Ex. 111

IN THE MATTER OF
AN ARBITRATION UNDER THE RULES OF THE
UNITED NATIONS COMMISSION ON INTERNATIONAL TRADE LAW
______________________________________________________________________________
PCA Case No. AA277
CHEVRON CORPORATION AND
TEXACO PETROLEUM COMPANY,
CLAIMANTS,
VS.
THE REPUBLIC OF ECUADOR,
RESPONDENT.
______________________________________________________________________________
CLAIMANTS’ MEMORIAL ON THE MERITS

i
TABLE OF CONTENTS
I. INTRODUCTION .............................................................................................................. 1
II. FACTUAL BACKGROUND............................................................................................. 6
A. TexPet First Invested In Ecuador in the Early 1960s ............................................. 6
B. The 1973 Agreement............................................................................................... 7
C. Relevant Terms of the 1973 Agreement................................................................. 8
1. Royalty payments........................................................................................ 8
2. Supply of oil by TexPet for Ecuadorian domestic consumption ................ 8
3. Supply of oil by TexPet for export by the Government............................ 11
4. TexPet’s right to export ............................................................................ 13
5. Calculation of Ecuadorian domestic consumption ................................... 14
D. Relevant Terms of the 1977 Agreement............................................................... 16
E. The GOE Failed to Pay International Prices and Required Excess Crude Oil
Contributions from TexPet in Violation of the 1973 Agreement; TexPet
Commenced Five Lawsuits and Proved Its Case in Each Instance ...................... 19
1. Esmeraldas refinery claims (Cases 23-91 and 152-93): TexPet
proved that the GOE violated Ecuadorian law and breached the
Agreements, which is confirmed by independent experts ........................ 26
a. TexPet proved its claim and damages in the first Esmeraldas
refinery dispute (Case 23-91)........................................................ 30
b. TexPet proved its claim and damages in the second
Esmeraldas refinery dispute (Case 152-93).................................. 34
2. Amazonas refinery claims (Cases 7-92 and 153-93): TexPet proved
that the GOE violated Ecuadorian law and breached the 1973
Agreement, which was confirmed by independent experts ...................... 38
a. The Ecuadorian court refused to start the evidentiary phase in
the first Amazonas refinery dispute, but TexPet’s case and
damages are irrefutable (Case 7-92) ............................................. 40
b. TexPet proved its case and damages in the second Amazonas
refinery dispute (Case 153-93)...................................................... 42
3. Credit for imported products claim (Case 154-93): TexPet proved
that the GOE violated Ecuadorian law and breached the 1973
Agreement, which was confirmed by independent experts ...................... 46
F. Force Majeure Claim (Case 8-92): TexPet Proved That the GOE Incorrectly
Applied Force Majeure in Response to an Earthquake and Breached the
Agreements and Ecuadorian Law, Which Was Confirmed by the GOE’s
own Expert............................................................................................................ 51

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G. Refinancing Agreement Claim (Case 983-03): TexPet Proved That the
GOE Breached the Refinancing Agreement, Which Was Confirmed by
the GOE’s Own Expert......................................................................................... 55
H. All Seven Cases Languished in the Ecuadorian Courts for 14 Years or
More, Where They Remain Unresolved............................................................... 56
1. Six of the seven cases were required to be decided in an expedited
fashion under Ecuadorian procedural law................................................. 57
2. Decisions in all seven cases have been unreasonably delayed by the
judiciary for 14 years, and counting ......................................................... 57
a. Case 23-91 .................................................................................... 57
b. Case 152-93 .................................................................................. 58
c. Case 7-92 ...................................................................................... 59
d. Case 153-93 .................................................................................. 60
e. Case 8-92 ...................................................................................... 60
f. Case 154-93 .................................................................................. 61
g. Case 983-03 .................................................................................. 61
I. In 2004, Judicial Independence Was Destroyed................................................... 62
1. The Requirement of Judicial Independence.............................................. 63
2. The Political Branches of the Government Purged the Courts................. 64
a. The Constitutional and Electoral Courts are Purged..................... 65
b. The Supreme Court is Purged....................................................... 66
3. Both National and International Observers Object to the New,
Politicized Judiciary.................................................................................. 68
4. The New Judges Pay a Political Debt....................................................... 72
5. The Situation Intensifies—More Court Purges......................................... 74
6. Congress Makes Things Worse ................................................................ 76
7. “Our country does not live under the rule of law”.................................... 85
8. The Constituent Assembly Declares Absolute Authority......................... 91
J. TexPet Noticed This Dispute in May 2006 and Filed This Arbitration in
December; Then Ecuador’s Courts Decided Four of the Seven Cases................. 95
1. Case 23-91 (first Esmeraldas refinery claim) ........................................... 96
2. Case 7-92 (first Amazonas refinery claim)............................................... 98
3. Case 8-92 (force majeure claim)............................................................. 100
4. Case 983-03 (Refinancing Agreement claim)......................................... 100
III. GOVERNING LAW....................................................................................................... 101

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IV. THE GOE VIOLATED ITS OWN LAWS BY DELAYING TEXPET’S SEVEN
CASES AND REFUSING TO JUDGE THEM.............................................................. 103
A. Ecuadorian Law Requires Timeliness in Court Decisions ................................. 104
1. Constitutional requirements.................................................................... 104
2. International treaties enforceable under Ecuadorian law........................ 105
3. National legislation................................................................................. 106
4. Supreme Court practice........................................................................... 106
B. The Ecuadorian Courts’ Conduct in TexPet’s Seven Cases Constitutes a
Denial of Justice Under Ecuadorian Law ........................................................... 106
1. The issues in the seven cases are not unduly complex ........................... 107
2. The courts were responsible for the delays............................................. 108
3. The particular circumstances of the seven cases indicate that justice
was denied............................................................................................... 110
V. ECUADOR BREACHED ITS OBLIGATIONS UNDER THE TREATY ................... 110
A. Ecuador Denied TexPet Justice Under Customary International Law ............... 110
1. The modern definition of denial of justice.............................................. 111
2. Undue delay amounting to a refusal to judge ......................................... 113
3. Manifestly unjust and grossly incompetent decisions ............................ 122
B. Ecuador Failed to Provide Claimants with Effective Means of Asserting
Claims and Enforcing Rights.............................................................................. 126
C. Ecuador Violated the Treaty’s Fair and Equitable Treatment Provision............ 132
1. “Ordinary meaning” and object and purpose of the fair and
equitable treatment standard ................................................................... 132
2. The fair and equitable treatment standard requires due process and
prohibits a denial of justice..................................................................... 133
3. The fair and equitable treatment standard requires both a stable
and predictable legal regime and that governments respect
legitimate expectations............................................................................ 135
4. Ecuador violated the fair and equitable treatment standard under
the BIT .................................................................................................... 137
D. Ecuador Violated the Full Protection and Security Clause of the Treaty........... 140
E. Ecuador’s Measures Were Arbitrary and Discriminatory .................................. 142
1. Ecuador’s actions were arbitrary ............................................................ 142
2. Ecuador’s actions were discriminatory................................................... 145
VI. ECUADOR BREACHED INVESTMENT AGREEMENTS ........................................ 146

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VII. IT WOULD BE FUTILE FOR TEXPET TO CONTINUE LITIGATING ITS
SEVEN CLAIMS IN ECUADOR.................................................................................. 147
A. International Law Requires This Tribunal to Take and Decide TexPet’s
Underlying Claims.............................................................................................. 147
1. The “but-for” damage principle.............................................................. 147
2. When Local Remedies are Futile ― Robert E. Brown and the Inter-
American Court of Human Rights.......................................................... 150
B. Ecuadorian Courts Are Lacking in Independence, and There is an Absence
of an Adequate System of Judicial Protection.................................................... 154
1. Political Interference in Judicial Decision-Making ................................ 155
2. Ecuador Admits Its Judiciary is Not Independent .................................. 157
3. Reputable International Observers Agree............................................... 158
a. US State Department Human Rights Reports............................. 158
b. International, Regional and Non-Governmental
Organization Reports .................................................................. 161
c. Objective Rankings and Statistical Indicators ............................ 164
4. TexPet’s Underlying Cases are Particularly Vulnerable to Political
Interference in Judicial Decision-Making............................................... 166
5. This Tribunal Provides Claimants’ Only Hope for an Effective
Remedy ................................................................................................... 172
C. The Procedural Devices Urged by Respondent Are Unreasonable,
Ineffective and Do Not Constitute Remedies ..................................................... 172
1. Hearings in Stand and Written Closing Arguments................................ 173
2. Disciplinary Actions and Personal Monetary Sanctions Against
a Judge .................................................................................................... 176
3. Motions for Recusal................................................................................ 178
VIII. DAMAGES..................................................................................................................... 180
A. Summary of compensation claimed.................................................................... 180
B. Claimants are entitled to costs and expenses...................................................... 187
IX. REQUEST FOR RELIEF ............................................................................................... 188

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1. Claimants Chevron Corporation (“Chevron”) and Texaco Petroleum Company
(“TexPet”) file this Claimants’ Memorial on the Merits in support of their case against the
Republic of Ecuador (the “GOE,” “Ecuador” or the “Government”). Among others, Claimants
claim that the GOE has violated the Treaty between the United States of America and the
Republic of Ecuador concerning the Encouragement and Reciprocal Protection of Investment.
(the “BIT”).1
I. INTRODUCTION
2. Between 1991 and 1993, TexPet filed seven breach-of-contract cases against the
Ecuadorian government in Ecuadorian courts in which it claimed more than US$ 553 million in
damages, which included interest to that point in time.2
The cases involve breaches by Ecuador
of its payment obligations to TexPet under a contract dated August 4, 1973 (the “1973
Agreement”),3
a supplemental agreement dated December 1977 (the “1977 Agreement”)4
and
related provisions of Ecuadorian law. The 1973 and 1977 Agreements are referred to
collectively throughout this Memorial as the “Agreements.”
3. Under the 1973 Agreement, TexPet was entitled to explore and exploit oil
reserves in certain regions of Ecuador, and TexPet was required to provide a percentage of its
crude oil production to the Government to help meet Ecuadorian domestic consumption needs.
The Government of Ecuador was entitled to set the price at which it would purchase oil from
TexPet for Ecuadorian domestic consumption needs, referred to as the “Domestic Market Price.”
The Government consistently set the Domestic Market Price well below the prevailing
international market price. Once TexPet satisfied its obligation to contribute oil for Ecuador’s
domestic consumption at the low Domestic Market Price, TexPet was entitled to receive
1
Treaty between the United States of America the Republic of Ecuador concerning the encouragement and
Reciprocal Protection of Investment, signed on Aug., 27, 1993, CLA-105.
2
A copy of the record of each of the seven cases is attached. Case 23-91 is attached as CEX-282; Case 07-92 is
attached as CEX-283; Case 08-92 is attached as CEX-284; Case 152-93 is attached as CEX-285; Case 153-93 is
attached as CEX-286; Case 154-93 is attached as CEX-287; and Case 983-03 is attached as CEX-288. The
amount was increased to $587,823,427 after judicial inspections revealed additional information.
3
The Agreement between the Government of Ecuador and Ecuadorian Gulf Oil Company and Texaco Petroleum
Company, Aug. 6, 1973 (the “1973 Agreement”), CEX-4.
4
The Supplemental Agreement between TexPet and the Government of Ecuador, Dec. 1977 (the “1977
Agreement”), CEX-5.

