and has chosen instead to treat this as a compensable loss of opportunity, addressed below.
306.
The Tribunal therefore begins by considering the situation in Block 21, which Perenco would have operated for some approximately 11 years had caducidad not been declared. This raises Mr. Crick's 'but for' drilling plan for the Yuralpa field.
307.
With respect to the 11 remaining years on the Contract and prices prevailing in the period leading up to July 2010, had caducidad not been declared, given that there is exploitable oil in Block 21, the Tribunal considers that Perenco would have conducted further drilling, particularly when it is assumed as the Tribunal has decided to assume that as of October 2008, the Participation Contracts would be stabilised at 33%. In the end, the Tribunal has decided to employ a mid-range number of wells from Mr. Crick's scenario. In the Tribunal's view, having regard to industry practices and in particular the desirability of maximising Perenco's returns in Block 21 over a still lengthy period of time as well as the value of accelerating drilling in order to capture as much production as possible, but mindful of the Block's history of watering issues, Perenco would have drilled additional wells after expropriation.
308.
Having arrived at this conclusion, the Tribunal is aware of the fact that the Burlington tribunal took a different view, namely, that having regard to the situation as of September 2007 before the enactment of Decree 662 only six wells were scheduled to be drilled. This was the number of wells that that tribunal found it was reasonable to assume would it be drilled in the circumstances. The present Tribunal cannot agree with Burlington 's heavy reliance on the September 2007 BCM Presentation and accepts Perenco's argument that "budget committee presentations are not development plans and that Perenco had not intended, in the course of a single budget meeting in 2007, to lay out its plans for the 14 years remaining on the Block 21 Contract."356 The Tribunal believes that given the 14 year time horizon, the Consortium would have been likely to drill more wells so long as it considered that there was commercially exploitable oil.357
309.
Knowing that Petroamazonas has to some extent validated Mr. Crick's modeling of the Blocks' productive capacity is of some comfort to the Tribunal that it has arrived at a fair and reasonable valuation, but at the end of the day the Tribunal's approach is to: (i) use market conditions prevailing at the time of the taking; (ii) take the common sense commercial view that with 11 years remaining on Block 21's life, Perenco more likely than not would have sought to maximise its efforts to extract as much value from the Block as was reasonably attainable; (iii) Perenco's drilling programme would have been conducted somewhat more conservatively than Mr. Crick's plan, but still would have sought to overcome the Yuralpa field's technical challenges; and (iv) as Perenco gained more knowledge and experience with the field, it would have put that knowledge and experience to commercial benefit in its drilling decisions.
310.
The Tribunal considers that 'but for' the declaration of caducidad, Perenco would have drilled ten wells (in addition to the six wells drilled before caducidad) between 2010 and 2020.
311.
Having considered the record evidence and the arguments of the Parties, the Tribunal further concludes that the water production levels associated with a 16-well drilling programme would be 120,000 bwpd.358

F. Valuation of Perenco's loss of opportunity to operate Block 7

312.
The Tribunal turns to the valuation of the loss of opportunity to negotiate an agreement to continue to operate Block 7 until August 2018. As discussed above, this exercise differs from valuing the loss of profits expected under an executed contract and the question is how to value this opportunity.

1. Perenco's Position

313.
Perenco submitted (in the alternative to its asserted claim of US$626 million based on the AGIP contract, which the Tribunal has already rejected), Ecuador must pay damages for the value of Perenco's lost opportunity to obtain and benefit from a contract extension. Tribunals are willing to apply the loss of chance doctrine even when the probability is low. Here, Perenco established that an extension would very likely have been granted and at the very least should be compensated for its loss of chance to operate in Block 7 until 2018. Perenco's case was unlike that of the claimants in the Gemplus case, where the claimants based their extension claim solely on the ground that the concession gave rise to a legitimate expectation that significant additional revenue could be expected from the second 10-year period.359 Perenco had established a strong factual basis for the extension and this was not a claim for speculative and uncertain damages.

