Venezuela shrinks nationalization payment to Exxon
(Reuters) – Venezuela’s PDVSA said yesterday it will pay Exxon Mobil Corp $255 million in compensation for nationalized assets – less than a third of what the US oil giant said it was awarded by an arbitration panel.
The South American OPEC member’s state oil company issued a defiant statement saying it was deducting debts owed by Exxon, including PDVSA’s repurchase of bonds linked to the nationalized project.
That cut down the panel’s original award of $908 million, PDVSA said, adding it would make the payment within 60 days.
Paying only $255 million would leave Exxon with only a fraction of the more than $10 billion it had originally sought in compensation. It would be a major victory for Venezuelan President Hugo Chavez that could give oil-producing nations more power in nationalization disputes with global energy companies.
But Exxon still may come away with a larger payment because it is pursuing a separate case against Venezuela through the World Bank’s arbitration tribunal. Both cases deal with the 2007 nationalization of the Cerro Negro project in the vast Orinoco heavy crude belt, one of the world’s biggest crude reserves.
This week’s ruling was made by a tribunal of the Paris-based International Chamber of Commerce, or ICC.
“The decision (by t3 panel) shows PDVSA was right in believing Exxon Mobil’s demands were completely exaggerated and sets the payment at a lower amount than what was claimed,” PDVSA said in its statement yesterday, calling Exxon’s original claims “completely exaggerated and lacking any logic.”
An Exxon spokesman did not immediately respond to an email asking for reaction to PDVSA’s comments.
The company said on Sunday it had been awarded $908 million by a tribunal of the ICC, which calls itself the world’s leading institution for resolving international business disputes.
PDVSA said it was deducting $191 million that Exxon owed it for the repurchase of bonds linked to the project, $300 million in offshore PDVSA accounts that Exxon had frozen during a legal dispute and $160 million that the ICC panel awarded the Venezuelan company in counterclaims.
The ruling appears to back Venezuela’s position that companies whose assets are nationalized should be compensated for the amount invested – sometimes called book value – rather than the market value the assets might fetch if sold.
Exxon said in 2007 it had invested about $750 million in Cerro Negro. It held a 42 per cent stake in the project.
In addition to Exxon’s case at the World Bank tribunal, Venezuela still faces about 20 claims from companies including another oil major, ConocoPhillips, resulting from a wave of state takeovers by the Chavez government.
The ICC does not make its arbitration decisions public, leaving few clues as to the criteria behind the valuation. Exxon has said it is still reviewing the more than 400-page document.
The often vicious legal dispute, during which Exxon briefly won an injunction to freeze as much as $12 billion in PDVSA assets, has underlined the ideological differences between a US oil giant and Chavez’s socialist administration.