2
prevailing international prices for the remainder of its oil. Specifically, once it satisfied its
obligation to contribute its share of oil for domestic consumption, TexPet was free to export its
remaining oil internationally. The sole exception to TexPet’s important right to export was the
Government’s right to purchase TexPet’s oil for refining and export, but if the Government made
such a request for oil that it would not use to satisfy domestic consumption, the Government was
obligated to pay TexPet the prevailing international price for oil.
4. The key principle under the 1973 Agreement was the ultimate use of the crude oil
contributed by TexPet. If the government requested an oil contribution from TexPet and the
Government used the oil for any purpose other than to satisfy Ecuadorian domestic consumption
needs, then TexPet was entitled to receive the international market price.
5. The Ecuadorian Government breached the Agreements and related Ecuadorian
laws by requiring TexPet to contribute substantially more oil than it was obligated to provide at
the reduced Domestic Market Price. Ecuador then exported this additional contribution by
TexPet, either directly or as refined derivative oil products, but it did not pay TexPet the
international market price that it was contractually and legally required to pay.
6. TexPet commenced lawsuits in Ecuador seeking the difference in price between
the reduced Domestic Market Price that it received and the international market price at the time,
or a return of the barrels over-contributed. TexPet proved each claim before the Ecuadorian
courts, largely through Government documents made available to TexPet through the court-
sanctioned “judicial inspection” process under Ecuadorian law. In three of the cases, the court
appointed its own experts, and in each of those cases, the court-appointed experts agreed with
TexPet’s analysis but found that the damages were slightly higher than those claimed by
TexPet.5
Two other cases are identical (except for the time periods) to cases in which
independent court-appointed experts confirmed TexPet’s case. In the final two cases, the GOE’s
own expert agreed with TexPet’s analysis and calculations.
5
The cumulative damage amounts for these three cases (152-93, 153-93 and 154-93) was US $232,434,844
(excluding interest). See Witness Statement of TexPet’s Expert, Mr. Eduardo Borja, (“Borja Witness
Statement”) ¶ 85, CEX-291.

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7. Importantly, the Government admits, as it must, that it requested crude oil from
TexPet for domestic consumption, paid TexPet the Domestic Market Price, and exported
portions of the oil for its own profit. The Government admits these facts because they are
confirmed through irrefutable documentation from Government sources that were revealed
during the judicial inspections in the underlying cases and confirmed by legal and economic
experts subsequently in this arbitration. The sources include the Central Bank of Ecuador and
Ecuador’s National Hydrocarbons Directorate, which is part of Ecuador’s Ministry of Energy
and Natural Resources. Indeed, the Government’s own records permit a straightforward
calculation of the number of equivalent barrels that TexPet contributed, but which the
Government used to export for its own gain. Not only did the experts appointed by the
Ecuadorian courts agree with TexPet’s analysis (and point out that the damages actually were
higher than TexPet claimed), but Navigant Consulting has performed an independent analysis for
purposes of this Arbitration to determine whether TexPet contributed oil for domestic
consumption that the Government did not use for that purpose, and if so, the number of such
equivalent barrels. The results of Navigant’s current independent analysis confirm the primary
expert’s calculations in the underlying litigation as to the total number of barrels that TexPet
over-contributed.
8. The Government’s defense in the underlying Ecuadorian litigation and in this
arbitration is one of attempted misdirection. Specifically, the Government argues that once it
requested the oil from TexPet to satisfy domestic consumption obligations, the oil became the
property of the Government, and the Government was free to do with that oil and its byproducts
as it wished, including refining and exporting it for a profit without paying TexPet the prevailing
international prices. This argument is misleading and baseless. The Government’s ownership
interest in the oil is not the issue in these cases. The issue here and in the underlying cases is the
price that the Government must pay for oil that it required from TexPet. Under the express
language of the Agreements and applicable law, the Government was obligated to pay TexPet
international prices for oil that it required and did not use domestically (or return to TexPet the
barrels of oil it over-contributed). The Government’s argument to avoid honoring its contractual
obligations was specious in the underlying cases and remains so here.

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9. In all seven cases, TexPet filed evidence of its claims within the proper time
period, recommended experts at the appropriate times under Ecuadorian procedural rules, and
repeatedly requested final decisions from the courts. But for well over a decade, 15 different
judges in three different courts failed to rule on any of the seven separate cases. Six of those
cases stood legally ready for decision under Ecuadorian law since at least 1998, but the courts
refused to rule. In the seventh case, the court refused even to take evidence for 14 years. In
short, the Ecuadorian judiciary egregiously delayed all of TexPet’s claims against the
Government, and it has demonstrated a refusal to judge any of those claims in a fair manner as
required under Ecuadorian and international law.
10. In December 2004, the political branches of the same Ecuadorian Government
that is the defendant in the seven cases began to exert control over Ecuador’s judiciary.
Although Ecuador’s 1998 Constitution enshrines the principle of judicial independence that is so
fundamental to a state’s ability to meet its obligation to provide foreign nationals with impartial
justice under the law, the political branches purged Ecuador’s Constitutional, Electoral, and
Supreme Courts and replaced the constitutionally-appointed judges with political allies. Since
2004, judicial independence in Ecuador has been compromised, as recognized by several
prominent international organizations and commentators. The Supreme Court—the Subrogate
President of that Court sits as a first instance judge in three of TexPet’s cases against the
government—has been unconstitutionally purged a total of three times in less than four years,
and the current Court was not legitimately constituted under the Constitution. Ecuador has
justified its judicial purges on the basis that its courts were politicized and the judges issued
rulings that the Government did not like, and the Constitutional Court repeatedly has been
threatened and purged merely for attempting to exercise its fundamental responsibility to
determine whether certain governmental actions are constitutional. Since 2004, Ecuador’s
Government has not permitted its courts to function independently, and local and international
observers of varied political affiliations agree that the political branches now dominate the
courts. Moreover, today a Constituent Assembly dominated by the Executive’s political party
has declared that it has ultimate authority over all branches of the Ecuadorian Government,
including the judiciary. The President of the Supreme Court announced just two months ago that
Ecuador does not live under the rule of law.

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11. In light of the egregious delays suffered in its seven cases and the move by the
Executive Branch, which defends those cases, to extend its control over the entire Ecuadorian
judiciary, Claimants provided Ecuador with notice of this dispute in May 2006. In response to
that notice and the subsequent filing of this proceeding in December 2006, some of the now-
politicized courts began to take some action. In two of TexPet’s cases, the courts dismissed
TexPet’s claims as “abandoned” based on a manifestly-improper reading of a straightforward
Civil Code provision as well as the unconstitutional retroactive application of that provision, and
despite the fact that TexPet had taken all actions necessary to prosecute the cases and the next
action required was that of the courts. In a third case, the court dismissed TexPet’s claim based
on an inapplicable prescription period for breach of contract for small sales to retail consumers,
even though under the unambiguous definition of those terms under Ecuadorian law, the supply
did not involve small sales and the Government was not a retail consumer of TexPet’s. All three
of those cases were not simply decided wrongly, they were decided in a grossly incompetent
fashion in manifest disregard of Ecuadorian law and created a manifest injustice. And in a fourth
case—the smallest of TexPet’s claims worth approximately one-tenth of one percent (0.1%) of
the total damages owed by Ecuador to TexPet—the court ruled in TexPet’s favor, although the
Government has appealed the ruling and it remains on appeal. That judgment is part of a
transparent tactic to posture the Government for this proceeding.
12. Ecuador’s undue delays in deciding TexPet’s seven cases, which have languished
for well over a decade in the Ecuadorian courts, its bias or gross incompetence in manifest
disregard of Ecuadorian law in ultimately deciding three of those cases,6
and its failure to
provide an impartial and independent judicial forum in which TexPet may prosecute its claims
and vindicate its rights, constitute a denial of justice under customary international law, and
independently, a violation of Ecuador’s treaty obligations under the BIT. Specifically, Ecuador
violated its BIT obligations to (1) provide TexPet with an effective means of asserting claims
and enforcing its rights; (2) provide fair and equitable treatment to TexPet’s investments; (3)
provide full protection and security to those investments; and (4) refrain from treating those
investments in an arbitrary or discriminatory manner. Moreover, the Agreements constitute
6
As discussed in more detail below, one of the three decisions was recently overturned by a Chamber of the
Supreme Court, while another was upheld. All seven cases remain pending more than 15 years after having
been filed.

6
investment agreements, which have been breached by Ecuador. Under international law, when a
country’s courts deny justice to a foreign investor, and when it would be futile for the investor to
continue to pursue its claims in the host country’s courts, an international arbitral tribunal must
take and decide the claims.
13. Any further effort by TexPet to receive justice from the Ecuadorian courts would
be futile. Ecuador has denied justice to TexPet first by refusing to judge its claims against the
Government for more than a decade, and then by illegally dismissing several of those claims in
direct response to TexPet’s attempt to vindicate its rights before this Tribunal. The current bias
of Ecuadorian judges, the lack of a constitutionally-legitimate Supreme Court, and the frequent
and successful attacks in recent years by Ecuador’s political branches on judicial independence
requires adjudication by this Tribunal.
14. Claimants seek damages of approximately US$ 1.6 billion for Ecuador’s various
breaches of the governing agreements and laws, together with costs and fees as set forth in
Section VIII below concerning current damages. TexPet sought US$ 553,456,850 in its
originally-filed Ecuadorian claims, increased to US$ 587,823,427 cumulatively after judicial
inspections. Applying simple interest (not compound) under Ecuadorian law through December
31, 2004, yields approximately US$ 1.1 billion, and applying compound interest to that amount
from January 1, 2005, through April 1, 2008, under international law yields US$ 1,577,768,929
in damages owed through April 1, 2008 using the claim amounts from the underlying litigation.
Moreover, as addressed below, Navigant Consulting performed its own independent analysis of
the underlying Ecuadorian claims using mostly government documents as its source and
independently calculated damages of US$ 1,605,220,794.
II. FACTUAL BACKGROUND
A. TexPet First Invested In Ecuador in the Early 1960s
15. During the early 1960s, the Ecuadorian Government made the determination to
seek foreign investors to explore for oil in the country. Through a governmental decree dated
February 5, 1964,7
the GOE granted TexPet and Gulf Oil Company (“Gulf”) a hydrocarbons
7
Supreme Decree No. 205-A, published in the Official Gazette No. 86, Feb. 21, 1964, CEX-1.

