Venezuela: New Setback in $8.5B ConocoPhillips Award Case

Caracas, September 30, 2022 (venezuelanalysis.com) – Venezuela has suffered another reversal in its legal fight to overturn a multi-billion award to US oil giant ConocoPhillips.

On September 27, David Malpass, chairman of the Administrative Council of the International Centre for Settlement of Investment Disputes (ICSID), rejected a motion to disqualify two members of an ad hoc committee that will evaluate the Caribbean nation’s demand to annul the original ruling in favor of ConocoPhillips.

Malpass rejected the disqualification bid after seeking a recommendation from Ian Binnie, a former Canada Supreme Court justice.

Caracas’ legal representation had argued that Dominique Hascher and Diego P. Fernández Arroyo had been “corrupted” by fellow committee member Kap-You “Kevin” Kim. Kim stepped down from the three-person committee in March after disclosing he had been retained by Three Crowns, one of the law firms representing ConocoPhillips, to work in a separate case.

Venezuela claimed that Kim, who was replaced by Lawrence Boo, could have given the oil corporation an advantage by sharing inside information with its counsel on the ad hoc board’s previous work as well as the “sensitivities” of Hascher and Fernández.

However, Binnie rejected the disqualification request on the grounds that there were no concrete allegations that tainted the remaining members.

“There is nothing in Venezuela’s allegations against the Remaining Members to suggest a lack of competence, independence or impartiality,” he wrote.

Following years of litigation, ConocoPhillips secured a US $8.7 billion compensation award in March 2019 for the Venezuelan nationalization of three oil projects in by the former Hugo Chávez government in 2007. The ventures were an offshore oil field, Corocoro, and heavy crude upgraders Hamaca and Petrozuata.

The amount was later reduced to $8.5 billion but has since accrued over $1 billion in interest, which the Washington DC-headquartered ICSID determined Venezuela must pay as well.

Though Venezuela officially withdrew from the ICSID convention in 2012, the country remains liable for prior cases. ConocoPhillips initially demanded $30 billion in compensation but Caracas offered no more than $2 billion, triggering a protracted legal battle.

The Caribbean nation’s legal efforts were hampered by the recognition of Juan Guaidó’s self-proclaimed “interim presidency” by the US and allies in January 2019. The hardline opposition took control of a number of Venezuelan assets abroad and took over the country’s representation before US courts.

Guaidó also appointed a legal team to litigate the ConocoPhillips award, while ICSID rejected the Maduro government’s request that only its counsel represent the country. The annulment proceedings suffered delays in 2021 after the opposition failed to pay the required legal fees on time.

The ad hoc committee is now firmly set following the rejection of the disqualification request, but there is no publicly-known date for the process to continue at the time of writing.

Despite the ongoing ICSID annulment efforts, ConocoPhillips has already taken steps to enforce the award. In August, a Washington DC judge issued a default judgment in favor of the oil firm after Guaidó’s lawyers failed to appear in court for more than two years. US District Judge Carl Nichols likewise argued that Caracas’ chances of overturning the ICSID ruling were “not particularly likely.”

The US-backed opposition frontman had previously come under fire over an alleged deal with ConocoPhillips over a separate $2 billion award. The agreement was publicly denied and struck from court filings without further explanation.

ConocoPhillips and other claimants have set sights on Venezuela’s US-based oil subsidiary CITGO with the goal of seizing shares as compensation.

Crystallex has secured a court-ordered sales procedure after a Delaware court accepted that the $8 billion-worth CITGO is an “alter ego” of the Venezuelan state and thus liable to be seized. The Canadian miner won a $1.4 billion award for the 2008 nationalization of Las Cristinas gold mine in eastern Venezuela.

Any seizure of Venezuelan assets in US territory currently requires special permission from the US Treasury Department as Washington looks to shield the hardline opposition’s prospects. Apart from several corporations looking to enforce arbitration awards, holders of the defaulted PDVSA 2020 bond can likewise claim CITGO shares after the company was offered as collateral.

In the case of the ConocoPhillips $8.5 billion award, the oil corporation would have to prove the alter ego again in court before being able to collect shares from the subsidiary. However, Guaidó seemed to undermine the country’s legal case when he pledged on social media that CITGO’s recent positive results paved the way for settlements with creditors.