Exclusive: Venezuela sees Exxon, Conoco arbitration rulings in late 2013

CARACAS Thu Nov 8, 2012 10:14pm IST

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CARACAS (Reuters) - Venezuela expects international arbitration rulings by late 2013 in multi-billion-dollar claims by Exxon Mobil and ConocoPhillips over nationalizations by President Hugo Chavez's government, the oil minister said.

Of more than 20 cases against Venezuela at the World Bank and the International Chamber of Commerce's panels, the biggest involve Conoco (COP.N) and Exxon Mobil Corp (XOM.N), which are seeking some $40 billion between them.

Both companies filed for arbitration after Chavez ordered foreign firms to slash their stakes in production and upgrading projects for heavy crude oil in the Orinoco Belt as part of a 2007 wave of state takeovers.

"We don't expect resolutions this year. Probably the biggest cases (Conoco and Exxon) will be resolved in the second half of 2013," Oil Minister Rafael Ramirez told Reuters.

He did not give more details of the ongoing cases.

A huge compensation bill would be painful for cash-strapped state oil firm PDVSA, which has been unable to boost production significantly while facing an ever-growing commitment to finance Chavez's flagship welfare policies in the South American nation.

Industry analysts estimate Venezuela will end up paying considerably less than the companies want - perhaps around $7 billion to $9 billion - based on the market value of the assets at the time. Venezuela has said it expects to pay no more than $2.5 billion.

The International Chamber of Commerce (ICC), a Paris-based group that settles cross-border business disputes, in December ordered Venezuela to pay Exxon $908 million in compensation for lost revenue from the nationalized Cerro Negro project.

The Chavez government quickly made the payment.

The principal disputes with Conoco and Exxon are being heard at the World Bank's International Centre for Settlement of Investment Disputes.

The ICC in September ordered PDVSA to pay Conoco $66.8 million in a dispute over OPEC production cuts - unrelated to the nationalizations - applied in 2006 and 2007 to Orinoco Belt heavy crude upgrader Petrozuata.

Ramirez, speaking in a brief telephone chat with Reuters, said Venezuelan lawyers were studying that ruling.

TARGETS

Venezuela's plethora of compensation cases are being closely watched by the global oil industry for precedents in future disputes between companies and producer states, which increasingly want a greater share of oil revenue as prices have risen and new reserves become tougher to find.

Ramirez put current Venezuelan output at between 3 million and 3.1 million barrels per day - well short of PDVSA's target of 3.5 million for the end of 2012.

Nevertheless, Venezuela has a record 373 rigs active, giving it the platform for future increased output, mainly from new Orinoco projects, Ramirez said.

The OPEC nation is pinning hopes for its oil industry on a string of ambitious projects with foreign partners - largely from politically allied nations such as China and Russia - to develop the Orinoco Belt.

The region is one of the biggest, mostly untapped reserves of hydrocarbons left in the world.

Ramirez said the Mariscal Sucre offshore natural gas project was still expected to begin production in December after years of delays, raising national production to 8 billion cubic feet per day from 6 billion to 7 billion in recent years.

Venezuela wants to boost gas production to meet growing domestic demand that has forced it to import from neighboring Colombia even though it sits on some of the world's biggest gas reserves.

The government says it will eventually certify as much as 400 trillion cubic feet (tcf) in reserves, up from 195 tcf now.

That would propel Venezuela to fourth in the world behind Russia, Iran and Qatar, according to U.S. Energy Information Administration data. (Writing by Andrew Cawthorne; Editing by Brian Ellsworth and Dale Hudson)

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