London Court Rules in Favor of Venezuela in Dispute with Exxon

A British Judge declared today that the freezing of $12 billion in assets of the Venezuelan state oil company PDVSA shall be revoked. The decision is a major defeat for the world's largest oil company, ExxonMobil, which had won the temporary asset freeze in a dispute with PDVSA over the nationalization of an Exxon project.
Oil Minister and PDVSA President Rafael Ramírez (Archive)

Mérida, March 18, 2008 ( British Judge Paul Walker declared in a London courtroom today that the freezing of $12 billion in assets of the Venezuelan state oil company PDVSA shall be revoked. The decision is a major defeat for the world's largest oil company, ExxonMobil, which had won the temporary asset freeze on February 7th in a dispute with PDVSA over the nationalization of Exxon's stake in a Venezuelan Orinoco River Belt project, known as Cerro Negro.

"We can say that we have won another battle, another victory for our people, for our government, and the most important is that it is another victory for our country," declared Venezuelan Oil and Petroleum Minister Rafael Ramírez regarding the decision.

The Venezuelan Ambassador in London, Samuel Moncada, called the decision "the beginning of the end of ExxonMobil's harassment of Venezuela." Moncada also said his country is "pleased" that the British court "refused to be utilized as an instrument of Exxon to impose itself in the international scene against Venezuela."

"The important thing for our country is that the campaign, the assault of lies and chaos [with which] they tried to install anxiety in our country and they tried to say that our national industry was broken, this was all discounted, because it was all a lie… it was part of, once again, this manipulation that they have forged against our people," Ramírez said in an interview with the Venezuelan government television station VTV.

Exxon lawyer Catherine Otton-Goulder, declined to comment on the decision.

Judge Walker, who postponed the decision twice since the week-long case began February 28th, will give a full explanation of his decision in coming days.

PDVSA had argued that the London court does not have legal jurisdiction over the assets of a nationally owned foreign company that does not operate in the U.K. Exxon argued the contrary, and had already won a court order in New York freezing $315 million in PDVSA assets in February.

As a result of the case, Exxon is required to pay for PDVSA's legal fees, which it says amounted to about $766,000. Also, PDVSA will pursue compensation for other damages, such as the devaluation of its bonds, increases in borrowing costs, and its inability to invest in refineries during the freeze, according to PDVSA lawyer George Pollack.

Meanwhile, PDVSA will regain full control over its assets in the U.K., but the asset freezes Exxon obtained in the Dutch Antilles, Holland, and New York will remain for now.

"I think all Venezuelans can feel proud," proclaimed Ramírez, vowing that the government will continue defending the "principles and sovereignty" of the nation against foreign aggression.

He also assured that PDVSA would do all it can to clean up the image of Venezuela in the wake of Exxon's actions. Ramírez had called Exxon's efforts "judicial terrorism" in February because they went outside of the arbitration underway in the International Center for the Settlement of Investment Disputes (ICSID) and sought to damage PDVSA's reputation and credibility even though Exxon was offered indemnity.

"We have defeated ExxonMobil," Ramírez elatedly announced, adding that "the decision is 100% in favor of Venezuela, the allegations of Exxon were discounted," but said he would wait until the judge fully explains his decision before making any further comments, according to ABN news reports.

Now, ExxonMobil and PDVSA will return to the process of ICSID arbitration where they had left off, Ramírez explained.

Following the nationalization of the Orinoco River Belt oil reserves in May 2007, the Venezuelan government required that the state hold at least a 60% stake in oil projects. It nationalized the stakes of several companies, including the Italian ENI, with which it reached an agreement for $700 million in compensation last month.

Exxon, however, rejected Venezuela's compensation offer of $750 million for a 41.6% stake in the "Cerro Negro" project. The offer was based on the value of Exxon's stake according to PDVSA records at the time of nationalization, PDVSA claimed, but Exxon sought projected profits from the project and demanded arbitration.

The maximum indemnity Exxon had attempted to negotiate was $5 billion before pursuing the $12 billion asset freeze, according to an announcement by Ramírez to the Venezuelan National Assembly in February. The disparity in compensation claims prompted accusations that Exxon's efforts were part of an "economic war" against Venezuela.

Since the nationalizations, state participation in the Orinoco River Belt has increased from 39% to 78%, and Venezuela remains Latin America's largest producer of crude, with nearly half of its oil exported to the United States.

There is no sign that Venezuela's termination of its business relationship with Exxon Mobil on February 12 will be reversed, although PDVSA will honor its contract with the Chalmette refinery it co-owns with Exxon.

PDVSA and Mobil became business partners in 1997, before Mobil was acquired by Exxon. During this time period of the 1990s, known as the "Petroleum Opening" era, the 1976 nationalization of Venezuelan oil was gradually weakened and PDVSA was granted autonomy, converting the company into what Ramírez called a "Trojan Horse" for international capital.

In contrast, the administration of President Hugo Chávez has promoted what it calls "petroleum sovereignty." In addition to nationalizing foreign controlled oil production projects, this policy has included channeling over $30 billion of PDVSA's oil profits into Venezuela's National Development Fund (FONDEN) between 2004 and 2007. The funds were invested in infrastructure projects, expansion of the Barrio Adentro health care system, environmental cleanup, and education, among other programs.