AOC Taken to Court Over Alleged Breach of Contract

DAMMAM, 18 February 2007 — Some Japanese officials of the Arabian Oil Company (AOC) were taken to court over alleged contractual violations filed by a Saudi company.

The summons issued by an Eastern Province court were sent to the director of the civilian rights in the Khafeji region on Monday to produce the concerned Japanese officials before the court today or else they will be tried in absentia.

The case questioned the legal right of AOC to still conduct oil and gas operations in the Saudi part of the Divided Zone (ex-Neutral Zone between Saudi Arabia and Kuwait) after the expiry of the concession agreement with Saudi Arabia in February 2000.

According to the third clause of the concession agreement between the Kingdom and Kuwait, each country had the sovereign rights over its zone including the mineral resources. The AOC set up a new company called the Arab Japanese Petroleum Engineering Co. in order to circumvent the legal obstacles to pursue its operations in the Saudi region. The new Arab Japanese Petroleum Engineering Co (AJPEC) was a joint venture between a Saudi company (the respondent) and the Japanese Petroleum Engineering Co, which is fully owned by AOC Holding.

After that, AJPEC made an agreement with the Kuwait Gulf Oil Company (KGOC) for joint operations at the Saudi zone. The contract stipulates, among others, that AJPEC was to follow Saudi regulations including the labor recruitment. The Saudi partners complained that the technical service contracts were made without adhering to Saudi regulations and without consulting the Saudi partners.

The plaintiff alleged that AOC did not fulfill the demands and continue on the projects in an illegal manner. AJPEC is the only legal representative and sponsor for the workers of the projects of the AOC within the Saudi borders. It is under these circumstances, that the Saudi partner in the AJPEC has moved the court to stop illegal activities of AOC. The Saudis also claimed compensation for the illegal presence of AOC in the Saudi region whereas AJPEC is the only competent agency to work in the region. The Saudi partners also demanded that their Japanese counterparts in AJPEC adhere to the Saudi regulations in the matter and fulfill the legal and commercial obligations toward the Saudis.