2. Ecuador's Position

314.
In contrast, Ecuador relied on the Gemplus award, where that tribunal looked at the language of a similarly drafted clause and concluded that, while the exercise of the State's discretion was not unfettered under municipal law, the claimant's claim for the second period of ten years was far too contingent, uncertain and unproven, lacking any sufficient factual basis for the assessment of compensation under the two applicable BITs. At the relevant date, the concessionaire had no legal right to any extension.360 Likewise, while Ecuador's discretion was not unfettered under Ecuadorian law, Perenco's claim for an eight-year extension was far too contingent, uncertain and unproven, lacking any sufficient factual basis for the assessment of compensation under the Treaty. At the date of caducidad, Perenco had no legal right to an extension.361

3. The Tribunal's Decision

315.
The Parties have argued over the relevance of the Gemplus award, where the concession contract at issue contained a clause that contemplated an extension of the initial 10-year term. The main reason why that tribunal refused the loss of opportunity claim based on the possible renewal of the contract stemmed from the fact that the circumstances which initially threw the motor vehicle registry project into disarray and forced the authorities to intervene to administer the concessionaire occurred at the very outset of the Concession's life.362 This caused an understandable decline in public confidence in the registry initiative.363 Hence, the tribunal had little difficulty rejecting that part of the claim.
316.
However, although it was facing dramatically different factual circumstances than the present case, and it was then attempting to value a loss resulting from extant contractual rights, the Gemplus tribunal highlighted two points on 'loss of opportunity' that resonate with the present Tribunal. First, there was "no certainty or realistic expectation of this project's profitability as originally envisaged, but there was nonetheless a reasonable opportunity" and that "opportunity, however small, has a monetary value" at international law.364 Second, "it would be wrong in principle to deprive or diminish the Claimants of the monetary value of that lost opportunity on lack of evidential grounds when that lack of evidence is directly attributable to the Respondent's own wrongs."365
317.
This is in line with the present Tribunal's view. The facts are that: (i) Block 7 was a proven field with valuable oil reserves; (ii) there is no question that even with a changed contractual model, Perenco wanted to stay in Ecuador and continue to operate the block; and (iii) there is considerable evidence that the State itself would have preferred Perenco to stay in Ecuador. The Tribunal believes that 'but for' the breaches, the parties more likely than not would have arrived at a solution whereby Perenco would be operating Block 7 under a different contractual regime. But the Tribunal has also found that it cannot engage in the kind of speculation about a specific contractual model which would then be married with Mr. Crick's projections in order to arrive at an amount of damages.
318.
Perenco referred the Tribunal to Ripinsky and Williams' Damages in International Investment Law, where the authors observed:

"Loss of chance can thus be used as a tool allowing the injured party to receive some form of compensation for the loss of chance to make profit. In theory, the loss of chance is assessed by reference to the degree of probability of the chance turning out in the plaintiff's favour, although in practice the amount awarded on this account is often discretionary."366

319.
The authors continue:

"In some other cases, arbitral tribunals have determined the amount of lost profits in a discretionary manner. Where this lack of numerical support was due to the fact that a tribunal could not estimate the loss of profits with satisfactory precision, such awards may be classified as compensation for the loss of business opportunity. Amounts awarded under this head of damage are likely to be conservative and reflect a tribunal's view of an equitable, reasonable and balanced outcome rather than being a result of a mathematical calculation."367

320.
The Tribunal observes that the claim here is not to be equated to a lost profits claim based upon a final, executed contract. There is an element of uncertainty that must be taken into consideration.
321.
In arriving at its decision, the Tribunal has considered the ILC Articles, particularly Article 36 thereof, and the commentaries (specifically (27) and (32) thereto. Article 36 provides that:

"1. The State responsible for an internationally wrongful act is under an obligation to compensate for the damage caused thereby, insofar as such damage is not made good by restitution.

2. The compensation shall cover any financially assessable damage including loss of profits insofar as it is established."368

322.
The key point is that financial damage must not only be proximately caused by the unlawful act(s), but that it also be "assessable", that is, capable of being assessed. The Tribunal has already observed that it is also alive to the cases' and commentaries' reminder that international courts, tribunals and claims commissions seek to avoid granting "inherently speculative" claims or to put it the other way, seek to determine whether there are "sufficient attributes to be considered a legally protected interest of sufficient certainty to be compensable."369
323.
The circumstances of the present case are unusual. The parties arrived at an 'in principle' negotiated change to their contractual relationship which contemplated the extension of Block 7's term. However, it was Ecuador, and not Perenco, which, due to Burlington's recalcitrance, balked at its implementation. The Tribunal found this refusal was a breach of the Treaty by Ecuador which deprived Perenco of the chance to reach an agreement on extension.370 Therefore, the Tribunal considers that Perenco is entitled to compensation for the loss of that opportunity.
324.
The Tribunal frankly acknowledges that any estimation of the value of the loss of opportunity is an exercise of discretion and therefore it has decided to award a nominal value. In this regard, the Tribunal recalls a comment made by the Murphy v. Ecuador tribunal with which the Tribunal agrees:

