Full opinion text
MEMORANDUM OPINION HOEVELER, District Judge. THIS CAUSE came before the Court for trial without a jury on January 19, 1988. The trial was concluded on February 19, 1988. After consideration of the evidence and arguments the Court on February 29, 1988 orally announced in some detail its findings and conclusions to counsel for the parties. Counsel were each asked to submit proposed findings and conclusions in accordance with the Court’s announcement. They did so and the Court has considered the submissions in fashioning these, the Court’s, findings of fact and conclusions of law. This is an action for breach of contract, breach of fiduciary duty, and unjust enrichment. The claims arise out of a series of transactions for the exploration and exploitation of oil in the Republic of Ecuador, the most important of which for purposes of the present case was a 1965 agreement between the parties. Under that agreement, the defendants took over the plaintiff’s right to explore and exploit for oil in a concession area in Ecuador in consideration for which the defendants paid $100,000 and agreed to pay the plaintiff and another company royalties amounting to two percent of the oil actually produced in the concession area, (the “overriding royalty”). The court has previously determined some of the trial issues in this case; see Norsul Oil and Mining Company, Ltd., v. Texaco Inc., 641 F.Supp. 1502 (S.D.Fla.1986). As more fully set forth hereafter, the court now concludes that the plaintiff is entitled to recovery on two of its claims, namely breach of contract with respect to certain payments of royalties during 1973-1974, and for failure of the defendants to pay royalties on the oil produced at the well known as Shushufindi # 1, from 1976 to the present. Plaintiffs are not entitled to recovery on their claims for breach of fiduciary duty or unjust enrichment. GENERAL BACKGROUND The Parties Plaintiff Norsul is a Canadian corporation organized and existing under the laws of the Province of Alberta. Its principal office is in Albany, Georgia. Wayne Fowler is the President of Norsul. Defendant Texaco Inc. (“Texaco”) is a corporation organized and existing under the laws of the State of Delaware. Defendant Texaco Petroleum Company (“Texaco Petroleum”) is a corporation organized and existing under the laws of the State of Delaware, with its principal place of business in the Republic of Ecuador. Texaco Petroleum is in the business of exploring for and producing crude oil in Ecuador. It is a wholly-owned subsidiary of Texaco. Robert Shields was the CEO of Texaco Petroleum from September 1971 to June 1977, and, at the same time the Vice President in charge of Latin American operations for Texaco Inc. He was also during this time the CEO for five other Latin American Texaco subsidiaries, based in six separate countries. (Tr. 1927-28, 1945, 2201-02.) Compania Texaco de Petróleos del Ecuador, C.A. (“Texaco del Ecuador”) is a corporation formed under the laws of the Republic of Ecuador and is a subsidiary of Texaco Petroleum. (Schwind Testimony, Tr. 3012; PTX 379). Compania Petrolera Pastaza, C.A. (“Pastaza”) was a corporation formed under the laws of the Republic of Ecuador and was a subsidiary of Texaco Petroleum. It was dissolved on December 11, 1978. (Shields Testimony, Tr. 1952-53; PTX 379 at doc. no. 700903.) Until 1983, when it was acquired by Chevron Corporation, defendant Gulf Oil Corporation (“Gulf”) was a corporation organized and existing under the laws of the Commonwealth of Pennsylvania. Defendant Ecuadorian Gulf Oil Company (“Ecuadorian Gulf”) is a corporation organized and existing under the laws of the State of Delaware. (O’Brien Testimony, Tr. 2321; PTX 379). Until December 31, 1976, it was in the business of exploring for and producing crude oil in Ecuador. (Shields Testimony, Tr. 1954; PTX 379). It is a subsidiary of Gulf. Terrence Andrew O’Brien was the CEO of Ecuadorian Gulf from December, 1975 to mid-1978. During this period, he reported to Thomas Lump-kin, who was the Vice President of Gulf Oil Latin America. (O’Brien Testimony, Tr. 2316-19; Schwind Testimony, Tr. 3012; PTX 379.) Gulf Ecuatoriana de Petróleo, S.A. (“Gulf Ecuatoriana”) and Compania Petrol-era Aguarico, S.A. (“Aguarico”) are corporations formed under the laws of the Republic of Ecuador and are subsidiaries of Ecuadorian Gulf. (Shields Testimony, Tr. 1952-53; PTX 379). NON-PARTY PARTICIPANTS Phoenix Canada Oil Company, Limited (“Phoenix”) is a Canadian corporation organized and existing under the laws of the Province of Ontario. Its principal office is in Toronto, Ontario, Canada. (Moore Testimony, Tr. 138.) Donald Moore is the president, director and the major shareholder of Phoenix. (Moore Testimony, Tr. 138, 324-25.) As more fully described below, Phoenix was an equal partner with Norsul in the royalty agreement relating to the Coca Concession. Phoenix was the plaintiff in a separate action, filed and heard in the United States District Court, District of Delaware. Phoenix Canada Oil Co. Ltd. v. Texaco, Inc., 658 F.Supp. 1061 (D.Del.1987). Many of Phoenix’ claims in that action were similar to those brought by Norsul here. Minas y Petróleos del Ecuador, S.A. (“Minas”) was a corporation organized under the laws of Ecuador. In 1961 Minas was a wholly-owned subsidiary of Norsul. (Moore Testimony, Tr. 148.) During the period beginning in 1961 and extending through 1971, Howard Steven Strouth (“Strouth”) was Managing Director, principal operating officer, and major shareholder of Norsul. (DTX 138 at doc. no. 600742; PTX 19 at 1; Moore Testimony, Tr. 147, 339.) CEPE is the acronym of the Ecuadorian State Petroleum Corporation. Through CEPE, the Government of Ecuador imposed itself into and participated in various petroleum-related commercial ventures. Events Leading Up to the 1965 Contract The 1961 Concession In July 1961, the Government of the Republic of Ecuador granted a concession to Minas to explore for and exploit petroleum reserves in approximately 4,350,000 hectares (approximately 10,744,500 acres) in the provinces of Napo, Pastaza and Morona Santiago in the eastern or Oriente region of the Republic of Ecuador (the “1961 Concession”). (PTX 379 at doc. no 700904-05.) The 1961 Concession was granted pursuant to Government Decree No. 1401, (DTX 3B), which sets out each of the terms and conditions of the concession. The 1961 Concession Contract required Minas to invest specified amounts of money each year in carrying out exploration and exploitation activities, to pay annual surface taxes and other fees and to monument (i.e., survey the boundaries of) the Concession Area. The annual expenditure requirements were to cease when the concessionnaire began continuous commercial oil production, with transportation of the oil to an Ecuadorian port. (DTX 3B.) Minas did not have the capital to finance an oil exploration operation in the jungle region of eastern Ecuador. It also did not have the capital or expertise to build an infrastructure to exploit the oil, including a pipeline to transport oil to the Pacific coast. (PTX 24 (attachment) at 2; PTX 4; Moore Testimony, Tr. 342.) At one point, in 1963, Strouth of Minas approached Moore of Phoenix to ask for help in paying for Minas’ surface taxes to the Government for its concession in Coca. Phoenix at that point paid the surface tax in return for 30% of Minas’ capital stock. (Tr. 149-150.) As a result of further investment to assist in