• Thursday, May 23, 2024
businessday logo

BusinessDay

Again, Venezuela on the spot over nationalised oil assets

businessday-icon

An international arbitration panel has awarded ExxonMobil US$1.6 billion for Venezuelan assets seized in 2007. The World Bank’s International Centre for Settlement of Investment Disputes (ICSID) decided unanimously that Venezuela has to pay damages to ExxonMobil totaling US$1.6 billion.

In February 2007, late Venezuelan President Chavez announced a new law to nationalise oil production sites that are under foreign company control, allowing the foreign companies to negotiate the nationalisation terms.

Under the new regulations, the earlier joint ventures, involving ExxonMobil, ChevronTexaco, Statoil, ConocoPhillips, and BP, were transformed to give Petroleos de Venezuela (PDVSA) a minimum 60 percent stake. The process completed a government initiative begun in 2005, when the Chavez administration transformed earlier “operating agreements” in Venezuela’s older oil fields into joint ventures with a wide variety of foreign companies.

Most foreign companies accepted the new arrangements but ExxonMobil and ConocoPhillips refused. Thus, on May 1, 2007, the government stripped ExxonMobil and ConocoPhilips operational control over massive Orinoco belt crude projects worth an estimated $30 billion.

Venezuela’s Orinoco belt, touted to have an estimated 513 billion barrels of technically recoverable heavy oil, is “the largest accumulation ever assessed” by the US Geological survey. Until recently, the oil was not counted in reserve figures, because it was too expensive to extract. New technologies, rising oil prices and dwindling conventional reserves have changed the game. 

Initial phony victory for Venezuela

Exxon Mobil and Conocophilips quit Venzuela and filed arbitration claims. France’s Total and Norway’s StatoilHydro received about $1 billion in compensation after reducing their holdings. Britain’s BP Plc and America’s Chevron remained as minority partners.

In 2012, Paris-based International Chamber of Commerce (ICC) ruled that ExxonMobil would not be entitled to most of the damages it demanded after its fields were nationalised. The ICC only awarded Exxon ten per cent of what they sought. Thus, PDVSA said it would pay ExxonMobil $255m, after accounting for money frozen in a New York bank account and outstanding debts.

Eva Golinger, a lawyer and author of “The Chavez Code: Cracking US Intervention in Venezuela” said the ICC judgment was “a victory against a corporation that tried to abuse Venezuelan law”, adding that the “Venezuelan government had originally offered $1bn for the nationalisation and now they end up only having to pay $255m.”

Chickens home to roost

On October 9, 2014, ICSID ordered Venezuela to pay ExxonMobil $1.6 billion for oil assets that were nationalized in 2007.

ExxonMobil originally petitioned for $14.7 billion in reimbursement for assets taken by PDVSA, after the international oil company refused to accept the contract and compensation terms offered by Hugo Chavez’s government.

ICSID said Venezuela “shall pay” damages of $9,042,482 “for production and export curtailments imposed on the Cerro Negro Project in 2006 and 2007.” In addition, ICSID decided Venezuela shall pay $1.4117 billion “in compensation for the expropriation of their (ExxonMobil’s) investments in the Cerro Negro Project,” plus an additional $179 million for the takeover of La Ceiba project.

In a brief statement, ExxonMobil said the decision vindicated its view that Venezuela failed to compensate it fairly at the time.

Venezuela in its own reaction said it will deduct a previous award made against it by another international tribunal, the Paris-based International Chamber of Commerce (ICC), from the $1.6 billion ruling by the World Bank’s ICSID body.

Exxon received $908 million from PDVSA in 2012 after a separate decision by the ICC over the same claim, but had been seeking far more overall.

Conocophilips heads to ICC

Following the ExxonMobil ruling, ConocoPhillips said it has filed for arbitration at the International Chamber of Commerce against Venezuela’s state oil company PDVSA for compensation related to the termination of its partnership contract after the nationalization of oil projects.

The ICC filing is separate from the US oil company’s arbitration pending before the World Bank’s International Center for Settlement for Investment Disputes (ICSID), it said.

In September 2013, the ICSID tribunal ruled that Venezuela unlawfully expropriated ConocoPhillips’ investment in the Petrozuata and Hamaca oil projects. The tribunal is now determining compensation for the assets.

The cases come at a delicate time for Venezuela’s finances, with the economy apparently entering recession – though official data has been suppressed – and multi-billion bond payments due in addition to PDVSA is seeking to ease its debt burden through swaps.

Frank Uzuegbunam