Exxon Mobil Seeks Arbitration Over Venezuela Assets (Update4)
By Jim Kennett and Steven Bodzin
Sept. 12 (Bloomberg) -- Exxon Mobil Corp., the world's largest oil company, filed for arbitration in a dispute over assets seized by the Venezuelan government.
The Irving, Texas-based company's 41.7 percent stake in the heavy oil project had a net-book value of about $750 million at the time of the expropriation, according to a regulatory filing today. The company said it requested arbitration Sept. 6 with the International Centre for Settlement of Investment Disputes.
Venezuelan President Hugo Chavez, claiming a fight against imperialism, took control in May of four ventures that turn tar- like crude into about 600,000 barrels of synthetic oil a day. He forced foreign oil producers to give state-owned Petroleos de Venezuela SA at least 60 percent ownership in each venture.
``Exxon Mobil has worked with the Venezuelan government to reach an agreement regarding compensation based on the fair market value of the assets,'' Exxon Mobil spokesman Len D'Eramo said in an e-mailed statement. ``We are disappointed these discussions have not been successful.''
Exxon Mobil remains willing ``to engage in substantive discussions with the Venezuelan government,'' D'Eramo added in another e-mail.
Exxon Mobil had been in talks with Venezuelan authorities since walking away from its Cerro Negro operations on June 26, the day foreign oil companies were ordered to sign over stakes in their ventures that extract and process crude oil in the Faja del Orinoco. Houston-based ConocoPhillips also refused to sign.
`Amicable' Resolution?
ConocoPhillips spokesman Bill Tanner said his company was continuing negotiations and was hopeful to resolve outstanding issues in an ``amicable manner.''
Venezuela is the fourth-largest supplier of oil and refined fuels to the U.S., after Mexico and Canada. Its oil fields may have reserves of 270 billion barrels, rivaling Canada's oil sands, according to the U.S. Energy Department.
Chavez is in the vanguard of Latin American leaders rewriting contracts and increasing ownership and profits from foreign-run oil fields. Bolivia's Evo Morales seized oil fields in his country last year, and Nicaraguan officials on Aug. 17 seized a fuel-storage terminal owned by Exxon Mobil on grounds that the company owed taxes.
Exxon Mobil's shares rose 71 cents to $87.65 today on the New York Stock Exchange. The regulatory filing was released after the close of regular trading on U.S. stock markets.
Resistance Applauded
``I'm glad to see them do it,'' said Don Hodges, who manages the $700 million Hodges Fund in Dallas, which holds shares of both Exxon Mobil and ConocoPhillips. ``You don't know what the outcome will be, but you'd rather see them resist it than just lay down and say, `Help yourself to it.'''
The International Centre for Settlement of Investment Disputes, a part of the World Bank, can take from 30 days to six months to acknowledge jurisdiction over an arbitration request, said Ray Alexander, a partner with Houston law firm Baker Botts LLP's international arbitration group.
The case can take several years to run its course, said Alexander, who is based in Washington.
Getting money out of the Venezuelan government could be difficult, Patrick Esteruelas, a Latin America analyst at New York-based political risk consultant Eurasia Group, said in a telephone interview. Exxon Mobil likely was insisting on a fair market value much higher than the $750 million book value mentioned in the regulatory filing, he said.
Oil Proceeds
The state oil company ``is reluctant to offer cash payments because they are increasingly focused on using oil proceeds to bankroll the government's social-spending platform, and have ended up severely cash-strapped as a result,'' Esteruelas said. Petroleos de Venezuela has delayed payments to vendors and partners this year as its debt rose by $12 billion, he said.
Venezuela's National Assembly passed a law yesterday giving all shares in Petrozuata to state oil company Petroleos de Venezuela. Petrozuata was a joint venture in the Faja del Orinoco region previously run by ConocoPhillips.
The law formalized the conversion of the other Venezuelan heavy oil ventures into state-run enterprises, according to a statement on the National Assembly Web site.
Chevron Corp., BP Plc, Total SA and Statoil ASA remained in the joint ventures after the transfer of assets. Total and Statoil also saw their shares of projects unilaterally reduced.
Contracts specifying the terms under which companies remained in the Faja ventures weren't included in the law passed yesterday. Those contracts are still under consideration by the National Assembly.
Chevron's office in Caracas and BP headquarters in London had no comment on the law. Total's local office didn't answer two phone calls.
To contact the reporter on this story: Jim Kennett in Houston at jkennett@bloomberg.net . Steven Bodzin in Caracas at sbodzin@bloomberg.net .
Last Updated: September 12, 2007 19:05 EDT
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