Venezuela tightens control of oil industry

Venezuela has made another push to increase control over its oil industry, announcing plans to leave the World Bank’s international arbitration body and potentially putting billions of dollars of foreign investment at risk.

Rafael Ramírez, the country’s oil minister, at the weekend confirmed plans to settle disputes with foreign companies within its own judicial system.

Analysts have estimated the outstanding compensation claims, largely by industrial groups including oil, could add up to as much as $40bn.

The decision could also undermine investor confidence in the country whose natural assets have attracted some of the world’s leading oil and gas groups, including Europe’s Repsol, ENI, and Statoil, as well as Chevron of the US. Despite tax increases and contract changes many companies have remained eager to invest in the country’s Orinoco extra heavy oil belt.

one European energy group executive said: “The common sense approach would probably be one of wariness”.

Peter Hutton, analyst at RBC Capital Markets, said: “What is already a fairly complex process, looks like it will get even more so”.

In a televised interview Mr Ramirez had said on Sunday: “We do not accept impositions and we are going to rescue our national sovereignty.”

He added that Venezuela would seek to renegotiate dozens of international investment-related agreements.

The decision to withdraw from the International Centre for Settlement of Investment Disputes (ICSID), based in Washington, means that disputes with foreign companies, including an unsettled disagreement with ExxonMobil, will be heard by Venezuelan judges.

The news follows the announcement on January 1 of a settlement at the Paris-based International Chamber of Commerce (ICC) which awarded Exxon a net payment of only $747m, substantially less than the $6.5 - 7bn it was said to be seeking, after its assets in Venezuela were expropriated in 2007.

Venezuela appears to have accepted the ruling by the ICC, where only the contract was in dispute, but has said it will not respect any decision at the ICSID, where it is the violation of a bilateral investment treaty that is being disputed, which is far broader in scope.

At stake for Venezuela is the appetite of foreign oil companies to invest in extracting the extra-heavy crude from the Orinoco Belt. Venezuela’s proved oil reserves exceed 200bn barrels but it produces fewer than 3m barrels per day.

With the help of foreign investment, Venezuela hopes to double production in the coming years. Exxon declined to comment on Monday. So did Total, Repsol and ENI.

Venezuela’s allies Bolivia and Ecuador also recently withdrew from the organisation. Argentina has so far remained within it, although industry-watchers pointed out that this has not prevented the country from disagreeing with ICSID rulings.