Venezuela denies oil asset freeze

[K. A. Pital]

It's enough for Chavez to fund all of his neat patronage projects.

Oil supplies are dwindling and prices still rising, so it's only natural that governments want more and more and more control over their resources up to full nationalization. They do offer monetary compensation for nationalization, it's just that some, like Exxon, are not satisfied with the deal. Well, I never said they should be. I just wondered how the hell can you call the nationalization procedure a criminal act.

The lower royalties were during a period in which the market value of the oil was incredibly low

So Venezuela was forced to enter deals with foreign oil magnates under immense economic pressure (just like Russia, and many other oil producing nations), but now as oil is getting more expensive and the economies in those countries become stronger, they decide it's time to see back to those contracts. Just like Russia reasserted control over it's own resource extraction industry (at the very least). Can't blame them, sorry.

In what way a rich guy buying a poor man's house during economic turmoil and forcing the poor guy to live, say, in his garage for a rent, is really superior to same rich guy acting as a mobster and throwing that man out into the garage by force? Just because it's a milder "economic policy" than just outright kicking his ass and taking all of his natural resources (as it happened in case of Iraq), then setting the right of foreign nations and corporations to rule those resources and their trade?

What if the man in the garage suddenly decides to take his flat back? Of course the rich guy would resist! Moreover, the rich guy would see that poor guy as a threat, too - since the other guy is no longer that poor and can actually act in his own interest.

[Guardsman Bass]

It's enough for Chavez to fund all of his neat patronage projects.

Oil supplies are dwindling and prices still rising, so it's only natural that governments want more and more and more control over their resources up to full nationalization. They do offer monetary compensation for nationalization, it's just that some, like Exxon, are not satisfied with the deal. Well, I never said they should be. I just wondered how the hell can you call the nationalization procedure a criminal act.

I said nationalization without fair compensation is a criminal act, not nationalization in of itself (I'll concede the Exxon case). As for the royalties, keep in mind that this isn't just the big, bad foreign oil companies - this is PSVDA, the state oil company, that he's charging.

The lower royalties were during a period in which the market value of the oil was incredibly low

So Venezuela was forced to enter deals with foreign oil magnates under immense economic pressure (just like Russia, and many other oil producing nations), but now as oil is getting more expensive and the economies in those countries become stronger, they decide it's time to see back to those contracts. Just like Russia reasserted control over it's own resource extraction industry (at the very least). Can't blame them, sorry.

Nobody forced Venezuela or PSVDA to accept foreign investment in their projects in the period of ultra-low oil prices, and even during that period the Venezuelan government never let the foreign oil companies get a majority share in said projects. I don't blame them for trying to ride the oil gravy train - but I am pointing out that they are hardly blameless victims here.

In what way a rich guy buying a poor man's house during economic turmoil and forcing the poor guy to live, say, in his garage for a rent, is really superior to same rich guy acting as a mobster and throwing that man out into the garage by force? Just because it's a milder "economic policy" than just outright kicking his ass and taking all of his natural resources (as it happened in case of Iraq), then setting the right of foreign nations and corporations to rule those resources and their trade?

There's quite a significant difference, in that, as I mentioned, no one is forcing the poor man to sell. This isn't the colonial period, when the oil companies could free-ride on the backs of the Imperial Powers to get good oil deals on the field in either conquered or subjugated territories - Venezuela could have chosen to bar Exxon and others from investment, and kept the royalty rates high - and the result would be that they would simply have to rely on PSVDA's income, poor as it may have been at the time, to fund investment projects.

What if the man in the garage suddenly decides to take his flat back? Of course the rich guy would resist! Moreover, the rich guy would see that poor guy as a threat, too - since the other guy is no longer that poor and can actually act in his own interest.

He'd fight for good terms in the re-negotiation of the lease.

[Guardsman Bass]

The above should be corrected to "most of the time these days, foreign companies can't piggy-back the imperial powers to good deals", before somebody inevitably points out Iraq.

