Pennzoil Exploration & Production Co. v. Ramco Energy Ltd. , 139 F.3d 1061 ( 1998 )

REVISED, JUNE 12, 1998
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_____________________
No. 96-20497
_____________________
PENNZOIL EXPLORATION AND
PRODUCTION COMPANY; PENNZOIL Plaintiffs - Appellees-Cross-Appellants,
INTERNATIONAL INC; PENNZOIL
CASPIAN DEVELOPMENT CORPORATION;
PENNZOIL CASPIAN CORPORATION,
versus
RAMCO ENERGY LIMITED; RAMCO HAZAR
ENERGY LIMITED,
Defendants - Appellants-Cross-Appellees.
________________________________________________________________________
Appeal from the United States District Court for the
Southern District of Texas
_____________________________________________________________________
____
May 13, 1998
Before JOLLY, EMILIO M. GARZA, and JOHN R. GIBSON,* Circuit Judges.
JOHN R. GIBSON, Circuit Judge.
The issue before us is whether Ramco's2 dispute with Pennzoil over
development rights in the Karabakh Prospect, granted to Pennzoil by the
Azerbaijan Government to satisfy obligations arising from work performed
on a gas utilization project, is subject to binding arbitration. The
district court held that the dispute is arbitrable under a Joint
*
Circuit Judge of the Eighth Circuit, sitting by designation.
1
Throughout this opinion "Ramco" will refer to "Ramco Hazar Energy
Limited," formerly known as "Ramco Energy Limited." We will refer to
the various Pennzoil companies as simply Pennzoil.
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Operating Agreement entered into by Ramco, Pennzoil, and various other
energy companies. Ramco appeals, arguing that the dispute does not
arise under or relate to the Joint Agreement, but rather is governed by
a June 7, 1993 letter agreement between Ramco and Pennzoil that does not
contain an arbitration clause. We affirm the district court's judgment.
Ramco and Pennzoil are parties to numerous agreements relating to
the development of oil and gas in the Apsheron Trend, an area located
in the Caspian Sea offshore Azerbaijan.
Ramco and Pennzoil's contractual relationship originated in a
February 13, 1992 letter agreement, referred to as the "Letter of
Intent." In the Letter of Intent, Ramco and Pennzoil agreed to conduct
a feasibility study for the development of the Guneshli3 and Chirag4
Fields, two fields located in the Apsheron Trend. The Letter of Intent
outlined Ramco and Pennzoil's financial relationship and allocated any
potential development rights the Azerbaijan Government may award the
parties in the two fields.
On May 22, 1992, Pennzoil, Ramco, and Kaspmorneftegas (KMNG), the
negotiating representative of the Azerbaijan Government, entered into
an "Agreement To Construct A Geological Model of the Guneshli Field in
the Azerbaijan Sector of the Caspian Sea." This agreement, expressing
"a view to enhancing development ... from Guneshli Field," was referred
to as the "Guneshli Agreement." It contains an arbitration clause
stating that "[a]ny disputes between the parties will be settled,
3
This field was initially referred to as the "April 28 Field," and
Guneshli is, in some agreements, spelled differently.
4
The letter referred to this field as the "Kaverochkin Field,"
later renamed Chirag.
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exclusively and finally, by arbitration."
After constructing the geological model, and as a development
contract for the Guneshli Field became more imminent, Pennzoil and Ramco
executed a second letter agreement dated August 18, 1992. This
agreement amended the parties' financial relationship and the allocation
of potential development rights in the Guneshli Field as set out in the
February 13 Letter of Intent.
By October of 1992, the State Oil Company of the Azerbaijan
Republic (SOCAR), the new negotiating representative of the Azerbaijan
Government, had not granted Ramco and Pennzoil development rights in the
Guneshli Field. To secure development rights in the Guneshli Field,
Pennzoil entered into a "Gas Utilization Agreement for Guneshli and Neft
Dashlary Fields" with SOCAR on October 1, 1992. In this agreement,
later referred to as GUP 1, Pennzoil agreed to build an offshore natural
gas compressor station to capture the natural gas being vented from the
Guneshli and Neft Dashlary Fields and to transport the gas to energy-
starved Azerbaijan.
