Venezuela: ExxonMobil Bites Back at PDVSA

Para los que no esten al tanto, la cosa esta bien fea.

Lean

February 8, 2008 | 1805 GMT
ExxonMobil
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Summary

U.S. Energy supermajor ExxonMobil said Feb. 8 that it has won a preliminary court case against Venezuelan state oil monopoly Petroleos de Venezuela (PDVSA). Orders resulting from this case prevent PDVSA from selling foreign assets worth as much as $12 billion in the United Kingdom, the Netherlands and the Netherlands Antilles (for total injunctions of $36 billion). The logical target of this and future claims against PDVSA is Citgo.
Analysis

U.S. energy firm ExxonMobil said Feb. 8 that it has won several preliminary cases against Venezuelan state oil monopoly Petroleos de Venezuela (PDVSA). Injunctions now prevent PDVSA from selling foreign assets in the United Kingdom, the Netherlands and the Netherlands Antilles valued at up to $12 billion in each location. ExxonMobil used these orders Dec. 27, 2007, to secure a freeze on PDVSA accounts worth $300 million in the United States. A hearing to confirm the order is scheduled in New York for Feb. 13.

Last year, ExxonMobil filed a case with the International Center for Settlement of Investment Disputes over the Venezuelan government’s seizure of the firm’s 41.7 percent stake in the Cerro Negro heavy oil upgrading project in the Orinoco Belt (Orinoco oil is very low-quality and essentially must be refined before being used as “normal” oil) and the La Ceiba oil venture. The government demanded a majority stake but refused to pay cash for the expropriations. Rather than settle as many other firms did, ExxonMobil simply walked away from the project and filed suit. With plenty of PDVSA’s assets now fenced off, ExxonMobil is pressing its arbitration claim against the firm.

Where the legal action will lead from here is anyone’s guess, but it is worth keeping in mind a couple of core facts: First, Venezuelan President Hugo Chavez’s socialist ideology involves the nationalization or expropriation of large tracts of the Venezuelan economy. ExxonMobil’s loss was hardly the first or the most recent, and should ExxonMobil achieve recourse in international courts, a veritable swarm of other firms that feel they have been cheated will follow. First in line likely will be ConocoPhillips, which also walked away from a heavy oil project in 2007.

Second, unlike many state energy companies, PDVSA has oodles of overseas assets. The biggest one is Citgo, the fourth-largest U.S. refiner. Combined, Citgo and PDVSA-Citgo joint ventures refine approximately 1.1 million barrels per day of crude — and most of the hardware that serves those ventures is in the continental United States. PDVSA holds a 50 percent stake in a refinery in the U.S. Virgin Islands and leases a refinery in the Netherlands Antilles — and both are quite vulnerable to legal action.