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RE: Venezula pay XOM only $255 of $905 MM IOC award for Upgrader lawsuit

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Charles Randall
Participant

ICC awards ExxonMobil $907 mil in Venezuela arbitration case

Caracas (Platts)–2Jan2012/900 pm EST/200 GMT

An international arbitration panel has awarded ExxonMobil $907 million in return for Venezuela’s expropriation of its oil assets in the country in 2007, but also ruled that Venezuela must continue supplying crude to a joint-venture refinery between the US oil company and its Venezuela state counterpart until 2035, a source said Monday.

ExxonMobil had asked for a $7 billion payment from PDVSA for the takeover of its Cerro Negro oil project, which would represent the entire value of its current and future operations. The company has said previously that the value of strictly its seized assets was about $750 million.

PDVSA downplayed the decision, saying in a statement Monday that it will only have to actually pay $255 million in cash in 60 days. This takes into account some money PDVSA said ExxonMobil has acknowledged that it owes the state oil company, including $191 million related to financing costs for the Cerro Negro project and $300 million that ExxonMobil already had frozen in a PDVSA account in New York. PDVSA said it will also receive a “refund” of $160 million from the arbitration panel if it makes the payment within 60 days.

The compensation amount “is consistent with what has been said publicly since the beginning, which is that the demands of ExxonMobil were very exaggerated,” PDVSA said. “If ExxonMobil had been willing to accept a reasonable compensation… arbitration would not have been necessary.”

ExxonMobil also confirmed Monday that some of the damages have already been paid.“Approximately $160.6 million of ExxonMobil debt has already been credited by the tribunal,” spokesman Patrick McGinn said in an email. “The remaining $746.9 million could be paid through a combination of approximately $305 million in PDVSA funds already held for this purpose by New York courts, PDVSA’s cancellation of additional project debt owed by ExxonMobil and payment of additional cash.”

But the source in PDVSA’s presidency said that the true financial cost for the state oil company depends on some details of the decision validating the oil supply contract of a PDVSA affiliate to the 184,000 b/d Chalmette refinery that the two companies own in Chalmette, Louisiana.

The Paris-based International Chamber of Commerce ruled that the refinery contract is valid, thus forcing PDVSA affiliate Petromonagas to keep sending its crude to this refinery, which processed 147,000 b/d of crude in 2010 according to information from PDVSA. PDVSA had tried to sell its share in this refinery, but was unable because the question of whether or not this contract was invalidated by the 2007 expropriation was up in the air.

“The press has reflected this as a favorable decision for PDVSA, but in reality it is not entirely so,” the source said.

The mixed-capital venture Petromonagas supplies crude to that refinery. PDVSA owns 83.33% of that, and BP owns 16.67%.

The source said any information in the arbitration decision related to how prices are calculated for this supply will be key in determining the final financial impact for PDVSA, but the source did not yet have access to this information.

The source also said that “at this moment PDVSA is studying the possibility of offering ExxonMobil a considerable amount in cash to end the crude supply contract for the Chalmette refinery. They are also studying the possibility of paying ExxonMobil in crude, but there are still no decisions on that.”

The source noted that decisions from the ICC are not subject to appeal, and can be enforced via lawsuit if necessary.

ExxonMobil has also an arbitration pending in the International Centre for the Settlement of Investment Disputes, this time against the government of Venezuela instead of PDVSA, related to the Cerro Negro expropriation. A hearing is expected in the case for the first quarter of 2012.

“The larger ICSID arbitration against the government of Venezuela is ongoing and is expected to be argued in February. We recognize Venezuela’s legal right to expropriate assets subject to compensation at fair market value,” McGinn said.

Venezuela also faces other pending claims, including with ConocoPhillips.

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