In conjunction with GUP 1, and on the same date, Pennzoil and
Ramco, collectively as "Contractor," entered into a "General Agreement
On Terms and Principles for Concluding the Guneshli Field Development
Contract" with SOCAR and the Azerbaijan Government to implement a
program for gathering and transporting natural gas from the Guneshli and
Neft Dashlary Fields to shore. The agreement, later referred to as the
"General Agreement," also provided that the parties immediately set up
a committee to prepare an acceptable Production Sharing Contract (PSC)
for the Guneshli Field.
In May of 1993, before Ramco and Pennzoil could secure development
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rights in the Guneshli Field, SOCAR announced its intent to "unitize"
the development of the Apsheron Trend, consisting of the Azeri, Chirag,
and Guneshli Fields (the "ACG Unit"). In light of this decision, Ramco
and Pennzoil executed the third letter agreement of June 7, 1993,
defining the terms of their relationship in light of SOCAR's decision
to include the Guneshli Field in the unitized development of the
Apsheron Trend. This agreement, which specifically superseded the two
previous letter agreements, states:
For the purposes of this Letter Agreement, the Gunashli,
Chirag and Azeri Fields, and any other areas which shall be
developed pursuant to any joint development, field management
or other contract or agreement (the "Contract") granting
rights to explore for, develop, produce, transport and/or
market hydrocarbons from said fields, whether pursuant to
Unitisation or otherwise, within the jurisdiction of the
Azerbaijan Republic shall be deemed the "Contract Area."
The parties agreed that any interests in any contract relating to the
"Contract Area" acquired by Pennzoil and/or Ramco shall be subject to
the June 7, 1993 letter agreement. Like the other two letter
agreements, this agreement does not contain an arbitration provision.
Because of SOCAR's decision to unitize, Ramco, Pennzoil, and six
other petroleum companies that had been negotiating with SOCAR for
development rights in the Azeri, Chirag, or Guneshli Fields, entered
into the Azerbaijan-Apsheron Trend Agreement, otherwise referred to as
the "AMI Agreement." The AMI Agreement, dated October 19, 1993, set
out the parties participating interests in the potential development
rights in the unitized development of the Apsheron Trend (later referred
to as the AMI area on an attached map).5 The costs incurred by Pennzoil
5
The AMI Agreement referred to SOCAR's previous negotiations for
separate production sharing agreements with three groups. Among
these were the Guneshli Field Group, comprised of Pennzoil and Ramco,
and the Azeri Field Group, comprised of Ramco and five other parties
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and Ramco under the GUP agreement, and the obligations of the other
parties for such costs, are treated specifically and in detail in the
AMI agreement. The AMI Agreement provides that "any dispute or
difference arising out of or in connection with the Agreement, including
any question regarding its existence, validity or termination, shall be
... resolved exclusively by arbitration."
SOCAR's decision to unitize the Guneshli, Chirag, and Azeri Fields
necessarily meant that Ramco and Pennzoil would not obtain exclusive
development rights in the Guneshli Field as GUP 1 and the General
Agreement had contemplated. As a result, on January 17, 1994, Pennzoil,
on behalf of itself and Ramco, entered into an agreement with SOCAR
entitled "Additional Agreement On The Gas Utilization Project From
Guneshli and Neft Dashlary Fields," referred to as GUP 2. GUP 2 set
forth alternative methods for SOCAR reimbursing Pennzoil and Ramco for
costs incurred in constructing the gas utilization facilities, including
payment in currency, delivery of crude oil or hydrocarbon products,
credit toward the total signature bonus for the first Development
Agreement covering all or any part of the Azerbaijani territory to which
the Pennzoil Group is a party, or any other equitable method or
mechanism. The agreement contains an arbitration clause.
On September 20, 1994, SOCAR, the eight parties to the AMI
Agreement, and two additional companies entered into an "Agreement on
the Joint Development and Production Sharing for the Azeri and Chirag
Fields and the Deep Water Portion of the Gunashli Field in the
Azerbaijan Sector of the Caspian Sea." In this agreement, referred to
as the "PSC," "Production Sharing Contract," or "Unit Agreement," SOCAR
to the AMI Agreement.
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awarded participating interests to the contractor parties in the
unitized Apsheron Trend, including Pennzoil and Ramco. The agreement
contains references to the gas utilization agreement, and contains an
arbitration clause for disputes arising between SOCAR and any or all of
the contractor parties.
On November 4, 1994, the signatories to the PSC, except SOCAR,
executed a Joint Operating Agreement which regulated the relation of the
parties in the exercise of their rights and obligations under the PSC.