exploration, Phoenix acquired 60% of Minas’ capital stock. (Tr. 150.) In early 1965 Strouth approached affiliates of the defendant companies with the proposal that they acquire part of the 1961 Concession. (PTX 19 at 1.) Phoenix and Norsul (Minas) simply did not have the capital to properly explore the area and move the oil, if found. THE 1965 CONTRACT On July 16, 1965, Minas, Texaco del Ecuador and Gulf Ecuatoriana executed a contract (PTX 26) in Quito, Ecuador (the “1965 Contract”). In the 1965 Contract Minas agreed, subject to obtaining the Government’s approval, to transfer to Texaco del Ecuador and Gulf Ecuatoriana, or their designees, Minas’ interests under the 1961 Concession Contract in a specified portion of the area covered by the concession, which became known as the Transfer Zone or the Coca Concession. (Schwind Testimony, Tr. 2846, 2848, 3015, 3016-17; PTX 26, Cl. 3.) The Coca Concession was located in the Oriente, or eastern, region of Ecuador, a sparsely populated area mostly covered by thick jungle. The Concession area shared its northern border with a second concession area, known as Napo, upon which the defendant companies had had a grant from the Government of Ecuador to explore and exploit for oil. They had obtained NAPO in 1964. In the 1965 contract, Minas agreed to execute a transfer deed to the concessionaires (the Texaco and Gulf subsidiaries) conveying the coca concession to Texaco del Ecuador and Gulf Ecuatoriana or their designees. The transfer was conditioned upon government approval of the transfer. The terms of the expected contract of conveyance were drafted and agreed upon when the 1965 Contract was executed, and the form of contract of conveyance was attached to the 1965 Contract as Annex No. 1. (Schwind Testimony, Tr. 693; PTX 26, Annex No. 1.) The 1965 Contract provides that the terms of Annex No. 1 were “accepted by the parties to the 1965 Contract.” (PTX 26, Cl. 3(a); Schwind Testimony, Tr. 2846, 2917, 2935, 3012-13.) Texaco del Ecuador and Gulf Ecuatoriana agreed to pay Minas $15,000 in cash on the signing of the 1965 Contract; $85,000 in cash if the Government approved the transfer; and royalties in the form of cash payments equal to 2% of the value of oil production that Texaco del Ecuador and Gulf Ecuatoriana obtained from the Coca Concession and sold or delivered (the “royalties”). (Schwind Testimony, Tr. 2858, 2921-22; PTX 26, Cl. 4, Cl. 5, Cl. 6.) The 1966 Conveyance Pursuant to Clause 15 of the 1965 Contract, Texaco del Ecuador and Gulf Ecuatoriana designated two Ecuadorian companies, Pastaza and Aguarico, which were formed for the purposes of the transfer, to be the transferees. (DTX 13B at 1; Schwind Testimony, Tr. 2922.) On December 20, 1965, the Government of Ecuador granted its approval of the transfer to Pastaza and Aguarico. (PTX 29; Moscoso Testimony, Tr. 849; Schwind Testimony, Tr. 3015.) A contract of conveyance (DTX 13B) was executed by representatives of Minas, Pastaza and Aguarico on February 23, 1966 (The “Transfer Agreement”). (DTX 13B; Schwind Testimony, Tr. 3022.) The terms of the Transfer Agreement are identical in all material respects to the terms of Annex No. 1 to the 1965 Contract. (Schwind Testimony, Tr. 2937-38, 2917, 29835, 2846). The Transfer Agreement provides, inter alia, that the companies can exploit the concession “at their discretion.” (DTX 13B, Cl. 7(b); Schwind Testimony, Tr. 2937.) The companies are permitted to: abandon the transfer zone or return it to the Government in part, on one or several occasions, or totally, without need to obtain the permission or consent of the transferor. (DTX 13B, Cl. 7(c).) Further, the parties expressly agreed that the oil companies would not be Minas’ partners or its agents. Clause Fifth provides: “The parties expressly state that this deed does not imply partnership nor joint accounts; nor imposes upon any of them the obligations that the partners of an association or company may have between them; nor confers to any of the parties the capacity of agent, servant, or employee of the other.” (DTX 13B, cl. 5.) Minas transferred to the oil companies all of its rights to explore for and exploit oil under the 1961 Concession Contract. (Moscoso Testimony, Tr. 695-96; Schwind Testimony, Tr. 3017-20, 3037.) The Instrument of Conveyance explicitly provides: [Transferor states, also expressly, that together with the transfer zone, it also transfers to the cessionaries, as related to the transfer zone, all and each one of the rights granted to the transferor by the Government, according to the contract, and all other rights derived from the same contract, although not specifically mentioned therein, and in addition, all the rights that transferor may have in accordance with the Petroleum Law and the Mining Law in effect. Accordingly, from the day of the inscription, cessionaries shall succeed transferor in all of its rights, as they may refer to the transfer zone.” (DTX 13B, Cl. 7(a); (emphasis added.) THE DEVELOPMENT OF THE COCA CONCESSIONS During the period from 1964 through 1972, Texaco Petroleum and Ecuadorian Gulf undertook extensive exploration activities in the Coca and Napo concession areas, and, beginning in 1967, made a series of Wildcat discoveries. The companies invested considerable sums of money to carry out the exploration activities and to build the infrastructure needed to exploit the crude oil, including constructing the Trans-Ecuadorian Pipeline System (the “pipeline”). (Shields Testimony, Tr. 1951.) By 1972, when production began, the companies’ investment assets exceeded $240 million (PTX 379 at doc. no. 700924-25; Shields Testimony, Tr. 1970, 1990). By 1976 they had invested more than $350 million. (PTX 332 at 1; PTX 379 at doc. no. 700924-25.) SHUSHUFINDI WELL NUMBER 1 In 1969, a dispute arose between Norsul and the companies regarding the position of a well known as Shushufindi number 1 (“Shushufindi”). Shushufindi was the most productive well in the concession area. As indicated previously, the companies had concession rights in the area north of Coca known as Napo, acquired prior to the acquisition of rights in the Coca Concession. One of the principal issues presented relates to the positioning of this well, and therefore the rights to royalties on the oil from this most fruitful source. If in Coca, it was subject to Norsul’s royalty payments. Norsul advised its shareholders on January 20, 1969 that Shushufindi was in the Coca Concession. (DTX 412.) Thereafter, the SEC initiated an investigation which ultimately led to litigation between the parties in New York. Norsul filed suit in the United States District Court for the Southern District of New York, case no. 69 civ. 5562. The Complaint sought, inter alia, a declaratory judgment as to the location of Shushufindi. (PTX 66.) On May 5, 1970, the parties to that lawsuit signed a stipulation for dismissal. That stipulation (between Norsul and the parent corporations) stated, in pertinent part: “Defendants Texaco Inc. and Gulf Oil Corporation shall and hereby do acknowledge that the well known as Shushufindi No. 1 is presently located within the area which is commonly known as the “Coca Concession” and that by reason of the above, Minas y Petróleos del Ecuador, S.A., its successors and assigns, are entitled to two percent of the net production of said well as defined in their private contract dated July 16, 1965____” (PTX 69.) Because of the agreement (stipulation) the action in the New