ExxonMobil and ConocoPhillips arbitrations against PDVSA nearing a decision

Speeches galore but little oil

Decree-Law 5.200, promulgated by the late President Hugo Chávez on February 26, 2007,  required that the strategic Associations formed in the early 2000’s  between PDVSA and multinational, private, oil companies to develop the Orinoco region heavy oil deposits be transformed into mixed companies in which PDVSA affiliates were to have a minimum 60 per cent shareholding.

This decree led to ExxonMobil and ConocoPhillips to abandon the country and initiating four arbitration procedures against PDVSA, two of which have already been decided and the largest two, before the Center for Arbitration of the World Bank, still remain to be resolved. There are rumors about the decision being imminent. In connection with these remaining arbitrations Dr. Juan Carlos Boué, Cambridge, England, has written a 100 page analysis of the arbitration, which is highly favorable to PDVSA, see http://www.latin-american.cam.ac.uk/library/WP2Boue1.pdf. I tried to read it but, due to its complexity, I could not make it beyond the first few pages. However,  two things came to my mind:

1.     The outcome of this arbitration is already proving to be negative for Venezuela. The price that has been paid for the tensions built around these cases is an almost complete stagnation of activities in the Orinoco region for the last six years. The reason is that the momentum the oil companies had acquired, with the upgrading plants in operation and production plans already in force, came to a halt due to the manner the government imposed a change in the contracts. After this conflict not one new plant has been built and production has not increased in any significant way.  

The truth is that Hugo Chavez never had the best of bedside manners when dealing with private multinationals. His insolent attitude was in the best of form when he gave his 2007 ultimatum to the oil companies in the Orinoco region to transform, or else, their strategic associations into PDVSA’s controlled joint companies. In imposing the changes the government acted in an imperial manner. The results of this move are now clear: today the operations of the Orinoco region oil development are essentially in the hands of mostly incompetent foreign companies, while PDVSA has the majority of the shares but demands that the partners finance the whole operation because they do not have the money.   

2.     Dr. Juan Carlos Boué, the author of the analysis, has long been associated with Chavez’s  PDVSA. As he says: “From 2005 to the end of 2009, I was special advisor to the Venezuelan Minister of Energy and Petroleum, and sat on the boards of most of the Petróleos de Venezuela (PDVSA) refining ventures abroad.. In addition, I led PDVSA’s portfolio management effort to divest some of its overseas refining and storage assets and structured and negotiated the supply contracts for the divested refineries”. Today Dr. Boué is an active consultant and I would assume his paper was commissioned by PDVSA. There is nothing illegal about that, except that, if such is the case, its claim to impartiality would be diminished.