The JOA contains an arbitration clause stating:
Any dispute, controversy or claim arising out of or in
relation to or in connection with this Agreement or the
operations carried out under this Agreement, including
without limitation any dispute as to the validity,
interpretation, enforceability or breach of this Agreement,
shall be exclusively and finally settled by arbitration, and
any Party may submit such a dispute, controversy or claim to
arbitration.
On December 3, 1994, SOCAR and Pennzoil signed a "Payment Agreement
for Costs Related to the Guneshli and Neft Dashlari Gas Utilization
Project," to satisfy SOCAR's obligations pursuant to GUP 2. SOCAR and
Pennzoil agreed that SOCAR would satisfy the costs incurred by Pennzoil
in connection with the Gas Utilization Project by, among other things,
granting Pennzoil a thirty percent equity interest in the Karabakh
Prospect, an area outside the Apsheron Trend. This agreement
specifically refers to the paragraph of GUP 2 setting forth the
alternative methods of reimbursement, and also to Pennzoil's share of
the bonus payable under the PSC or Unit Agreement.
Soon after learning that Pennzoil and SOCAR had entered the
December 3, 1994 Payment Agreement, Ramco sought assurances from
Pennzoil that it would share in the equity interest in the Karabakh
Prospect under the terms of the June 7 letter agreement. Pennzoil
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refused, and repeated its refusal to a Ramco letter demand. Pennzoil
then filed a motion to compel arbitration with the district court,
arguing that the Guneshli Agreement, the AMI Agreement, GUP 2, and the
JOA all required arbitration of the dispute.
The district court determined that the dispute was not arbitrable
under the Guneshli Agreement, the AMI Agreement, or GUP 2, but that it
was arbitrable under the Joint Operating Agreement.
On appeal, Ramco argues that the district court erroneously granted
Pennzoil's motion to compel arbitration under the JOA. Pennzoil cross-
appeals, arguing that, in addition to the JOA, the AMI Agreement and GUP
2 also compel arbitration of the dispute.
I.
Arbitration is a matter of contract between the parties, and a
court cannot compel a party to arbitrate a dispute unless the court
determines the parties agreed to arbitrate the dispute in question. See
AT & T Technologies, Inc. v. Communications Workers, 475 U.S. 643, 648
(1986); Neal v. Hardee's Food Systems, Inc., 918 F.2d 34, 37 (5th Cir.
1990). "[A]s with any other contract, the parties' intentions control,
but those intentions are generously construed as to issues of
arbitrability." Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth,
Inc., 473 U.S. 614, 626 (1985). This applies with special force in the
field of international commerce. Id. at 631.
Determining whether the parties agreed to arbitrate the dispute in
question involves two considerations: (1) whether a valid agreement to
arbitrate between the parties exists; and (2) whether the dispute in
question falls within the scope of that arbitration agreement. See
Webb, 89 F.3d at 258; Hornbeck Offshore (1984) Corp.v. Coastal Carriers
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Corp., 981 F.2d 752, 754 (5th Cir. 1993); Midwest Mechanical Contractors
v. Commonwealth Const. Co., 801 F.2d 748, 750 (5th Cir. 1986). We
review de novo the grant or denial of a motion to compel arbitration.
See Webb v. Investacorp, Inc., 89 F.3d 252, 257 (5th Cir. 1996).
II.
We first consider whether there is a valid agreement to arbitrate
between the parties. Pennzoil and Ramco are parties to five agreements
containing arbitration clauses -- the Guneshli Agreement, the AMI
Agreement, GUP 2, the PSC6, and the JOA.
A.
We agree with the district court that the arbitration clauses in
the Guneshli Agreement and GUP 2 do not apply to disputes between
Pennzoil and Ramco. The Guneshli Agreement provides that "Party means
either Pennzoil/Ramco or KMNG as applicable." Throughout the agreement,
Pennzoil and Ramco are collectively referred to as "Pennzoil/Ramco."
Similarly, in GUP 2, Pennzoil and Ramco are collectively referred to as
the "Pennzoil Group," and the agreement was entered into between SOCAR
and Pennzoil "on behalf of itself and Ramco." The arbitration clauses
in these agreements do not apply to disputes between Ramco and Pennzoil,
but rather apply to disputes between Pennzoil/Ramco, as a single party
on the one hand, and either KMNG or its successor SOCAR, on the other
hand. Accordingly, Ramco cannot be forced to arbitrate the dispute
under either the Guneshli Agreement or GUP 2.
B.