7
concession through a Concession Contract with the companies’ local subsidiaries. TexPet and
Gulf agreed that TexPet would operate the Concession, or the “Consortium” as it came to be
known, on behalf of both companies, giving them the right to explore for oil in the Ecuadorian
provinces of Napo and Pastaza, in the Amazon region of Ecuador.8
In 1967, the Consortium
drilled its first successful well. After that discovery, the GOE granted additional concessions to
other foreign investors, and by 1969 considerable oil reserves had been discovered by the
Consortium.
16. In September 1971, the GOE formed a governmental entity, Corporación Estatal
Petrolera Ecuatoriana (“CEPE,” “Petroecuador,” or “CEPE/PE”),9
to represent Ecuador’s
interests in the hydrocarbons industry. In June 1972, the GOE enacted a law requiring foreign
investors to renegotiate their concession agreements in order to provide CEPE/PE with some
rights and ownership interests in the oil reserves.10
If the foreign investors wished to remain in
the Ecuadorian hydrocarbons business, they were required to comply with the new law and
surrender a significant portion of their concession rights and interests to CEPE/PE.
17. The GOE issued and published a model hydrocarbons contract pursuant to
Chapter III of Ecuador’s Hydrocarbons Law in April 1972, and this model contract formed the
basis of initial negotiations between CEPE/PE and the foreign investors.11
The GOE thereafter
amended the model contract,12
and entered into a binding contract with TexPet and Gulf on
August 6, 1973 (the 1973 Agreement).13
B. The 1973 Agreement
18. The 1973 Agreement provided CEPE/PE with an option to acquire a 25%
ownership interest in the Consortium.14
On June 14, 1974, CEPE/PE exercised that right and
8
The Amazon region may also be referred to as the “Oriente region,” following its Spanish denomination.
9
In September 1989, the Government substituted CEPE with Petroecuador, Ecuador’s new national oil company,
which succeeded CEPE in all its rights and obligations.
10
Supreme Decree No. 430, published in the Official Gazette No. 80, June 14, 1972, CEX-3.
11
Supreme Decree No. 317, published in the Official Gazette No. 283, Apr. 10, 1972, CEX-2.
12
Supreme Decree No. 905 of Aug. 4, 1973, published in Official Gazette No. 362, Aug. 3, 1973, CEX-289.
13
In the 1973 Agreement, TexPet and Gulf are referred to as the “Contractors.” 1973 Agreement, Clause 1.1.
14
1973 Agreement, Clause 52.

8
acquired a 12.5% interest in the Consortium from TexPet and a 12.5% interest from Gulf,
resulting in a 25% ownership interest by CEPE/PE in the Consortium, and a 37.5% ownership
each for TexPet and Gulf.15
By an agreement dated May 27, 1977, Gulf sold its 37.5%
ownership interest to CEPE/PE, thereby providing CEPE/PE with a 62.5% interest, with
TexPet’s interest in the Consortium remaining at 37.5%.16
TexPet remained the operator of the
fields until 1990 when Petroecuador took over as operator.17
The 1973 Agreement expired by its
own terms on June 6, 1992, and it was not renewed.
C. Relevant Terms of the 1973 Agreement
19. The 1973 Agreement provided the GOE with, among other benefits, (1) royalty
payments; (2) a guaranteed supply of oil for domestic consumption at prices wholly-determined
by the GOE itself; and (3) a guaranteed supply of oil for which it would pay international market
prices, which the GOE could use to create derivative products for export at a profit. In return,
TexPet received the right to explore and exploit oil in the designated areas, and to sell to the
GOE or export for its own profit at international market prices any crude oil not purchased by the
GOE for the specific purpose of supplying domestic consumption, as set out in the agreement.
1. Royalty payments
20. TexPet agreed to pay the GOE a monthly royalty ranging from 12.5% to 16%,
based on gross monthly production.18
2. Supply of oil by TexPet for Ecuadorian domestic consumption
21. Clause 2.3 of the 1973 Agreement provides: “The Contractors’ activities
comprise: production, storage, transport, supply for domestic consumption, commercialization
and exportation of hydrocarbons.”
22. Clauses 19.1 and 19.2 of the 1973 Agreement address the issue of “supply for
domestic consumption.” Together they provide that TexPet was obligated to supply a
15
Acta dated June 14, 1974, by which CEPE/PE acquired a 25% participation in the Consortium, CEX-293.
16
Borja Witness Statement ¶ 6.
17
18
1973 Agreement, Clause 29.1.

9
proportional percentage share of crude oil (based on its proportional share of total crude oil
production in the country) to satisfy domestic consumption in Ecuador. The crude supplied by
TexPet either would be refined locally to create oil derivatives (such as gasoline, kerosene, fuel
oil, and other oil-based products) for domestic consumption, or the GOE would export the crude
for purposes of obtaining funds to import oil derivatives from abroad (such as gasoline, kerosene,
and other oil-based products) that would then be consumed domestically. The parties referred to
these crude exports as “Compensation Crude.”
23. Specifically, Clause 19.1 of the 1973 Agreement provides as follows:
For the supply of refining and industrial plants established or to be
established in the country, the Ministry concerned may demand
contractors, whenever deemed necessary, to supply an equal
percentage of the oil belonging to them, and to effect between
them the economic compensation deemed convenient so that those
plants may be supplied with the most adequate crude due to its
quality and location.
The percentage referred to in the preceding paragraph shall be
applied to all the producers in the country, including, CEPE, and
shall be determined every quarter by dividing the domestic
national consumption of barrels per day into the total production
corresponding to such producers, also expressed in barrels per
day, and multiplying the result times one hundred.
It is understood that there is no obligation to utilize the oil
belonging to the State according to Art. 46 of the Hydrocarbons
Law [oil royalty payments], for domestic consumption in the
country.19
19
1973 Agreement, Clause 19.1 (emphasis added).

10
24. Clause 19.2 of the 1973 Agreement provides as follows:
The contractors agree to supply, if the Ministry concerned so
requests, their proportional part of any volume of crude oil that is
necessary for the production of derivatives destined to domestic
consumption in the country, calculated in accordance with the
provisions of the preceding paragraph of this clause. This
obligation of the contractors shall not be limited by the provisions
of paragraph 19.3 of this clause.20
25. At the time the parties executed the 1973 Agreement, the Government’s ability to
refine oil into derivatives was quite limited.21
Accordingly, Clause 19.2 allowed the Government
to request crude oil from TexPet that the Government would export in order to obtain funds that
it would use to import oil derivatives. The Government purchased the crude oil from TexPet at
the reduced Domestic Market Price, exported it at the higher international market price, and used
the difference in price to purchase derivatives to satisfy Ecuador’s internal market. As long as
the exported oil was used to obtain funds to purchase derivatives that the GOE imported to
satisfy domestic consumption needs, the oil was considered to be used for domestic consumption
under this agreed concept of Compensation Crude. Although the crude oil was exported in the
Compensation Crude scenario, it was treated as oil supplied for domestic consumption because
the net export revenues (after crude contribution payments to contractors) were used to provide
funds for the importation of derivatives for domestic consumption.
26. The Domestic Market Price that the Government paid for oil supplied by TexPet
for domestic consumption (including Compensation Crude) was determined by the Government
pursuant to Clause 20.1 of the 1973 Agreement based on production costs, plus a marginal
profit.22
20
21
In 1973, only one refinery existed in Ecuador—the Libertad refinery—which was located on the southwest
coast of the country. Because the Libertad refinery did not have enough capacity to produce refined products to
satisfy Ecuador’s internal market, the GOE found it necessary to import derivative products from abroad in
order to satisfy Ecuador’s domestic consumption needs. It did not export any derivative products abroad from
the Libertad refinery. See Navigant Consulting Report, Apr. 1, 2008 (“Navigant Expert Report”) ¶¶ 62, 74-75,
CEX-296; see Borja Witness Statement ¶ 27.
22
See 1973 Agreement, Clause 20.1. This is consistent with Article 67 of the Hydrocarbons Law, see 1971
Hydrocarbons Law, Official Register No. 1459, Oct. 1, 1971, CEX-193.

11
27. In practice, the Domestic Market Price was fixed by the Government through a
Ministerial Resolution that required the Government to consider each individual producer’s costs
when setting the Domestic Market Price. Thus, the Domestic Market Price for TexPet was
different than the Domestic Market Price for other oil producers.
28. The Domestic Market Price was always significantly lower than the international
market price at which TexPet could export its share of crude oil. From 1981 until 1992, the
Domestic Market Price for TexPet’s deliveries was updated on only 11 occasions (an average of
less than once per year), and it ranged from US$ 1.48 per barrel to US$ 7.26 per barrel.23
During
the same time frame, the international market price at which TexPet exported its crude oil from
Ecuador ranged from a monthly average of US$ 8.62 per barrel to US$ 33.10 per barrel.24
3. Supply of oil by TexPet for export by the Government
29. Under the 1973 Agreement, the GOE had the right to require TexPet to supply
additional oil for export even after domestic consumption needs were satisfied in all respects
(including through requests for Compensation Crude) in the event that refining, industrial or
petrochemical plants in the country manufactured derivatives for export and additional oil was
needed for that purpose.
30. Clause 19.3 of the 1973 Agreement provides:
Should the refining, industrial or petrochemical plants in the
country manufacture derivatives for exportation, and if for such
purpose it were necessary to supply an additional volume of crude,
after having utilized in such plants all the oil corresponding to the
State in accordance with Art. 46 of the Petroleum Law and that
produced by or corresponding to the State for any concept, the
Ministry concerned may demand contractors to supply an equal
percentage, from the crude belonging to them, in relation to the
amounts demanded from other producers in the country. Such
percentage shall be calculated by dividing the aforementioned
additional volume, expressed in barrels per day, into the total
23
These are the Domestic Market Prices for Texaco’s deliveries to the Esmeraldas Refinery. See Chart of Local
Crude Market Prices, listing the prices and Decrees and Ministerial Resolutions in force during the time of the
dispute for TexPet and other oil producers in Ecuador, CEX-290.
24
These prices represent the minimum and maximum average monthly prices at which TexPet sold its crude oil
from July 1, 1981 to June 6, 1992. Borja Witness Statement ¶¶ 99-100.