York District Court was dismissed. The question concerning the location of the well was resolved. This disposition was honored by the parties until March 16,1976, when, because of a government survey, the companies took the position that they were no longer obligated. Norsul was informed that no royalties would be paid on Shushufindi oil after January 1,1976, and none have been since that date. Before entering into the stipulation in the New York action, Texaco and Gulf had run surveys which located Shushufindi south of the concession boundary. In the fall of 1969, surveys showed # 1 south of the NAPO line but by a different distance than the astronomical line shown. Texaco/Gulf then ran a definitive survey to be assured of the findings (Feb.1970). See PTX 67-B. That survey showed Shushufindi Well # 1 to be 150 meters south of the NAPO line. Thereafter the New York litigation was concluded. According to a later survey, apparently done at the urging of defendants or one of them, Shushufindi is located at latitude 0°10'12.6185" South, which is north of the boundary between Coca and Napo, and therefore in Napo. (PTX 323.) The survey was a “trigonometric” (i.e. astronomic) survey, which according to testimony is a less accurate surveying method than a “geometric” survey. (Tr. 3250-51.) The court makes no specific finding as to the relative merits of various surveying methods, as there was no proper expert testimony offered on the subject. The survey itself, however, on its face purports to have been undertaken pursuant to duties to monument the concession areas arising out of the 1973 Exploitation Contract. (DTX 124B.) The actual survey appears to be a single, isolated determination of the location of the Shushufindi well, not an attempt to monument boundaries. Thus, the court does not find that the survey, upon which the companies relied in their refusal to continue paying royalties on the well, was sufficient to warrant that refusal. This finding is further supported by the prior stipulation of settlement entered by the parent corporations locating Shushufindi south of the Coca/Napo line. Finally, a prior astronomical survey had located Shushufindi at a point south of the 1976 finding, and south of the boundary. (PTX 65.) As indicated, defendants ceased paying any royalties after January 1, 1976, because of the later survey of Shushufindi # 1 by the Institute for Military Geography (I.G.M.). This survey was apparently inspired by Defendants, purportedly in compliance with the 1973 exploitation contract required by Ecuador. However, the history of the location of well # 1, as partially developed above is important. The boundaries of the Coca Concession (1961) and NAPO (1964) overlapped. The boundary in the Coca agreement and the 1965 contract was well north of the same boundary described in the NAPO concession agreement. In 1969, when renegotiated contracts were entered into for both NAPO and Coca the issue was resolved by moving the line northward. Ultimately, the Federal Court action resulted involving the parent Texaco/Gulf companies and the issue of location finally resolved. The relevant agreements and litigation are binding upon the parties to this litigation. Subsequent surveys, questionable or otherwise, however inspired, with which plaintiff had no participation will not be considered by the Court as affecting the earlier position of the parties. Neither does the Court consider as controlling or compelling a change in the royalty position of defendants as a result of the later survey. The companies did bring a successful action in an Ecuadorian court (the Fiscal Tribunal), which held that royalties previously paid on Shushufindi could be recovered by the companies. (DTX 409 B, p. 3). That result does not bind the parties to this action. The conduct of defendants in their dealings with Plaintiff and Phoenix, as will be at least partially described, left much to be desired. It is in this setting, that the later events relating to Shushufindi # 1 should be considered and in this setting that the court has, in relating relevant facts, been guided to findings on this issue. PHOENIX INTEREST IN THE ROYALTY PAYMENTS AND “THE MINAS THING” To understand Phoenix’ interest in the royalty payments, it is necessary to review early developments. During the time period after Minas’ acquisition of the concession (1961) and before the beginning of production in the concession areas in 1972, there were two main actors from the plaintiff’s side of the transactions: Howard Strouth and a consortium of oil companies headed by Amarada Hess, a major international oil company. Strouth was Norsul’s president during the acquisition of the original concessions, the investment by Phoenix, the negotiation of the 1965 contract, and the Shushufindi New York litigation. During the 1960s, Strouth resided in Ecuador. He was a colorful man, given to flamboyant dress and language, and he made some enemies in the Government of Ecuador. In the late 1960s, Norsul was reorganized, and Strouth’s only subsequent connection with it was as a shareholder. The animosity some Ecuadorians felt toward Strouth caused problems for Norsul later, and Norsul expended considerable efforts to convince the representatives of the Ecuadorian Government that Norsul was distinct from Strouth Amarada Hess, and a Houston group known as World Ventures which had acquired a small and unrelated percentage of the original Coca concession. After entering into the 1965 Contract transferring Coca to the companies, Minas (whose main shareholders were Norsul and Phoenix) entered into the agreement to transfer out the remainder of the original concession to the consortium headed by Amarada Hess. To keep the Coca royalty separate, another Norsul/Phoenix subsidiary, Petromin, was formed to hold the royalty and the Norsul/Phoenix equity in Minas was reduced to 15%. Subsequent assignments through Petromin have resulted in the present arrangement under which Norsul and Phoenix each hold a 50% interest in the 2% royalty (i.e., each gets 1%). Phoenix had acquired its interest in the concession as a result of its investment of funds to help finance exploration. The Amarada Hess consortium explored until after the enactment of the 1971 Hydrocarbons Law, which increased surface taxes and required renegotiation of existing contracts. When they refused to pay the new surface taxes or to renegotiate the contract, the Government declared caducity, taking over the concession. Soon afterward there was a movement in the Government to attach Norsul’s royalty for payment of the unpaid surface taxes. Norsul was able to demonstrate its independence from the consortium and to persuade the Government not to take such action. {See Tr. 186-89; 203-05; 1271-93.) Plaintiff offered proof at trial that the defendant companies used “the Minas thing”, i.e. the local hostility toward Minas engendered by the aberrant behavior of Strouth and the consortium, to prejudice Norsul’s interest in royalty payments. The 1971 Hydrocarbons Law On September 27, 1971, the Government of Ecuador enacted a new hydrocarbons law (the “1971 Hydrocarbons Law”), replacing the prior 1937 Hydrocarbons Law. The new law, similar to the 1937 law, set out the basic concept that the Government of Ecuador perpetually owned all petroleum resources in Ecuador. It provides: “The deposits of hydrocarbons and accompanying substances, in whatever physical state, located in the national territory