Venezuela Calls on Exxon to Resume Arbitration Process

Venezuela's Energy Minister, Rafael Ramirez, called yesterday for U.S. oil giant ExxonMobil to return to the framework of international arbitration over a compensation claim for a recently nationalized oil joint venture.
Enery Minister Rafael Ramirez announces close of sucessful negotions with Italy's ENI (YVKE Mundial)

Caracas, February 19, 2008, ( – Venezuela's Energy Minister, Rafael Ramirez, called yesterday for U.S. oil giant ExxonMobil to drop its hostile judicial actions in U.S., Dutch, and British courts against Venezuelan state-owned oil company PDVSA, and return to the framework of international arbitration over a compensation claim for a recently nationalized oil joint venture.

"We have heard various messages from Exxon – what we are asking is that we return to the situation as it was under arbitration" in the International Center for Settlement of Investment Disputes, Ramirez said.

In July last year, the Venezuelan government made a series of adjustments to all strategic association contracts in the Orinoco oil belt to guarantee majority state ownership, in line with the Hydrocarbons Law of 2001, which strengthens Venezuela's sovereignty over its natural resources. While Chevron, Statoil, Total, ENI, BP and Sinopec agreed to the handover, ExxonMobil and ConocoPhillips chose to reject the terms of the new joint ventures.

In early January PDVSA agreed to pay compensation of $1.1 billion to French owned Total and Norway's Statoil in exchange for majority ownership of the Sincor project.

However, Exxon (along with ConocoPhillips), filed for international arbitration in September last year after rejecting an initial compensation offer for the nationalization of its 41.7 per cent stake in the Cerro Negro project in the Orinoco oil belt.

Last week a U.S Federal court up held a temporary court order solicited by Exxon, freezing $300m worth of PDVSA assets. ExxonMobil claims the injunctions are necessary to ensure payment if it wins arbitration.

PDVSA is set to challenge further court orders in London, the Netherlands, and the Dutch Antilles, which freeze up to $12 billion of it's assets in those jurisdictions.

Ramirez has characterized Exxon's legal actions as "judicial terrorism," and declared the multi-billion dollar freeze of PDVSA assets as totally, "outside the parameters of the arbitration."

Ramirez added that Exxon's former assets in Venezuela were worth less than $1 billion, contrary to the company's multi-billion-dollar claim.

In addition to possible claims over losses caused by Exxon's actions, and alleged tax avoidance by the U.S company, the Venezuelan government is also considering suing Exxon over recent accusations that the oil giant extracted millions of dollars worth of crude oil from Venezuela, classified in illegal contracts as "bitumen" and subsequently paid far below the real value, Ramirez indicated. Ramirez said the oil was "stolen."

Ramirez also warned that Venezuela could pull out of its Chalmette, Louisiana, refinery joint venture with the U.S. company over the dispute. He added that the dispute with Exxon was one factor helping push up world oil prices, which surged to $99 a barrel on Tuesday.

Ramirez was responding to an ExxonMobil's offer this week to resume talks with the Venezuelan government.

Robert Olsen, chairman of ExxonMobil International, told Reuters at the International Petroleum Week conference in London that the company was willing to negotiate.

"We have indicated to the Venezuelan government that we're still prepared to talk, but should that not be the case, we'll protect our rights," Olsen said.

"Partnerships between international oil companies and host nations must therefore be built to last, with clearly understood, mutually compatible objectives and a commitment to contract sanctity over the duration of the project," he said.

However, the Venezuelan government has pointed out that ExxonMobil's contract violated Venezuelan law and the move was part of a series of adjustments to bring the contract into a legal framework.

Compensation Agreement Reached with ENI

Meanwhile, Venezuela has finalized negotiations with Italy's ENI agreeing to pay $700 million for the nationalization of the Dacion oil field after negotiations for a joint venture project with majority state-ownership fell through.

"The book value of the investments made by the transnational company in the Dacion field are $700 million and we have agreed to pay it over seven years," Ramirez said.

"ENI believes this settlement represents an important step toward improving and consolidating the cooperation with local authorities and with PDVSA," a company statement said last week.

PDVSA is also seeking an amicable resolution to compensation talks with ConocoPhillips, leaving Exxon isolated as the only company fighting Venezuela's right to oil sovereignty, Ramirez said.

"If Exxon takes the same path that all the rest of the companies have taken – that of negotiation – and accepts that Venezuela's sovereignty is an inviolable principle for us, as the other companies have done, then surely the problem will be resolved," Ali Rodriguez Araque, the former head of PDVSA added.