12
production of the country, after deducting the total volume
produced by or corresponding to CEPE/PE for any concept, also
expressed in barrels per day, and multiplying the result times one
hundred. Such percentage shall be applied to the total production
of the contractors’ area, excluding the partial or total participation
of CEPE’s, according to clause 52 of this contract, and the
resulting volume shall be such that will allow to dispose, to be
exported by the contractors, of a volume of crude oil of not less
than 49% of the total oil produced in the contract area.25
31. TexPet’s main incentive to invest further in Ecuador by entering into the 1973
Agreement was to obtain the free-market international price for its oil after Ecuador’s domestic
consumption needs were satisfied. Consistent with this, Clause 20.2 of the 1973 Agreement
provides that the GOE would pay the international market price for any oil that it purchased from
TexPet under Clause 19.3 and used to create derivatives or products that the GOE exported:
Prices of the various types of crude oil required for refineries or
hydrocarbon industries established in the country, destined to the
manufacture of derivatives or products to be exported, shall be
agreed in accordance with the prices of crude in international
markets.26
32. If at a particular time the international market price for oil products or derivatives
exceeded the international market price for crude oil, this provision of the 1973 Agreement
afforded the GOE an opportunity to profit from the export of derivatives.27
TexPet itself did not
export oil products or derivatives from Ecuador; it exported only crude oil. Accordingly,
through Clause 19.3, the GOE could benefit from exporting derivatives or oil products with no
countervailing detriment to TexPet—to the extent that the GOE had refining capacity to create
derivatives or products, and as long as the GOE paid the international market price for the crude,
which it agreed to do.
33. The language of Clause 20.2 of the 1973 Agreement is broad. In the petroleum
industry, the word “derivatives” is used interchangeably with the word “petroleum products.”
25
1973 Agreement, Clause 19.3.
26
27
When the 1973 Agreement was executed, the GOE’s ability to refine and export derivatives was limited. It was
not until 1978, when the Esmeraldas refinery on Ecuador’s northern Pacific coast became operational, that the
GOE was capable of producing its own derivatives for export.

13
Both are the result of the refining process. A barrel of oil can be refined through different
refining processes into a number of different end products, such as gasoline, kerosene, and fuel
oil. Each is a “derivative” or “petroleum product” that is derived from the original barrel of
crude. The refining process also results in oil residue, which is an oil product and sometimes
called a derivative. A single barrel of oil that is refined almost always produces at least two or
more barrels of oil-based derivatives. Although the terms “derivatives” and “products” often are
used interchangeably in the industry, Clause 20.2 of the 1973 Agreement left no room for doubt.
It provides that the Government must pay TexPet the international market prices for crude oil
that the Government requests from TexPet in the manufacturing of “derivatives or products to be
exported.” It is thus clear that the Government was (and is) required to pay international prices
for all crude oil that it received from TexPet that was used to manufacture any oil products
whatsoever that the Government subsequently exported and did not use to satisfy domestic
needs, whether that product is fuel oil, crude oil residue, or some other oil-based product or
derivative.
4. TexPet’s right to export
34. Once TexPet satisfied its obligations to supply crude oil to the GOE for domestic
consumption, it was then free to export (or, if so requested, sell to the GOE for export) all
remaining crude oil at free-market international prices.28
Clause 19.4 of the 1973 Agreement
provided: “The State shall authorize the contractors to export the oil belonging to them, once the
country’s needs have been satisfied in accordance with the provisions of the preceding
paragraphs of this clause and clause 26.1.”29
35. This right to export, memorialized in Clause 19.4 of the 1973 Agreement, is
consistent with Article 30 of Ecuador’s Hydrocarbons Law, which provides that “the State shall
28
The only exception to this is the GOE’s right pursuant to Clause 19.3 of the 1973 Agreement to request oil from
TexPet that the GOE would use for export, for which the GOE would pay international prices.
29
1973 Agreement, Clause 19.4. Clause 26.1 provides “Once the national needs have been satisfied and the
contractors have fulfilled the requirements established in the corresponding laws and regulations and this
contract, the Ministry concerned shall authorize the exportation of oil and free gas. Exportation of oil shall be
governed besides, by clauses 19 and 52 of this contract.” 1973 Agreement, Clause 26.1. Clause 52 of the 1973
Agreement addresses the right of CEPE/PE to acquire up to a 25% interest in the Consortium. See 1973
Agreement, Clause 52.

14
authorize contractors or associated parties to export oil once domestic industrial and refining
needs are met, provided all legal requirements are complied with.”30
5. Calculation of Ecuadorian domestic consumption
36. Because the Government’s use of the crude oil contributed by TexPet determined
the price that the Government paid TexPet for that oil, it was necessary to determine accurately
whether the Government used the oil contribution for domestic consumption (including
Compensation Crude) or to create products for export.
37. As set forth in Clause 19.1 of the 1973 Agreement, the Government estimated
total domestic consumption needs (in barrels per day), and that estimate would be divided into
the total production capability of all oil producers in Ecuador, including CEPE. The result of
that division would be multiplied by 100, to determine the uniform percentage of crude oil that
all producers would contribute at the low Domestic Market Price in order to satisfy Ecuadorian
domestic consumption needs. This percentage was then to be applied to each producer’s total
monthly crude oil production in order to yield the volume of crude oil that each producer was
required to contribute to meet Ecuador’s domestic consumption requirements.
38. Stated as a formula, TexPet’s proportional contribution to domestic consumption
was to be calculated, pursuant to Clause 19.1 of the 1973 Agreement, as follows:
National domestic consumption
—————————————— x 100 = Uniform percentage of contribution to domestic
Nation-wide total production consumption.
Uniform percentage x TexPet’s total production = Actual volume that TexPet was required to
contribute to national domestic consumption.
39. Mr. Eduardo Borja is an economist who resides in Ecuador and who has been an
employee of TexPet’s since 1985. Mr. Borja’s duties included overseeing and implementing the
30
1971 Hydrocarbons Law, Official Register No. 1459, Oct. 1, 1971, art. 4, § 30 of English translation, CEX-193.

15
1973 and 1977 Agreements.31
Mr. Borja explains the calculation of TexPet’s percentage
contribution with the following example:
[I]f the volume of crude oil requested by the DNH for Domestic
Consumption was 11,200 barrels per day…, and the total
production of all producers was 25,000 barrels per day, applying
the formula above, it would result that each producer had to
contribute 44.8% of its oil production:
11,200
——— x 100 = 44.8% of production
25,000
Since Texaco owned 37.5% of the CEPE-Texaco consortium, the
Consortium’s production had to be multiplied by this percentage in
order to determine Texaco’s share of production. Then, Texaco’s
obligation to contribute to Domestic Consumption was calculated
by applying the percentage that all oil producers had to contribute
to Texaco’s share of production.
Thus, in my example, if the Consortium’s production was assumed
to be 20,000 barrels per day, Texaco’s share would be 37.5% of
these 20,000 barrels, which multiplied by 44.8%, amounts to 3,360
barrels of crude oil that Texaco contributed in this example to the
Domestic Consumption. […]32
20,000 x 37 % = 7,500 x 44.8 % = 3,360 barrels.
40. Ecuador’s National Directorate of Hydrocarbons (“DNH”) was given the job of
calculating the volumes of crude oil that each oil producer was required to contribute for
domestic consumption. The Hydrocarbons Directorate sent its written quarterly forecast to
TexPet and the rest of the oil producers, and TexPet planned its production and exports
accordingly.
31
See Borja Witness Statement ¶¶ 9-10.
32

16
41. The DNH updated the quarterly forecast on a monthly basis based on the actual
production data, and it communicated the updated requirements to the oil producers on a
monthly basis.33
D. Relevant Terms of the 1977 Agreement
42. Between 1973 and 1978, the Government operated only one oil refinery—La
Libertad.34
During that period, the Government did not possess sufficient refining capability to
refine crude oil for export. Rather, all of Ecuador’s refining capacity was needed to produce oil
products for domestic consumption. But by 1977, the Government was in the final stages of
constructing the Esmeraldas refinery, which would be capable of refining crude oil to produce oil
products that the Government could then export.
43. If the Government were free to increase domestic consumption needs artificially
by including its own exports from the Esmeraldas refinery as an element of national domestic
consumption, then TexPet would lose the essential benefit of its contractual right under Clause
19.4 of the 1973 Agreement to export its oil at free-market international prices once its
proportional contribution to Ecuador’s actual domestic consumption needs was satisfied.
Although the 1973 Agreement was clear on its own, the Government and TexPet supplemented
the 1973 Agreement to make it beyond any possible doubt that when calculating TexPet’s
contractual obligation to contribute crude oil, the crude equivalent of any exports by the
Government logically would not be included when calculating Ecuador’s total domestic
consumption needs. Thus, the parties affirmed (in the form of a specific formula) their previous
agreement that domestic consumption meant just that—either oil consumed domestically, or
Compensation Crude (i.e., crude exported to obtain funds to purchase derivative products abroad
for import to satisfy domestic consumption needs). The 1977 Agreement neither changed nor
superseded the terms of the 1973 Agreement, but merely clarified it. The 1977 Agreement
provides in pertinent part:
33
Borja Witness Statement ¶¶ 48, 70-71.
34
Borja Witness Statement ¶ 27; Navigant Report ¶¶ 62, 74-75.

17
Oil for Domestic Consumption
Pursuant to . . . section 19 of the hydrocarbon exploration and
exploitation agreement signed between the National Government
and Texaco Petroleum Company and Ecuadorian Gulf Oil
Company, on August 6, 1973, the CEPE/PE-Texaco Petroleum
Company consortium shall supply the amounts of crude oil
necessary for the country’s domestic consumption.
The Hydrocarbon General Office, quarterly, and fifteen business
days prior to the beginning of each quarter, shall fix an estimate of
Ecuadorian Domestic Consumption. In other words, the volume of
crude oil to be processed in the refineries, less the volume of
exports, plus compensation crude oil.
The volume of export products shall be multiplied by the quotient
resulting from the division of the weighted average price of export
products of Corporación Estatal Petrolera Ecuatoriana in the
previous quarter by the weighted average price of the crude oil
sales of the previous quarter carried out by the same Corporación
Estatal.
In both cases, prices shall be adjusted to payment in cash. (No
more than 20 business days of credit). During the 20 days
following the end of each quarter, the Office itself shall perform
the relevant reliquidation of Ecuadorian Domestic Consumption
according to the above definition, using the actual data during the
quarter subject to reliquidation.35
44. Oil that was sent to Ecuador’s refineries was either refined for domestic
consumption or for export. Therefore, Ecuador’s domestic consumption was to be measured by
(1) determining the total volume of crude oil sent to Ecuador’s refineries during a given period;
(2) subtracting from that amount the crude equivalent volume of oil products that the GOE
35
1977 Agreement at 8-9 (emphasis added). In its Statement of Defense, Ecuador contends that the 1977
Agreement, including the formula cited, was valid for only a 12-month period, until December 1978. See
Statement of Defense ¶¶ 16-17. This simply is untrue. While the 1977 Agreement does contain a work
program for oil production for a 12-month period, its formula for calculating domestic consumption stands
alone and was not temporally-limited. The formula is contained in an entirely separate clause (with a separate
heading) from the work program, whereas the temporal limitation is only contained in the 1978 Work Program
Clause. The formula cited below and agreed to in the 1977 Agreement was binding upon the parties throughout
the period of TexPet’s oil production activities in Ecuador. See Expert Report of Jorge Paz Durini, Apr. 7,
2008, ¶ 75 (“Paz Expert Report”), CEX-323 (“The 1977 Agreement set out a specific formula for making the
calculation of what TexPet’s volume contribution crude should be. Although it also contained a workplan for
the 12 months after its execution, there was no temporal limitation on the required use of the formula for
calculating TexPet’s contribution obligation under the 1973 Contract”). Any different interpretation would be
contrary to the plain wording of the Agreement, the obvious intent of the parties, and would defy common-
sense.