Ramco also argues that the AMI's arbitration clause does not apply
6
Pennzoil does not argue that arbitration is mandated under the
PSC.
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to disputes between Ramco and Pennzoil because Ramco and Pennzoil are
a single party to the AMI Agreement. In support of this argument, Ramco
points to the fact that Pennzoil/Ramco together are awarded an undivided
seventeen percent "Participating Interest" in the total rights and
obligations the parties may acquire in the AMI area.
Many rights and obligations set forth in the AMI Agreement are
calculated based upon the parties' "Participating Interests." For
example, Article 2.2 states that "the proposals and negotiating
positions to be put forward shall be those which receive the affirmative
vote of the Parties ... with each Party having a voting interest equal
to its Participating Interest." Article 3.1 states that any costs
incurred by a party pursuant to the voting procedures in Article 2.2
"shall be borne by the Parties pro rata to their respective
Participating Interests." Ramco argues that the AMI Agreement proves
that "Party" necessarily means the individual companies or groups of
companies who were awarded Participating Interests. Because Ramco and
Pennzoil are provided an undivided Participating Interest, Ramco argues
they are a single party to the contract.
That Ramco and Pennzoil are allocated an undivided participating
interest in the AMI Agreement does not establish that Ramco and Pennzoil
are a single party to the agreement. The AMI Agreement commences by
stating, "This Agreement is made ... between:" and then identifies eight
separate corporate entities, including Ramco and Pennzoil. Immediately
following the listing, the AMI Agreement states that the entities are
"hereinafter collectively referred to as the 'Parties' and individually
as 'Party.'" At the end of the document, a Pennzoil representative
signed "on behalf of Pennzoil" and a Ramco representative signed "on
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behalf of Ramco." The terms of the AMI agreement do not support Ramco's
position.
Other evidence in the record lends support to our view that
Pennzoil and Ramco are separate parties to the contract.7 In a February
10, 1994, fax transmission to Pennzoil, Ramco states, "There appears to
be some confusion as to whether Ramco should be circulated directly....
Let me please clarify: Ramco is a separate party to the AMI and will be
a separate signature to the PSC and therefore should be included in each
of your circulation lists...." We conclude that the arbitration clause
in the AMI Agreement is a valid agreement to arbitrate disputes between
Pennzoil and Ramco.
C.
The fourth agreement which contains an arbitration clause is the
Joint Operating Agreement. Ramco does not dispute the validity of the
JOA's arbitration clause or that Ramco and Pennzoil are separate parties
to the agreement. Instead, it argues that the dispute does not fall
within the scope of this agreement.
Having concluded that the AMI Agreement and the JOA contain valid
agreements to arbitrate between the parties, we turn to whether the
dispute before us comes within the scope of either of these agreements.
III.
Whether the dispute falls within the arbitration agreement is a
7
Two other parties to the AMI Agreement, "BP" and "Statoil," were
also allocated an "undivided participating interest" in potential
development rights in the AMI Area. Like Pennzoil and Ramco, BP and
Statoil were also individually listed and signed separately.
Following Ramco's rationale, BP and Statoil must also be a singular
party to the Agreement, a reading which seems to contradict Article
4.1(b) which specifically allows BP to nominate a person to fill the
most senior position in the to-be-formed Joint Operating Entity.
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determination this court must make, and both parties urge that we do so.
We have stated in Executone Information Systems v. Davis, 26 F.3d 1314,
1321 (5th Cir. 1994), that the question of whether a party can be
compelled to arbitrate, as well as the question of what issues a party
can be compelled to arbitrate, is an issue for the court rather than the
arbitrator to decide. We are satisfied that AT & T Technologies Inc.
v. Communications Workers, 475 U.S. 643, 649 (1986), makes this
abundantly clear.8 See also Litton Financial Printing Div. v. National
Labor Relations Bd, 501 U.S. 190, 208, 209 (1991).
This dispute centers around the December 3, 1994 "Payment Agreement
for Costs Related to the Guneshli and Neft Dashlary Gas Utilization
Project" entered into by Pennzoil and SOCAR which, among other things,
awards Pennzoil a thirty percent equity interest in the Karabakh
Prospect.
Ramco argues that the June 7, 1993 letter agreement is the "joint
venture agreement" defining the terms of Pennzoil and Ramco's
relationship. Ramco explains that because Pennzoil obtained the
Karabakh interest as reimbursement for GUP-related expenditures it is
necessarily a joint asset governed by the June 7, 1993 joint venture
agreement. Furthermore, Ramco argues that the Karabakh Prospect is
within the "Contract Area" as defined in the June 7, 1993 letter
agreement, and, therefore, the June 7 letter agreement governs.
