Venezuela Owes Exxon Almost $1 Billion For Nationalizing Oil Assets

In 2007, Venezuela nationalized its oil assets, violating contracts with oil giants such as Exxon. A Paris-based International Chamber of Commerce arbitration panel awarded $908 million to Exxon, and the outcome is being viewed as more of a victory for the country’s state oil company than the company.

Reuters reports Exxon wanted $10 billion for an upgrading project that Venezuela took over. The country offered $1 billion, but the arbitration panel undercut even that amount. Exxon is hoping to squeeze a better result out of a hearing at the World Bank’s International Centre for Settlement of Investment Disputes, which could take the case on next month.

It remains to be seen whether or not rulings such as this stop international companies from making investments in volatile areas, as well as whether or not oil giants left stung by poor investments pass their costs onto the consumer.

Exxon wins less than expected from Venezuela dispute [Reuters]

Comments

Edit Your Comment

  1. SagarikaLumos says:

    “as well as whether or not oil giants left stung by poor investments pass their costs onto the consumer.”

    They have NO CHOICE. Any costs incurred by a business are passed on to the customer. There is nobody else that can pay for it as there’s no other source of money.

    • Deep Cover says:

      Yes indirectly these costs are passed to consumers. But don’t be so quick to say that this failed investment is the reason why gas is inching towards $4/gallon.

      Major oil companies following an portfolio approach. Certain investments are expected to fail (read: no oil in a projected well, too expensive to extract, etc).

      This risk was pretty much factored into the investment.

      • SagarikaLumos says:

        Cost risks factored into investments are also clearly costs borne by the customer. A huge company like ExxonMobil has to keep a lot of cash on hand for the unpredictability of such costs, and sometimes would reap the rewards of a few lucky investments. Whether it’s customers’ money that they already have or customers’ money that they’ve yet to get, it came from customers.

        • Loias supports harsher punishments against corporations says:

          Exactly. The cost of business is factored into any price, including oil. That includes a certain amount of risk compensation, meaning prices inherently cover the potential cost for company blunders, changing market conditions, R&D, and unexpected turn of events.

          So to say customers will bear the brunt of this financial loss isn’t quite accurate. In fact, the customer already HAS bore the brunt of the loss because they’ve been paying for its insurance for decades, and will continue to bear it.

    • consumeristjohnny says:

      Well in MOST businesses they can not pass along the costs for their bad mistakes. You didn’t see GM jacking up the prices of their cars when they make a mistake. You don’t see KMart increasing their prices when they make bad investments. In NORMAL businesses they still must price themselves according to what the market will bear. Oil, on the other hand, is an oligopoly with a cartel dictating prices.

      • SagarikaLumos says:

        GM is actually a great example. At their production level c. 2008-9, costs were higher than they were charging when taken across the board. They would’ve gone bankrupt were it not for government bailouts (a source of money for businesses that should NOT be considered a source to seek).

        Oil is charging what the market will bear. I don’t like high oil prices any more than anyone else, but the market is bearing it pretty well, really. It’s also for more the fault of nationalized crude oil producers of OPEC far more than companies like ExxonMobil. When I bitch about gas prices, I place the blame where blame is due.

      • SaltWater says:

        GM didn’t need to raise prices? The billions of dollars they’ve received in bail outs were greater than any price increase they could have imagined.

    • psm321 says:

      Yeah, because they don’t have any other costs at all that they can adjust (hint: ridiculous executive salaries). And the “free market” will totally let them pass the cost on to customers when other companies don’t have to.

      /sarcasm

      • Nobody can say "Teehee" with a straight face says:

        Cutting 50 million from the executives does nothing to stop the 9 billion loss. All it does is make people “feel better”.

    • sumocat says:

      Pfft. They could post a loss just like any other company that loses money on an investment. Nintendo just posted their first loss in 30 years thanks to a failed attempt to jump on the ridiculous 3D bandwagon. They didn’t jack up the price of Wii consoles to make up the difference, which probably wouldn’t have helped since that would have driven down demand. Unlike most companies, Exxon and other oil giants don’t have to worry about higher prices driving down demand. They have a choice when stung by poor investments.

  2. Deep Cover says:

    Am I the only one that is not shedding a tear for ExxonMobil?

    One can only hope that the “World Courts” attack the environmental problems that Exxon causes in other countries by drilling as aggressively as they are resolving Exxon’s “claim” to $1 billion.

    • SarcasticDwarf says:

      I would feel bad for any business in this situation. How would you like to have your assets and investments seized by a government in direct violation of laws and agreements?

      • Deep Cover says:

        A) I’ve done business overseas in a couple of countries in Western Africa where the “rules” all of a sudden “changed”. Once again, that is the “price” of doing business. That is the risk profile you deal with when you aren’t dealing with the same “rule of law” that you have in the US.

        B) Have they cleaned up the oil spills they caused by drilling? I know for a FACT they haven’t addressed this issue in some of their JV’s in Africa.

        Karma is a b!tch sometimes…

      • Powerlurker says:

        That’s what political risk insurance is for.

    • varro says:

      I’ll take “mildly unstable wannabe dictator” over “greedy pig of an oil company” any day.

  3. Loias supports harsher punishments against corporations says:

    Exxon shouldn’t have agreed to binding arbitration clauses where the arbitration company was paid for by Venezuela. Ha!

    • varro says:

      The binding arbitration saves everyone the expense of litigation in some place like Texas, where top oil and gas lawyers cost $500/hour or more. (Yeah, hometown jury is likely to side with Exxon, but EFFICIENCY will be at work during arbitration!)