18
exported; and (3) adding back any crude volumes exported for purposes of securing funds to
import derivatives for domestic consumption (i.e., Compensation Crude). The GOE was to
estimate this amount each quarter in requesting TexPet’s contribution for domestic consumption,
and it was then required to reconcile (or true-up) in the next quarter any differences between the
estimated and actual domestic consumption.
45. According to the 1977 Agreement, the formula for calculating domestic
consumption was:
Deliveries to refineries
- Exported products (crude equivalent)
+ Compensation Crude
————————————
Total Domestic Consumption
46. A barrel of crude oil that is refined does not produce an equivalent barrel of
derivative oil products. It normally produces more than a one-to-one ratio. Also, a barrel of oil
is fungible and divisible, and prudent industry practice includes using as much of a barrel of oil
as possible to maximize commercial and economic gain. When calculating the value of
derivative or other products, it is customary and necessary to determine the value of the
equivalent barrels of crude needed to create such products. Refining a barrel of crude does not
produce a barrel of oil products and the oil products produced do not have the same value as
crude. The 1977 Agreement provided the following formula36
to calculate the commercial
relationship or equivalence between the number of equivalent crude oil barrels and the number of
barrels of oil products exported by the Government:
average price of exports of products
Exportable products = barrels of exported products x ———————————————
average price of crude oil exports
36
Mr. Borja explains this formula as follows:
My understanding is that the 1977 Agreement used a price relation (division of
price of derivatives by price of crude oil) to calculate a volume (barrels of crude
oil) because the 1977 Agreement calculated the commercial crude equivalent of
the derivatives, that is, the barrels of crude oil need to obtain the value of the
exported derivative products, not the barrels of crude oil needed to obtain the
actual volume of the exported derivative products.

19
E. The GOE Failed to Pay International Prices and Required Excess Crude Oil
Contributions from TexPet in Violation of the 1973 Agreement; TexPet
Commenced Five Lawsuits and Proved Its Case in Each Instance
47. The Government systematically required TexPet to contribute more crude oil at
the low Domestic Market Price than TexPet was contractually and legally obligated to
contribute. Stated differently, the Government systematically failed to pay TexPet the higher
international prices for crude oil that the Government requested for domestic consumption but
used to create derivative products for export and not for domestic consumption. TexPet
commenced five separate lawsuits against the GOE between 1991 and 1993, each relating to a
different time period, all of which related to the GOE’s requirement that TexPet over-contribute
crude oil and the Government’s related failure to pay international prices for oil it used to create
exports. The five cases correspond to the following three distinct types of claims:
• Esmeraldas refinery claims (Case 23-91 and Case 152-93), which focus
on the GOE’s failure to reimburse TexPet at the international market price
for 18,721,441 barrels of crude oil that TexPet contributed at the Domestic
Market Price, but that the GOE did not use to satisfy domestic
consumption, and instead using it at the Esmeraldas Refinery to produce
and export fuel oil.
• Amazonas refinery claims (Case 7-92 and Case 153-93), which focus on
the GOE’s failure to return to TexPet (or alternatively to reimburse TexPet
at the international market price for) 1,821,954 barrels of crude oil that
TexPet contributed at the Domestic Market Price, but that the GOE
reinjected into the Transecuadorian pipeline (or the “SOTE”) as residual
oil and exported, rather than using it to satisfy domestic consumption.
• Imported products claim (Case 154-93), which focuses on the GOE-
owned refineries’ failure to pay to the account “Operaciones para el
Abastecimiento de Hidrocarburos” (the “OPAH,” the “OPAH Account,”
or the “Operations Account”)37
for the derivatives imported from abroad
with proceeds from the sale of TexPet’s Compensation Crude. The
refineries’ lack of payment artificially decreased OPAH’s revenues and
caused the GOE to increase TexPet’s contributions of Compensation
Crude, which was used to finance the OPAH Account deficit rather than to
help satisfy domestic consumption.
37
The OPAH was created in 1973 (after the execution of the 1973 Agreement) as a special account in the Central
Bank of Ecuador. Administered by CEPE/PE, it was designed to track the GOE’s revenues and expenses from
hydrocarbons activities. The OPAH was thus an internal Government accounting system and did not (and could
not) change TexPet’s or the GOE’s rights and obligations under the Agreement. Borja Witness Statement ¶¶
64-65.

20
48. TexPet filed two additional claims, one relating to a force majeure issue and one
concerning the GOE’s breach of a 1986 Refinancing Agreement, pursuant to which TexPet had
loaned money to Petroecuador.
49. TexPet’s initial claims totaled US$ 553 million in damages, including interest to
the time of filing. After the judicial inspections of documents in the Ecuadorian litigation
process, TexPet’s total damages were increased to US$ 587,823,427 as of the early 1990s, as
shown below:38
38
See Borja Witness Statement ¶ 85 (summary chart of underlying damages claimed without interest), ¶ 132
(Esmeralda Refinery Claims, including interest claimed in underlying litigation), ¶ 170 (Amazonas Refinery
Claims), ¶ 190 (Force Majeure Claim, also known as Restitution of Fuel Oil), and ¶ 232 (Imported Products
Case).

21
Claim Name Ecuadorian
Case No.
Claim Period Local Claim
Damages (as of
Complaint)
(in US $)
Revised Claim
after Judicial
Inspections
(in US $)
23-91
July 1981 -
December
1983
188,297,164 204,184,570
Esmeraldas
Refinery Claims
152-93
January 1984 -
June, 1992
280,314,855.88 300,157,993
7-92
September
1987 - August
1991
23,429,715 23,429,71539
Amazonas
Refinery Claims
153-93
September
1991 - June
1992
4,207,268.83 2,843,302.18
Imported
Products Case
154-93
January 1983 -
June 1992
43,371,993.44
43,371,993
Force Majeure
Claim
8-92
September
1988 - October
1989
12,313,302 12,313,302
Refinancing
Agreement
Claim
983-03
(former 6-92)
December
1986 -
December
1988
1,522,552.54 1,522,55240
Total 553,456,850.81 587,823,427.18
50. In five of the seven proceedings, each party appointed its own expert to determine
whether there had been an over-contribution of crude oil for domestic consumption, and if so, to
calculate the exact volumes. In all of the cases with the exception of the Refinancing Agreement
claim, TexPet appointed Mr. Borja as its expert, and he was accepted and ratified by the courts in
39
TexPet’s expert in the Ecuadorian litigation, Mr. Borja, did not prepare an expert report for Case 7-92 because
the Ecuadorian court simply refused to swear in the experts and thus to complete the evidentiary stage of the
case. This failure by the court is discussed in detail below. See Borja Witness Statement ¶¶ 13-16.
40
TexPet’s expert in the Ecuadorian litigation, Mr. Borja, did not prepare an expert report for Case 983-03, but the
Court awarded this amount to TexPet. See Borja Witness Statement ¶ 17.

22
each instance. Party-proposed experts, once sworn, must act as fiduciaries of the court under
penalty of perjury.
51. Under Ecuadorian procedural law, the parties have the right to propose experts to
conduct the necessary examinations at “judicial inspections.” A judicial inspection is an
evidentiary procedure available and usual under Ecuadorian law, by which the judge, lawyers,
and party-appointed and/or court-appointed experts travel to a location of relevance to the case to
examine either (1) pieces of documentary evidence relating to the subject matter of the dispute;
or (2) the location where a relevant fact occurred.41
Once approved by the court, the experts are
given the task of answering specific questions posed by the parties. At the beginning of the
judicial inspections, the judge swears in the experts appointed to carry out the task requested by
the parties, and the experts are thereby authorized to review the necessary evidence. The parties
then explain their positions and ask specific questions for the experts to answer. The judge may
grant a deadline for the experts to submit their conclusions in writing. After reviewing the
necessary information, the experts must then submit reports to the court providing answers to the
questions posed.
52. During the course of the local Ecuadorian proceedings in this matter, the parties
requested that several judicial inspections be carried out concerning the documents maintained
by Ecuadorian governmental agencies and institutions, so that all the necessary information to
calculate TexPet’s alleged damages could be analyzed by the experts. TexPet and the GOE
requested judicial inspections of the records of the OPAH, the Central Bank of Ecuador and
TexPet’s accounting books. Given the technical nature of the data required to calculate the exact
volumes of crude oil over-contributed by TexPet, the appointment of industry experts was
necessary not only to gather the unpublished information, but also to review and analyze all the
technical evidence submitted in the cases. The experts spent several days reviewing and
gathering the necessary information to submit expert reports responding to the questions
formulated by the parties.
53. Mr. Borja submitted expert reports in five of the seven cases and proved that (i)
TexPet contributed crude oil for Ecuadorian domestic consumption, (ii) the GOE paid TexPet the
41
See Code of Civil Procedure, art. 242, CEX-292.