8
We recognize that some of our decision might be read to the
contrary, see Sedco, Inc. v. Petroleos Mexicanos Mexican National Oil
Co., 767 F.2d 1140, 1150 (5th Cir. 1985); and Hornbeck Offshore
(1984) Corp. v. Coastal Carriers Corp., 981 F.2d 752, 754-55 (5th
Cir. 1993). Should a claim arise that might require that we
determine whether there is a conflict between our decisions and to
what extent, we will decide the issue at that time.
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Finally, Ramco argues that the Karabakh Prospect is not a part of the
Guneshli, Chirag, or Azeri Fields, and thus, the AMI Agreement and the
JOA, which are limited to those fields, are irrelevant to the dispute.
Pennzoil does not dispute that the Karabakh Prospect is outside the
geographic area covered by the JOA and the AMI Agreement, or that Ramco
has not based its claim on either of these agreements. Rather, Pennzoil
argues that Pennzoil and Ramco's relationship is confined to the fields
of the Apsheron Trend, that the JOA is the controlling document
regulating those rights, and that the June 7 letter merely governs the
financing of Pennzoil's and Ramco's rights in the Apsheron Trend.
We emphasize that our sole responsibility is to determine whether
this dispute is governed by an arbitration clause, not to determine the
merits of the dispute. See Snap-On Tools Corp., v. Mason, 18 F.3d 1261,
1267 (5th Cir. 1994). "We resolve doubts concerning the scope of
coverage of an arbitration clause in favor of arbitration.
...[A]rbitration should not be denied 'unless it can be said with
positive assurance that an arbitration clause is not susceptible of an
interpretation which would cover the dispute at issue.'" Neal, 918 F.2d
at 37 (internal citations omitted). See also AT&T Technologies, 475
U.S. at 650.
A.
We first examine whether the dispute falls within the scope of the
JOA's arbitration clause, which mandates arbitration of "[a]ny dispute,
controversy or claim arising out of or in relation to or in connection
with this Agreement or the operations carried out under this Agreement,
including without limitation any dispute as to the validity,
interpretation, enforceability or breach of this Agreement."
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Both the Supreme Court and this court have characterized similar
arbitration clauses as broad arbitration clauses capable of expansive
reach. See Prima Paint Corp., v. Flood & Conklin Mfg. Co., 388 U.S.
395, 397-98 (1967) (labelling as "broad" a clause requiring arbitration
of "[a]ny controversy or claim arising out of or relating to this
Agreement"); Nauru Phosphate Royalties, Inc. v. Drago Dais Interests,
Inc., 1998 WL 145363, *4 (5th Cir. 1998) (holding that when parties
agree to an arbitration clause governing "[a]ny dispute ... arising out
of or in connection with or relating to this Agreement," they "intend
the clause to reach all aspects of the relationship.").
Furthermore, courts distinguish "narrow" arbitration clauses that
only require arbitration of disputes "arising out of" the contract from
broad arbitration clauses governing disputes that "relate to" or "are
connected with" the contract. See, e.g., Tracer Research Corp. v.
National Envtl. Svcs. Co., 42 F.3d 1292, 1295 (9th Cir. 1994) (comparing
"relating to" language with "arising out of" language). The Joint
Operating Agreement uses not only the phrase "arising out of," but also
"in connection with or relating to." This resolves any doubt that this
is a "broad" clause. Broad arbitration clauses, like the JOA's
arbitration clause, are not limited to claims that literally "arise
under the contract," but rather embrace all disputes between the parties
having a significant relationship to the contract regardless of the
label attached to the dispute.9 See J.J. Ryan & Sons v. Rhone Poulenc
Textile, 863 F.2d 315, 321 (4th Cir. 1988); Miller v. Flume, 1998 WL
9We realize that even broad clauses have their limits. Because we
are concerned only with the dispute before us and its connection with
or relation to the several agreements before us, we need not explore
these outer limits.
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128443, *7 (7th Cir. 1998).
Ramco argues that this dispute is not arbitrable under the JOA
because Ramco has not based its claim to an interest in the Karabakh
Prospect pursuant to the JOA, but rather has based its claim under the
June 7, 1993 letter agreement.