"…The applicable international law standard of full reparation, as reflected in the Chorzów Factory judgment and Article 31 of the ILC Articles on State Responsibility, does not determine the valuation methodology. Nor does the Treaty. Tribunals enjoy a large margin of appreciation in order to determine how an amount of money may "as far as possible, wipe out all the consequences of the illegal act and re-establish the situation which would, in all probability, have existed if that act had not been committed."371

325.
Because it is a loss of opportunity to have the contract extended rather than the loss of a fully crystallised legal right to an extension of a contract, the expected cash flows of which could be modelled on a DCF basis, such value must necessarily be significantly lower than the amount claimed by Perenco based on the AGIP contract model applied by Mr. Crick's drilling forecasts for Block 7 through to 2018.
326.
In all of the circumstances, the Tribunal holds that an award of US$25 million is appropriate. It cannot but note that the equities tend strongly in favour of the granting of this relief. This however is not a decision ex aequo et bono. It is one grounded in law.

G. Contributory Negligence

327.
Ecuador's defences on liability and on quantum advanced various arguments to the effect that Perenco was either the author of its own misfortune or otherwise has contributed to the harm in respect of which it now seeks damages. This was prominent in Ecuador's argument during the liability phase that Perenco and Burlington pursued a so-called "self-expropriation" strategy in refusing to comply with Law 42 by paying sums into an offshore account, and calculating that they would be better off keeping that money and not operating the Blocks.372 In the damages phase, Ecuador argued similarly that Perenco contributed to the coactiva dispute by refusing to pay Law 42 dues, by threatening suit against persons who purchased the oil at auction, and by suspending operations, knowing that this would force the State to intervene and ultimately could be a ground for caducidad.373

1. Ecuador's Position

328.
Ecuador thus argued that if Perenco was entitled to any damages at all, they ought to be reduced on grounds of contributory negligence. It argued that international law is clear that simple negligence (demonstrating a lack of due care for one's own property or rights374) that concurrently contributes to a loss is sufficient to establish contributory negligence.375
329.
In its view, Perenco's refusal to pay the amounts due under Law 42 was inherently negligent because it compelled Ecuador to react. Ecuador argued that its own alleged breaches of international law were irrelevant to Perenco's contributory negligence because the doctrine of contributory negligence exists in order to reduce the damages from a respondent's breach on account of the claimant's own negligent contribution to the loss it has suffered. Ecuador submitted that if Perenco's excuse for what Ecuador termed "tax evasion"376 (that is, Ecuador's response was contrary to its international rights) were to be accepted, the doctrine of contributory negligence would have no possible application. Ecuador relied in this regard on the awards in Goetz, Occidental and Yukos where tribunals found the claimants were contributorily negligent for instigating the State's breach and therefore the damages to be awarded were adjusted downward.377
330.
In addition, Ecuador contended, Perenco was negligent, or even reckless, in suspending ongoing operations in the Blocks and consciously ignoring the risks of environmental harm and production losses. By suspending operations on short notice,378 Perenco acted in reckless disregard even in relation to its own rights, even though it foresaw that Ecuador would be forced to respond. Even if Perenco were permitted in principle to suspend operations, Perenco could not do so regardless of the risks. Mr. Perrodo repeatedly conceded that he decided to suspend operations despite his full awareness of the risks. Specifically, Mr. Perrodo admitted that he was aware that suspending operations involved serious risks, including production losses in Blocks 7 and 21 and environmental damage to the Ecuadorian Amazon.379 He recognised that these risks would force Ecuador to respond and might result in caducidad.380 He admitted that, consciously disregarding these serious risks, he decided to suspend operations in Block 7 and 21.381
331.
Ecuador argued further that Perenco's conduct during the Parties' negotiations was negligent and led to the breakdown of negotiations. It had rejected Ecuador's proposals, making the negotiation process even more difficult. Contrary to what Perenco alleges, the Tribunal never found that Perenco was justified in terminating the negotiations based on "Ecuador's unlawful coercion."382 Perenco's failure to "make its best efforts" to finalize the renegotiation of the Participation Contracts pursuant to the Actas de Acuerdo Parcial of October 2008, after having signed three partial agreements throughout 2008, amounted to an "unjustified" termination of the negotiation which gave rise to culpa in contrahendo.383
332.
Ecuador further argued that Perenco could not rely on the argument that Ecuador's unlawful conduct was the proximate cause of caducidad. A single event might have multiple proximate causes. The doctrine of contributory negligence depends on this possibility. Contributory negligence reduces compensation exactly when the respondent and the claimant both contribute to or proximately cause the claimant's loss. Article 39 of the Articles on State Responsibility deals with this situation.384 Ecuador's alleged proximate causation does not change the fact that Perenco's refusal to pay its Law 42 taxes and its decision to abandon the oil fields directly contributed to caducidad.385
333.
Finally, if Perenco referred to coactivas and the oil auction as the proximate cause of caducidad, Perenco's reckless decision to suspend operations in the Blocks were a more direct cause of caducidad than the coactivas and the oil auction.386

