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Recent developments in foreign sovereign immunity and Texas garnishment law: a new threat facing U.S. oil and gas companies.

Article Excerpt
I. BACKGROUND



II. THE CONGO CASES A. Af-Cap Inc. v. Republic of Congo B. FG Hemisphere Associates, LLC v. The Republique du Congo C. Summary of the Fifth Circuit Congo Decisions III. IMPACTS OF THE CONGO CASES ON U.S. OIL AND GAS COMPANIES

In two related cases, the United States Court of Appeals for the Fifth Circuit issued a series of opinions regarding sovereign immunity under the Foreign Sovereign Immunities Act (1) and Texas garnishment law that will significantly impact how U.S. companies do business overseas. This Article provides a brief review of some of the lawsuits brought by the Congo's debt collectors, which include attempts to satisfy the debt by seizing nonmonetary obligations owed to the Congo by oil and gas companies operating in the Congo. The Article concludes with a commentary on the how these lawsuits will impact U.S. oil and gas companies operating abroad.

I. BACKGROUND

CMS Nomeco, a U.S. oil company, is the operator of a joint venture and owns twenty-five percent of an offshore oil concession (the Yombo field) in the Republic of the Congo. (2) Affiliates of CMS Nomeco own another twenty-five percent of the offshore oil concession. (3) The remaining fifty percent of the concession is owned by Societe Nationale des Petroles du Congo ("SNPC"), the Congolese state-owned petroleum company. (4) As participating interest owners in the oilfield, CMS Nomeco and SNPC each receive a share of the oil production. (5) SNPC receives its entitlement share of the production inside the Congo. (6)

The concession permits the joint venture to extract oil in exchange for royalties and periodic tax payments to the Congo. (7) Under the terms of the concession agreement, the Congo can elect to receive either a cash royalty or its share of the production in-kind within the Congo. (8) The Congo has elected to receive its royalty in-kind. (9) As the operator, CMS Nomeco is legally and contractually required to deliver to the Congo and SNPC their royalty oil and entitlement share, respectively. (10) The Congo has assigned the right to take (or lift) the royalty oil to SNPC, and SNPC independently markets both the Congo royalty and SNPC's entitlement share of the oil. (11)

The Congo defaulted on loans it made to develop its infrastructure, several resulting in judgments against the Congo. (12) To satisfy the debt and judgments, creditors sought to garnish CMS Nomeco's obligation to deliver to the Congo its in-kind royalties and to SNPC its entitlement share of the oil production. (13) CMS Nomeco and the Congo maintained that the nonmonetary obligations (royalties, entitlement share, and tax payments) are not property subject to garnishment and are protected by the F.S.I.A. (14) CMS Nomeco also argued that neither CMS Nomeco nor the property sought by the Congo's creditors is located in the United States and, therefore, is not subject to garnishment. (15)

Meanwhile, the Congo obtained multiple Congolese court orders that refuse to recognize the U.S. court orders and insisted that CMS Nomeco perform its legal and contractual obligations and allow the Congo and SNPC to lift their oil. (16) Additionally, the Congo threatened to detain senior-level officers of oil companies and use public force to ensure that the Congo and the SNPC receive their share of the oil production. (17) Against this backdrop, a series of recent opinions by the United States Fifth Circuit in two related Texas cases are examined to show how the court applied the F.S.I.A. and Texas law, through novel interpretations, to resolve the dispute among CMS Nomeco, the Congo, and its creditors.

II. THE CONGO CASES

A. Af-Cap Inc. v....

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