Venezuela Offers Exxon-Mobil US$1 Billion As Settlement (But, It’s Not Enough)

The Venezuelan government is only proposing a US$1 billion settlement to Exxon Mobil Corp for the nationalization of its assets in 2007, said Energy Minister Rafael Ramirez in an interview with Reuters on Wednesday.

The Venezuelan government is only proposing a US$1 billion settlement to Exxon Mobil Corp for the nationalization of its assets in 2007, said Energy Minister Rafael Ramirez in an interview with Reuters on Wednesday.

The Energy Minister’s remarks came after Venezuela’s Prosecutor General Carlos Escarra told reporter earlier in the day that the Venezuelan government and the oil company were close to reaching a settlement amount, said to be as high as $6 billion. Escarra also said that the state recognizes that “it has to pay and settle the expropriations.”

However Ramirez denied that any talks were underway, claiming that there had been no negotiations outside an ongoing arbitration process at New York’s International Chamber of Commerce.

[quote]”Our proposal is $1 billion for its assets…. We are not in negotiations with Exxon Mobil, nor has it crossed our minds to approach them,” said Ramirez.[/quote]

Venezuela is currently battling about 20 arbitration cases caused by Hugo Chavez’s nationalization projects. The Exxon-Mobil case is one of the largest it face, along with that of fellow oil company ConocoPhillips (COP).

Last year, Exxon cut its demands against Venezuela to US$7 billion from its initial claim of US$12 billion. According to a Wall Street Journal report, some analysts believe that the final awarded sum to both Exxon and COP will be around US$2.5 billion.

The Chavez administration, since coming to power in 1999, has nationalized parts of the oil, metals, cement and utilities industries. In 2007, the Venezuelan government told foreign oil producers that they could now only enter into joint ventures as a minority partner. As a result, most international oil firms chose to walk away from their multibillion-dollar investments in Venezuela’s Orinoco heavy crude oil belt rather than work on the government’s terms.

In a statement late on Wednesday, Venezuela’s state oil company PDVSA described Exxon and COP’s joint demands of up to US$40 billion both excessive and insulting.

[quote]”The state oil company is not willing to pay the sum sought by Exxon Mobil as it believes the amount is outrageous, abusive and intended to charge the people for what is the sovereign exercise of its oil policy,” said a PDVSA spokesperson.[/quote]

Some analysts say PDVSA might have to sell overseas holdings to meet its large compensation bill. The company also has cash flow problems despite high oil prices because most of its income goes toward funding Chavez’s socialist spending.

Ramirez however asserts that PDVSA is fully solvent, and already has a compensation plan in place.