Venezuela’s Energy Minister Rafael Ramirez said his country remains committed to compensating ExxonMobil Corp. and ConocoPhillips for nationalizing their oil assets.
“We’ve never said we wouldn’t pay,” said Ramirez, referring to the two US firms as “the only two that didn’t accept our laws and didn’t accept” the terms of a compensation deal for confiscated assets.
Ramirez said Venezuela remains committed to compensate the oil companies as long as the amount is “reasonable,” saying that PDVSA has set aside $1.5 billion in the event of arbitration and litigation costs.
Ramirez said that the legal processes “are moving forward and we have to defend ourselves because those mechanisms are so perverse that if you don’t show up they execute you.”
The disagreement arose when Venezuela’s President Hugo Chavez decided to restore state control over extra-heavy-oil projects in the Orinoco Belt as part of a drive giving PDVSA a minimum 60% stake in joint ventures with international oil companies.
Some of the firms accepted the new arrangements, including Chevron, Statoil, Total and BP Plc. But ExxonMobil and Conoco-Phillips refused the terms, and took their claims to the World Bank’s International Centre for the Settlement of Investment Disputes (ICSID).
ExxonMobil alone is reportedly demanding compensation of $7-$12 billion, which Ramirez described as “a kind of negotiating tactic” by Exxon’s defense team. But he said: “We believe (the final result) will be much lower than that.”
IHS Global Insight analyst Diego Moya Ocampos said that arbitration awards are expected to be dictated either this year or next year by ICSID against Venezuela if it fails to reach an agreement with ExxonMobil and ConocoPhillips.
According to Ocampos, it is “likely” that PDVSA or the Venezuelan government will proceed to pay compensation to the international oil companies in the terms agreed or dictated by ICSID.
Despite the fact that the execution and enforcement of arbitration awards could be hard to implement, Ocampos said that Venezuela will be “keen” to honor its legal commitments in an effort to maintain its credibility in international markets.
“The Venezuelan government's dependence on oil revenues gives it strong incentive to maintain credibility in this sector, especially as the country is dependent on international investment to develop the lucrative Orinoco oil belt,” Ocampos said.
Contact Eric Watkins at [email protected].