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Exxon to freeze $12 bn Venezuelan assets

NEW YORK: Exxon Mobil has won court orders freezing up to $12 billion in Venezuelan assets around the world as it fights for compensation for operations lost to President Hugo Chavez’s nationalisation drive.

The largest US company sought the asset freeze to guarantee repayment should it win arbitration over the Cerro Negro heavy oil project. The move is the boldest challenge yet by an international oil major against any of the governments around the world that have moved to increase their holds on natural resources as energy and commodity prices have soared.

“To me it sounds like a very aggressive tactic,” said Stephen Zamora, professor of international law at the University of Houston Law Centre. “I can’t really say that I’m aware this has been used in other investment disputes. They may be trying to get the government to settle.”

Exxon —which last week posted the largest ever year’s profit by a US company —said on Thursday it has received court orders in Britain, the Netherlands and the Netherlands Antilles each freezing up to $12 billion in assets of Venezuela state oil firm PDVSA. An Exxon spokeswoman said the total that could be frozen worldwide was $12 billion.

Exxon also won a court order from the US District Court for the Southern District of New York in December freezing more than $300 million belonging to PDVSA, seeking to guarantee repayment should it win the arbitration. PDVSA, one of the largest suppliers of crude oil to the US, was not immediately available for comment. The White House and the US State Department also declined to comment.

Venezuela’s sovereign bonds sold off after the court orders surfaced. Left-winger Chavez, who regularly clashes with the Bush administration, took over Exxon Mobil and ConocoPhillips stakes in multi-billion-dollar heavy oil projects in Venezuela’s oil region last June. The move was part of the left-wing leader’s drive to nationalise key industries including utilities and telecommunications companies owned by private companies.

The news comes as a tough blow to Chavez, who suffered a stinging defeat in a December referendum that would have let him run indefinitely for re-election and enshrine socialism as the OPEC nation’s economic system. PDVSA is already facing growing debt and increasing operational problems that analysts attribute to underinvestment caused by the company’s massive contributions to Chavez’s social programmes.

The South American nation has an extensive overseas refining network, including the Citgo refining and marketing branch in the US. Exxon said in court filings that recent estimates have placed PDVSA’s global asset value —including its operations in Venezuela —at over $62 billion.

PDVSA’s European refining assets, principally a 50% share in the German refining joint venture Ruhr Oel, were held through a Netherlands Company PDV Europa, according to filings PDVSA made with the US Securities and Exchange Commission in 2006. Exxon filed for arbitration in September with the International Centre for Settlement of Investment Disputes.

Exxon has not specified how much it wants for the 41.7% stake in the Cerro Negro project, but it has said its remaining book investment in the project was about $750 million at the time the assets were expropriated. The move underscores Exxon’s reputation for toughness in dealing with foes as varied as governments and fishermen, as it has been willing to wage prolonged legal battles to defend its interests around the world.

Amy Meyers Jaffe, energy policy researcher at Rice’s Baker Institute, said the case could have far-reaching implications. “These are precedents that are going to be important for what people can and cannot do in the oil industry,” she said. ConocoPhillips spokesman William Tanner said his company “continues to discuss an amicable resolution regarding the assets that were expropriated in Venezuela”. Conoco filed for arbitration over the dispute in November.

Venezuela’s benchmark global bond due 2027 lost 2.375 points in price to be bid 98.938, while total returns offered by the country’s debt slipped 1.52% according to the JP Morgan EMBI+ index.

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