including the areas covered by territorial sea water, belong to the inalienable and imprescriptible patrimony of the State.” (DTX 40B, Ch. 1, Cl. 1.) The 1971 Hydrocarbons Law mandated that concession contracts granted by the Government provide for Government participation in the production; a maximum participation area considerably smaller than allowed by the prior law; a tax reference value (“TRY”) unilaterally established by the Government to calculate royalties payable to the Government; and higher Government royalties than allowed by the previous law. (DTX 40B.) THE ADVENT OF THE MILITARY GOVERNMENT In February, 1972, a military Government seized power in Ecuador and ousted the elected civilian Government. (Shields Testimony, Tr. 1962, Fowler Testimony, Tr. 1642.) The head of the new military Government, General Rodriguez Lara, appointed Navy Captain Gustavo Jarrin Ampudia to be the Minister of Natural Resources and Energy. (Jarrin Testimony, Tr. 2676). During the period he served as Minister, from February 1972 until October 1974 (Jarrin Testimony, Tr. 2676), Captain Jarrin established and implemented the Ecuadorian Government’s oil policies. (Jarrin Testimony, Tr. 2697-98.) Dr. Luis Alberto Arauz was Captain Jarrin’s legal advisor. (Arauz Testimony, Tr. 2552-57; Jarrin Testimony, Tr. 2680-81.) Shortly after the military Government took power, it issued a series of resolutions and decrees which increased significantly the Government’s control of, and participation in, oil-producing operations in Ecuador. Supreme Decree No. 430 On June 6, 1972, the military Government issued Supreme Decree No. 430. (DTX 47B.) Decree 430 prescribed that the 1971 Hydrocarbons Law would be retroactively applied to all concession contracts entered into before the law had been issued. All concessionaires who had entered into contracts before the date of enactment of the 1971 Hydrocarbons Law were required to sign new contracts, within a year, consistent with the terms of the new law. (DTX 47B, Cl. Fifth, Cl. Sixth; Arauz Testimony, Tr. 2582-83; Jarrin Testimony, Tr. 2686-87; Shields Testimony, Tr. 1963; PTX 241 at 1-2.) After Decree 430 was enacted the companies had the option of refusing to sign new contracts, and probably losing all or part of their investments, or signing the new agreement with the new limitations included. The companies, as dictated by Supreme Decree No. 430, relinquished some acreage to the Government at the end of December 1972. (Shields Testimony, Tr. 1972; accord Arauz Testimony, Tr. 2589-91; Jarrin Testimony, Tr. 2691-92; DTX 75.) Soon after the acreage was returned to the Government, the government-owned oil company, CEPE, began exploiting it. (Shields Testimony, Tr. 1973-74.) In January 1973 the companies requested compensation from the Government of Ecuador for the acreage they were required to relinquish. (Shields Testimony, Tr. 1978-79.) The Government rejected the companies’ request for compensation. Minister Jarrin announced publicly that the Ministry declares in a definite and emphatic way that it does not accept nor shall [it] accept any request for indemnification because it is not covered by the legal provisions in force nor by the petroleum policy encouraged by the nationalistic and revolutionary Government of the Armed Forces.” (DTX 75; Shields Testimony, Tr. 1981.) NEW OIL CONTRACTS On March 27, 1973 the Government, in Decree No. 317, issued a Model Contract which prescribed the terms of the new contract with the Government that the companies would have to execute. (DTX 104B; Shields Testimony, Tr. 2000.) The Model Contract provided, inter alia, for: Government participation in the companies’ oil producing operations (DTX 104B, Cl. 59); a net reduction of the Coca Concession exploitation period by 14 years (DTX 104B, Cl. 4); an open-ended requirement that the companies provide Ecuador’s refineries and industrial plants with internal consumption crude (DTX 104B, Cl. 26.2, DTX 378); and increased Government royalties (DTX 104B, Cl. 36). THE 1973 EXPLOITATION CONTRACT On August 4, 1973 the Government of Ecuador issued Decree No. 925 (DTX 124B), which decreed, in haec verba, all of the terms and conditions of the new exploitation contract (the “1973 Exploitation Contract”) that Texaco Petroleum and Ecuadorian Gulf would be required to execute pursuant to Supreme Decree No. 430. The companies were faced with signing the 1973 Exploitation Contract, or giving up their Ecuadorian operations. The 1973 Exploitation Contract described a consolidated area (the “1973 Contract Area”) that consisted of the portions of the Coca and Napo Concessions which remained with the companies; and substituted a new set of contractual rights less favorable to the companies than the 1961 Concession Contract. The contract included many of the provisions unfavorable to the companies that the Model Contract required, including a fourteen year reduction in the exploitation period. Further, the 1973 Exploitation Contract set CEPE’s participation percentage at 25% to begin in June 1977. The contract did not specify the consideration the Government would pay. (DTX 124B.) By participation, the parties meant that CEPE would begin to receive 25% of the net production of oil, as well as supply 25% of the costs of production. The Government did not agree to pay the companies any compensation for the extinguishment of their right to extract oil during the period from 1992 through 2006, nor for CEPE’s acquiring of a 25% participation. Minister Jarrin stated the reasons the Government would not compensate the companies: How was the Government going to pay any amount over the wealth of the subsoil which, according to the law, is inalienable and indescriptable (sic). It belongs to the State. It did not have to pay anything. It did not have to pay something that was its own property. (Jarrin Testimony, Tr. 2691.) In 1973, the Republic of Ecuador became a member of the Organization of Petroleum Exporting Countries (“OPEC”). (DTX 143; Shields Testimony, Tr. 2014.) This supplied an additional reason for the Government not to pay for rights to exploit oil reserves, in that it was OPEC’s policy that member countries would compensate foreign oil companies upon obtaining participations only for the “net book value of the assets” because “the petroleum reserves belong to the countries” and foreign oil companies holding oil concessions “did not have rights in the oil.” (DTX 151; Shields Testimony, Tr. 1944, 1942.) THE GOVERNMENT’S 1974 TAKING OF A 25% INTEREST Supreme Decree No. 9 Although the 1973 Exploitation Contract provides that CEPE’s participation would become effective no sooner than June 1977, the Government, in Supreme Decree 9, issued on January 2, 1974, mandated that CEPE would take its participation within the year 1974. By accelerating the effective date of CEPE’s participation by more than three years, the Government extinguished, without paying compensation, the companies’ contractual right to 25% of the production from the 1973 Contract Area for the period from 1974 through 1977. (DTX 149B; Arauz Testimony, Tr. 2596-97.) The companies resolved to seek compensation for Government’s acceleration of CEPE’s participation. (Shields Testimony, Tr. 2018-19.) In meetings with the Government, the companies requested compensation for their unamortized assets at updated book or current value and compensation for the loss of their rights to 25% of crude oil produced from the 1973 Contract