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ConocoPhillips judgement piles pressure on Venezuela's PdV

Venezuela's state oil company is reeling from plummeting output and debts

In a further blow to cash-strapped Venezuelan state-oil company PdV, an international arbitration tribunal ruled this week it owes ConocoPhillips $2bn as part of fallout from the 2007 expropriation of the American oil producers' assets in the country.

ConocoPhillips filed for an arbitration hearing under the International Chamber of Commerce (ICC) in 2014, as part of a decade-plus long legal battle with PdV to settle the Venezuelan government's expropriation of its Hamaca and Petrozuata Orinoco heavy-oil projects.

The Chamber of Commerce arbitration was separate from a concurrent case being heard under the World Bank's International Centre for Settlement of Investment Disputes (ICSID), which ruled in 2013 that the expropriation violated international law—the ICSID is still considering potential financial penalties.

"The ICC arbitration award is final and binding upon the parties. ConocoPhillips will pursue enforcement and seek financial recovery of it award to the full extent of the law," the US company said in a statement.

PdV has seen its output plummet this year, falling to 1.51m barrels a day in March, the lowest level since the 1980s, according to figures reported to Opec. Falling output has blunted any potential benefit from oil price increases in 2018.

The Venezuelan company is already technically in default on some of its bonds and faces steep payments this year. It has $900m in debt servicing payments due in April and May and another $1.6bn in interest and principal payments due in October and November.

Debt cycle

There is significant doubt in the market about PdV's ability to make these payments. Bloomberg has reported that a group of holders of PdV's 2020 debt, which is due to pay out $107m in interest this week, have organised and were developing a strategy if the state oil company misses that payment. 

Since PdV is unlikely to be able or willing to pay anytime soon, the big question is how ConocoPhillips will seek to recover the ruling. In a series of legal moves over the past two years it has hinted that it sees PdV's American refining subsidiary Citgo as the best possible option to recover the ICC's $2bn judgement and any potential award from the ICSID case.

In January last year, it alleged in a suit against PdV that since the 2013 ICSID ruling, the Venezuelan company had tried to move assets out of the reach of ConocoPhillips and other creditors. PdV, the suit alleges, "undertook a deliberate campaign to liquidate the value of Citgo and remove assets from the United States to Venezuela in order to hinder, delay or defraud their creditors." 

The filing came after it was revealed that PdV had put a 50.1% share of Citgo up as collateral to back a $1.5bn loan it received from Russian state oil company Rosneft. The other 49.9% stake in Citgo was used to secure a 2016 debt restructuring deal, which includes the 2020 bonds with payments due this week.

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