Conoco and PDV work something out, sweetness and love and rainbow unicorns

No, not the big $30 billion arbitration case.

If you follow these things obsessively — which I, happily, no longer do — you’ll know that ConocoPhillips took Petroleos de Venezuela to arbitration for having prejudicially cut output at Conoco’s projects in Venezuela in order to comply with OPEC cuts. The whole case was more or less secret until September, when Conoco said it had won $66.8 million.

Conoco filed a suit to enforce the arbitral award in US federal court in New York, and entered the award into the court record, which in turn is available to any old schmuck. Here it is, yours at no extra charge. Sorry no OCR this time, for some reason it’s acting up and producing 50-MB files.

conoco-pdvsa arb award 1conoco-pdvsa arb award 2conoco-pdvsa arb award 3conoco-pdvsa arb award 4

Last Friday the two sides filed a statement saying they had settled the case, and this week the court dismissed the case. Isn’t that sweet? Just like Israel and Hamas, only without the dead people. Most likely PDVSA has made the payment to ConocoPhillips.

The most interesting part of this case, by far, is the “side agreement,” which was important in giving ConocoPhillips its win. Thanks to oil scholar Juan Carlos Boué for alerting me to it. You can find the agreement on the last page of part one and the first page of part 2, or here you go. Note that this is the Conoco translation, just because it’s better-written and less legalistic. You want the original or the PDVSA translation, go find them in the files.

This letter is made in reference to the Association Agreement between MARAVEN S.A: and CONOCO ORINOCO INC., effective as of November 10, 1995,
[…]
This is to place on record that the parties to the Association Agreement recognize that in order to obtain the necessary financing for the construction, operation and final years investments of the Project (as defined in the Association Agreement), it will be necessary to ensure the ability of the Company to produce the extra heavy oil volumes contemplated in the Project Description (as defined in the Association Agreement), and, therefore, the parties hereto have agreed as follows:

In the event that any crude oil restrictions are imposed on the Venezuelan oil industry during the term of the Association Agreement, the Class A Privileged Shareholder […] shall fulfill any production cutback requirements out of its own production so that: (i) the Company shall be able to keep the upgrader facilities working at Full Capacity; (ii) any company production above that necessary to keep the upgrader at Full Capacity shall be affected (cut back) by the same percentage as the one affecting the Class A Privileged Shareholder’s own production; and (3) the Company’s total crude oil production shall not be reduced below 120 MBPCD [sic!] at any time in which the upgrader is working at Full Capacity, it is understood that any production restriction protection mechanism or treatment which is generally applied to all exira heavy crude oil strategic associations, and which is more favorable than the one established herein, shall prevail.

What this is is a rare case of what chavistas like to say was business as usual in the pre-revolutionary time: a secret side agreement in which PDVSA accepted that it would make any OPEC quota cuts out of its oil production and not impose cuts on the Conoco venture.

I’m a bit disappointed that the Chávez propaganda machine just let this thing drop, even after the agreement was made public months ago in US court. They’re really losing their touch.