[K. A. Pital]

Nobody forced Venezuela or PSVDA to accept foreign investment in their projects in the period of ultra-low oil prices

Well, yeah. Nobody held a gun to their head after all. However, the dire economic situation itself and the indulgence of the government and it's economic advisors in the privatization dreams which will "raise prosperity" shouldn't be discounted. I'm not saying the government of Venezuela is a "blameless victim" - on the contrary, it and the corporations were perpetrators of the deal. The current government, however, seeks to reverse those deals. It started by raising tax rates after all, didn't it?

[Guardsman Bass]

Nobody forced Venezuela or PSVDA to accept foreign investment in their projects in the period of ultra-low oil prices

Well, yeah. Nobody held a gun to their head after all. However, the dire economic situation itself and the indulgence of the government and it's economic advisors in the privatization dreams which will "raise prosperity" shouldn't be discounted. I'm not saying the government of Venezuela is a "blameless victim" - on the contrary, it and the corporations were perpetrators of the deal. The current government, however, seeks to reverse those deals. It started by raising tax rates after all, didn't it?

Then I at least think I've made my point. I don't blame Venezuela for raising their royalty rates (although I think that they're slowly fucking PSVDA into the ground PEMEX-style, and I dislike the fact that Venezuela has a strong chance of turning into another Rentier State); I just don't think that they were blameless.

[K. A. Pital]

I dislike the fact that Venezuela has a strong chance of turning into another Rentier State

That would be bad, but I think they were a rentier state all along, weren't they? And didn't Venezuela have a sizeable non-oil related economic growth post 2004? I admit I'm kind of off date here, I haven't studied the recent economic growth components in Venezuela.

[acesand8s]

So wait, they accepted the deal, right? If it was so unfair as UBS estimates, why did they do that? And 41% of value doesn't sound anything like the atrocious disparity between the offer to Exxon and the amount of assets to freeze, or? I mean, you have 750 million but sue for 12 billion? Allright, so it seems that they didn't just "take" the infrastructure but offered the money, and Exxon sued over a marginal disparity.

Total and Statoil did accept the deal. I don't know why exactly, unfortunately they forgot to invite me to last couple of board meetings.

And, again, Exxon is not suing for $12B; if they were, that would be ridiculous. Exxon wants those assets frozen so that several years from now, when the arbitration is settled, if Exxon wins, there are sufficient assets it can get for repayment.

And people tell me that Chavez - a person who repeatedly vowed before his own government and people to start a legal nationalization process! - is "stealing"? Ha-ha-ha. Yeah, good times.

Never said it was theft; a government has the right to nationalize whatever it wants. Rather, I'm saying that claiming 40% of FMV is fair compensation is stupid and the amount paid is a rip off. Exxon has the right to bring this before arbitration to get additional compensation.

[acesand8s]

All you're telling me is that Exxon is engaging in legal terrorism.

Book value is because year after year, assets depreciate. Generally accepted accounting practises don't use market value for anything and I don't see why we should (or else what Chavez was willing to pay is the market value.) Looks like Chavez was willing to pay for the infrastructure costs, and on top of that he was right about the legal terrorism to get other countries afraid of nationalization. Even if you use the two billion market value, it's more than half and like pennies to an Exxon. You're using the ten billion figure still, when the article says 750 million.

It truly is David versus Goliath.

If another company was looking to buy Exxon's stake in the region, Exxon wouldn't accept book value, but would rather be looking for that company to pay something like FMV. (Unless there were extenuating circumstance, of course, and they had to sell quick or something.) You of all people here should know just how far removed balance sheet figures can be from reality.

What exactly are the guidelines for marking oil & gas assets to market under U.S. GAAP? I know O&G and natural resource investments have their own quirky rules, but I've never looked at them in detail.

The $10.8B figure is the total value of Statoil and Total's Sincor project, and has nothing to do with Exxon Mobile. $750MM is the book value of Exxon's stake of its project in the region. Something like $1.5B - $2B is the FMV of Exxon's project.

