Exxon Freezes Venezuela's Assets in Multiple Countries in Response to Nationalization of Oil Industry

A federal court in New York recently confirmed an attachment order in favor of Exxon Mobil freezing over $300 million in Venezuelan assets. The latest court decision comes on the heels of Exxon freezing over $12 billion in assets of Venezuela’s state-owned oil company, PDVSA, in response to Venezuela’s nationalization of its oil industry.

Last February, President Hugo Chavez nationalized Venezuela’s hydrocarbons sector, and, on May 1, 2007, the resulting oil company, PDVSA, assumed control of four Orinoco heavy oil projects, which is one of the richest oil deposits in the world. While BP, Chevron, Total and Statoil accepted Chavez’s offer to retain a minority stake in the projects, Exxon and ConocoPhillips rejected the offer. Both companies filed arbitration actions with the World Bank’s International Center for Settlement of Investment Disputes to seek just compensation for the assets nationalized by Venezuela.

In December and January, Exxon secured court orders in multiple countries to freeze more than $12 billion in Venezuela’s worldwide assets. According to court documents, the High Court of England and Wales entered a Worldwide Freezing Order to prohibit PDVSA from disposing of assets up to a value of $12 billion whether directly or indirectly held. Exxon obtained similar orders from courts in the Netherlands and Netherlands Antilles against PDVSA assets in both jurisdictions.

Venezuelan officials responded by accusing Exxon of conducting “judicial terrorism,” and President Chavez threatened to wage “economic war” and cut off sales to the United States if Exxon won court judgments. Most analysts considered these statements as empty threats, as the U.S. is Venezuela’s biggest customer. Still, PDVSA subsequently halted all sales to Exxon and announced that Exxon was no longer welcome to do business in Venezuela. However, PDVSA also announced it would honor all other contracts with Exxon for joint investments abroad. The U.S. State Department said the U.S. supported Exxon’s efforts to seize assets and obtain just and fair compensation.

While Chavez’s threats briefly rattled international oil markets, it appears both sides intend to seek ultimate resolution in the pending arbitration. Exxon has issued statements indicating the asset freeze is not intended as a vehicle for payment but to secure an arbitration award. Venezuelan’s Energy Minister recently issued public statements denouncing the court actions as outside the parameters of the arbitration but also asking Exxon to resume arbitration through the World Bank.