The fact that Ramco's claim is based on the June 7 letter agreement
does not decide whether the dispute is arbitrable under the JOA's
arbitration provision. See Neal, 918 F.2d at 37; American Recovery
Corp. v. Computerized Thermal Imaging, 96 F.3d 88, 93 (4th Cir. 1996);
ARW Exploration Corp. v. Aguire, 45 F.3d 1455, 1461 (10th Cir.
1995)(While agreement did not contain an arbitration clause,
arbitration provision in other agreements broad enough to encompass
dispute).
Pursuant to the JOA's arbitration clause, "any" dispute arising out
of "or in relation to" or "in connection with" the JOA shall be settled
by arbitration. Therefore, it is not necessary that the dispute arise
out of the JOA to be arbitrable -- but only that the dispute "relate to"
or be "connected with" the JOA. See Commerce Park; 729 F.2d at 339,
n.4. With such a broad arbitration clause, it is only necessary that
the dispute "touch" matters covered by the JOA to be arbitrable. See
Mitsubishi, 473 U.S. at 625 n.14; Commerce Park, 729 F.2d at 339 n.4.
Bearing in mind the strong federal policy in favor of arbitration,
we conclude the dispute is "related to" the JOA and is therefore
arbitrable under its extremely broad arbitration provision. The dispute
flows from a series of interrelated agreements, all of which center
around the overriding goal of acquiring development rights from the
Azerbaijan government in the Guneshli Field, before unitization, and the
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Guneshli, Chirag, and Azeri Fields after unitization. In addition to
being related to the same overriding goal, the agreements themselves
evidence their inter-relationship. The first agreement entered into by
Ramco and Pennzoil, the February 13, 1992 Letter of Intent, recites:
During the Study period the parties expect to commence
commercial negotiations with the appropriate Azerbaijani
authorities relating to the [Guneshli] and [Chirag] Fields.
During this time the parties will also use their best
endeavors to conclude a joint operating agreement ('JOA')
governing their mutual relationship. When executed, the JOA
will supersede this letter agreement.
The August 18, 1992 letter agreement refers to the February 13
Letter of Intent, the feasibility study relating to the development of
the Guneshli Field, and a proposed contract currently under draft and
discussion (the "PEC") which was to be entered into by the Azerbaijan
government, Ramco, and Pennzoil relating to the development of the
Guneshli Field. This letter acknowledged, as did the February 13 Letter
of Intent, that it did not set out all details governing the parties'
relationship.
Like the two preceding letter agreements, the June 7, 1993 letter
agreement also acknowledged that it did not set out all the details
governing the parties' relationship. Pennzoil and Ramco agreed that,
as soon as SOCAR awarded a percentage interest in respect to the
unitization of the three fields, they would negotiate a more definitive
agreement, but in the interim, the June 7 letter agreement controlled.
Similarly, the AMI Agreement also contemplated that the parties would
conclude a joint operating agreement governing operations in the AMI
Area. The AMI Agreement also specifically refers to Pennzoil and
Ramco's costs incurred in performing the gas utilization project and
contains detailed provisions for allocation of and responsibility for
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these costs by the parties.
GUP 2 specifically refers to GUP 1 and the concurrent General
Agreement and recognizes that the primary inducement for Ramco and
Pennzoil committing to those agreements was SOCAR's commitment to grant
Ramco and Pennzoil exclusive development rights in the Guneshli Field.
The PSC recognizes that SOCAR and the Pennzoil Group (Pennzoil and
Ramco) had previously entered into the GUP 1 and GUP 2 agreements, and
provides for reimbursement of Pennzoil and Ramco's costs incurred in
connection with the Gas Utilization Project. In addition, the PSC
specifically states that the Pennzoil Group and SOCAR can amend or
modify the Gas Utilization Agreement and negotiate one or more methods
for SOCAR to satisfy its obligations to the Pennzoil Group under the Gas
Utilization Agreement.
