Exxon Wins Battle to Freeze $12 Billion in Assets of Venezuela's Oil Company

Exxon (XOM) fights Chavez and scores a victory.

Back in the summer of 2007, Venezuela seized complete control of the Orinoco Belt, believed to be one of the largest caches of heavy crude oil on earth. This move, by which Venezuela's state-owned oil company, Petroleos de Venezuela [PDVSA], gained control of the Belt, certainly upset some in the industry. Part of the reason is that Venezuelan president Hugo Chavez seized Big Oil assets as part of the move.

While BP (BP), Total (TOT), Chevron (CVX) and Statoil (STO) handed over their equity stakes in the Orinoco Belt venture, Exxon and ConocoPhillips (COP) fought back, bringing the matter to international arbitration, and even to court. BusinessWeek reports on the Big Oil dispute:

ExxonMobil said on Feb. 7 that courts in Britain and the U.S. had granted its requests to freeze more than $12 billion in assets of Venezuela's state oil company, Petroleos de Venezuela. ExxonMobil is seeking compensation for the nationalization of two oil projects in the country that are together worth several billion dollars.

This asset freeze is not good news for PDVSA, which now has to bear more of the cost of developing the Orinoco Belt. Additionally, many of the revenues from the oil company are actually used to run government social programs. The high price of oil is helping some, but PDVSA is not equipped to refine the sticky heavy crude into something usable at a rate that makes it profitable on the same scale as Big Oil.

Meanwhile, the move ensures that the capital XOM and COP invested into the Orinoco Belt won't be completely lost. PDVSA can't spend the money, and that means that it will be there when the arbitration decision comes through -- no matter how many years it takes.

Comments

[builder973]

Hey Chavez, Maybe you haven't heard that oil is fungible. Whatever you don't sell to us you will sell to someone else. Guess what, we will get the oil someone previously sold to your new customer.

Thinking about taking your oil off the market completely? Well, maybe your fellow Venezualians would prefer to drink oil for breakfast. Unfortunately, countries with dictatorships eventually find out that they are better off in a free economy. Maybe you will make it one more year before they dump yourself.