And call Exxon's move legal terrorism if you want. It's taking a hard line to let other countries know it will fight, not because this is going to greatly impair the country. (Even a full $1.5B writeoff would only amount to losses of ~$0.28/share with the shares currently trading in the mid-80s.) Nevertheless, I would argue that Exxon should not be forced to accept below market compensation for it assets simply because they're only a small part of its balance sheet.

[K. A. Pital]

Exxon wants those assets frozen so that several years from now, when the arbitration is settled, if Exxon wins, there are sufficient assets it can get for repayment.

So that's why it wants ten times the amount need to be paid frozen? That sounds ridiculous...

Exxon has the right to bring this before arbitration to get additional compensation.

Well, I didn't say it hasn't.

[acesand8s]

Exxon wants those assets frozen so that several years from now, when the arbitration is settled, if Exxon wins, there are sufficient assets it can get for repayment.

So that's why it wants ten times the amount need to be paid frozen? That sounds ridiculous...

Exxon would definitely wants to ask for more assets to be frozen than it is asking for. Since the arbitration will take years, the possibility exists that certain business lines may be sold or go bankrupt. How much more they should ask for, unfortunately I couldn't say. I'm not nearly familiar enough with PVDSA's assets to know how much risk there is in those business line. I'm also unfamiliar with the exact rights PVDSA has to use those assets; the assets aren't totally frozen and can be used for limited business practices. It is possible that the $12B is an excessive amount; however, I haven't found anyone claiming that except PVDSA and one of its Swedish subsidiaries. I'd like to hope that the arbitration courts are impartial enough to reject an overzealous claim to freeze assets.

If it can be shown that Exxon is asking for an excessive amount and that the limited business rights enforced on those assets will harm PVDSA's operations, I'd say that Exxon should forfeit its arbitration rights. In that case it's using the arbitration system to unduly injure PVDSA, not get back the compensation that it's entitled to.

[K. A. Pital]

If it can be shown that Exxon is asking for an excessive amount and that the limited business rights enforced on those assets will harm PVDSA's operations, I'd say that Exxon should forfeit its arbitration rights. In that case it's using the arbitration system to unduly injure PVDSA, not get back the compensation that it's entitled to.

That's what I was wondering about. It's hard to imagine a state oil giant like PVDSA would go bust or something and lose assets to pay refunds from in a matter of a few years, isn't it? In case the amount frozen is excessively great (we'll see how the case progresses), this would look more like an economic hitman tactic from Exxon rather than a seeking of a just refund.

[Mr. Coffee]

The landlord's only responsible for making sure everything is in working order, not for complete remodeling usually. Most of the time when something like this happens the landlord will work out a deal with the renter by way of cutting the rent for a few months or whatnot of repay them the cost of labor/materials. So the analogy works well enough.

Well, that's the case here I should've said. Strictly speaking that's the advice I would give to a client. I'm just being a nitpicky bastard.

That's why you're a governor and get paid the big bucks, homie.

[J]

Yahoo news link

Venezuela Halts Oil Sales to Exxon Mobil
Tuesday February 12, 8:31 pm ET
By Fabiola Sanchez, Associated Press Writer
Venezuela's State Oil Company Halts Oil Sales to Exxon Mobil

CARACAS, Venezuela (AP) -- Venezuela's state oil company said Tuesday that it has stopped selling crude to Exxon Mobil Corp. in response to the U.S. oil company's drive to use the courts to seize billions of dollars in Venezuelan assets.

Exxon Mobil is locked in a dispute over the nationalization of its oil ventures in Venezuela that has led President Hugo Chavez to threaten to cut off all Venezuelan oil supplies to the United States. Venezuela is the United States' fourth largest oil supplier.

Tuesday's announcement by state-run Petroleos de Venezuela SA, or PDVSA, was limited to Exxon Mobil, which PDVSA accused of "judicial-economic harassment" for its efforts in U.S. and European courts.

PDVSA said it "has paralyzed sales of crude to Exxon Mobil" and suspended commercial relations with the Irving, Texas-based company.

"The legal actions carried out by the U.S. transnational are unnecessary ... and hostile," PDVSA said in the statement. It said it will honor any existing contracts it has with Exxon Mobil for joint investments abroad, but reserved the right to terminate them if permitted by the terms of the contracts.

