US Judge Upholds ConocoPhillips $8.5B Award, Venezuela Rejects ‘Unlawful’ Ruling

Caracas, August 24, 2022 (venezuelanalysis.com) – A Washington D.C. federal judge has granted US oil corporation ConocoPhillips final approval to enforce a multi-billion arbitration award against Venezuela.

On August 19, US District Judge Carl Nichols issued a default judgment in favor of ConocoPhillips to collect on a US $8.5 billion arbitration award plus around $22 million for reimbursement of legal costs after the Venezuelan so-called “interim government” failed to appear in court for more than two years. The default claim was entered by the court in October 2021.

“Venezuela still has not entered an appearance or otherwise opposed the Motion. For the following reasons, the Court grants the Motion and enters [a default] judgment for Petitioners,” indicated the court’s file.

The Houston-based company was granted the massive arbitral award in March 2019 by a World Bank International Centre for Settlement of Investment Disputes (ICSID) tribunal as compensation for three oil projects (offshore oil field Corocoro and heavy crude upgraders Hamaca and Petrozuata) nationalized in 2007 by the former Hugo Chávez government.

The ruling also demanded Caracas pay for post-award interest “until the date of full and final payment” and the reimbursement of ConocoPhillips’ legal fees and costs of arbitration. The current total has accrued over $1 billion in interest.

Although Venezuela officially abandoned the ICSID convention in 2012, the country remains liable to cases submitted beforehand. ConocoPhillips initially asked for $30 billion in compensation but Caracas offered no more than $2 billion, triggering a legal battle.

The Nicolás Maduro government had carried out the country’s legal defense in its most important international arbitration award case until Washington recognized opposition leader Juan Guaidó’s self-proclamation as “interim president” in January 2019. This saw the hardline politician receive control of a number of Venezuelan assets abroad as well as assume the country’s legal representation before US courts.

In December 2019, Guaidó’s legal team applied to ICSID for a stay of enforcement on the ConocoPhillips arbitration award and requested its annulment, prompting the court to name an ad hoc committee. However, the opposition leader’s lawyers never paid in advance for litigation costs as required by ICSID regulations and abandoned courtrooms altogether ever since.

As a result, ConocoPhillips’ attorneys asked for a default judgment in order to enforce the award which was entered by a court’s clerk in early October 2021, with the ICSID annulment case also being suspended shortly after.

According to court documents, in March 2022 the annulment procedure was resumed but temporarily suspended once again following a committee member’s resignation. Despite the ongoing process, on Friday’s ruling Judge Nichols considered that after fifteen years Caracas’ chances of overturning the award are not “particularly likely.”

“Venezuela has not appeared here and is obviously not seeking a stay of these proceedings pending the disposition of the annulment,” stressed the judge concerning Guaidó’s lawyers’ indifference to the court affairs.

For its part, the Maduro government rejected the US federal court’s “unlawful” ruling, stating it violates international law and only seeks to “consummate the delivery of Venezuelan assets to foreign powers through [judicial] procedural frauds.”

“This unfair decision has been forged by violating Venezuela’s right to defense,” read the statement issued on Monday. Caracas likewise pointed out that the court’s decision was made in “complicity with Venezuelan extremists” to favor ConocoPhillips, including Juan Guaidó and the “interim government”’s former “special prosecutor” José Ignacio Hernández.

The Venezuelan government ratified that the country would continue to pursue legal avenues to “preserve its assets” and called on the international community to reject the “obvious maneuvers” employed “to justify the plundering and fraud against a sovereign nation.”

The new developments in favor of ConocoPhillips have revived concerns regarding the future of the $8 billion-worth US-based Venezuelan oil subsidiary CITGO. The company was frozen by Washington and placed under the hardline opposition’s control in February 2019 and is currently the target of several claimants looking to collect on arbitration awards.

Venezuelan economist Francisco Rodríguez viewed the Washington D.C. court ruling as a “regrettable setback” but downplayed ConocoPhillips’ chances to seize CITGO immediately.

“The decision is against the [Bolivarian] Republic and CITGO is an asset of [Venezuelan state oil company] PDVSA,” stated Rodríguez. In a Twitter thread, he went on to explain that CITGO would only be liable if the US judicial system recognizes it as an “alter ego” of the Venezuelan state, thus lacking a separate identity.

“[Canadian] mining company Crystallex was already able to prove the alter ego before a Delaware court but ConocoPhillips would need to do the same,” clarified Rodríguez, pointing out the responsibility of “prominent ‘interim government’ figures,” presumably in reference to Hernández who was an expert witness in the case.

In September 2021, Delaware court-appointed “special master” Robert B. Pincus issued a report outlining a sale procedure for CITGO requested by Crystallex. The multinational is looking to claim $1.4 billion worth of compensation awarded in 2014 for the 2008 expropriation of the Las Cristinas mining installations. Other corporations have filed claims to collect on arbitration awards via the Delaware court-orchestrated sale, including glassmaker Owens-Illinois and ConocoPhillips on a separate $2 billion award.

Nonetheless, efforts to seize or auction CITGO shares have been barred by the US Treasury Department’s Office of Foreign Assets Control (OFAC) in an attempt to protect opposition-held companies and not undermine US foreign interests.

Amid corruption scandals, Juan Guaidó has been harshly criticized for failing to protect Venezuelan enterprises from creditors and award claimants. Last year, the hardline leader reportedly signed a $1.3 billion settlement with ConocoPhillips. The alleged deal was denied by Guaidó’s camp and later struck from court filings.

Edited by Ricardo Vaz in Mérida.