Bloomberg News

Venezuela in Talks on $6 Billion Settlement With Exxon

September 21, 2011

(Updates with Oil Minister comment in seventh paragraph.)

Sept. 21 (Bloomberg) -- Petroleos de Venezuela SA, the state oil company, and Exxon Mobil Corp. are negotiating an arbitration settlement of about $6 billion for assets seized by President Hugo Chavez in 2007.

Venezuela will pay any ruling issued by the World Bank’s International Centre for Settlement of Investment Disputes, or ICSID, that is in Exxon’s favor, Carlos Escarra, the country’s prosecutor general, told reporters today in Caracas.

“They started asking for $20 billion,” Escarra said, referring to Exxon’s original demands for compensation. “Talks dropped to around $12 billion, and now they are around $6 billion. Venezuela has to pay -- we are clear on that. The problem now is how much we will pay.”

Chavez, since coming to power in 1999, has nationalized parts of the oil, metals, cement and utilities industries. In 2007, he forced foreign oil producers into joint ventures as minority partners. Irving, Texas-based Exxon Mobil and ConocoPhillips rejected the revised terms and instead entered into international arbitration.

“Exxon Mobil does not comment on media reports,” said Patrick McGinn, a Houston-based spokesman. Exxon, the world’s largest oil company, reduced the amount it’s seeking for the takeover of its Cerro Negro venture in the Orinoco heavy crude belt to $7 billion from $12 billion last year, PDVSA said in a bond prospectus at the time.

“Venezuela is evaluating the amount that we would consider to be a triumph,” Escarra said.

Venezuela Oil Minister Rafael Ramirez said the country proposed paying Exxon $1 billion in compensation, Reuters reported. Phone calls after business hours to PDVSA, as the state oil company is known, were not returned.

Arbitration Results

“As the figure for the settlement has been coming down with the passage of time, that is good news for the sovereign and PDVSA,” Boris Segura, a Latin America strategist with Nomura Securities International Inc. in New York, said today in an interview from New York. “But most importantly, Mr. Escarra was unequivocal in saying that Venezuela will abide by the results of the arbitration.”

The Washington-based ICSID ruled on June 10 that it has jurisdiction over any disputes after Feb. 21, 2006, for the Cerro Negro project, according to documents posted on the agency’s website. PDVSA previously argued that the matter should be resolved in Venezuelan courts.

The Cerro Negro joint venture refined tar-like crude into synthetic oil from wells in the Orinoco belt.

Regional Arbitration

Exxon initially won an order in the U.K. blocking PDVSA from selling $12 billion of assets anywhere in the world. The order was overturned by a U.K. court in March 2009.

Escarra, who was sworn into office as state prosecutor on Aug. 30, said he previously advised Chavez to withdraw Venezuela from the World Bank investment dispute unit when he was a lawmaker in Venezuela’s National Assembly.

“In my opinion, we should leave. Ecuador and Bolivia have already pulled out, and Argentina is pushing for a Latin American arbitration court,” Escarra said. “But as the prosecutor, I follow instructions from Chavez.”

Exxon fell 2.8 percent to close at $71.97 in New York Stock Exchange composite trading.

The extra yield investors demand to own Venezuelan government bonds instead of U.S. Treasuries rose 17 basis points, 0.17 percentage point, to 1,315 basis points today at 5:21 p.m. in New York, according to JPMorgan & Chase Co.’s EMBI+.

Yields on the government’s benchmark 9.25 percent bonds maturing in 2027 rose 31 basis points to 14.84 percent. The price fell 1.4 cents on the dollar to 66.17 cents.

“As risky assets worldwide were under pressure today, don’t expect a positive day for Venezuelan assets, not even with this news,” Segura said.

--With assistance from Charlie Devereux and Jose Orozco in Caracas and Joe Carroll in Chicago. Editors: Jessica Brice, Robin Saponar

To contact the reporter on this story: Corina Rodriguez Pons in Caracas at crpons@bloomberg.net; Nathan Crooks in Caracas at ncrooks@bloomberg.net

To contact the editor responsible for this story: Dale Crofts at dcrofts@bloomberg.net


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