UK judge sides with PdV in ExxonMobil battle
ExxonMobil has suffered a serious setback in its legal battles with PdV, when a UK judge overturned a court order to freeze as much as $12bn of the Venezuelan national oil company's international assets. In his ruling on 18 March, Judge Paul Walker agreed with PdV's argument that the London court does not have legal jurisdiction over the matter. He also ordered ExxonMobil to make an interim payment to PdV of almost $0.8m in legal costs and compensation for some of the damages caused by the freeze.
The ruling marks another milestone in an 11-year relationship that dates back to 1997, when Mobil began operating in Venezuela, which is now the largest crude producer in Latin America – the US company announced its plans to merge with Exxon the following year.
However, the relationship between the oil supermajor and the Opec nation turned sour in June 2006, when Venezuela enacted a law that forced foreign oil companies to sell PdV at least a 60% share in their operations at oilfields in the Orinoco basin, which contains one of the large petroleum reserves in the world. Although Total, Eni, StatoilHydro, BP, Chevron and China's Sinopec accepted the compensation offer and signed agreements transferring 60 to 83% of their oil interests to PdV, ConocoPhillips and ExxonMobil held out.
ExxonMobil owned a 42% stake in the Cerro Negro heavy-oil project (now Petromonagas) in the Orinoco River Belt. When PdV offered $0.75bn in compensation, based on the project's book value at the time, the company rejected the terms. Claiming it should also be compensated for the projected profits from an estimated production of 105,000 to 110,000 barrels a day of oil, it demanded at least $5bn in compensation, based on present crude prices. The case went before the International Centre for Settlement of Investment Disputes for arbitration, an option that was outlined in the initial contract.
To ensure it would receive payment for the loss of its project and future revenues if the arbiters ruled in its favour, in January, ExxonMobil secured court injunctions to freeze PdV assets in New York, London, the Netherlands and the Netherlands Antilles. The orders obtained in the Netherlands and Netherlands Antilles are still in place. Earlier this year, a court upheld an order to freeze as much as $300m in assets in the US that would have been transferred to PdV in a bond buy-back transaction. In retaliation, PdV broke commercial ties with ExxonMobil, which, in turn, began rejecting Venezuelan oil shipments to the Chalmette refinery in Louisiana, a joint venture between the two firms.
In a statement released after the UK court decision, Venezuelan oil minister Rafael Ramirez noted that the ruling teaches ExxonMobil "a great lesson, a lesson of dignity, a lesson of the strength of [PdV]". The state-owned oil company is reportedly considering a countersuit for damages caused by the freeze order, which adversely affected the value of Venezuelan bonds.
ExxonMobil has said it would not appeal the UK ruling; but it does intend to proceed with the arbitration. Although the company lost the most recent court battle with PdV, it is unlikely that the last salvo has been fired in this war. At stake, it says, is the principle of contract sanctity, which, according to the company's chief executive, Rex Tillerson, is the "fairly fundamental underpinning of how large-scale investments, in particular, foreign investment, get made in countries". At an analysts' meeting in early March, Tillerson said: "Our situation in Venezuela is a pure and simple contract. The contract was disregarded." And so, the fight goes on.