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Oliver L Campbell : Arbitration award to ExxonMobil

 

On 5 August last year, in an article on the ongoing arbitration proceedings between ExxonMobil and Venezuela, I said the $1.5 billion set aside by PDVSA for claims was insufficient and that a prudent provision should be in the order of $10 billion as follows:

Provision for Arbitration Claims

ConocoPhillips

$5 billion

ExxonMobil

$4 billion

Tidewater, Exterran, Helmerich and Payne and others

 

$1 billion

Total

$10 billion

At the same time I commented that "compensation awarded under arbitration is a lottery." The latter has certainly been borne out by the fact the arbitration panel has just awarded ExxonMobil less than $1billion--the exact figure is $908 million--against the amount of $7 billion the company had sought. This is only 14% of the amount claimed and Venezuela must be very pleased with the result. We still have to learn how the arbitrators arrived at the $908 million and whether interest has to be added to that sum.

I suggested the award could be based on three possibilities: 1) net book value of the assets when expropriated, 2) replacement cost of the assets when expropriated, and 3) replacement cost plus an amount for foregone profits. The figure of $908 million is not much higher than the net book value Venezuela had originally offered.

If the award to ConocoPhillips goes the same way, I shall have to eat my words and say a provision of $10 billion is excessive--but we still have a long wait to see how much is awarded to them and the other claimants. You win some and you lose some and Venezuela may not be so fortunate in the other pending arbitrations.

Oliver L Campbell
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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 01/02/2011

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