23
Domestic Market Price for that crude oil, and (iii) the GOE used some of that oil to create oil
products or derivatives that it exported for gain and not for domestic consumption.
54. Mr. Borja also calculated the specific number of barrels and the dollar damages
resulting from the GOE’s failure to pay international prices for the crude oil that TexPet over-
contributed. His calculations are set forth in Mr. Borja’s Witness Statement and summarized in
each of the individual cases addressed below.42
55. In addition to Mr. Borja’s testimony in this Arbitration, Claimants have retained
independent industry, legal and damage experts who have confirmed the accuracy of TexPet’s
claims in the seven cases. TexPet’s experts on the validity and accuracy of its underlying claims
are:
(1) Dr. Jorge Paz of the law firm of Paz & Horowitz. Dr. Paz is founding
partner of the prestigious Ecuadorian law firm of Paz & Horowitz
Abogados, and professor of International Contracts at Universidad San
Francisco de Quito. Dr. Paz obtained his law degree from Universidad
Católica de Quito and an LLM degree from Tulane University, Louisiana,
USA. Dr. Paz has analyzed each of the seven cases and concludes in his
expert report that a fair and impartial judge would have ruled in favor of
TexPet in each of the seven cases.
(2) N. E. “Skip” Maryan, Esq., of the law firm of Thompson and Knight, LLP.
Mr. Maryan has had a long career drafting, interpreting and implementing
oil agreements between host countries and oil producers. Mr. Maryan
concludes, inter alia, that the Government’s claimed interpretation of the
Agreements, and its conduct in these cases is contrary to industry custom
and practice.
(3) Navigant Consulting, Inc., (“Navigant”). Navigant is a specialized
independent consulting firm providing economic, financial and energy
consulting services. Navigant was asked to review each of the seven
Ecuadorian cases, the seven original damage calculations, and to prepare an
independent analysis and damage calculation.43
In all material respects,
42
43
Navigant described its task as performing the following:
• Review of each of the Ecuador Claims and the original damage calculations prepared
by Mr. Borja and submitted by TexPet in the Ecuadorian litigation;
• Detailed background analysis of the Ecuadorian oil industry and market context for
the Claims;

24
Navigant based its analysis and report on public sources and data published
by the GOE, such as the Central Bank of Ecuador’s annual reports, the DNH
reports, and other sources.44
After independent review and analysis of the
claims and the relevant information, Navigant confirmed the economic
foundation of the claims and the damage calculations that Mr. Borja
performed in the Ecuadorian litigation.
56. Below is a chart summarizing Mr. Borja’s calculation of TexPet’s over-
contribution of crude oil to Ecuador at the Domestic Market Price and Navigant’s independent
calculation of TexPet’s over-contribution:
• Critical analysis of the foundations and merits for each of the Claims in light of the
underlying terms evident in the various agreements between TexPet and
PetroEcuador, the Hydrocarbons Law, and various ministerial resolutions; and
• Collection, review, verification and analysis of key data pertaining to these
contractual terms and the matters under dispute, including a general comparison of
our data sources to those utilized by Mr. Borja.
Navigant Expert Report ¶ 22.
44
Navigant’s Expert Report, Attachments (including an exhaustive list of all the sources used), and Appendices
A-D are attached as CEX-296.

25
Comparison of Navigant’s and Mr. Borja’s Over-Contribution Calculations45
Time Period
for Over-
Contributions
Navigant’s
Calculation
of Over-
Contributions46
(bbl)
Mr. Borja’s
Calculation
of Over-
Contributions
(bbl)
Difference Difference
A B C D = B - C E = D / B
Esmeraldas Refinery
Claim 23-91
July 1981 - Dec 1983
3,631,676 3,572,070 59,606 1.6%
Esmeraldas Refinery
Claim 152-93
Jan 1984 - June 1992
15,061,489 15,149,371 (87,882) -0.6%
Amazonas Refinery
Claim 7-92
Sep 1987 - Aug 1991
1,597,565 1,561,981 35,584 2.2%
Amazonas Refinery
Claim 153-93
Sep 1991 - June 1992
267,225 259,973 7,252 2.7%
Imported Products Claim
154-93
Jan 1983 - June 1992
3,146,401 3,067,984 78,417 2.5%
Restitution Fuel Oil
Claim 8-92
Sep 1988 - Oct 1989
1,429,266 1,429,266 0 0.0%
Total Barrels Over-
Contributed
25,133,623 25,040,645 92,978 0.4%
45
For Amazonas Claim 7-92, Mr. Borja did not submit a report. The number of barrels is from the original claims
before the Ecuadorian Courts. See Navigant Expert Report, Appendix D, Section I-K.
46
Navigant explains the modest difference in these comparative numbers generally as the result of using slightly
different Government sources of data. In thousands of pages of hydrocarbons statistics and information over
the course of a decade, different Government sources published data with very minor variations. These
variations explain the difference, which is well within any statistical margin of error, between Navigant’s and
Mr. Borja’s calculations. See generally Navigant Expert Report ¶¶ 171-173 at 65.

26
57. Below is a chart summarizing Navigant’s damage conclusions in each of the
seven cases together with accrued interest through April 1, 2008:47
Value on April 1, 2008
Direct
Damages
Ecuador
Interest
(through
December 31,
2004)
International
Interest
(through
December 31,
2004)
Total
Damages
Esmeraldas Refinery
Claim 23-91
$98,767,529 $245,773,815 $145,495,483 $490,036,827
Esmeraldas Refinery
Claim 152-93
$194,757,455 $380,992,357 $243,131,915 $818,881, 726
Amazonas Refinery
Claim 7-92
$18,691,955 $32,886,342 $21,780,867 $73,359,164
Amazonas Refinery
Claim 153-93
$2,785,204 $4,409,024 $3,038,032 $10,232,260
Imported Products Claim
154-93
$35,780,606 $76,348,196 $47,350,585 $159,479,386
Restitution Fuel Oil
Claim 8-92
$12,517,659 $23,378,360 $15,158,438 $51,054,456
Refinancing Claim 983-
03
$1,530,615 $0 $646,359 $2,176,974
Total Barrels Over-
Contributed
$364,831,022 $763,788,094 $476,601,678 $1,605,220,794
1. Esmeraldas refinery claims (Cases 23-91 and 152-93): TexPet proved
that the GOE violated Ecuadorian law and breached the Agreements,
which is confirmed by independent experts
58. From the time that the Esmeraldas refinery became operational in 1978, through
the time that TexPet concluded its operations in Ecuador in June 1992, the GOE refined crude oil
requested from TexPet for domestic consumption at the Esmeraldas facility and sold derivative
products that it produced in the Ecuadorian domestic market. The GOE, however, exported at a
profit a portion of those derivative products—mainly fuel oil and diesel―but did not pay TexPet
47
Navigant Expert Report, Table 5 at 17.

27
international prices.48
In both the underlying Ecuadorian litigation and in this proceeding, the
GOE admits and acknowledges these dispositive facts.49
59. The GOE’s legal defense was and remains wholly baseless. Nothing in
Ecuadorian law supersedes or contradicts the express language of the 1973 Agreement as
supplemented by the 1977 Agreement, which governed the respective rights and obligations of
TexPet and the GOE as to each other. The issue is not whether the GOE owned the derivatives
and products that it manufactured from the crude oil that TexPet supplied in response to the
GOE’s call for contributions to Ecuadorian domestic consumption. That is irrelevant and
constitutes misdirection. The issue is whether the GOE over-stated Ecuador’s domestic
consumption requirements and secured more crude oil from TexPet at the low Domestic Market
Price than it should have under the Agreements, or did not credit TexPet with such contributions.
The clear and undeniable answer to this critical questions is “yes,” and the GOE’s effort at
misdirection must fail. The GOE had an obligation to accurately determine Ecuadorian domestic
consumption, and to compensate TexPet at international prices for any crude oil that TexPet
provided to the GOE and which the GOE used to create products or derivatives that it exported
and did not use for domestic consumption needs.
60. Clause 19 of the 1973 agreement is captioned “DOMESTIC SUPPLY”. Clause
19.2 provides that TexPet will provide its “proportional part of any volume of crude oil that is
necessary for the production of derivatives destined to domestic consumption in the country,
calculated in accordance with the provisions of the preceding paragraph of this clause.”50
Clause
48
Fuel oil is the heavy oil derivative that remains after gasoline and the distillate fuel oils are extracted from the
crude oil through distillation. There are several types of fuel oil, which are classified following its viscosity
from 1 to 6. Fuel oil no. 1 is the most refined and less viscose fuel, and fuel oil no. 6 is the less refined and
most viscose of the fuels. The general term “fuel oil” usually refers to fuel oil no. 6. Fuel oil is essentially used
as combustion fuel in thermoelectric power plants and large boats. Diesel oil is a highly refined hydrocarbon
mixture, obtained in the fractional distillation of crude oil. Diesel oil is equivalent to fuel oil no. 2, and it is
mainly used in automobiles. It is also used as a substitute for natural gas in some thermoelectric plants.
49
See e.g., Conciliation Hearing and Answer to Claim, Case 23-91, July 13, 1992, CEX-282, Tab 10; see
Conciliation Hearing and Answer to Claim, Case 152-93, May 30, 1994, CEX-285, Tab 9; see also Ecuador’s
Statement of Defense, Nov. 19, 2007, ¶ 105 (admitting that the Esmeraldas refinery “simply exported part of the
residue left over from the refining process by mixing it with other hydrocarbon fractions to create ‘fuel oil,’”
and claiming that “Ecuadorian law applicable at the relevant periods of time specifically established that residue
left over from the refining process belonged to the Ecuadorian government, who was thus entitled to use or
export such hydrocarbons as it saw fit.”).
50

28
19.1 provides the methodology of calculating TexPet’s contribution to “domestic national
consumption.”51
Clause 20.1 provides that the prices to be paid by the GOE for crude oil
“destined to the domestic consumption of derivatives shall be those established by the Ministry . .
.”52
These paragraphs taken together demonstrate a clear intent that the GOE would pay the
lower price established by the Ministry for crude oil only when the oil is used for the production
of derivatives for domestic consumption. Nothing in the Agreements or the law contradicts this
fact.
61. The 1973 Agreement is equally clear that when the GOE uses the crude oil
contributed by TexPet to create products or derivatives that the GOE exports (rather than for
domestic consumption), TexPet is entitled to receive from the GOE the prevailing international
prices for such crude. It is easily measured in crude equivalent barrels. Clause 20.2 of the 1973
Agreement provides that “prices of the various types of crude oil required for refineries or
hydrocarbon industries established in the country, destined to the manufacture of derivatives or
products to be exported, shall be agreed in accordance with the prices of crude in international
markets.”53
In other words, the ultimate destination and use of the oil products and derivatives
determines the price that the GOE pays under the 1973 Agreement. If the oil products and
derivatives created from crude oil supplied by TexPet are used to satisfy domestic consumption,
then the GOE pays the lower Domestic Market price for such crude oil. If the oil products or
derivatives created from crude oil supplied by TexPet are exported and not used for domestic
consumption, then the GOE pays TexPet the prevailing international prices for the equivalent
barrels of crude used to create such export products.
62. The 1977 Agreement’s supplementary language on this point is clear. The 1977
Agreement contains a section captioned “Oil for Domestic Consumption,” quoted in full in
section II.D. above. It expressly references the 1973 Agreement and the fact that the 1973
Agreement requires TexPet to “supply the amounts of crude oil necessary for the country’s
domestic consumption.” The 1977 Agreement then defines Ecuadorian Domestic Consumption
as “the volume of crude oil to be processed in the refineries, less the volume of exports, plus
51
Id. Clause 19.2 (emphasis added).
52
53