2. Perenco's Position

334.
Perenco responded that Ecuador bears the burden of proving two elements of its contributory fault theory. First, Ecuador must show that Perenco committed a wrongful act, whether intentional or negligent; bad business decisions that might have increased the investor's risks do not rise to the level of culpable fault capable of supporting a finding of contributory fault.387
335.
Perenco's refusal to pay the Law 42 amounts cannot be characterised as negligent because the Tribunal has already rejected Ecuador's claim that Perenco had no legal basis to withhold Law 42 payments. The Tribunal has acknowledged that Perenco was justified in withholding direct payment of Law 42 dues after commencement of the arbitration.388 Perenco legitimately expected that Ecuador would comply with the Tribunal's binding orders and that this relieved Perenco from making those direct payments. Its refusal thus could not be characterised as a culpable act that manifested a disregard for Ecuador's rights and for which Perenco should be penalised.
336.
Moreover, given the position taken by two Ecuadorian Attorney-Generals that Law 42 was not a tax law and that the dues collected pursuant to it were not collected by Ecuadorian tax authorities, it was not reasonable and realistic to suggest that Perenco should have paid Law 42 dues to Petroecuador and then petitioned Ecuador's tax authorities in order to contest them.389
337.
In relation to Perenco's suspension of operations following Ecuador's disregard of the Tribunal's Decision on Provisional Measures and issuance of coactivas, the Tribunal had found that Perenco's suspension of operations was justified under the exceptio non adimpleti contractus principle. The defence was open to Perenco and that therefore Perenco could lawfully suspend operations when faced with a breach of contract without itself being found to be in breach.390 And, as Mr. Perrodo had testified, there had been no interruptions in operations and the company had taken the decision to suspend only as a last resort.
338.
Regarding Perenco's alleged failure to obtain Burlington's agreement to abandon the Participation Contracts and agree to an unspecified future contractual form, the Tribunal had found that Perenco was not liable for Burlington's decision not to abandon its contractual rights, that Burlington had good reasons for doing so, that Ecuador acted abruptly and coercively during the negotiations, and that Ecuador – not Perenco – was responsible for the failure of negotiations.391 In any event, Ecuadorian law recognises that liability for breaking off contractual negotiations (culpa in contrahendo) does not arise unless there are exceptional circumstances. There can be no liability if there was a legitimate basis to end negotiations. Even if Perenco had terminated negotiations (which, as the Tribunal found, was not the case), Ecuador's unlawful coercion of Perenco would have been a more than sufficient justification.392
339.
Perenco argued further that Ecuador could not show the second element of contributory fault, namely, that this fault interrupted the chain of causation. Contributory fault requires conduct by the investor that breaks the causal nexus such that the injury can be considered severable.393 Perenco pointed out that Ecuador's own authorities recognised that wrongful conduct by the investor that is a concurrent cause for the loss does not exonerate the State from liability altogether. Ecuador must prove that Perenco would have suffered the loss even if Ecuador had not committed its unlawful acts.394
340.
The Tribunal has already confirmed that Ecuador's unlawful conduct was the proximate cause of caducidad. This was not addressed by Ecuador at the Quantum Hearing.395 Ecuador could not establish that any of the above was the proximate cause of Ecuador's declaration of caducidad. It was Ecuador's choice in exercising its discretion that directly triggered caducidad.396
341.
Further, Perenco had made it clear it would resume operations if Ecuador complied with the Tribunal's Decision on Provisional Measures.397 If that had occurred, the Consortium would have continued to operate the Blocks, and Ecuador would not have declared caducidad. The proximate cause was therefore Ecuador's failure to comply with the provisional measures, not Perenco's later suspension of operations.398
342.
Ecuador also did not declare caducidad due to Burlington's attitude but because of a suspension that was caused by Ecuador's failure to comply with the Decision on Provisional Measures.
343.
Finally, Perenco pointed out that Ecuador did not deny that its contributory fault defence was limited to caducidad in any event. Even if it had any legal or factual basis, it could not affect damages for Ecuador's violations of Article 4 of the Treaty or for its breach of the Contracts through Decree 662.399

