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PDVSA seeks reversal, reduction of Exxon freeze
LONDON
Petroleumworld.com, Feb 29, 2008Petroleos de Venezuela, the Venezuelan national oil company, asked a London court to overturn an order won by Exxon Mobil Corp. freezing $12 billion in assets.
Petroleos de Venezuela, known as PDVSA, told a judge at a hearing in London today that the dispute over the seizure of an oil field in Venezuela has little connection to the U.K. The company might also ask the court to reduce the order or allow it to offer an alternative bond.
``It is neither an expedient nor proper use of the court's power to grant a worldwide freezing order,'' Gordon Pollock, QC, a lawyer for PDVSA, said at the hearing today. ``It is not the role or function of the English courts to offer worldwide freezing orders'' to foreign litigants.
Exxon Mobil, based in Irving, Texas, had asked for the injunctions ahead of a ruling at a New York arbitration over the takeover. Courts in the U.K., Netherlands and Netherlands Antilles have issued orders freezing as much as $12 billion in PDVSA assets.
``Exxon is looking to make legal history and establish a legal precedent that would not only have impact in dealings with Venezuela but could potentially raise the bar in private dealings with other sovereign states,'' said Patrick Esteruelas, a risk analyst with Eurasia Group in New York, in a telephone interview. Oil companies like Royal Dutch Shell Plc and StatoilHydro ASA ``are carefully looking at the Exxon case. If they feel Exxon has developed a stick to use to dictate terms, they may try to do the same.''
Distinct Entities
Pollock will continue his arguments tomorrow and Exxon's lawyers will make their case after he concludes. The hearing, parts of which are being heard in private, is scheduled to last at least two and a half days.
Pollock also told Justice Paul Walker that Venezuela, not PDVSA, seized the disputed oil fields. He said that while the country owns the oil company, they are distinct legal entities.
The loss ``was not because of a breach of PDVSA,'' Pollock said. ``It was a result of an act of the government of Venezuela in the exercise of its sovereign powers.''
The Venezuelan company might be able to persuade a judge to reduce the order to reflect a final judgment in the case, rather than the amount Exxon is seeking, said Thomas Waelde, a professor of petroleum law at the University of Dundee in Scotland.
`Differing Estimates'
``From my experience as an arbitrator, I find that both parties and their valuation experts tend to come up with hugely differing estimates about the compensation to be paid,'' Waelde said. Estimates by companies seeking compensation ``are notoriously fickle,'' he said.
Venezuela's ambassador to the U.S., Bernardo Alvarez, said in a letter to U.S. Senator Richard Lugar dated Feb. 14 that Exxon's demand for $12 billion was ``clearly absurd'' given the size of the company's investment in the disputed Cerro Negro oil project. In private discussions prior to the court orders, Exxon's demand never exceeded $5 billion, the ambassador said in his letter.
A reduction is one of four options available to the Judge when he rules on the injunction early next week.
``The order can be upheld, totally vacated or modified either to reduce the amount or limit the ambit of the order,'' Jonathan Blackman, a New York litigator at Cleary Gottlieb Steen & Hamilton LLP, said in a telephone interview.
U.S. Case
U.S. District Judge Deborah Batts said Exxon was likely to prevail in the arbitration when she extended a freeze on as much as $315 million that would have been transferred to PDVSA in a bond buyback transaction on Feb. 13.
A call to Exxon spokeswoman Margaret Ross wasn't returned. Thomas Sprange, a lawyer for Exxon in London, declined to comment.
PDVSA may also argue that it can put up an alternative security, which would make an injunction unnecessary, said Paul McGrath, one of PDVSA's lawyers at London-based Essex Court Chambers.
The dispute stems from a 1997 agreement between Mobil Corp. and PDVSA to form a joint venture to explore for extra-heavy crude in the Orinoco oil belt. Exxon, which later acquired Mobil, claimed PDVSA agreed to indemnify Mobil if it later expropriated Mobil's interests.
Venezuela was the second-biggest supplier of crude oil to the U.S. through October, providing an average of 1.74 million barrels a day of oil and petroleum products to the U.S. and the Virgin Islands. Canada is the biggest supplier.
Venezuelan oil minister Rafael Ramirez labeled Exxon's tactics as ``an ambush'' and ``harassment'' in a television interview in Spanish with Bloomberg News earlier this week. ``Under these conditions, we're not even going to negotiate the arbitration. I can't sit to negotiate an arbitration with a pistol to my head.''
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Story Caroline Binham from Bloomberg
-cbinham@bloomberg.net
Bloomberg 28 1205 GMT 02 08Copyright© 2007 Petroleumworld. All rights reserved.
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