The JOA is directly tied to the PSC as its purpose is to regulate
the parties in the exercise of their rights with regard to the Azeri,
Chirag, and Guneshli Fields. The JOA provides that the Agreement is the
entire agreement of the Parties in relation to the matters dealt with
therein and supersedes all prior understandings, agreements and
negotiations of the Parties relating hereto. The agreements, by their
terms, plainly show their interrelation.10
10
Furthermore, there is evidence that Ramco recognized this
interrelationship among the documents in a December 8, 1993, letter
accompanying a draft financing agreement. Ramco's attorney states:
I undertook to send . . . an outline of the financing
agreement which will need to be put in place between
Pennzoil and Ramco, the final terms which will, of course,
depend on the final form of the JOA. A draft follows
which will look quite similar to a version I provided
[Pennzoil] earlier this year in the context of the
Gunashli JOA. . . . I would like to have your preliminary
observations on the outline primarily to identify any
significant areas which have been omitted. The draft
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We need not decide whether these letter agreements were in fact
superseded by the JOA to determine the issue before us. We merely use
this language from the Joint Operating Agreement as further illustration
of the interrelatedness and interdependency of the numerous agreements
entered into by Ramco and Pennzoil - particularly the June 7 agreement
and the JOA.
Ramco is essentially disputing the terms of the December 3, 1994
Payment Agreement entered into between Ramco and Pennzoil. The Payment
Agreement, entered into to satisfy GUP 2, specifically provides that
SOCAR will satisfy a portion of its obligation by crediting "Pennzoil's
share of the bonus payable under Article 29.2 (i) of the [PSC]." The
parties entered into the JOA to "define their respective rights and
obligations with respect to their operations under the PSC." Thus, this
dispute, which clearly relates to the Payment Agreement, also "relates
to" the JOA.
Although Ramco is relying on the June 7, 1993, letter agreement,
both the June 7 letter agreement and the JOA specifically deal with the
acquisition of development rights from the Azerbaijan Government in the
Guneshli, Chirag, and Azeri Fields. This dispute relates to Ramco and
Pennzoil's agreements entered to secure those development rights from
the Azerbaijan Government, of which the Gas Utilization Project was a
key factor.
Pennzoil and Ramco entered into GUP 1 and the General Agreement to
financing agreement stated: "This agreement and the Joint
Operating Agreement supersede in all respects those
certain Letter Agreements between [Pennzoil] and Ramco
dated 13 February 1992, 18 August 1992, and 10 June 1993
respectively."
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secure exclusive development rights in the Guneshli Field. Because of
SOCAR's decision to unitize the Guneshli, Chirag, and Azeri Fields, this
did not happen.11 Therefore, Ramco and Pennzoil entered into GUP 2 with
SOCAR to provide for reimbursement of GUP related costs. SOCAR's
payment to Pennzoil to satisfy GUP 2 is at the center of this dispute.
Although the dispute may not "arise under" the JOA, the dispute
"relates to" the JOA and therefore falls within the JOA's broad
arbitration provision.
B.
Like the JOA, the AMI Agreement contains a broad arbitration
clause. The AMI Agreement mandates arbitration of "any dispute or
difference arising out of or in connection with this Agreement."
The AMI Agreement, like the JOA, is another agreement in the line
of agreements dealing with the acquisition of development rights in the
Guneshli, Chirag, and Azeri Fields. SOCAR's decision to unitize the
three fields led the companies that had previously been negotiating with
SOCAR for development rights in those fields to enter the AMI Agreement.
The AMI Agreement specifically divides the rights and obligations which
may be acquired by the parties in the event the parties reach an
agreement with SOCAR for development rights in the Guneshli, Chirag, and
Azeri Fields. Furthermore, the AMI Agreement recognizes that Pennzoil
and Ramco incurred costs in performing under GUP 1 and sets forth how
those costs will be borne by the parties if an agreement for development
rights with SOCAR includes the Guneshli Field. Ramco is now attempting
to establish rights arising from the Gas Utilization Project and the
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SOCAR's decision to unitize also led to Ramco and Pennzoil
executing the June 7, 1993 letter agreement, and eventually the JOA.
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June 7 letter agreement which covers the same unitized fields the AMI
Agreement regulates. Much of our discussion of the JOA above, and of
governing legal principles, is equally applicable to the AMI. Like the
JOA, Ramco's claim is connected to the AMI Agreement and therefore the
dispute falls within the AMI Agreement's broad arbitration clause.
CONCLUSION
For the reasons stated above, we conclude (1) that both the AMI
Agreement and the JOA contain valid agreements to arbitrate disputes
between Ramco and Pennzoil; and (2) that the dispute falls within the
scope of the AMI Agreement's arbitration clause and the JOA's
arbitration clause. Accordingly, we affirm the district court's order
granting Pennzoil's motion to compel arbitration in New York, New York
in accordance with the Arbitration Rules of the United Nations
Commission on International Trade law.
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