3. The Tribunal's Decision

344.
The Tribunal recalls that Article 39 of the ILC Articles, entitled "Contribution to the injury", states that in the determination of reparation, "account shall be taken of the contribution to the injury by wilful or negligent action or omission of the injured State or any person or entity in relation to whom reparation it sought."400 While the inclusion of the word "wilful" broadens the scope of the article beyond negligence, such broadening does not, in the Tribunal's view, appear to be substantial. The ILC Commentaries noted in this regard that the focus "is on situations which in national law systems are referred to as 'contributory negligence', 'comparative fault', 'faute de la victime ', etc.401 Commentary (5) to the article notes further that it allows to be taken into account "only those actions or omissions which can be considered as wilful or negligent, i.e. which manifests a lack of due care on the part of the victim of the breach for his or her own property or rights."402 The Tribunal therefore proceeds on the basis that in order for Ecuador's submissions to succeed, the Tribunal must be satisfied that Perenco manifested a lack of due care for its own property or rights.
345.
Ecuador has identified a number of instances where it considers Perenco contributed to the damages which it has suffered.
346.
Putting them in rough chronological order, the first is the contention that Perenco's overall conduct during the negotiation process contributed to its loss in that on several occasions, Perenco rejected Ecuador's proposals, thus making the negotiation process more difficult, refused to discuss drafts of transfer agreements that Ecuador proposed on 16 May 2008 and 10 July 2008, did not make its best efforts to finalise the new renegotiation of the Participation Contracts into services contracts as agreed in the October 2008 Actas, failed to secure Burlington's agreement to the final draft transitory agreement despite knowing that such failure would have serious consequences, and "cynically" sought to reopen the negotiations in May 2009.403
347.
Second, Ecuador contended that Perenco's refusal to comply with Ecuadorian law and pay Law 42 dues was "grossly negligent."404
348.
Third, Perenco's boycott of the auctions of the seized oil during the coactiva process and its threatening legal action against any company that participated in the auction was said to have contributed to its loss.405
349.
Fourth, Perenco was said to have acted negligently and recklessly in suspending operations while consciously ignoring the risk of environmental harm and production loss. In doing so, Perenco acted in "reckless disregard for its own rights" despite specifically foreseeing that Ecuador would be forced to respond.406
350.
Fifth, Perenco's failure to resume operations in the Blocks (after having suspended operations) despite invitations for it to do was also said to have contributed to the harm which it suffered.407
351.
Before addressing these claimed instances of contributory fault, it is worth noting that the first completed breach, Decree 662, set in train two main types of damage: (i) a further reduced "take" for the contractor; and (ii) the virtual immediate cessation of drilling activity in both Blocks. Perenco in no way contributed to the damage proximately caused by this measure. Indeed, the various acts complained of by Ecuador all followed Ecuador's decision to ratchet up the State's take from 50% of the 'above reference price revenues' to 99%.
352.
Some of the alleged instances of contributory fault can be dismissed summarily. The Tribunal cannot accept that Perenco's overall conduct during the negotiation process contributed to its loss. None of the alleged instances of contributory fault said to arise from Perenco's responses to Ecuador's contractual demands can be considered to amount to wilful or negligent conduct within the meaning of Article 39 of the ILC Articles. The Tribunal has already found that it was Ecuador that escalated its demands and threats over time and that for its part Perenco sought to accommodate such demands to the best of its ability.408 For example, the failure to secure Burlington's consent to the terms of the October 2008 Acta simply cannot be viewed as being within Perenco's control, let alone a wilful or negligent act on its part.
353.
Likewise, for two reasons, Perenco's decision to suspend operation of the two Blocks in July 2009, which the Tribunal has already found in its Decision could be justified under Ecuadorian law409, cannot be viewed as a wilful or negligent act which contributed to the harm that it ultimately suffered. The Tribunal has found that Ecuador committed a breach of contract by failing to comply with the Tribunal's Decision on Provisional Measures, that Perenco had a contractual right to expect Ecuador's compliance with such, and that faced with Ecuador's refusal, Perenco had the right to suspend performance under Ecuadorian law.410 (The Tribunal also found that just as Perenco had a right to suspend performance Ecuador had a correlative right to intervene in order to operate and protect the Blocks.411) Ultimately, it was the State's decision to declare caducidad that amounted to the last completed breach.
354.
To the extent that Ecuador traces this back to a refusal to pay Law 42 dues, as discussed below, given the intermediation of the Decision on Provisional Measures, the Tribunal cannot find that Perenco contributed to Ecuador's decision to expropriate its interests in the Blocks.
355.
In addition, to the extent that Ecuador complains that, for example, the day after Perenco suspended operations, it notified its employees in the Blocks that their employment contracts were terminated, and therefore it "prematurely manufactured a situation in which was difficult to resume operations"412, in the Tribunal's view, Ecuador has not quantified the loss that it might have suffered when Petroamazonas had to take over production, nor has it shown that laying off employees led to a loss occasioned to Perenco for which Perenco now seeks compensation. (The issue of employee costs is comprehended in the calculation of lost profits for Block 21 and does not arise to any significant degree in relation to Block 7 since caducidad applied only to the remaining one month of the Block 7 Contract's life.)
356.
As to the steps taken by Perenco to refuse to pay Law 42 dues and instead depositing them in an off-shore account rather than paying them to Ecuador (which began after the dispute was submitted to arbitration but before the Tribunal issued its Decision on Provisional Measures and therefore initially was taken without the cover of a tribunal decision), in the Tribunal's view, Perenco did assume the risk that the Tribunal might not uphold its legal position in all respects. In addition, by declining to pay Law 42 dues to Ecuador, it was or should have been reasonably foreseeable to Perenco that this could invite a strong response from the State.
357.
Such a response did in fact occur in the form of Ecuador's notice of its intention to commence coactivas in order to liquidate Perenco's Law 42 debt for 2008.413 To that extent, Perenco's action exacerbated the situation, but this is not the end of the analysis of this claimed instance of contributory fault. Not long after the Tribunal held its first meeting with the Parties –at which Perenco had foreshadowed the possibility of a provisional measures application– such an application was in fact made. The Tribunal ended up granting Perenco's request and recommended such measures. The Tribunal specifically recommended that Ecuador refrain from taking coactiva measures against Perenco and further called upon the Parties to negotiate an escrow arrangement that would preserve their respective claims to the disputed funds pending the outcome of the arbitration.414 This proved not to be possible for Ecuador. Ecuador explained its view in a respectful and nonconfrontational manner that it could not comply with the measures recommended by the Tribunal and that it was bound to initiate the coactivas. But the Tribunal later found in its Decision on Liability that Perenco was within its contractual rights to expect that Ecuador would comply with the Tribunal's provisional measures recommendations.
358.
The Tribunal recalls the relevant findings in its prior Decision on Liability:

