Monthly Archives: January 2012

Exxon-PDVSA: I had a feeling we’d get more details

Yes, I too am tired of this story. But here are a couple things worth reading, as two guys try to show that it is possible to both know about Venezuela and also speak (contrary to what I wrote yesterday):

Noel Maurer on his Power and the Money blog:

Exxon received from PDVSA what it was contractually entitled to get. The standard used by the ICC was the market value of the assets, not book value. The assumptions used to calculate that market value, however — chief among them estimates of the expected future price of oil — were limited by a clause in ExxonMobil’s 1998 association contract that effectively put a ceiling on the value of the company’s investment.

…the highest possible oil price that can be used to value damages in the event of expropriation is $27 per barrel in 1996 dollars, or $37.50 in 2007 dollars.

And more such details from Russ Dallen, talking to Bloomberg

Now back to the fun stuff

Chile: Big copper getting worse rap

Just out, a poll by the Centro de Estudios de la Realidad Contemporania that asked Chileans an interesting question: should big copper be nationalized? Or to be more precise: “A raíz del conflicto de Anglo American con Codelco han habido gente que plantea la necesidad de nacionalizar las grandes empresas privadas que explotan yacimientos de cobre. Está usted en acuerdo o desacuerdo de nacionalizar las grandes empresas privadas que exploten yacimientos de cobre?”

(“Because of the conflict between Anglo American and Codelco, people have discussed the need to nationalize the big private companies that exploit copper deposits. Do you support or oppose the nationalization of the big private companies that exploit copper deposits?”)

67% in favor, including majorities from every political party. Who would ever have thought that Anglo American could turn Chileans into a bunch of Southern Cone Hugo Chavezes? But don’t worry, remember what Henry Kissinger (supposedly) said the last time such sentiments arose: “I don’t see why we need to stand by and watch a country go communist due to the irresponsibility of its own people.”

More seriously: I think the Anglo item isn’t the main thing here. The groundwork comes from the student movement. As I said months ago:

… the uprising in Chile is leading to a major renaissance of resource nationalism in the country that has long been the continent’s most accommodating to foreign mining companies. I’ll write more about this in the future, but suffice to say that “renationalize the copper” as a panacea for the country’s ills has gone from fringe notion to conventional wisdom in a matter of months.

BONUS: The by far weirdest item in this poll is that they asked whether the killings by the military government (1973-1989) were a necessary evil to avert communism. Most people disagree, but a few agree. Including 5% of people who say they are in the Communist Party.

ExxonMobil-PDVSA shows how little most of us know

The year-end decision in an arbitration case between ExxonMobil and Venezuela has revealed how widespread is the public ignorance about what is going on in several multi-billion-dollar cases that could have major effects on both the people of Venezuela and XOM shareholders.

The short of it is this: Those who know don’t speak. Those who speak don’t know. That’s how Venezuela works, and that’s why reporting on that country is more interesting and frustrating than reporting on, say, Chile.

All we can hope to do is occasionally find a more or less reliable info leak from those who know and then have the ability to sort wheat from chaff in the leak, a uniquely difficult task. That and the much easier task of ignoring the great mass of blowhards who don’t know what they are talking about (present company included).

Here are a few basic things you need to know about both this case and the other, still ongoing arbitration at ICSID. Continue reading

Avoiding corporate spin in the Exxon-Venezuela decision

Here is ExxonMobil (via Reuters):

An Exxon spokesman said in an e-mail on Sunday that the International Chamber of Commerce, or ICC, had ruled that Venezuela’s state oil company, PDVSA, “does have a contractual liability to Exxon Mobil. The ICC award is for $907,588,000.”

Here is a commenter on this website:

“Is very clear that Venezuela lost the arbitartion case: ExxonMobil vs PDVSA on the nationalization Exxon’s assest in Venezuela. The sum awarded is not of relevance for the general business community.”

It’s fine for Exxon lawyers to try and put a positive face on this result. Their jobs are on the line. But please, commenters and journalists, don’t fall for this BS.

The dispute was never whether Venezuela had an obligation to pay ExxonMobil. Venezuelan Oil Minister Rafael Ramírez has said many times that the Venezuelan government knew it had to pay for the assets. The dispute was always over the dollar amount. That is the only thing of “relevance to the general business community.”

Here is the fight: Venezuela said it would pay book value, which was less than $1 billion. ExxonMobil wanted net present value.

Another important element of this dispute, particularly for the oil and gas industry, is the crucial and ever-present question of market value vs book value.

And here is the (summary of the first) decision: Essentially book value plus interest. I haven’t seen the 400-page decision, to know how the panel came up with its figure, but that number is public, and regardless of how the panel came up with its figure, the number is what it is.

PDVSA won. And for those of you who claim to* love Venezuela, you should be happy. This is a lot of money that will could have been redistributed from the people of Venezuela to the shareholders of ExxonMobil — who are doing fine, thanks. (Stock up 14% year over year, market cap above $400 billion, 13% operating margin.) Instead of seeing this as a lost opportunity to spank your bugbear Hugo Chavez, maybe thank your stars that he, and a possible next president of Venezuela just dodged a $6 billion legal bill.

(Anyway, another arbitration decision remains to be seen.)

* Updated Jan. 4 by deleting disparaging word. I know those guys love their country and I shouldn’t have had that word there.

PDVSA wins very big against Exxon in arbitration, to pay book value

Venezuelan state oil company PDVSA has been ordered to pay $750 million to ExxonMobil in a four-year-old case before the International Court of Arbitration, Bloomberg reports.

This is a shockingly low amount of money, since PDVSA says the claim was for $6.5 to $7 billion — down from an initialy demand for $12 billion. Venezuela had offered somewhere around $1 billion to settle the case, and now gets off with an even lower award. This means that Venezuela is going to pay only book value to Exxon Mobil. (The NY Times and some other outlets are saying the decision was for a bit more than $900 million, but Bloomberg says that amount was reduced. We shall see.)

This vindicates of Venezuela’s point throughout the proceedings that it should pay no more than book value for expropriated projects. It also serves as a warning for companies that want to take depreciation write-downs on foreign assets. Sure, it’s an easy way to get out of some taxes, but is it really worth it if you end up getting screwed on expropriation?

There remains another case by ExxonMobil against the Bolivarian Republic of Venezuela, and that case has yet to be decided. It could be where the big bucks end up. Exxon and its shareholders must be hoping so. And ConocoPhillips and its shareholders, too, since ConocoPhillips’s claims against Venezuela started at $30.3 billion, and ConocoPhillips’s book values were less than $3 billion.

Also: Devil’s Excrement apparently didn’t spend the day hula-hooping on the beach, and instead was hard at work on the blog. Here’s his take.

A bit of background info after the jump. Continue reading