Skip to main content

U.S. producer ConocoPhillips and Venezuela’s PDVSA have reached a payment agreement on a $2-billion arbitration award, the companies said, suspending a dispute that blocked the state-run firm from exporting oil from most of its key Caribbean facilities.

Venezuela’s crude production, a major source of revenue, has fallen to a six-decade low this year as lack of investment, recession and hyperinflation pushed the OPEC-member country’s economy to near collapse. The settlement could restore a portion of lost exports by resuming shipping from the Caribbean.

Conoco will suspend legal enforcement of the arbitration award as long as payments continue, spokesman Daren Beaudo said. He declined to say if payments would be made in cash or crude oil, adding details of the agreement are confidential.

Story continues below advertisement

PDVSA confirmed a settlement was reached, but did not immediately elaborate on the payment terms.

Conoco in 2007 brought a claim against Venezuela before a World Bank court over the nationalization of two oil projects in the OPEC-member country and later asked the International Chamber of Commerce (ICC) to solve a dispute on the early termination of contracts with PDVSA.

The largest arbitration case went before the World Bank’s International Centre for Settlement of Investment Disputes (ICSID), the company has said, adding a final award is possible by year end.

“Having missed payments to bondholders in recent months, PDVSA could have built a cushion for paying Conoco,” said Francisco Monaldi, a Latin American energy researcher at Rice University’s Baker Institute.

“PDVSA will have a break, recovering export capacity in the Caribbean, as long as it continues paying Conoco on time. Conoco could focus now on the wider case, before ICSID,” he added.

The PDVSA-Conoco agreement came ahead of court hearings scheduled for next month in Bonaire and Aruba that could have enabled Conoco to begin selling PDVSA assets seized through court attachments.

In Curacao, where efforts are underway to replace PDVSA as operator of the island’s 335,000-barrel-per-day Isla refinery, the agreement was welcomed by the government.

Story continues below advertisement

The ICC ruled in favor of Conoco in April, but no payment was made by PDVSA in the following weeks. In May, Conoco moved to seize most of PDVSA’s Caribbean assets, knocking down the state-run company’s exports, especially to Asian buyers.

Split Payment

PDVSA agreed to make an initial payment of around $500 million within 90 days of signing the agreement. The remainder is to be paid quarterly over a period of 4-1/2 years, Conoco said in a statement.

Under a new military-led management appointed late last year, PDVSA increasingly has struggled to produce, refine and export crude oil amid a severe lack of cash, and faced sanctions imposed last year by the U.S. government.

Previous agreements by the Venezuelan government and its state-run companies over dozens of arbitrations and legal claims related to late President Hugo Chavez’s nationalizations a decade ago, have mostly failed to fulfill the terms, ending in renegotiations and legal disputes.

“What makes this situation and Conoco’s claim unique is the amount of creditors lining up behind the very same Venezuelan assets,” Jay Auslander, partner at New-York based law firm Wilk Auslander, said.

“So Venezuela itself has ample reason to take care of the Conoco problem. How this will all play out over time, though, remains uncertain, because Venezuela may simply lack the liquidity to fully perform.”

Story continues below advertisement

Conoco said it will make sure that the settlement meets U.S. regulatory requirements, including any applicable sanctions against Venezuela.

Conoco and Exxon Mobil left Venezuela after they could not reach deals to convert their projects into joint ventures controlled by PDVSA. Its assets were then expropriated.

After receiving two arbitration awards related to the nationalization of its assets in Venezuela, Exxon said in its most recent quarterly report that the South American country this year finished paying $260 million related to its La Ceiba project.

Conoco’s shares were up 1.5 percent at $70.83 in afternoon trading.

Report an error
Tickers mentioned in this story
Unchecking box will stop auto data updates
Comments

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • All comments will be reviewed by one or more moderators before being posted to the site. This should only take a few moments.
  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed. Commenters who repeatedly violate community guidelines may be suspended, causing them to temporarily lose their ability to engage with comments.

Read our community guidelines here

Discussion loading ...

Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.
Cannabis pro newsletter