Area for the period from 1974 through 1977. (Shields Testimony, Tr. 2026; DTX 191.) The Government representatives told the companies that they would be compensated only for their producing and pipeline assets, at net book value of the unrecovered actual cost of their investment in the producing and pipeline assets, rather than current or updated book value. (Arauz Testimony, Tr. 2600-03; DTX 191; DTX 192; DTX 242; Shields Testimony, Tr. 2026, 2029-2030.) The Government rejected outright the companies’ request for compensation for their lost rights to 25% of the crude oil produced from the 1973 Contract Area for the period from 1974 through 1977. (Jarrin Testimony, Tr. 2696; accord Arauz Testimony, Tr. 2601.) The June 14, 1974 Acta On June 14, 1974, the Minister of Natural Resources, the general manager of CEPE, and the Ecuadorian managers of Texaco Petroleum and Ecuadorian Gulf executed an “Acta” or minutes of an agreement (the “1974 Acta”). (DTX 201B.) The 1974 Acta provides that CEPE, as of June 6, 1974, would have a 25% interest in the companies’ oil producing operations (Clause 3) and the pipeline (Clause 6), and would pay the companies for 25% of the investments on their books, less depreciation and amortization. (DTX 201B, Cl. 3, Cl. 6; Jarrin Testimony, Tr. 2740-41, 2706, 2742; Arauz Testimony, Tr. 2611, 2612-13, 2594, 2604-05; Shields Testimony, Tr. 2061; Schwind Testimony, Tr. 2891-93.) The 1974 Acta did not provide for any payment to the companies for any of Norsul’s interest in future royalties. {See DTX 201B). In short, the Government was taking 25% of production as well as assets and it did not contemplate payment of any royalties to Norsul as provided for in the 1965 Contract between Norsul and the companies. Clause 4 of the 1974 Acta provided for an audit of the books of Texaco Petroleum and Ecuadoria Gulf by an independent international accounting firm to verify that the assets to be paid for had been properly reported at actual cost, and that depreciation and amortization had been properly calculated. (DTX 201B; Arauz Testimony, Tr. 2609-10.) Despite the provision in the 1974 Acta that the Government would acquire and pay for 25% of the pipeline, the Government determined in 1975 that it would not acquire any interest in the pipeline and that the pipeline was to be excluded from the audit. (DTX 240B; Shields Testimony, Tr. 2070-71.) CEPE selected the international accounting firm of Peat, Marwick, Mitchell & Co. (“PMM”) to audit the producing assets on the companies’ books as of June 6, 1974. On June 10, 1976, PMM completed its final audit report. (DTX 276 B.) PMM concluded, based on its audit, that, as of June 6, 1974, the net book value (cost less depreciation and amortization) of Texaco Petroleum’s and Ecuadorian Gulf’s producing assets and their materials and supplies inventory was approximately $182,000,000. (DTX 276B.) The Central Bank paid Texaco Petroleum and Ecuadorian Gulf $45,-033,671 in connection with the 1974 transaction, which was, as indicated, 25% of the book value, less depreciation and amortization, of Texaco Petroleum’s and Ecuadorian Gulf’s producing assets and materials and supplies as of June 6, 1974. According to the Government, its payment of $45,033,671 in the 1974 transaction did not include any amount for the companies’ lost rights to produce crude oil. (Jarrin Testimony, Tr. 2698, 2699-2700, 2702-03, 2741, 2743, 2773; Arauz Testimony, Tr. 2604-05, 2610, 2611-12, 2635-36, 2668, 2672-73; Shields Testimony, Tr. 2069.) Minister Jarrin, the Government official responsible for determining what the Government would pay for (Jarrin Testimony, Tr. 2697-98), testified that: “The Ecuadorian Government paid solely for nonamortized investment at book value.” (Jarrin Testimony, Tr. 2698; accord 2702-03, 2712, 2773.) “[We paid] for nonamortized investments [and] no additional right.” (Jarrin Testimony, Tr. 2741; accord 2699-2700.) “I repeat once again. The Government ... had no reason to purchase rights. It did not buy any rights.” (Jarrin Testimony, Tr. 2742.) On the other hand, plaintiff’s expert, Mr. Gruy, testified that the assets necessary to produce oil have no value except to produce a cash flow in the production of oil. (Tr. 1061.) Thus, in Mr. Gruy’s opinion, the payment for assets, even for book value, necessarily included a payment for the right to explore and exploit oil. The court will consider this opinion further in its Conclusions of Law, infra. While the companies were experiencing difficulties due to the acquisidtory attitude of the Government, Minister Jarrin, in early 1973 made it clear that he was opposed to any contract which would provide payments to parties who were not, in fact, exploring for and exploiting and transporting the oil. The companies, by a series of manuveurs, had delayed paying royalties to Plaintiff. In February of 1973, Minister Jarrin recommended to the Finance Minister that the royalties provided for in the 1965 contract be confiscated by the Government and ordered that the companies not make any payments to Norsul and Phoenix. (TR. 2129-33; PTX 153A; PTX 159A; DTX 87B; DTX 377.) Minister Jarrin failed to persuade the Finance Minister to confiscate the royalties. (Tr. 2707-2710; 1697-98). However, the President of Ecuador did impose an 86% income tax on the royalties. Supreme Decree 602 (DTX 110B). (The prior corporate income tax in Ecuador had been 44.4%.) The decree was issued on May 29, 1973, and applied retroactively to cover all of the royalties. The decree required that the companies withold the tax and deposit it directly in the Central Bank of Ecuador, for the account of the National Development Bank (Banco de Fomento). Tr. 2713-15; 2616-17; 2147-48. UNDERPAYMENTS OF ROYALTIES During the time that the companies were experiencing the above described difficulties with the Government, they took actions to change their position with regard to the royalty holders, Norsul and Phoenix. As the underpayment of royalties is one of the principal issues presented herein, and the time sequence corresponds to many of the above described events, the important factual details surrounding the underpayments will follow here. Pursuant to the terms of the 1965 Contract, the first royalty payment was due in October, 1972. (Tr. 205.) The payment was not made at that time, and Norsul and Phoenix began efforts to obtain payment. Defendants asked for 30 days, then asked for additional delay. In January, 1973, a meeting between representatives of Norsul, Phoenix, Gulf, and Texaco, was held in Coral Gables, Florida. (Tr. 209.) The subject of the meeting was the royalty payments. The companies took the position at the meeting that Norsul and Phoenix would have to sign a new “Interim Agreement” concerning the price basis for the royalties. S. Donald Moore, President and Director of Phoenix objected to signing the Interim Agreement as unnecessary, since he was of the view the companies had a binding obligation under the 1965 Contract to pay the royalties. Clauses 6 and 7 of the 1967 contract address questions relating to the cash payment of the royalties. Clause 6 provides that the price of oil used in determining the royalty shall be “... understood as the value defined in each case for the purpose of calculating the payment of royalties which cessionaires (Defendants) must make to the government----” Mr. Lucas for Gulf stated they (companies) wanted to establish the oil price and other parameters before