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Editorial Commentary
VenEconomy: Black Thursday
This Thursday, February 7, Venezuelans were hit with the news of one of the most startling incidents in recent times: the oil company ExxonMobil had obtained two court decisions to freeze up to $12 billion of PDVSA’s assets in England, Wales, Holland, and the Dutch Antilles, plus a third order from a court in the United States to freeze PDVSA’s funds in the amount of $315 million.
It is worth going over the sequence of events that brought the country to this point.
In the 90s, when PDVSA was a solid corporation of international renown, its management decided to raise the country’s production capacity to 5.8 million barrels a day by 2008. Aware that PDVSA had neither the capital nor the necessary technology in order to achieve that objective, the corporation’s management worked on business agreements with foreign companies.
On the one hand, with the approval of Congress, they gave foreign companies service contracts for reactivating marginal fields. On the other, they granted several companies the right to explore virgin areas under a shared-earnings arrangement, in which the companies risked their capital in the search for oil and, if they found it, undertook to exploit it in partnership with PDVSA. In addition, four alliances were entered into with companies possessing high technology and considerable financial capacity to upgrade the tar in the Orinoco Belt, in which PDVSA would have a 40% share.
But, with the arrival of Chávez in power, PDVSA’s approach changed to give way to the President’s political project. So, with behavior that was authoritarian and arrogant, violating the laws of the Republic and breaching contracts, the government changed the rules of the game unilaterally on all the foreign companies that had taken part in these three types of business arrangements.
On May 1, 2007, the Chávez administration took control of the shared-earnings associations and crude upgraders in the Orinoco Belt without giving them the chance to protest or allowing any type of negotiation and, worse still, without paying them a fair price for their share in the business. ExxonMobil and ConocoPhillips did not give in to the Bolivarian Government and resorted to international arbitration to claim their legitimate rights.
These court orders to freeze assets and embargo funds have been issued at a time when neither ExxonMobil nor ConocoPhillips have been able to make progress in the international arbitration with PDVSA owing to the sepulchral silence that the corporation has maintained on the matter.
Today, that arrogant, autocratic attitude of the Chávez administration has put the country in a lose-lose situation. Even supposing that ExxonMobil manages to get the government to sit down at the arbitration table and negotiate and to reach an outcome that is satisfactory to all, the damage to PDVSA’s credibility and reputation and to the country’s image is done.
The cost of all this is monumental, as it translates into higher costs for the nation and will make it more difficult for PDVSA to find reliable partners in order to achieve the necessary increase in production, all at a time when corporation is facing its biggest production and cash flow crisis.
VenEconomy is a Venezuela's leading specialized publisher in the economic and financial area. VenEconomy's Points of View on the issues of the day, as seen by VenEconomy during the last week. Petroleumworld does not necessarily share these views.
Editor's Note: This commentary was originally published by VenEconomy, on 02/08/2007. Petroleumworld reprint this article in the interest of our readers.All comments posted and published on Petroleumworld, do not reflect either for or against the opinion expressed in the comment as an endorsement of Petroleumworld. All comments expressed are private comments and do not necessary reflect the view of this website. All comments are posted and published without liability to Petroleumworld.
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Petroleumworld News 02/11/08
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