The impact of the decision on Exxon Mobil, the world's biggest publicly traded oil company, was not immediately clear. Both Chavez and Oil Minister Rafael Ramirez previously said the company is no longer welcome to do business in Venezuela.

Venezuela's decision leaves up in the air the situation of a refinery in Chalmette, La. -- a joint venture supplied by Venezuelan oil in which PDVSA and Exxon Mobil are equal partners.

Exxon Mobil executives did not immediately return a call seeking comment.

Exxon Mobil is challenging the Chavez government's nationalization of one of four heavy oil projects in the Orinoco River basin, one of the world's richest oil deposits.

A British court issued an injunction last month temporarily freezing up to $12 billion of PDVSA's assets. Exxon Mobil also has secured an "order of attachment" from U.S. District Court in Manhattan on about $300 million in cash held by PDVSA. A hearing to confirm the order is scheduled for Wednesday.

Other oil companies including Chevron Corp., France's Total, Britain's BP PLC and Norway's StatoilHydro ASA have negotiated deals with Venezuela to continue as minority partners in the nationalized projects. ConocoPhillips and Exxon Mobil balked at the government's tougher terms and have been in compensation talks with PDVSA.

Earlier Tuesday at an energy conference in Houston, Exxon Mobil senior vice president Mark Albers declined comment on any court proceedings with Venezuela, though he said the company is eager to negotiate fair compensation for its assets.

Exxon Mobil is taking the dispute to international arbitration, to which Venezuela has agreed. Its legal actions essentially seeks to corral Venezuelan assets ahead of any decision by the arbitration panel.

Venezuela's announcement came after Ramirez, the oil minister and PDVSA president, reiterated in a newspaper interview Tuesday that Venezuela is ready to cut off oil supplies to the United States if pressed into an "economic war."

"If they want this conflict to escalate, it's going to escalate. We have a way to make this conflict escalate," Ramirez was quoted as saying.

The White House on Tuesday declined to comment on Venezuela's threat. "When there's a litigation that's ongoing, different parties will say anything to try to win over on an argument," said White House press secretary Dana Perino.

Meanwhile, Venezuelan state television has begun airing short anti-Exxon segments, with a message appearing on the screen in red text reading: "Exxon Mobil turns oil into blood."

The U.S. remains the No. 1 buyer of Venezuelan oil, and Chavez relies largely on U.S. oil money to stimulate his economy and bankroll social programs that have traditionally boosted his popularity.

Some analysts say it would make little sense for Chavez to follow through on his broader threats to cut off oil sales to the U.S. because Venezuela owns refineries in the United States that are customized to handle the South American country's heavy crude.

Ramirez said Venezuela is selling the U.S. a daily average of 1.5 million barrels of crude and other products derived from oil.

Associated Press business writer John Porretto in Houston contributed to this report.

And now the fun begins.

[K. A. Pital]

Good news for oil prices!

[J]

A couple new articles...

Reuters Link

U.S. backs Exxon in Venezuela assets battle
Wed Feb 13, 2008 2:02pm EST

WASHINGTON (Reuters) - The United States backed Exxon Mobil Corp's effort on Wednesday to win compensation from Venezuela for seized assets in a case that has prompted the OPEC nation to threaten to cut off oil supplies to America.

Venezuela's President Hugo Chavez, a foe of the United States, says Exxon court victories that resulted in $12 billion in Venezuelan assets being frozen over the seizure is part of an "economic war" to unseat him directed by the Bush administration.

Despite its support for Exxon, the United States denies it is working to oust Chavez and has distanced itself from the specific legal case.

"We fully support the efforts of Exxon Mobil to get a just and fair compensation package for their assets according to the standards of international law," said State Department spokesman Sean McCormack.

"But we are not involved in that dispute. It is something that has to be litigated between Venezuela and Exxon Mobil and various courts around the world," he added.

Chavez stopped oil exports to Exxon on Tuesday, escalating Venezuela's multibillion-dollar fight with the U.S. company over his nationalization of a project last year that was part-owned by Exxon and Britain's BP.

