Exxon Is Demanding Ten Times its Investment, Says Venezuelan Oil Minister

The maximum compensation Exxon should receive for its nationalized stake in the Orinoco River belt project is $1.2 billion, which is a tenth of Exxon's claim to $12 billion of PDVSA's assets, which were temporarily frozen, said Venezuelan Minister of Energy and Petroleum, Rafael Ramírez, on Thursday.

Mérida, February 15, 2008 (venezuelanalysis.com) – The maximum compensation ExxonMobil should receive for its nationalized 41.6% stake in the Cerro Negro Orinoco River belt project is $1.2 billion, the Venezuelan Minister of Energy and Petroleum and President of the Venezuelan state oil company PDVSA, Rafael Ramírez, announced yesterday. This is a tenth of Exxon's claim to $12 billion of PDVSA's assets, which were temporarily frozen after the transnational oil company won a series of court orders in Britain, the Netherlands, and the Dutch Antilles earlier this month.

In a speech before the Venezuelan National Assembly, the minister argued that Exxon's $12 billion compensation claim is exaggerated, revealing that $5 billion was the largest amount to which the company had ever aspired in previous negotiations. This prompted an Exxon Mobil lawyer to complain that it was inappropriate to have revealed such information.

Ramírez said the U.S. oil company's aggressive tactic of freezing assets outside the arbitration of the International Centre for Settlement of Investment Disputes (ICSID) constituted "another step in the economic war against our nation." The minister reiterated his accusation that Exxon is engaging in "judicial terrorism" by attacking the main source of funding for Venezuela's social programs over an investment PDVSA records show to have been worth only $750 million when it was nationalized.

ExxonMobil is "pointing its sword toward destabilizing the government of President Hugo Chávez," the former president of the Venezuelan Chamber of Petroleum, Hernández Raffalli, proclaimed in a forum on the Exxon case Wednesday. "What is at stake is the sovereignty of the country and its natural resources."

Meanwhile, ExxonMobil froze an additional $300 million of PDVSA's assets after winning a federal court case in New York, and the U.S. State Department threw its support behind ExxonMobil's quest for what spokesperson Sean McCormack called "just and fair compensation."

PDVSA retaliated by suspending commercial relations with ExxonMobil earlier this week, but Ramírez says the state oil company "understand[s] there are a series of commercial agreements that have been signed … and we will respect them." He announced that PDVSA will continue exporting around 79,000 barrels per day to the Louisiana-based Chalmette refinery, which it co-owns with Exxon, but will cut all other exports to Exxon, which hovered between 50,000-90,000 barrels per day in 2007 according to Reuters and Bloomberg News. 

Many international analysts concur that Venezuela's retaliation will not severely affect the oil market or ExxonMobil, which has seen its stock value rise during the conflict with PDVSA and closed last year with $40.6 billion in profits, the highest ever for a U.S. publicly traded company.

Oil companies from Europe and China have already expressed interest in acquiring the oil that used to be sold to ExxonMobil, Ramírez claimed. He assured that contracting with these companies will be a step forward in the market diversification promoted by the Chávez administration's "Sowing the Oil" plan.

Critics, however, suggest that U.S. refineries based in the Gulf of Mexico are the only ones capable of refining Venezuela's heavy and sulfuric crude, so the companies that buy up ExxonMobil's former share may simply become new middlemen who sell back to Exxon. 

Between 2004 and 2007, the Chávez administration collected $40.5 billion from private petroleum companies by significantly raising taxes on transnational exploitation of Venezuela's resources. The money bolstered the National Development Fund's (FONDEN) $30 billion budget over those three years, which was spent on health care, infrastructure, and transportation systems, the "missions," and other social programs. This was all part of the government's pursuit of "petroleum sovereignty" by way nationalizing oil projects and arranging mixed contracts with transnational corporations in which Venezuela maintains a 60% share.

But Exxon claims these tax hikes were "illicit" because they violated an agreement signed by ExxonMobil and PDVSA in 1997, on which the U.S. company bases many of its claims for the Cerro Negro project.  

Ramírez railed that Exxon's maneuvers are merely a "wagging tail" of the era of market liberalization known as the "Petroleum Opening" embraced by the Venezuelan government during the 1990s, when the benefits to transnationals were maximized and public responsibility minimized. The minister demanded an investigation into corruption during that time period, when "the old PDVSA permitted international arbitration and turned over national sovereignty." He vowed that penalties would be brought upon those who committed this "treason" in which the present dispute is deeply intertwined.

National Assembly member Romelia Matute suggested that the former members of the Venezuelan legislature who were involved in the "petroleum opening" be put on trial for "treason against the fatherland."

"For defending our rights, we are now judged in an international tribunal with a wholly political intention that is part of an international conspiracy," Matute said.

Ramírez expressed hope that his outline of PDVSA's strategy in the Exxon case would be subject to wide debate among Venezuelans, affirming that, "sovereign state decisions are the sole responsibility of the people and can't be questioned by any multinational company nor any international court."

Meanwhile, PDVSA's negotiations with transnational oil companies ConocoPhillips and Eni, which also disputed PDVSA`s nationalization of their multi-billion dollar stakes in Venezuela's oil last year, are moving smoothly toward consensual solutions, Ramírez assured.