CARACAS, VENEZUELA
Venezuela to pay $908-million compensation to Exxon
BRIAN ELLSWORTH AND MARIANNA PARRAGA
RTGAM






CARACAS, VENEZUELA - An arbitration panel has awarded U.S. oil giant Exxon Mobil Corp $908-million (U.S.) in compensation for Venezuela's 2007 nationalization of its assets, less than 10 per cent of what the company sought in a long legal battle with the OPEC nation.

Venezuelan President Hugo Chavez likely will celebrate the ruling as a vindication of his nationalist confrontation with oil companies aimed at increasing revenue from the industry to boost funding for state-led anti-poverty programs.

But Venezuela still faces another arbitration with Exxon over the nationalization of the Cerro Negro heavy oil project, as well as more than a dozen pending claims from companies such as oil major ConocoPhillips resulting from a wave of state takeovers.

"They must be elated that they got off so cheap. It's certainly a happy new year for Venezuela," said Russ Dallen, head bond trader at investment bank Caracas Capital Markets.

"But what gives Exxon hope is that it's only the first of two arbitration proceedings."

An Exxon spokesman said in an e-mail on Sunday that the International Chamber of Commerce, or ICC, had ruled that Venezuela's state oil company PDVSA "does have a contractual liability to Exxon Mobil. The ICC award is for $907,588,000."

Exxon had sought as much as $10-billion in compensation for its heavy crude upgrading project in the South American country's vast Orinoco belt, which was nationalized by Chavez along with three others. The award is less than the $1-billion that Venezuela offered in compensation in September.

In addition to the ICC claim, Exxon filed for arbitration with the World Bank's International Centre for Settlement of Investment Disputes, or ICSID, over the same issue. The Exxon spokesman said that case was scheduled to be argued next month, and that the date for any verdict was not yet known.

The dispute between Exxon and Mr. Chavez became symbolic of the conflict between countries seeking more revenue from the booming oil industry and companies insisting on respect for investments and compensation for state takeovers.

The ICC decision appears to award Exxon a sum close to the $750-million it said it invested in the project - the amount Venezuela says Exxon deserves following the takeover.

But Exxon insists it should also be compensated for the increased value of the project, which at its outset in the early 1990s was considered risky because of low oil prices and uncertainty about the relatively untested operations to turn tar-like Orinoco oil into valuable light crude.

"Exxon took a risk when they went in. I'm sure they were expecting more than just making their money back," said Mr. Dallen, adding that it will be hard to reach a definitive conclusion about what the decision means until more details are released.

The Exxon spokesman told Reuters the company was still reviewing the more than 400-page ruling .

In 2007, Venezuela bought back $630-million in bonds issued to finance the Cerro Negro project, which Mr. Dallen said may have figured into the calculation of the award.

Local analyst Asdrubal Oliveros of Ecoanalitica estimated the value of Exxon assets in Venezuela at around $4.5 billion.

ConocoPhillips was an investor in two of the four Orinoco upgrader projects. Exxon and Conoco, who had in total asked for as much as $40-billion in compensation, both left the country after the nationalizations.

Mr. Chavez's steady push to boost control over the country's oil industry starting in 2004 and was followed by similar efforts in oil-producing countries ranging from Ecuador to Kazakhstan.

Critics say his nationalization drive has slowed foreign investment that could help lift Venezuela's crude production, which has been stagnant for years and left fewer companies interested in its oil fields.