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Editorial Commentary
Oliver L Campbell : On Exxon compensation
Lucky to be alive, kicking and reporting. Rory Carroll works as a journalist for The Guardian newspaper and is now based in Caracas. In January 2005, the paper sent him to report from Iraq and, what most Venezuelans readers won’t know is that, on 19 October of that year he was kidnapped at gunpoint in Sadr City. By good fortune, he was released unharmed the following day, and I can only assume this was because he is Irish. Had he been British, he probably would not be alive today--Carroll said he feared he might be beheaded.
We are fortunate to have such a talented foreign correspondent in Caracas but, like all journalists, he makes the occasional slip. I refer to his article, “Court backs Chavez in row with oil giant” published in The Guardian on 19 March in which he writes, “The ruling means Exxon may not be able to claw back what it claims to be owed even if it wins arbitration, which is probably years away from resolution.”
The second part of his sentence is certainly true--arbitration will take years--but the first part is certainly open to question. If the arbitrators award Exxon compensation above book value, which is a good possibility, I cannot see PDVSA refusing to pay. Such action would be condemned by the international community and, besides, PDVSA has a good reputation for settling its international disputes.
In 2006, PDVSA paid Lyondell Chemical $50 millions in settlement of outstanding claims arising from the contested use of force majeure to cut sales to the Lyondell-CITGO refinery. Last year, PDVSA settled New Brunswick Power’s claim for compensation after PDVSA reneged on an unsigned agreement to supply Orimulsion.
The $2 billions claimed represented the discounted cost differential, for a 20 year period, between buying fuel oil, as it had been doing, and buying Orimulsion from PDVSA. The latter settled for a fraction of this figure, which confirms PDVSA’S experience in this type of negotiation.
But going back to the Exxon case, the judge based his ruling partly on the fact that “there is no suggestion whatever of fraud” on PDVSA’S part. That means he believed there were no grounds for freezing any assets in order to ensure PDVSA met its obligations under any award made by the arbitrators.
In the most unlikely event that PDVSA refused to pay the awarded compensation, Exxon would have recourse to CITGO’S refineries which are situated in the USA and are worth in excess of $10 billions. Its ability to “claw back” compensation will exist as long as PDVSA has assets abroad. But it will not come to that--either both parties will agree a sum round the negotiating table, or they will accept the award given by the arbitrators.
Oliver L Campbell, MBA, DipM, FCCA, ACMA, MCIM was born in El Callao in 1931 where his father worked in the gold mining industry. He spent the WWII years in
England, returning to Venezuela in 1953 to work with Shell de Venezuela (CSV), later as Finance Coordinator at Petroleos de Venezuela (PDVSA). In 1982 he returned to the UK with his family and retired early in 2002. Petroleumworld does not necessarily share these views.
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Petroleumworld News 03/24/08
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