payments were made. Some “little” problems relating to title were also mentioned. He ultimately demanded that plaintiffs representative sign the “interim agreement” or sue. It should be noted here that Fowler of Norsul never objected to the use of the tax reference price as required by defendant companies. Moore of Phoenix was eventually persuaded to sign an agreement on assurances from Mr. Kinsel of Texaco that signing the Interim Agreement would result in immediate payments of the royalties due. (Tr. 216-217.) The Interim Agreement was signed by the parties on February 5, 1973. (PTX 151.) Plaintiff took the position and the Court agrees; the “Interim” agreement was unnecessary. When Norsul and Phoenix did not receive payments for the royalties, on or about February 11, 1973, Moore and Wayne Fowler travelled to Coral Gables, Florida, where they were told by a representative of Texaco that the check would have to be issued from Quito, Ecuador. They then travelled to Quito where they met with Juan Quevedo, a representative of Texaco. At the meeting, when questioned about the checks, Mr. Quevedo produced two checks but said that they had to be released by Coral Gables. Mr. Quevedo did not give the checks to Moore and Fowler. As indicated above, the reference price in the Interim Agreement coincided precisely with the government tax reference value. (PTX 151; Tr. 218-219.) The companies not only did not object to basing the royalties on the Government TRV but insisted upon that method. Payments were eventually made on that basis for five quarters. (Tr. 1296-97.) Subsequent to Defendants sending Plaintiffs representatives on a futile quest for the royalty checks and before any amounts were paid, the Ecuadorian government entered the scene with legislation and edicts which at first raised serious questions as to whether the royalties would be permitted at all and then taxing the royalties significantly as previously described. It would not be amiss at this juncture to note that the succession of events in late 1972 and early 1973 raise serious questions as to both the good faith and even complicity of defendants (with the government) in the delay of payments and the later government action relating to the royalties. The first royalties were paid late in 1973. As per agreement, the tax reference value was the basis for payments. At about that time, the world oil price rose dramatically. (Tr. 1300.) The United States placed a ceiling price on oil produced in the United States which caused it to remain substantially lower than the world price. The Ecuadorian oil price, and hence the Government’s tax reference value, rose in this period along with world oil prices. In October, 1973, the companies in a reversal of position sought to renegotiate the royalty agreement with Norsul and Phoenix. (DTX 133; DTX 435; Tr. 2150.) On January 18, 1974, Fowler met with Lucas of Gulf and Watkins of Texaco in Coral Gables. At that time, taking the new position, Lucas told Fowler that the companies were of the opinion that the 1973 Exploitation Contract (DTX 124B, 126) between the companies and the Government and required by the Government extinguished the 1965 Contract, and thus the defendant companies were studying whether there was any continuing contractual obligation to pay any royalties to Norsul. One of the companies’ representatives stated to Fowler that “there might be a moral obligation” to continue the royalties. (Tr. 1299.) There was also discussion at the meeting of renegotiating the price basis for the royalties, given the steep rise in the tax reference price. (Tr. 1733.) On February 7, 1974, a meeting was held in Coral Gables between Fowler and other Norsul representatives and representatives of the companies. At the meeting, pressing their complete reversal of position, the companies took the position that the 1965 Contract was void because of the 1973 Exploitation Contract. They did not mention that their Quito counsel had advised them differently. The companies stated they would not make any further royalty payments unless Norsul agreed to a new contract. The new reference price that the companies advocated was an average of the Ecuadorian TRV and the “West Texas” crude price. This new reference price was said to be based on the 1961 Concession Agreement. A 10% reduction in reference volume was also pressed, since the Government of Ecuador had raised the Government royalty that the Companies were obligated to pay by 10%. At the close of the meeting, a tentative agreement to a new reference price along the lines of the companies’ proposal was reached. Soon after the February meeting, Fowler received a draft of the proposed agreement not finalized at the meeting. (PTX 222, 388; Tr. 1412.) Fowler found that many of the terms included in the draft had not been discussed at the February meeting, and would not agree to it. Tr. 1413-1414. Nevertheless, the companies made royalty payments for the fourth quarter of 1973 and the first two quarters of 1974 using a West Texas crude price as the basis, with a 10% reduction in volume. PTX 233, 235. Plaintiff now seeks the difference in royalty payments for the three quarters in question. THE 1977 TRANSACTION Adverse Actions by the Government Leading to the 1977 Transaction In 1973, the Government decreed that the companies deposit with the Central Bank the greater of: (a) the actual proceeds of export sales of their crude oil production, or (b) their presumed proceeds of such sales, calculated by using the tax reference value. The deposits were referred to as “incautation deposits.” (DTX 50B; O’Brien Testimony, Tr. 2582-84; PTX 379 at doc. no. 700914, 700934-35.) The Central Bank applied the incautation deposits to satisfy the companies’ obligations to the Government which, in the aggregate, were referred to as the “Host Government Take” or “HGT”. (O'Brien Testimony, Tr. 2323-24; PTX 379 at doc. no. 70934-35.) After deducting the HGT, the Central Bank returned to the companies the remainder of the incautation deposits to cover their costs and profits. (O’Brien Testimony, Tr. 2382; PTX 379 at doc. no. 700934-35.) The HGT accounted for approximately 85% of the incautation deposits made by the companies. (O’Brien Testimony, Tr. 2323-24, 2382, 2385.) The companies protested to the Government that the Central Bank habitually retained more of the companies’ incautation deposits than was necessary to satisfy income taxes and other elements of HGT. (PTX 324 at doc. no. 03555-57; DTX 236 at 1-2; O’Brien Testimony, Tr. 2351-52; Shields Testimony, Tr. 2076.) By 1976, the companies argued that the Government had overretained approximately $22 million. (PTX 324 at doc. no. 03566 at 7-9; DTX 236 at 1.) Half of the $22 million was owed to Ecuadorian Gulf. (O’Brien Testimony, Tr. 2333, 2387-88; PTX 379 at doc. no. 700935.) Internal Consumption Crude Losses In January 1973, the Government, by Decree No. 88, set the price that it would pay for internal consumption crude at 35 sucres or $1.48 per barrel. (PTX 379 at doc. no. 700916; Shields Testimony, Tr. 2003, 222-25, 2097-98, 2308, 2309; O’Brien Testimony, Tr. 2329-30.) Beginning in May 1974, all internal consumption crude that the companies sold to CEPE was subject to the same HGT as crude sold by the companies to third parties as export sales. Thus, the Government royalties that the companies were required to pay on internal consumption crude were based upon the tax reference price set by the