Is Condensate "Highly Marketable"? What are the Limitations?

International Arbitration, Western Europe

A marketing dispute came about when a refiner commenced purchasing a special grade of condensate directly from the producer, bypassing the trader. Baker & O'Brien was engaged to opine on whether the contract was binding, uniqueness of the condensate, other potential comparable and substitutable condensates, and monetary impact to the trader. Our expert report and subsequent two rebuttals, based on the market for condensate and future price projections, were entered into evidence and arbitration testimony was given.

A small international trading company specializing in condensate contracted with a European refiner to supply a special grade of condensate feedstock. After several years, the refiner commenced purchasing the condensate directly from the producer, bypassing the trader. The trader filed for arbitration, alleging breach of contract and damages associated with its loss of condensate sales under the contract.

Baker & O'Brien was engaged to provide expert testimony as to: (1) whether the contract was binding on the parties based on common industry practices with respect to such agreements; (2) whether the subject condensate was "unique" in its quality and composition relative to other potentially available alternatives; (3) whether other accessible and substitutable condensates existed that had similar production and export capacity; and (4) what monetary damages the trader may have suffered if the arbitrators determined that the refiner had, in fact, breached its purchase obligations.

The damages assessment required future price projections for the subject condensate based on prices for benchmark crude oils and refined products. The market for condensate relative to crude oil was also an issue, as many refineries are limited in their capacity to process condensate, making condensate less "highly marketable" than crude oil. Baker & O'Brien entered one expert report and two rebuttal reports into evidence, and our lead consultant testified before the arbitration panel.

Charles G. Kemp

Vice President

Industry
Petroleum Refining
Service
Commercial Contracts / Litigation / Arbitration / Product Quality / Crude Oil Valuation
Region
Western Europe