January 9, 2012

Exxon awarded damages in Venezuela

Sebastian Murdoch-Gibson
News Writer

Oil giant Exxon Mobil has successfully concluded its five year lawsuit against the Venezuelan government over its nationalization of the company’s assets. The International Chamber of Commerce’s Arbitration Court ruled in Exxon’s favour last week, awarding the corporation a $907 million settlement for their claims.

Executives, however, are not satisfied with the outcome of the case. The ICC’s ruling awarded Exxon just under a twelfth of their original claim.

The Venezuelan Orinoco belt is one of the most abundant crude oil reserves on the planet. In 2007, the Chavez government seized the assets of several oil companies involved in heavy oil exploration in that region and placed them under the control of the state oil company PDVSA.

Exxon Mobil and ConocoPhillips were among the companies affected, and both responded by pulling their operations from Venezuela. At the time of the incident, Exxon Mobil’s investment in the Orinoco belt was approximately $750 million.

Exxon immediately sought an injunction to freeze $12 billion of PDVSA’s assets. To the frustration of President Hugo Chávez’s administration, the injunction was granted. In 2009, the decision was overturned by a British court and Exxon was prompted to considerably reduce their claims in the arbitration process to $7 billion.

While Exxon’s initial investment in the project was roughly $750 million, the corporation defends its considerably larger claim by insisting that compensation should be awarded on the basis of the present value of gains made using the seized assets. The value of Exxon’s claim in the Orinoco belt has risen considerably since 2007.

Currently, the censures in Orinoco remain unresolved.

While the ICC has concluded its arbitration, Exxon’s legal representatives have stated that they expect at least another $1 billion from a second arbitration currently before the International Center for the Settlement of Investment Disputes (ICSID), a branch of the World Bank.

Whereas the ICC’s ruling will cover gains made by the state oil company using Exxon assets, the ICSID ruling will cover the value of the assets seized themselves.

In 2007 Chávez offered Exxon $1 billion to avoid taking the case to court. Exxon refused.

As of the ruling, international investors began preparing for a jump in the value of Venezuelan bonds, depressed by the expectation of a much more severe determination. The outcome of this case has been the cause for celebration in Venezuela. Chávez has appeared on national television commenting on the folly of Exxon’s expectations for the case.

However, as far as liability is concerned, Venezuela is far from out of the woods, as several outstanding claims over expropriation of assets are facing the government. ConocoPhillips has yet to resolve its claims to assets in the Orinoco belt, as has a Canadian gold exploration firm that was also subject to expropriation under Chavez.

Energy Minister Rafael Ramírez has stated that he does not expect total costs of litigation to exceed $2.5 billion.

Photo by waltarrrrr/FLICKR

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Category: News

  • Froop

    Why is this on the front page of the Argus and more importantly, why is this in a student paper at all? What does this have to do with Lakehead? What does this have to do with being a student? This is about an oil company and venezuela. Are you guys that desperate for content?

  • Frank

    Froop, I think you should consider an activity other than reading newspapers if this is your attitude.

  • Froop

    The Argus has never been great, but this is really a new low. I barely read it anymore anyway; just the headlines, to see if something interesting might have been printed for once. Now, is the Argus so hostile to criticism to suggest not reading their own paper? 

  • Ian

    Yes, this article has nothing to do with being a student. Because “being a student” has nothing to do with informing oneself and thinking critically about world issues. Especially unimportant issues like who controls the world’s natural resources, and how they are doing it.

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