Bloomberg News

Exxon Gets ’Disappointing’ $750 Million After Venezuela Seizure

January 03, 2012

Jan. 1 (Bloomberg) -- Petroleos de Venezuela SA must pay about $750 million to Exxon Mobil Corp., a 10th of what the U.S. company is seeking, for assets nationalized by Venezuelan President Hugo Chavez in 2007, according to two people with knowledge of the case.

The International Chamber of Commerce in New York, an arbitration court, gave a “favorable” ruling to Venezuela’s state oil company, a spokesman for PDVSA, as the Caracas-based company is known, said yesterday.

The ICC awarded a total of $907.6 million to Exxon Mobil, company spokesman Patrick McGinn said today. The judgment was reduced to around $750 million after a counter claim in favor of PDVSA, the people, who declined to be identified because they’re not authorized to speak about the case publicly, said, adding that the decision was handed down in late December.

“Even at $750 million, it’s still relatively significant for PDVSA,” Gianna Bern, president of Chicago-based risk management adviser Brookshire Advisory and Research, said yesterday in a telephone interview. “It’s not an inconsequential amount of money.”

The $750 million award is equivalent to 32 percent of PDSVA’s 2010 net income, according to data compiled by Bloomberg.

Exxon Mobil was the first international oil company to abandon Venezuela after Chavez’s government expropriated the nation’s oil industry. The World Bank’s International Centre for Settlement of Investment Disputes, or ICSID, is also due to rule on the claim in a suit filed against the Venezuelan government.

Other Arbitration Cases

Chavez, who has nationalized assets in the energy, metals, cement and telecommunications industries, faces about 20 arbitration cases at the ICSID, according to the Washington- based center’s website. Venezuelan Oil Minister Rafael Ramirez said in September that the country was willing to pay Exxon $1 billion after Carlos Escarra, the country’s prosecutor general, told reporters that the two companies were negotiating a settlement of about $6 billion.

“The ICC decision confirms that PDVSA does have a contractual liability to Exxon Mobil,” McGinn said yesterday in an e-mailed response to questions. “The dispute is not over Venezuela’s power to expropriate assets, but rather the failure of PDVSA to comply with contractual provisions to compensate Exxon Mobil.”

The PDVSA spokesman, who declined to be identified because of company policy, said Ramirez wasn’t immediately available to comment on the ruling.

Joint Ventures

Chavez forced foreign oil producers into joint ventures as minority partners in 2007 and is in international arbitration with the U.S.’s Exxon Mobil and ConocoPhillips, which rejected revised terms. The Cerro Negro venture held by Exxon refined tar-like crude into synthetic oil from wells in the Orinoco heavy-crude belt.

Exxon lost 425 million barrels of proved reserves in 2007 when Chavez ordered PDVSA to seize control of four heavy-oil ventures operated by foreign companies, including Exxon’s Cerro Negro project. The field had a 48 percent profit-to-sales ratio, quadruple the company’s global average.

Exxon based its arbitration claims on a 1997 agreement between Mobil Corp. and PDVSA to explore for extra-heavy crude in the Orinoco oil belt. Exxon, which later acquired Mobil, claimed PDVSA agreed to indemnify Mobil if it later expropriated Mobil’s interests.

ConocoPhillips said earlier this month that the ICSID held a hearing in the summer of 2010 and that the company is waiting for a decision on legal and factual issues.

U.K. Court

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

PDVSA set aside about $1 billion to $1.5 billion in anticipation of the judgment, Credit Suisse said in June. Exxon, the world’s largest oil company by market value, cut the amount it was seeking from PDVSA in October 2010 to $7 billion from $12 billion.

“Certainly, this type of award falls far short of expectations, or at least what they were willing to publicly settle at, and these types of rulings could influence the decision of companies to escalate these kinds of arbitration proceedings,” Brookshire Advisory’s Bern said from Chicago. “It appears to be fairly disappointing for Exxon Mobil.”

Link to PDVSA News: PDVSA VC <Equity> CN <GO> Link to Exxon Mobil News: XOM US <Equity> CN <GO> Link to ConocoPhillips News: COP US <Equity> CN <GO>

--With assistance from Joe Carroll in Chicago. Editors: Paul Tighe, Susan Warren

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

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


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