Aug. 20–ConocoPhillips and PDVSA have reached a $2 billion settlement to compensate for the seizure of the Houston oil company’s assets more than a decade ago, ending one of many disputes plaguing Venezuela’s state-controlled oil company during a time of crisis for the country.
ConocoPhillips won the award earlier this year after an international arbitration tribunal determined that the late President Hugo Chavez in 2007 expropriated two of the Houston oil company’s Venezuelan projects as part of his push to nationalize the country’s oil industry. But PDVSA didn’t pay, so ConocoPhillips sought to collect the money by seizing the embattled company’s assets in the Caribbean islands of Curacao, Bonaire and Sint Eustatius, curtailing its refining and exports capacity there.
ConocoPhillips will suspend those measures as part of the settlement, which requires PDVSA to pay $500 million within 90 days and the remainder on a quarterly basis over the next four and a half years.
The question is whether PDVSA, strapped for cash and credit, will be able to uphold its end of the agreement amid deepening financial and political turmoil under the socialist regime of the current president, Nicolas Maduro. Thousands of people have fled the country in the face of violence and severe shortages of food and basic resources, and the country’s oil production has reached its lowest levels in decades.
“The only thing that ConocoPhillips can really count on is the $500 million,” Craig Pirrong, a University of Houston finance professor and energy market expert. “The rest will be at risk to the volatile situation in Venezuela.”
ConocoPhillips spokesman Daren Beaudo said the company will resume enforcement actions in the event of a payment default.
“We believe we have fashioned terms that are reasonable yet fully enforceable,” he said.
If PDVSA defaults on the settlement terms, experts say, ConocoPhillips could potentially go after Citgo, its U.S. refining subsidiary which is headquartered in Houston. A federal judge ruled earlier this month that a defunct Canadian mining firm could pursue Citgo’s assets to collect $1.4 billion from PDVSA, a ruling expected to open the door to a slew of legal claims against Venezuela and PDVSA from the many U.S. companies seeking compensation from the struggling government.
“I expect Conoco to be involved in that process,” said Franciso Monaldi, a fellow in Latin American Energy Policy at Rice University’sBaker Institute for Public Policy.
PDVSA, which could not be reached for comment, has said it will appeal the Citgo ruling.
ConocoPhillips is also seeking compensation from the government of Venezuela itself through arbitration pending before a tribunal convened by an arm of the World Bank. The tribunal told ConocoPhillips that it would receive an award, which is expected to be substantially larger than the one from PDVSA. ConocoPhillips anticipates the award by the end of the year.
That could increase the likelihood of ConocoPhillips pursuing Citgo’s assets, Monaldi said. But they would face competition from many other firms seeking compensation from either the Venezuelan government or PDVSA, potentially creating a drawn-out legal process as claims are filed.
“This is not going to be an easy process,” Monaldi said.
Citgo employs about 4,000 people in the U.S., including 800 in Houston. The company, valued at nearly $8 billion, has about 160 branded gas stations in the Houston area and about 5,500 nationwide.
Citgo has faced increasing uncertainty since November, when its acting president and five other Houston-based executives with dual citizenship were arrested in Venezuela on corruption charges.
Maduro installed Chávez’s cousin, Asdrúbal Chávez, as the new Citgo president. He was ordered in July by the U.S. State Department to surrender his U.S. visa amid an ongoing probe into PDVSA, but Citgo has said he will continue in his role remotely for now.
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