Government, even though the Government had fixed an artificially low purchase price for such crude oil. (Shields Testimony, Tr. 2097, 2100-01, 1986-87; O’Brien Testimony, Tr. 2329-31; DTX 147B at 1-2; DTX 236 at 1; DTX 241B at 1-2.) By early 1976, the companies claimed to be losing approximately $1.00 per barrel on each barrel of internal consumption crude they supplied to the Government. (O’Brien Testimony, Tr. 2329-30; PTX 379 at doc. no. 700916.) In mid-1976, the Government royalty alone was $1.97 per barrel on internal consumption crude for which the companies received only $1.48. (PTX 324 at doc. no. 03555; Shields Testimony, Tr. 2097, 2100-01, 1986-87.) Income Taxes and Government Royalties During the 15-month period between July 1974 and September 1975, the Government had raised the income tax rate applicable to the companies from 44% to 71.5%. (PTX 379 at doc. no. 700915.) At the same time, the effective rate rose to approximately 90% because income taxes were calculated by use of the tax reference price. (Gruy Testimony, Tr. 1210-11.) By operation of Supreme Decree No. 430, which subjected the companies to the 1971 Hydrocarbons Law, the royalty payable by the companies to the Government was raised to 16%. (PTX 51 at 5; DTX 3B, Cl. 23.) By November 1974 the Government had decreed an increase in its royalty to 17%. (O’Brien Testimony, Tr. 2386; PTX 379 at doc. no. 700916.) Government-Imposed Production Restriction In May 1974, the Government authorized the Ministry to establish production limitations that “will not be open to any complaint on the part of the operators.” (DTX 188B; Shields Testimony, Tr. 2079.) In September 1974, pursuant to that authority, the Ministry restricted the volume of oil that the companies could produce to a maximum of 210,000 barrels per day, and further pursuant to authority given, the Direcion General de Ministry imposed production restrictions on individual wells in the Coca Concession which, in fact, reduced production to substantially less than 210,-000 barrels per day. (Shields Testimony, Tr. 2079-81, 2084-85, 2087.) Decree No. 285 In April 1975, the Government of Ecuador issued Decree No. 285. (DTX 244B.) It provided that the amount of crude CEPE would receive, produced from the 1973 Contract Area (its “equity crude”) would no longer be 25% of the actual production, as set out in the 1974 Acta, but would be 25% of the presumed production figure of 210,-000 barrels per day unilaterally established by the Government. (DTX 244B; Shields Testimony, Tr. 2084-85; O’Brien Testimony, Tr. 2362-66; PTX 324 at 11.) Since the presumed production figure was greater than the companies’ actual daily production and the maximum volume of oil the Government permitted the companies to produce (O’Brien Testimony, Tr. 2362-66; 2374-80; Shields Testimony, Tr. 2079-81, 2084-85, 2087), Decree No. 285 effectively increased CEPE’s participation percentage above the 25% provided for in the 1973 Exploitation Contract and the 1974 Acta. (O’Brien Testimony, Tr. 2374-80; Shields Testimony, Tr. 2084, 2089; PTX 324 at 11.) Decree No. 285 did not provide for any compensation to be paid to the companies for the increase in CEPE’s participation percentage beyond 25% of actual production. (DTX 244B; Shields Testimony, Tr. 2089.) The Government’s Continued Failure to Pay Its Debts to the Companies By 1976, in addition to the Government’s repudiating its obligation under the 1974 Acta to acquire a 25% interest in the pipeline, CEPE had not completed payment for the companies’ producing assets. In the 1974 Acta, it had agreed to compensate the companies for their producing assets by September 6,1974. (Shields Testimony, Tr. 2075; O’Brien Testimony, Tr. 2388; PTX 324 at 4; DTX 236 at 1, 2; DTX 241B at 2; DTX 291B at doc. no. 03378-79.) After its participation became effective, CEPE was habitually late in meeting its share of cash calls for 25% of the operating expenses, forcing the companies to pay CEPE’s share of the operating expenses until such time as CEPE decided to meet its obligations. (O’Brien Testimony, Tr. 2356-57; DTX 241B at 2.) By late 1975, CEPE was also in arrears in its payments to the companies for internal consumption crude which the companies were required to supply to CEPE at the price of $1.48 per barrel. (O’Brien Testimony, Tr. 2357; DTX 241B at 2.) Presumptive Production Costs In December 1975, the Government of Ecuador unilaterally established a presumptive production cost which it used to calculate the companies’ income taxes, regardless of whether actual costs were higher than the presumptive cost. (O’Brien Testimony, Tr. 2351-52; DTX 235 at 2; DTX 262B.) In fact, the companies’ actual costs were higher than the presumptive production cost fixed by the Government. (DTX 239B; DTX 262B at 2-3; DTX 236 at 1; DTX 235 at 3.) Thus, the companies were effectively required to pay tax on income they were not earning. (DTX 291B at doc. no. 03390-91.) By late 1975, Ecuadorian Gulf’s rate of return on its investment in Ecuador was approximately seven percent. (O’Brien Testimony, Tr. 2325.) The companies’ expert, Mr. Gray, testified at trial that under the circumstances in Ecuador at the time, including the political risks of further ex-propriatory Government actions, an operator such as Ecuadorian Gulf would reasonably require a rate of return of 20 to 30 percent in order to justify continued operations in Ecuador. (O’Brien Testimony, Tr. 2325-26; Gray Testimony, Tr. 1129-33.) In early January 1976, a military junta (the “Junta”) consisting of two generals and an admiral seized control of the Government from President Rodriguez Lara. (O’Brien Testimony, Tr. 2335; Shields Testimony, Tr. 2091; PTX 379 at doc. no. 700937.) Several days after it took power, the Junta appointed Colonel Rene Vargas Pazzos (“Colonel Vargas”), former General Manager of CEPE, as Minister of Natural Resources and Energy. (O’Brien Testimony, Tr. 2335; Shields Testimony, Tr. 2091; PTX 379 at doc. no. 700937.) Colonel Vargas was known to the companies to hold nationalistic, anti-capitalist and anti-oil company views. (O’Brien Testimony, Tr. 2335-36; Shields Testimony, Tr. 2091; PTX 379 at doc. no. 700937; DTX 264.) Throughout the period from the time the Junta seized power in Ecuador through late August 1976, representatives of the companies met with representatives of the Government to seek relief from the adverse economic measures imposed by the Government. (See, e.g., O’Brien Testimony, Tr. 2336-39, 2348-52, 2361-66, 2380-81, 2390, 2393.) The Government took no remedial action of any kind and in fact intensified such adverse measures. (O’Brien Testimony, Tr. 2396-98; DTX 291B; PTX 332.) In response to Ecuadorian Gulf’s request in February, 1976 for a decrease in the HGT, Minister Vargas announced an increase in the HGT of more than double the amount of the increase threatened by the prior regime. (O’Brien Testimony, Tr. 2336.) Minister Vargas’ deputy threatened Ecuadorian Gulf with nationalization if it did not accept the proposed further increase in the HGT. (O’Brien Testimony, Tr. 2338-40.) The companies met with and then submitted a memorandum to the Junta, referred to as the “White Paper” (PTX 324), in which they comprehensively described the problems facing the companies in Ecuador. The essential and underlying problem identified in the White Paper was that: “The relationship between the Companies and the Government manifests a lack of stability which apparently results