Venezuela: ‘Exxon Will Never Again Do Business in This Country’

He was referring to the dispute with Exxon Mobil, the world’s largest company, which asked courts in New York, London and The Hague to freeze more than 12 billion dollars in assets belonging to the Petroleos de Venezuela SA (PDVSA) state oil company.

"I have read analyses that show that this is just the tip of the iceberg, that the rest of the companies will move against Venezuela," said Chávez.

"If the economic war continues against Venezuela, the price of oil will reach 200 dollars (a barrel), and more than one country will be willing to support us in the economic war. You can’t scare us or intimidate us.

"If you freeze us, if you really manage to freeze us, if you damage us, then we will hurt you…we will not send one drop of oil to the United States," he warned.

U.S. State Department spokesman Sean McCormack said Monday that "There’s a commercial aspect to this, in that there is an ongoing legal process, between Exxon and the government of Venezuela. That should proceed and be resolved on the basis of existing and accepted international laws and standards. We would expect the government of Venezuela would respect those laws and standards in dealing with Exxon."

And with respect to Chávez’s remarks, he told reporters that "this is something that he has said before."

"Exxon Mobil will never again do business in this country," said Venezuelan Energy Minister and PDVSA president Rafael Ramírez. He added that "This is a clear situation of judicial terrorism by a typical U.S. company that has always tried to impose conditions on producer countries."

The dispute was triggered by the Chávez administration’s nationalisation of oilfields in the Orinoco strip in southeastern Venezuela, where extra heavy crude is refined into lighter syncrude by a number of foreign oil companies.

But a year ago, the operating agreements under which the firms produced syncrude were renegotiated by the Chávez administration, leaving PDVSA with majority control and increasing the taxes and royalties taken in by the state coffers.

Around a dozen foreign oil companies agreed to the change. But Exxon Mobil refused to continue operating in the country with less than its original 41.67 percent stake in the Cerro Negro project, which produces 200,000 barrels of oil a day.

The initial negotiations on the indemnification that Venezuela was to pay stalled, and Exxon filed for arbitration several months ago with the International Centre for Settlement of Investment Disputes.

Oil industry sources told IPS that it came as a surprise to PDVSA when Exxon Mobil asked courts last week in the United States, Britain and the Netherlands to freeze the Venezuelan firm’s assets in those countries, worth more than 12 billion dollars, in order to guarantee payment of its claim.

According to trade lawyers, the amount of assets frozen usually represents three times what the plaintiff claims. But four billion dollars "is far greater than the amount that the company could actually demand," said Ramírez.

The Ecoanalítica consulting firm estimated Cerro Negro’s market value at 3.4 billion dollars, which means Exxon Mobil would be entitled to 1.5 billion dollars in compensation at the most — "a figure that is manageable for PDVSA."

Ramírez said PDVSA is not the only company in OPEC (Organisation of Petroleum Exporting Countries) that is fighting a battle in U.S. courts. He also cited the case of Saudi Arabia’s Aramco.

The oil business deals in the Orinoco strip "were arranged at a time when that oil was worth very little, prices were depressed, and incentives were offered to foreign corporations to entice them to invest," José Suárez Núñez, director of the specialised publication Petrofinanzas, explained to IPS.

Venezuela will present its case in court this week, said Ramírez, who added that PDVSA’s assets "are not frozen at all" and that the company’s operations and cash flow have not been affected.

The only exception is 315 million dollars in an account that supported operations in Cerro Negro and that has been frozen in the United States, he said.

But "that is a ridiculously tiny amount compared to the size of the company’s operations," said the official, who pointed out that PDVSA values its assets at 107 billion dollars and its export revenues at over 100 million dollars a day.

"This will undoubtedly be a long drawn-out fight in court," said Elie Habalián, former Venezuelan governor at OPEC.

But, he told IPS, "I don’t believe that PDVSA will be affected to a significant extent, because it has resources and lawyers."

The Curtis, Mallet-Prevost, Colt & Mosle LLP law firm is representing PDVSA in New York.

"Although both parties are major actors in the oil industry, and neither would find it convenient to be on the black list, this scandal hurts PDVSA more than Exxon, because it makes it clear that it cannot achieve its goals independently, on its own," Mazhar al-Shereidah, an oil economics graduate studies professor, remarked to IPS.

PDVSA bonds plunged four percent after it was announced last Thursday that Exxon Mobil had sought court orders to freeze company assets.

Suárez Núñez said the measure, including the freezing of the 315 million dollar account, could affect cash flows for PDVSA, which has taken steps that could signal problems.

Late last year, the firm reduced to eight days the usual 30-day period that clients were granted to pay for oil shipments, and a week ago it made an unusual offer of several large shipments of fuel oil for an up-front payment of 1.1 billion dollars.

The anti-Chávez opposition in Venezuela says the difficulties are the result of supposed poor management of PDVSA and of the company’s forays into areas other than the oil industry, because the firm has gotten involved in agriculture, road pavement, housing construction and food distribution.

Washington clarified that it is not behind Exxon Mobil’s legal action against Venezuela. "Has the U.S. government put Exxon up to doing this?…The answer to that question was no. They are pursuing their corporate interests in accordance with their needs," said State Department spokesman Tom Casey.

Meanwhile, PDVSA reported that it had reached an agreement with Total, whose share in another Orinoco strip oilfield was reduced from 47 to 30 percent. The French firm will be compensated with 837 million dollars in crude oil.