  4. Straspey says:

    Actually, I read an article over the weekend which reported that a major American home-appliance manufacturer – I believe it’s Whirlpool or maybe Westinghouse – has filed an anti-trust suit against LG and Samsung, claiming that those companies are importing their clothes washers and dryers into the US from Mexico, and “dumping” them onto the American market at a price which is LESS than it costs those companies to actually manufacture the units.

    The practice of “dumping” – as it’s known – in order to artificially drive down prices (as opposed to the normal structure of supply/demand) is illegal in the US and violates anti-trust laws.

    • Rachacha says:

      http://www.sacbee.com/2011/12/30/4152810/whirlpool-corporation-files-petitions.html

      In reading the article and some of the supporting documentation, it looks like it includes products from several Korean Manufacturers that appear to be receiving subsidies from the Korean Government.

      With that said, I have an LG washer a dryer that appear to me more substantial than any Whirlpool/Maytag etc. Washer/Dryer I have owned.

      • Megalomania says:

        it’s well known that Korea subsidizes its major industries, but keep in mind that it’s really subjective as to what constitutes “dumping”. For instance, the U.S. heavily subsidizes corn, a good amount of which is exported. China has called that dumping, though the U.S. strongly disagrees, fairly arbitrarily.

    • varro says:

      Interesting, since by Frigidaire refrigerator I bought a year and a half ago was made in Mexico, and Frigidaire closed their last U.S. plant in an Indiana town that summer.

  5. Hoss says:

    Even at a 90% discount off damages sought, how likely is Chavez to pay a dime? This is a ruler that defaulted on US debt saying the bonds were illegal and immoral

  6. maxhobbs says:

    Wow, who do you side with, a government like Venezuela or big oil?

    Sort of like that old joke, you see your mother in law and a lawyer drowning, which one would you save?

  7. There's room to move as a fry cook says:

    Oil companies only like ‘eminent domain’ when they are building pipelines..

    • NeverLetMeDown says:

      Oil companies are fine with eminent domain, since that involves a government taking WITH FAIR COMPENSATION PAID. Comparing this to eminent domain is like comparing my buying your car from you with my taking it from you at a stoplight at gunpoint.

      • There's room to move as a fry cook says:

        The courts say $907 million is FAIR COMPENSATION – this is more than Exxon’s $750 million investment in the project. Venezuela’s initially offered $1 billion but Exxon went to court seeking $10 billion.

        • NeverLetMeDown says:

          How much investment they put in is irrelevant. The key issue is how much the property rights are actually worth. In other words, would Venezuela sell the same rights to a third party for $1 Billion? If not, then they’re worth more than $1 Billion.

          If I bought a piece of property for $1000, and then discover it contains a diamond mine, there’s no way that paying me back $1000 is fair compensation.

          All that being said, good point about the arbitration panel. We’ll see what the Int’l Centre has to say.

  8. farker22 says:

    this is a risk of business in other countries…

  9. Professor59 says:

    This is my “surprised” face.

  10. ScandalMgr says:

    Obviously, you all missed the consumerist angle here. Exxon is shopping the courts for the best deal to be had.

    If the Paris based International Chamber of Commerce arbitration panel only gives them 10%, maybe the World Bank’s International Centre for Settlement of Investment Disputes will give them 15%, which is a much better deal.

  11. FrankReality says:

    This is what happens when a two bit thug takes over your country after you made the mistake of voting the lying bastard in. He nationalized the media, then literally stole the assets of many companies that produced revenue for the country and jobs for the country’s citizens and then runs the taken over assets into the ground.

    It’s not just oil companies either – communications and mining companies have been stolen and taken over too.

    Then has the gall to blame the results of his wretched mismanagement of the country on the US. Of course, now there is no independent media left actually telling the truth about this despot.

    He’s also building a missile site from which he and his partners (think Iran, North Korea, et.al.) can hit the US.

    Chavez must go – hopefully some of his countrymen will do that – and dump him in a body bag.

    I’m not justifying Exxon or Shell – just stating the point that Chavez is an evil thug who has ruined the Venezuelan economy.

    Now, for a company the size of Exxon, $1 billion will hurt, and in a hyper-competitive market like gasoline , it may not be able to be passed on to the consumers, but given the amount of oil produced by Exxon, even if passed on to the consumer, the cost per gallon is probably so small it wouldn’t be noticed. I’m sure that this will be written off vs. the company’s profits anyway. For perspective, in 2010 Exxon Mobil had revenues of 383 billion.

    • psm321 says:

      I think you need to drop the RW brainwashing and consider actual Reality.

      Hint: “As of 2007, private corporations controlled 80% of the cable television channels, 100% of the newspaper companies, and 706 out of 709 radio station” (Wikipedia). And the “media crackdown” RWers love to talk about is because the Venezuelan government refused to renew the broadcast license of a station that advocated a FREAKIN COUP against the democratically-elected leader. But I guess that’s ok with you since it’s a coup against a leader whose policies you don’t like, huh? Democracy as long as it supports corporate objectives. Otherwise, coup away if a leader dares to help the people instead of the corps. How do you think that would go over in the US if a station had supported a COUP? Oh and also they govt required private stations to carry public-interest programming for some fraction of their airtime. HOW DARE THEY? (Hint: the FCC has similar rules too, just with a lower percentage)

  12. El Bolillo says:

    You’ve left out the small fact that Chavez first attempted to seize power through a coup himself. http://en.wikipedia.org/wiki/1992_Venezuelan_coup_d'%C3%A9tat_attempts

    If you think it’s butterflies and rainbows in Venezuela under Chavez may I suggest http://caracaschronicles.com/ , http://daniel-venezuela.blogspot.com/ and especially http://devilsexcrement.com/ if you are interested in the details of this settlement and the economics of Venezuela under Chavez. Check them out- definitely not right wing.