Exxon Wins $749M for Nationalized Venezuela Assets

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Koch, Exxon Mobil Among Corporations Helping Write State Law

John Gress/Getty Images

Koch Industries Inc. and Exxon Mobil Corp. are among companies that would benefit from almost identical energy legislation introduced in state capitals from Oregon to New Mexico to New Hampshire -- and that’s by design.

Koch Industries Inc. and Exxon Mobil Corp. are among companies that would benefit from almost identical energy legislation introduced in state capitals from Oregon to New Mexico to New Hampshire -- and that’s by design. Photographer: John Gress/Getty Images

Petroleos de Venezuela SA (PDVSA) must pay about $750 million to Exxon Mobil Corp. (XOM), a tenth 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 international arbitration court, gave a “favorable” ruling to Venezuela’s state oil company, a company spokesman said today. 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.

The people, who declined to be identified because they’re not authorized to speak about the case publicly, said the decision was handed down late this month.

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.

‘Relatively Significant’

“I suspect these kinds of things, the legal wrangling, will probably drag on for years,” Gianna Bern, president of Chicago-based risk management adviser Brookshire Advisory and Research, said today in a telephone interview. “Even at $750 million, it’s still relatively significant for PDVSA. It’s not an inconsequential amount of money.”

Patrick McGinn, a spokesman for Exxon Mobil in Houston, said he wasn’t immediately able to comment. The PDVSA spokesman, who declined to be identified because of company policy, said Ramirez was unlikely to comment on the ruling today.

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 (COP), 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.

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.

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.

Set Aside

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,” Bern said from Chicago. “It appears to be fairly disappointing for Exxon Mobil.”