29
compensation crude oil.”54
This clarifying language undermines and wholly eliminates the
GOE’s defense in this case. Specifically, the fact that the GOE may have owned the derivatives
that it created from crude oil contributed by TexPet at the low Domestic Market Price does not
change the fact that the GOE was obligated to subtract those exports when calculating Ecuador’s
domestic consumption needs, which the GOE failed to do. Had the GOE subtracted the volume
of exports when calculating Ecuadorian Domestic Consumption, TexPet would have received a
credit for all volumes of products or derivatives exported by the GOE, thus reducing TexPet’s
obligatory contribution to the domestic consumption. Alternatively, the GOE should have paid
TexPet the international prices for the equivalent barrels of crude used to create these fuel oil
derivatives.
63. TexPet’s analysis also is confirmed by Mr. Maryan, who explains in his expert
report that the obligation of an oil producer to contribute to domestic consumption needs is
relatively common in the oil industry. He states further that it is contrary to industry custom in
which host country exported oil products or derivatives created from a domestic market
obligation contribution by a producer, and paid less than the prevailing international prices.55
Like Dr. Paz, Mr. Maryan concludes that the Government erroneously focuses on the fact that it
“owns” the oil products that it produced from the oil contributed by TexPet, when in fact “the
issue of ownership is not a relevant inquiry in a Domestic Market Obligation analysis.” 56
Mr.
Maryan points out that “[w]hat is relevant . . . is the destination of the products that are derived
from the . . . contribution . . . [I]f the government exports products that derive from crude
contributed pursuant to [Domestic Market] obligations, and does not use those products to satisfy
domestic demand, then the [Domestic Market Obligation] arrangement has not worked properly
[.]”57
64. Although the parties disagree on fundamental contract interpretation and legal
issues described above, there does not seem to be a serious debate between the parties
concerning the volume of crude oil that is in dispute. Nevertheless, set forth below is a summary
54
1977 Agreement at 8 (emphasis added).
55
See Expert Opinion of N.E. “Skip” Maryan, Apr. 9, 2008 (“Maryan Expert Report”) ¶ 21, CEX-294.
56
Id. ¶ 24.
57
Id.

30
of TexPet’s proof in the underlying cases concerning the volume and value of the oil for which
TexPet should have received prevailing international prices (or return-in-kind). The complete
details are found in Mr. Borja’s Witness Statement and verified by Dr. Paz and Navigant.
a. TexPet proved its claim and damages in the first Esmeraldas
refinery dispute (Case 23-91)
65. On December 17, 1991, TexPet filed its first case before the President of the
Supreme Court of Ecuador,58
claiming a breach of the 1973 Agreement and the 1977 Agreement.
TexPet also alleged breaches of various articles of the Ecuadorian Civil Code and Hydrocarbons
Law that incorporate the provisions of the 1973 and 1977 Agreements, and that require good
faith performance of contracts (e.g., Articles 1561, 1562, 1811, 1747, 1580, and 1576 of the
Civil Code, as well as Articles 2 and 30 of the Hydrocarbons Law).
66. From July 1, 1981, through December 31, 1983, TexPet delivered 15,123,960
barrels of crude oil to the Esmeraldas refinery for domestic consumption, for which it was paid
the Domestic Market Price, which ranged between US$ 1.48 and US$ 3.56 per barrel.59
After
these 15,123,960 barrels were refined, 3,572,070 barrels of crude residue remained, and the GOE
used it to produce fuel oil for export, rather than for domestic consumption.60
67. On July 21, 1992, TexPet requested that documents be obtained from public
institutions and added to the judicial record, and that judicial inspections take place concerning
the records of the OPAH, TexPet’s accounting ledgers, and the records of the Export Vice-
Directorate of the Exchange Department of the Central Bank of Ecuador. In this instance, the
58
Pursuant to the Ecuadorian Law on the Judicial Power, this case was required to be brought before the President
of the Supreme Court in the first instance. Before January 1, 1993, the President of the Supreme Court acted as
a trial-level judge in any breach-of-contract disputes brought against the Government. After that date, the
Ecuadorian Hydrocarbons Law provided that controversies arising under hydrocarbon contracts be brought
before the President of the Superior Court in the first instance. This explains why TexPet initially filed four of
its cases (one was later transferred to another court) before the President of the Supreme Court, and three of
them before the President of the Superior Court of Quito. The cases before the President of the Supreme Court
were later transferred to the Subrogate President because the then-President was the father of Ecuador’s then-
Minister of Energy and Mines and had a conflict of interest.
59
See Borja Expert Reports, Case 23-91, Oct. 21, 1994, Annex 2, Column 10, CEX-282, Tabs 41-43.
60
The total volume of fuel oil exported by the GOE was published by the Central Bank of Ecuador in its annual
statistic reports, in monthly summaries. In addition, it was available to TexPet through the monthly calendars of
derivatives exports produced by the Central Bank of Ecuador, to which TexPet had access following the judicial
inspection to the records of the Exports Vice-Directorate of the Exchange Department of the Central Bank of
Ecuador.

31
purpose of the judicial inspections requested by TexPet was to review documents in order to
determine the exact volume of crude oil that TexPet over-contributed to the GOE, as well as the
international market price that TexPet was entitled to receive for that volume of crude oil.61
68. The three judicial inspections took place on September 14, 15, and 16, 1994.62
TexPet proposed Mr. Borja as its party-proposed expert, and he was sworn in by the court as an
expert.63
69. The GOE proposed Mr. Edgar Molina as expert for the inspection of the records
of the OPAH and the records of the Vice-Directorate of the Exchange Department of the Central
Bank, and Mr. Mauro García for the inspection of TexPet’s accounting ledgers. The court
accepted these proposals and appointed Mr. Molina and Mr. García as experts.64
70. The judge, the attorneys for the parties, and the party-proposed experts then
gathered at the various locations of the judicial inspections on the appointed dates. In each
instance, the parties orally submitted to the court the specific questions for which they sought
expert responses.65
The court approved each set of questions and ordered the experts to submit
reports with answers to the questions.66
Specifically, TexPet asked the experts to determine the
61
See TexPet’s Request for Production of Evidence, Case 23-91, July 21, 1992, CEX-282, Tab 15.
62
See Minutes of OPAH judicial inspection, Case 23-91, Sept. 14, 1994, CEX-282, Tab 49; Minutes of judicial
inspection of the Vice-Directorate of the Exchange Department of the Central Bank of Ecuador, Case 23-91,
Sept. 16, 1994, CEX-282, Tab 49; Minutes to TexPet’s accounting books judicial inspection, Case 23-91, Sept.
15, 1994, CEX-282, Tab 49; see also Borja Witness Statement ¶ 104.
63
See Borja Witness Statement ¶ 104. Copies of Borja’s Expert Reports in Case 23-91 are attached as CEX-282,
Tabs 41-43.
64
See Minutes of OPAH judicial inspection, Case 23-91, Sept. 14, 1994; Minutes of judicial inspection of the
Vice-Directorate of the Exchange Department of the Central Bank of Ecuador, Case 23-91, Sept. 16, 1994;
Minutes to TexPet’s accounting books judicial inspection, Case 23-91, Sept. 15, 1994.
65
See Minutes of OPAH judicial inspection, Case 23-91, Sept. 14, 1994; Minutes of judicial inspection of the
Vice-Directorate of the Exchange Department of the Central Bank of Ecuador, Case 23-91, Sept. 16, 1994;
Minutes to TexPet’s accounting books judicial inspection, Case 23-91, Sept. 15, 1994.
66
See Minutes of OPAH judicial inspection, Case 23-91, Sept 14, 1994; Minutes of judicial inspection of the Vice-
Directorate of the Exchange Department of the Central Bank of Ecuador, Case 23-91, Sept. 16, 1994; Minutes
to TexPet’s accounting books judicial inspection, Case 23-91, Sept. 15, 1994.

32
volume of crude oil over-contributed by TexPet, as well as the international price that TexPet
should have received for that crude oil.67
71. As explained by Mr. Borja in his witness statement, the experts had access to the
necessary volume and pricing information for the crude oil and derivative products at issue in the
case, and they were able “to track down the specific use that the Government was giving to all
the barrels of oil produced in Ecuador.”68
Thus, the experts were able to determine the ultimate
destination of the barrels of crude oil contributed by TexPet during the relevant period, which is
the key factor in determining the price that should have been paid for each barrel.
72. Once he gathered the necessary information, Mr. Borja undertook the following
steps to determine the volume of TexPet’s over-contribution of crude oil equivalent and the
international market price received by the GOE for that crude oil:
• First, Mr. Borja determined on a monthly basis the nationwide volumes of
crude oil necessary to produce the exported volumes of derivative
products, which is calculated under the 1977 Agreement by multiplying
the exported barrels of derivatives times the ratio between the average
price of the exported derivatives and the average price of the exports of
crude oil.
• Second, he determined on a monthly basis Texaco’s proportional
contribution to the volumes of crude oil used to produce derivatives for
export, which is calculated under the 1973 Agreement by multiplying the
total volume of crude oil used to produce the exported derivatives times
the ratio between TexPet’s total deliveries for domestic consumption and
the nationwide total volumes required for domestic consumption.
• Third, he calculated the international price of the volumes of crude oil
over-contributed by TexPet, by multiplying the volumes of barrels TexPet
over-contributed in a particular month times the average international
price of crude oil at which TexPet exported its share of crude oil for that
month. This information was made available in the judicial inspection of
TexPet’s accounting ledgers.
67
TexPet’s request for production of evidence, Case 23-91, July 21, 1992; Minutes of OPAH judicial inspection,
Case 23-91, Sept. 14, 1994; Minutes of judicial inspection of the Vice-Directorate of the Exchange Department
of the Central Bank of Ecuador, Case 23-91, Sept. 16, 1994; Minutes to TexPet’s accounting books judicial
inspection, Case 23-91, Sept. 15, 1994.
68