"694. The Tribunal has already found that Perenco had a reasonable expectation under the Participation Contracts that Ecuador would comply with any decision of the Tribunal. This contractual expectation was buttressed by the general expectation that any disputing party has that once the dispute is submitted to arbitration, both parties will seek to conform their conduct to the Tribunal's directives, particularly with respect to the non-aggravation of the dispute.

695. Ecuador found itself unable to comply with the Tribunal's Decision in this case. The Tribunal can well understand why in 2009, in applying a domestic law, Ecuador would wish to liquidate the amounts claimed to be owing for 2008. However, when the matter was put before the Tribunal, Ecuador's duty to enforce the law conflicted with its contractual obligation to comply with decisions of the Tribunal. The Tribunal recommended what it considered to be a reasonable way to protect both Parties' rights pending a final determination of their dispute. Regrettably, this was not possible in the circumstances. Perenco is correct to point out that had the State stayed its hand in relation to the coactivas, the dispute would not have been aggravated in the way in which it was."415 [Emphasis added.]

359.
In adversarial proceedings, a disputing party's view of its adversary's conduct as unacceptable or inappropriate is usually viewed by the other party as perfectly acceptable and appropriate in the circumstances. In the Tribunal's view, it is wrong to equate a party's zealous protection of its legal rights and interests with wilful conduct or contributory negligence within the meaning of the ILC Articles. Perenco did assume a risk when it unilaterally decided to pay the Law 42 amounts into an offshore account. However, and crucially, it then obtained the protection of a Tribunal recommendation that Ecuador not take coactiva action, as well as a recommendation that the Parties agree an escrow account arrangement so that the disputed Law 42 dues could be paid into it pending the outcome of the arbitration (an arrangement which proved to be unattainable in the circumstances).