Britain, where a court issued a temporary ruling in favor of Exxon over Chavez's seizure, also sought to distance itself from the case to avoid harming ties with the OPEC nation.

"The judiciary is independent. It's important to avoid that this adversely affects the good ties we have with Venezuela," British Ambassador Catherine Royle told reporters after dozens of Venezuelans protested the court ruling outside the embassy in Caracas.

Exxon and fellow American oil company ConocoPhillips quit Venezuela over a wave of nationalizations last year. BP was one of several European companies that struck deals to remain in the seized projects as minority partners.

(Reporting by Sue Pleming; additional reporting by Saul Hudson in Caracas, Editing by Sandra Maler and Cynthia Osterman)

From Rigzone

OPEC Supports Venezuela In Exxon Row
by Spencer Swartz Dow Jones Newswires Wednesday, February 13, 2008

Libya's top oil official, Shokri Ghanem, Wednesday said the Organization of Petroleum Exporting Countries stood squarely behind member country Venezuela in its row with U.S. oil major Exxon Mobil Corp. (XOM) over contracts and assets.

"We don't think Venezuela should be treated this way and we are going to look at this. There is solidarity with Venezuela, of course. Venezuela is an OPEC member," Ghanem told Dow Jones Newswires from Tripoli. Ghanem, who is head of the Libyan National Oil Co., said he was speaking for himself and some other ministers he'd spoken to recently.

Ghanem said OPEC was likely to discuss Venezuela's dispute with ExxonMobil when the 13-nation producer group meets March 5 in Vienna to review its production policy. He cautioned though that OPEC was unlikely to move to cut any output as a result of the spat.

The dust-up between Venezuela and ExxonMobil has lingered for well over a year but came to a boil last week after ExxonMobil won court orders in the U.K. and other countries freezing $12 billion in overseas assets of state-run Petroleos de Venezuela SA, or PDVSA.

ExxonMobil's action seeking the court order followed the Venezuelan government's move last year to take a majority stake in four Western oil company ventures, including ExxonMobil's.

"I think Venezuela will introduce a report at the OPEC meeting and we'll talk about the details," Ghanem said. "We are going to look at what happened because I think the decision by courts was unfair."

The courts' suspension of PDVSA assets prompted Venezuelan President Hugo Chavez to vow to cut off oil shipments to the U.S. The country followed through on that threat in the past day to a small extent by halting shipments to ExxonMobil and suspending commercial ties with the company.

But analysts say Venezuela is unlikely to halt shipments to the U.S. because the U.S. consumes more than half of all Venezuelan oil exports and the country needs all the oil revenues it can get to bankroll Chavez's ambitious social programs. Oil revenues make up the bulk of Venezuela's state finances.

Ghanem said it was too early to speculate what OPEC might do at its March 5 meeting, saying the group had plenty of supply and demand data to review. OPEC, whose members supply around 40% of the 87 million barrels consumed daily globally, agreed to keep its production unchanged when it met earlier this month.

Something tells me this has the potential to get pretty ugly. If all goes wrong we could see another OPEC oil embargo, and boy would that ever be fun.

[Adrian Laguna]

Something tells me this has the potential to get pretty ugly. If all goes wrong we could see another OPEC oil embargo, and boy would that ever be fun.

That might actually be a good thing, forces the US to start working on alternatives. Emphasis on might, people have this annoying tendency to pick the worst possible path every so often.

[CJvR]

If all goes wrong we could see another OPEC oil embargo, and boy would that ever be fun.

Hardly, OPEC cant really afford an embargo like in the 70'ies. They have built in to much consumption in their economies for that, and if all the nice subsidies were to end there would be Sheiks and Ayatollahs decorating lamppost from Riyad to Teheran.

[Illuminatus Primus]

A spokesperson for the U.S. supports Exxon, and that means an OPEC embargo is any closer to happening? Even for me you're getting kind of cliche-alarmist.