33
• Fourth, Mr. Borja subtracted from the international price the Domestic
Market Price that TexPet had actually received for the crude oil that it had
delivered for domestic consumption. The resulting figure was the monthly
Margin of Compensation.
• Finally, Mr. Borja repeated the process for all the months of the dispute
(July 1981 through December 1983) and combined the results in order to
arrive at an overall damage figure for the case.
73. Mr. Borja concluded that from July 1, 1981, through December 31, 1983, the
GOE exported 12,094,241 barrels of fuel oil and other products that it did not include in
calculating domestic consumption pursuant to the 1973 and 1977 Agreements.69
This resulted in
an over-contribution by TexPet (or failure by the GOE to credit TexPet or pay international
prices) of 3,572,070 barrels of equivalent crude oil, equivalent to US$ 204,184,570, including
interest through the date of the judicial inspections.70
74. To account for the production, imports and exports of oil in the country, in 1973
(after the execution of the 1973 Agreement) the GOE created an accounting system and a special
account in the Central Bank of Ecuador. This account was variously called the “Operating
Account,” the “OPAH,” or the “OPAH Account,”71
and it was administered by CEPE/PE. The
OPAH was designed to track the GOE’s revenues and expenses from hydrocarbons activities.
75. Mr. Borja explained how and why the over-contribution occurred in practice. The
GOE used the OPAH to calculate Ecuadorian Domestic Consumption, but the OPAH did not
track or account for exports of derivatives, like the fuel oil exported from the Esmeraldas
refinery. The GOE had created the OPAH account in 1973, prior to the time that it possessed the
refining capability to create derivatives for export. The OPAH system therefore did not contain a
line item for exported derivatives. The GOE never revised or updated the OPAH accounting
system to include this line item after it developed the ability to refine crude oil to create
derivatives for export. The OPAH was not designed to implement the Agreements, and the GOE
69
See Borja Expert Reports, Case 23-91, Oct. 21, 1994, Annex 2, column 17; see also Borja Witness Statement ¶
130, 132.
70
See Borja Expert Reports, Case 23-91, Oct. 21, 1994, Annex 2, column 17; see also Borja Witness Statement ¶
130, 132.
71
OPAH was created by the issuance of Decree 1258 of Nov. 15, 1973. See Supreme Decree 1258, Official
Registry 433, Nov. 15, 1973, CEX-295.

34
should not have relied on it in calculating Ecuadorian domestic consumption under the
Agreements. By doing so, it overstated the true Ecuadorian domestic consumption and breached
the Agreements and Ecuadorian law by failing to pay TexPet international prices for its over-
contributions.72
76. Dr. Paz has confirmed that by requiring volumes of crude oil to TexPet at the
Domestic Market Price, and using them for purposes other than Ecuadorian domestic
consumption, the GOE breached the 1973 Agreement.73
77. Further, Navigant’s independent analysis has confirmed that Mr. Borja’s
methodology and damage calculations were proper. Based exclusively on GOE-published data,
and following the detailed and exhaustive methodology set forth in its Expert Report, Navigant
recreated the Ecuadorian domestic consumption analysis and recalculated TexPet’s
contribution.74
78. Updating the original damage claim of US$ 204,184,570 with accrued interest
through April 1, 2008, results in a current damage claim by Claimants of US$ 490,036,827 for
Case 23-91.75
b. TexPet proved its claim and damages in the second Esmeraldas
refinery dispute (Case 152-93)
79. From January 1, 1984, through June 6, 1992, the GOE continued to request crude
oil from TexPet for domestic consumption, but the GOE then refined that crude at the
Esmeraldas refinery and exported the derivatives produced, mainly fuel oil and diesel. On
December 10, 1993, TexPet filed a lawsuit before the Superior Court of Quito, claiming a breach
of the 1973 Agreement and the 1977 Agreement. As in Case 23-91, TexPet also alleged
breaches of various articles of the Ecuadorian Civil Code and Hydrocarbons Law.
72
See generally Borja Expert Reports, Case 23-91, Oct. 21, 1994; Borja Witness Statement ¶¶ 64-65.
73
See Paz Expert Report ¶¶ 213-14.
74
See Attachments to Navigant Expert Report ¶¶ 131-133 at 49.
75
Navigant Expert Report, Table 5 at 17.

35
80. TexPet claimed damages of US$ 184,989,933, plus interest.76
Specifically,
TexPet claimed that from January 1, 1984, through June 6, 1992, the GOE requested from
TexPet 55,609,936 barrels of crude oil at the Domestic Market Price, which ranged from US$
3.91 to US$ 7.26 per barrel during the relevant time period. While 40,460,565 of these barrels
were used to produce derivatives for domestic consumption, the GOE refined the remaining
15,149,371 equivalent barrels at the Esmeraldas refinery to create fuel oil that it then exported.77
The GOE did not pay TexPet the required international market price for these barrels, which
ranged from US$ 8.60 to US$ 31.56 per barrel at the time. The GOE breached the Agreements
and violated Ecuadorian law, causing damages to TexPet of US$ 184,989,933, plus interest.
81. On July 7, 1994, TexPet requested documents and judicial inspections that were
virtually identical in substance and nature to those in Case 23-91.78
TexPet again requested that
three judicial inspections be held in order to review and analyze the records of the OPAH
account, the records of the Vice-Directorate of the Exchange Department of the Central Bank,
and TexPet’s accounting books. Mr. Borja again attended the judicial inspections as TexPet’s
party-proposed expert. The GOE appointed a different expert for each of the three judicial
inspections: Ms. Olivia Valdiviezo for the inspection of the Vice-Directorate of the Exchange
Department of the Central Bank; Mr. Mauro García for the inspection of Texaco’s accounting
ledgers; and Ms. Alicia Andrade for the inspection of the OPAH.
82. In this case, the President of the Superior Court of Quito also appointed
independent experts: Mr. Willington Narváez and Mr. Luis Ampudia as joint experts for the
inspections of the Vice-Directorate of the Exchange Department of the Central Bank; and Mr.
Luis Ampudia and Ms. Alba Guerra as joint experts for the inspection of the OPAH.
83. The judicial inspection of the records of the Vice-Directorate of the Exchange
Department of the Central Bank took place on October 4, 1994;79
the judicial inspection of
76
See Claim 152-93, Case 152-93, Dec. 10, 1993, CEX-285, Tab 3.
77
Borja Expert Report, Case 152-93, May 26, 1995, Column 9, Row titled “Total,” CEX-285, Tabs 92-94.
78
See TexPet’s request for production of evidence, Case 152-93, June 7, 1994, CEX-285, Tab 27.
79
See Conclusion of Judicial Inspection of the Central Bank of Ecuador’s Hydrocarbons Unit, Case 152-93, Oct.
4, 1994, CEX-285, Tab 60.

36
Texaco’s accounting ledgers took place on October 11, 1994;80
and the judicial inspection of the
OPAH’s books took place on March 2, 1995.81
As in Case 23-91, both parties submitted their
questions to the experts, which were virtually identical to those submitted in Case 23-91, and the
court requested the experts to submit their reports after each of the inspections. Nine expert
reports were submitted in the case.
84. In their expert reports, Mr. Borja and the independent court-appointed experts Mr.
Narváez and Mr. Ampudia agreed and proved that the GOE had requested crude oil from TexPet
for Ecuadorian domestic consumption at the Domestic Market Price, and that some of that crude
oil subsequently had been used to produce derivative products for export without compensating
TexPet at the international market price.82
85. Following the same methodology used in Case 23-91, with very minor
differences, Mr. Borja and the court-appointed experts specifically concluded the following:
• During the relevant time period, TexPet contributed at the Domestic
Market Price 55,609,936 barrels of crude oil to the Esmeraldas refinery for
domestic consumption.83
• Of these 55,609,936 barrels, the GOE used 15,149,371 barrels to produce
derivative products for export,84
but it never compensated TexPet for these
barrels at the international market price.
• According to Mr. Borja, the GOE owed TexPet cash compensation of US$
300,157,993, including interest, as of September 15, 1994. 85
According to
80
See Judicial Inspection of TexPet’s Accounting Records, Case 152-93, Oct. 11, 1994, CEX-285, Tab 64.
81
See Court Order Resetting Date of the Judicial Inspection of Petroecuador’s Operations Account for March 2,
1995, Case 152-93, Feb. 24, 1995, CEX-285, Tab 84.
82
See Luis Ampudia and Willington Narváez Expert Reports, Case 152-93, July 18, 1995, CEX-285, Tabs 97-98.
83
Borja Expert Report, Case 152-93, May 26, 1995, Annex 2, Column titled “Barrels,” Row titled “Total.”
84
Indeed, Mr. Borja’s expert reports calculated an over-contribution to Ecuadorian Domestic Consumption by
TexPet of 15,149,371 barrels of crude oil, and the court-appointed experts found an even greater over-
contribution by TexPet, at 15,152,554 barrels of crude. See Borja Expert Report, Case 152-93, May 26, 1995;
see also Luis Ampudia and Willington Narváez Expert Reports, Case 152-93, July 18, 1995.
85
See Borja Expert Report Concerning TexPet’s Accounting Records on October 11, 1994, Case 152-93, May 26,
1995, at 5, CEX-285, Tab 92.

37
the court-appointed experts, this amount was even higher—US$
300,257,518, including interest, as of September 15, 1994.86
86. The court-appointed independent experts not only agreed with the mathematical
calculation of the barrels that TexPet over-contributed, and the corresponding dollar amounts,
but they agreed that since TexPet did not receive the international export price, the Government
would owe TexPet over US$ 300 million plus interest in case 152-93. As the independent
experts stated in their report of July 18, 1995:
The total volume requested for domestic consumption from oil
producing companies was of 396,424,052 barrels, as shown in the
tables of the previous question. The crude oil used to produce oil
derivatives for export, as shown in the following tables, amounts to
51,516,501 barrels.
Therefore, the amount actually used to supply the domestic market
was of 344,907,550.
From the total amount, Texaco delivered its proportional share
equivalent to 115,512,150 barrels of crude oil.
100,359,596 barrels were used to supply the domestic market and
15,152,554 barrels were used to manufacture export products. [. . .]
The amount that Texaco Petroleum Co. should have received for
delivering crude oil that was later used to refine products for
export was of 186,293,815 dollars. [. . .]
Since Texaco did not receive the difference in the export price of
oil derivatives on the dates and in the amounts stated in the answer
to question No. 9 posed by Mr. Alejandro Ponce Martínez, the
State would owe 300,257,518 dollars in principal and interest.87
87. Ecuador argues in its Statement of Defense that TexPet asked inappropriate
questions of the court-appointed experts and that Mr. Borja somehow exceeded his proper role as
an expert, and therefore, that the expert reports do not constitute proper evidence.88
Ecuador’s
argument is baseless because the questions asked were proper and Mr. Borja acted entirely
86
See Luis Ampudia and Willington Narváez Expert Reports, Case 152-93, July 18, 1995 at 14, 18, and 35, CEX-
285, Tab 98
87
See id.
88
Statement of Defense ¶ 96.

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Ex. 111