EXXON VS PDVSA

Submitted By:
Ashish Goel 14020241019
Bhawana Sharma -14020241020
Prakshi Gupta 14020241021
Ramneek Sahib 14020241023
Sethunath S 14020241024
Arun Menon - 14020241042

Opposing Parties
EXXON OIL COMPANY

Second largest oil company in the world by revenue

Exxon has said it invested around $750 million into the Cerro Negro facility.

Company has been the subject of many controversies:

the legality of the companys foreign business practices.
ExxonMobil increasingly drills in terrains leased by dictatorships
influence on American foreign policy, and its impact on the future of nations

PVDSA

PVDSA- Petrleos de Venezuela, S.A. is the Venezuelan state-owned oil

and natural gas company.

Since its inception on 1 January 1976, PDVSA has dominated the oil industry of
Venezuela, the world's fifth largest oil exporter.

PDVSA provides the government of Venezuela with substantial funding resources.

During 1980s and 90s was granted autonomy to PDVSA, which became more
powerful than the state.

Under Chvez returned to the nationalization vision.

The Dispute

Venezuelas new petroleum laws in 2007, under which foreign companies would
have to become minority partners with PDVSA in the joint venture.

Exxon didnt agree to the terms and the venture was forcefully nationalized.

The government seized the operations and assets of the Cerro Negro Project and
gave them to a PDVSA subsidiary.

The nationalization of what used to be Exxon's 41.6% stake in a Venezuelan

Orinoco River belt oil project called Cerro Negro, for which company claims it was
not fully compensated.

PDVSA called Exxon's claims "exaggerated" and said they "defied logic. So a
complaint was lodged against PVDSA in ICC (International Chamber of
Commerce)

Chronological Order of Dispute

In 2007 Cerro Negro Project was nationalized and handed over to PDVSA-Cerro
Negro.

Exxon exited from all the projects in the country a lodged a complaint against
PDVSA in International Centre for the Settlement of Investment Disputes (ICSID).

On February 7 2009 Exxon Mobil Corporation achieved a freeze of $12 billion of

assets of PVDSA in British courts.

Exxon Mobil started arbitration procedure against PVDSA in ICC after the freeze
of assets.

The freeze was overturned by a U.K. court in March 2009, leading Exxon to reduce
its arbitration claim to $7 billion in 2010.

Exxons Claims

In the 1990s, because of declining oil production, PDVSA and the Government
invited Mobil CN and other foreign oil companies to enter into joint ventures to
develop Heavy Oil reserves.
In order to attract investments contractual protections like : PDVSA-CN's
commitment, guaranteed by PDVSA, to indemnify Mobil CN for any "expropriation
or seizure" of its interests and for other "Discriminatory Measures" imposed by the
Government were given.
In late 2004 the Government revoked the Royalty Reduction Agreement that it had
concluded with investors in HO projects.
In 2005, the Government imposed a new "extraction" tax that further raised the
royalty rate; it increased the income-tax rate despite a commitment not to do so;
In 2007, the Government took the ultimate step. It seized the operations and assets
of the Cerro Negro Project and gave them to a PDVSA subsidiary
Government seized Mobil CN's entire interest in the joint venture without paying
compensation.

Contd..

Mobil CN performed its part of the bargain: its large investment of money,
technology and know-how succeeded beyond expectations and made the Project a
highly profitable joint venture.
By contrast, having accepted and benefited from Mobil CN's part of the bargain,
have disclaimed the obligations they undertook in the Agreement and the Guaranty.
The expropriation deprives Mobil CN of the chance to benefit from the risks it
incurred when it could not be known whether the Project would succeed. For every
successful investment in the oil industry, there are multiple failures. The successes
must accordingly provide large returns to finance the many uncertain ventures that
must be undertaken to produce the few successes.
PDVSA will enjoy billions of dollars of revenue generated by the investment,
technology, and know-how that MCN brought to the Cerro Negro Project.
EXXON suffered a loss in the range of $12 billion due to expropriation based on the
market value which needs to be reimbursed.

PDVSAs Defense

ExxonMobil apparently also wants to use this case to build an argument supporting a
future seizure of the 50% interest of a PDVSA subsidiary in the Chalmette refinery in
Louisiana.
Claimant presented its claim for purposes of obtaining the worldwide freezing order
and attachments in various jurisdictions in an inappropriate attempt to apply undue
pressure in negotiations.
Claimant's latest calculation of damages constitutes a gross exaggeration of the
amount of its alleged loss and a distortion of the very formula upon which it relies.
The full value of Claimant's entire interest in the Project, even without considering or
giving effect to the limitation of liability in the agreement, was less than US$1
billion.
PDVSA recognizes the fact that the petroleum policy of the country is the sovereign
right of the country, the agreement comes under it.
Government has already provided compensation in the form of unpaid bonds of the
company which government purchased and the inventoried oil which company
exported.

The Verdict

ICC awarded Exxon Mobil Corp. about $908 million in a verdict over oil assets
nationalized by Venezuelan President Hugo Chvez in 2007.

Exxon Mobil had previously used international courts to freeze about $300 million.

Company also has a debt of $191 million relating to financing of an oil project in the
country.

Also Exxon had a debt of $160 million that the arbitration tribunal
said was due to PDVSA.

So in essence PDVSA had to pay $255 million for compensation of expropriating

Exxons assets in the country.

Consequences

Venezuelas Orinoco belt, containing an estimated 513bn barrels of technically

recoverable heavy oil, is the largest accumulation ever assessed. But heavy oil in
the Orinoco is expensive, difficult to refine and environmentally harmful to extract.

Venezuela does not have the technology to profitably extract and refine this heavy
crude alone.

Production has dropped from about 3.3m barrels per day in 1998 to about 2.25m in
2011.

PDVSA has undertaken ambitious social spending, running subsidized food

distribution programmes and international aid projects. As a result of which instead
of reinvesting the revenue for more oil exploration Venezuela is falling short of its
great potential.

Bibliography

http://www.aljazeera.com/indepth/features/2012/01/201215194512924679.html
http://venezuelanalysis.com/news/3211
http://www.bloomberg.com/news/2012-01-02/pdvsa-says-it-must-pay-only-255-milli
on-to-settle-exxon-claims.html
http://www.iisd.org/itn/2013/09/20/conoco-phillips-and-exxon-mobil-v-venezuela-us
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http://en.wikipedia.org/wiki/ExxonMobil
http://en.wikipedia.org/wiki/PDVSA