Exxon freezes Venezuelan oil industry assets, minister denounces 'judicial terrorism'

February 9, 2008

Venezuela's Energy Minister, Rafael Ramirez, characterised a series of court orders obtained by Exxon Mobil Corp. in Britain, the Netherlands, and the Dutch Antilles, freezing up to US$12 billion in assets of Venezuelan state oil firm PDVSA, as "judicial terrorism" in a statement today.

The injunctions were solicited by Exxon in anticipation of an arbitration ruling by the International Centre for Settlement of Investment Disputes over a compensation claim. As part of a drive to recover the nation's oil sovereignty the Venezuelan government nationalized Exxon's 41.7% stake in the Cerro Negro project in May last year with an offer for compensation.

However, Exxon was not satisfied and demanded arbitration. Although the US oil giant has not specified how much it wants in compensation it said its investment in the project was valued at $750 million at the time the assets were expropriated.

"This is pure judicial terrorism", Ramirez told reporters in Caracas. "If they think that with this they will get us to backtrack on our nationalisation policies, well, gentleman from Exxon Mobil, you are dead wrong again."

Exxon presented the documents to the Federal Court in Manhattan on Thursday and is petitioning the court to ratify the injunctions in a hearing scheduled for February 13. However, Ramirez said the injunctions are temporary as all the court orders are subject to appeal.

"We don't have any decision in any court that is definitive. We have a temporary measure in a court in New York and we have the right to respond, that is to say a transitory measure and we are sure that we are going to defeat this measure", he assured.

The London High Court order was granted on January 24 without any prior notice to the Venezuelan oil company. The next hearing on the matter is scheduled for February 22.

Until then, PDVSA is barred from removing any assets in England or Wales up to a value of $12 billion. While attachment orders from courts in the Netherlands and Netherlands Antilles also grant injunctions up to $12 billion against PDVSA in these jurisdictions, Margaret Ross, an Exxon spokesperson in Houston, said the sum total that could be frozen worldwide was $12 billion.

Ramirez said that PDVSA's assets in the jurisdictions covered by those countries are valued at significantly less than $12 billion and emphasised that the decision would not affect the company's cash flow and operational capacity. PDVSA's global assets are valued at $107 billion, he added.

However, the injunction could affect PDVSA's European refining assets, particularly a 50% share in German joint venture Ruhr Oel, which according to filings PDVSA made with the US Securities and Exchange Commission in 2006, were held through a Netherlands Company PDV Europa BV.

In the context of soaring energy prices, the move by Exxon is a particularly aggressive challenge to governments around the world who are trying to recuperate sovereignty over their natural resources. "To me it sounds like a very aggressive tactic", said Stephen Zamora, professor of international law at the University of Houston Law Center.

"I can't really say that I'm aware this has been used in other investment disputes. They may be trying to get the government to settle."

Patrick Esteruelas, of the Eurasia Group in New York commented, "Although Exxon is within their rights to pursue a temporary embargo of PDVSA assets they will probably have to prove that PDVSA has no intention of compensating them".

"However, PDVSA has been very careful to insist that they will still negotiate with Exxon to achieve an acceptable compromise", he added.

Ramirez said the media publicity was a result of Exxon trying to "scratch a figure into the negotiating table" to affect compensation talks and said the world's largest oil company's compensation demands were "ridiculous".

He also accused the US company of using the legal case to destabilise Venezuela, by creating panic over its finances, as the country's dollar denominated bonds experienced their sharpest drop in six months on fears the government could face a protracted legal battle with the oil giant.

PDVSA, which supplies about 10% of the US's oil, is a crucial source of funds for the Venezuelan government's social programs that provide free education and healthcare to the poor. In 2006, the company spent $13.3 billion on such programs, up from $6.9 billion in 2005 and more than double the $5.8 billion it invested in new domestic gas and oil projects.

Ramirez said that the interests of the Venezuelan nation were more important than any corporation and assured that Venezuela would not back down from its policy of full oil sovereignty. "We are being attacked by a transnational corporation", but, "we are not going to back down, we are going to beat them in this battle", he said.

[This article originally appeared at on February 8.]

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