[J]

I did say "if all goes wrong". At this point it's unlikely to go much beyond lawyering and token actions on both sides, but if the situation isn't kept at a low simmer the potential is there for irrational escalations on all sides.

[[R_H]]

Venezuela disputes Exxon's claims (BBC)

The Venezuelan government has accused US oil giant Exxon Mobil of exaggerating the value of the company's former investments in the country.

Exxon is seeking $12bn (£6.1bn) in compensation from Venezuela's state energy group, PDVSA, after its interests were nationalised last year.

Earlier this week, a US court froze $12bn of PDVSA assets until the verdict of an international tribunal.

Venezuela has now said that Exxon's former interests are worth just $1.2bn.


Export threat

"They ask for too high an amount for their compensation," said Oil Minister Rafael Ramirez.

The dispute has already seen PDVSA stop selling oil to Exxon, which sources 5% of its crude from Venezuela.

Venezuela's President Hugo Chavez has also entered the fray, accusing the US government of being behind Exxon's legal move.

Mr Chavez has also threatened to cut all Venezuelan oil exports to the US, although analysts said such a move was very unlikely as Venezuela needs the US dollars.

US Energy Secretary Sam Bodman said Exxon would easily replace the crude that PDVSA had stopped selling.

He added that the US government could also offer Exxon oil from the country's strategic reserve if needed.

The US government said it fully supported Exxon's legal move, calling it a "just and fair" compensation claim.

[acesand8s]

snip article

Well, that's interesting. This is the first I've heard of Exxon requesting $12B in compensation, a number that is, from my understanding of the issue, far in excess of the value of their former holdings. It's possible the BBC got it wrong, of course, and is assuming that the frozen assets represent Exxon's claim. That admission from Venezuela is also new, giving Exxon a $1.2B FMV of its holdings, which is largely in line with other sources.

[J]

Venezuela wins, it seem.

link

An Early Thaw: Venezuela Beats Freeze in Court, No Appeal to Come
by Kerry Laird Rigzone Tuesday, March 18, 2008


"We have defeated Exxon," said Venezuela's Oil Minister Rafael Ramirez in a Tuesday television address after a U.K. court reversed the decision and lifted a $12 billion freeze on assets in the South American country.

"The injunction granted against the defendant, Petroleos de Venezuela, should be discharged," said Justice Paul Walker of the Royal Courts of Justice, lifting the freeze.

ExxonMobil moved to have the assets frozen in an international court in January when Venezuela chose to exercise its sovereignty and nationalize the oil and gas assets within its borders.

The court's decision is a "100% victory," said Ramirez.

Alan Jeffers, a spokesperson for ExxonMobil, told reporters Tuesday that Exxon has no plans for an appeal following the U.K. judge's ruling. Jeffers added that while Justice Walker's decision came down to jurisdiction, he did not question Exxon's "underlying claim," according to Dow Jones.

The reasons for the judge's ruling will be released Thursday. "I hope to provide a short document with the reasons for my judgment on Thursday," Walker told reporters.

Reports show that PdVSA's attorneys argued in court that ExxonMobil had no right to have the assets frozen in a U.K. court because the U.K. has no jurisdiction over a Venezuelan company.

Attorneys for ExxonMobil came under fire when the judge questioned them as to why they would protest the moving of the assets by Venezuela, saying it shouldn't matter where the assets are located as long as the assets are still there.

ExxonMobil has been ordered by the court to pay damages totaling $765,300 caused by the freezing of the assets and legal expenses. The Texas-based oil giant has 21 days to make the payment, according to reports. Some indications are that the final payment may be higher.

ExxonMobil has reportedly applied for arbitration over compensation for losses incurred during the asset acquisition. A lawyer for PdVSA told reporters that the arbitration would more than likely commence later this year or in 2009.

ExxonMobil's additional asset freezes in Dutch Antilles and the Netherlands are now in the sights of Venezuela's legal team.

"This is the beginning of the end of the harassment campaign Exxon instigated against Venezuela," Venezuela's Ambassador to Britain told reporters. "We are planning to fight all the way."

Hooray for nationalization..?