from the Government’s concept that the contracts between them are merely administrative in character and, therefore, subject to change at any time by unilateral action by the Government of Ecuador.” (PTX 324 at doc. no. 03550 (emphasis added); see O’Brien Testimony, Tr. 2355; Shields Testimony, Tr. 2094-96.) The meeting with the Junta and the White Paper did not result in any relief. (O’Brien Testimony, Tr. 2356.) Indeed, shortly after the submission of the White Paper, adverse actions against the companies were further escalated: CEPE lifted crude oil that exceeded its 25% share of the production without compensating the companies (O’Brien Testimony, Tr. 2356-60; Shields Testimony, Tr. 2090-91; DTX 269); CEPE lifted more internal consumption crude than it was entitled to (O’Brien Testimony, Tr. 2357-59; Shields Testimony, Tr. 2090; DTX 271), refused to pay anything for its internal consumption liftings, and would not even account for the amount of internal consumption crude it had lifted (O’Brien Testimony, Tr. 2357-50); and the Government demanded that the companies deliver to CEPE, without compensation, three million additional barrels of crude, worth approximately $36 million, which the Government claimed based on a retroactive application of Decree No. 285. (O’Brien Testimony, Tr. 2362-66, 2370, 2379.) The loss of oil overlifted by CEPE placed Ecuadorian Gulf in jeopardy of defaulting on its contracts to supply crude to third parties. (O’Brien Testimony, Tr. 2366.) The companies notified the Government in early June 1976 that if CEPE’s overliftings continued there would come a time when there would not be enough crude at the loading terminal to fill the tankers that arrived for loading. (O’Brien Testimony, Tr. 2366.) In mid-June 1976, when CEPE nominated approximately one million barrels for loading onto the tanker Ruth, CEPE was already overdrawn on its 25% entitlement by some 200,000 barrels. (O’Brien Testimony, Tr. 2367-69.) The companies refused to load the Ruth, but Minister Vargas had it surrounded by armed guards and ordered the port captain to load the Ruth. (O’Brien Testimony, Tr. 2368.) The crude overlifted by CEPE which was loaded aboard the tanker Ruth was ultimately purchased by Atlantic Richfield Company (“ARCO”). In mid-July, Ecuadorian Gulf sued ARCO in a United States District Court for conversion of the crude oil loaded aboard the tanker Ruth. (O’Brien Testimony, Tr. 2391.) At this juncture, Ecuardian Gulf’s situation was different from that occupied by Texaco Petroleum in that Ecuadorian Gulf stood a much greater risk of having its interest nationalized by the Government than did Texaco Petroleum. Texaco Petroleum was the operator and CEPE did not have the expertise to operate the oil fields by itself. (Shields Testimony, Tr. 2290-91; O’Brien Testimony, Tr. 2326.) As Mr. O’Brien testified: [N]o [government in its right mind would very rapidly nationalize an operator, unless they were able to take over the job themselves____ [CEPE] was clearly incapable of running the consortium by itself, so that Texaco’s position was, you might say, a strong one vis-avis the Government. (O’Brien Testimony, Tr. 2326-27.) This view was reflected in statements by the Government and actions by the Government towards Texaco Petroleum beginning in September 1976. (PTX 335 at 2.) By mid-June 1976, Ecuadorian Gulf officials concluded that Gulf’s deteriorated economic position was not likely to improve. (O’Brien Testimony, Tr. 2356.) Thus, in mid-June 1976, Ecuadorian Gulf determined, in protection of its own economic interest, to seek to withdraw from Ecuador. To catalyze the Government to take remedial action which would allow Ecuadorian Gulf to remain in Ecuador, and to establish an offset for tax overretentions and other debts owed by the Government to it, Ecuadorian Gulf began, in mid-June 1976, to withhold from the Central Bank incautation deposits and to place such deposits in a segregated interest-bearing account. (O’Brien Testimony, Tr. 2382-84.) It was Ecuadorian Gulf’s intention to release the escrowed deposits to the Government upon a resolution of the differences between Ecuadorian Gulf and the Government. (O’Brien Testimony, Tr. 2384-89.) Several weeks after Ecuadorian Gulf notified the Government in July 1976 that it was withholding incautation deposits, Minister Vargas orally notified Ecuadorian Gulf that it would be “caduced” if it did not place the withheld deposits into the Central Bank by the end of August. (O’Brien Testimony, Tr. 2394.) In response to Vargas’ threat of caducity, Ecuadorian Gulf proposed a “rollover” procedure under which Ecuadorian Gulf would continue to operate in Ecuador and progressively release deposits to the Government as the individual problems the company faced as a result of the Governments actions were resolved. (O’Brien Testimony, Tr. 2393.) The Junta rejected the company’s “rollover” proposal. (O’Brien Testimony, Tr. 2393-94.) The Junta demanded that Ecuadorian Gulf, as an additional condition to avoid caducity, make all future incautation deposits immediately upon its lifting the crude, which was long before it would receive payment from its customers for the oil. (O’Brien Testimony, Tr. 2399-2400, 2401-02, 2450, 2393-94.) Under the Government regulations in effect at the time of the Junta’s demand, the companies were permitted to make incautation deposits up to 120 days after lifting. (O’Brien Testimony, Tr. 2393-94; 2401-02, 2449.) Ecuadorian Gulf did commence making immediate incautation deposits for current liftings, but concluded that it would not accede to the Junta’s demand that it release all withheld deposits, as long as the Government’s debts to Ecuadorian Gulf continued to exceed the total of such deposits. (O’Brien Testimony, Tr. 2395.) The Junta’s new demand that Ecuadorian Gulf make deposits upon lifting and before receiving payment for its crude substantially worsened Ecuadorian Gulf’s economic situation by depriving it of credit terms and requiring it to pay the Government the full value of crude sales before it received any payment itself. (O’Brien Testimony, Tr. 2396-97.) As of August 31, 1976, the date Minister Vargas and the Junta had established as the deadline for complying with its conditions for avoiding caducity, the Government had made no payments to Gulf in respect to the tax overretentions or other debts and had taken no remedial action with respect to the companies’ other grievances. (DTX 291B.) Discussions with the Government Concerning Ecuadorian Gulfs Withdrawal Perceiving its choice to be “between caducity and nationalization” (O’Brien Testimony, Tr. 2398), Ecuadorian Gulf delivered a letter to the Junta (PTX 332) on August 31, 1976 requesting that the Government and the company enter into negotiations leading to Ecuadorian Gulf’s orderly withdrawal from Ecuador. (O’Brien Testimony, Tr. 2396-97.) On August 31, 1976, the Government issued a formal notice of caducity (DTX 281B) to Ecuadorian Gulf. The notice, which was delivered on September 1, stated that Ecuadorian Gulf would be “caduced” in 30 days if it failed to make incautation deposits for all shipments since June 1976. (O’Brien Testimony, Tr. 2402-03; DTX 281B.) At about the same time that Ecuadorian Gulf received the notice of caducity, the Government threatened that CEPE would not make any further payments in satisfaction of its cash calls unless Ecuadorian Gulf withdrew the ARCO suit. (O’Brien Testimony, Tr. 2407.) Sh