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Chavez Calls Exxon’s Venezuela Arbitration Demands ‘Crazy’

Venezuelan President Hugo Chavez said today that Exxon Mobil Corp. (XOM)’s demand for as much as $12 billion in international arbitration for assets seized in the South American country in 2007 was “crazy.”

Responding to the International Chamber of Commerce arbitration court’s December decision to award Exxon a net payment of $746.9 million, Chavez said on national television that Venezuela is a sovereign nation and that Exxon has been “arrogant” for not accepting a “friendly agreement.”

“The ICC only awarded Exxon 10 percent of what they wanted,” said Chavez. “You can make your own conclusions.”

Exxon Mobil was the first international oil company to abandon Venezuela after Chavez expropriated oil assets in the Orinoco heavy crude belt. The World Bank’s International Centre for Settlement of Investment Disputes, or ICSID, is also due to rule on Exxon’s claim for its nationalized Cerro Negro project in a suit filed against the Venezuelan government.

Petroleos de Venezuela SA (PDVSA), the state oil company, said on Jan. 2 that it would pay $255 million in cash for the judgment, after accounting for about $300 million in a frozen New York bank account and $191 million of Exxon debt that the Venezuelan company will cancel. The total amount of the ICC ruling was for $907.6 million, minus a $161 million counterclaim by PDVSA.

Freeze Sought

“The ICC decision was very limited and was only a decision based on the contract between PDVSA and Exxon written in 1997. The $907 million award was solely for Exxon’s missed and expected, and heavily discounted, future revenue streams on 1997-priced oil of $27 a barrel from the project through 2035, and not about a valuation,” said Russ Dallen, a lawyer and head bond trader at Caracas Capital Markets.

Exxon, the world’s largest oil company by market value, originally sought to freeze $12 billion of PDVSA assets as compensation for the nationalization of the Cerro Negro heavy- crude project in the Orinoco belt. The freeze was overturned by a U.K. court in March 2009, leading Exxon to reduce its arbitration claim to around $7 billion in 2010.

“Given that the ICC award did not cover the actual expropriation of Exxon’s investment -- merely the net present value of its future discounted profit stream, minus Venezuelan royalties and taxes -- I would expect the ICSID judgment to easily come in for almost $1 billion minimum, rising to $3 billion if they use a more modest discount and higher real world oil price than the $27 to $35 provided for in the 1997 contract,” Dallen said today in an e-mailed response to questions.

The proceedings before the ICSID, as the World Bank’s arbitration court is called, is “larger” than the ICC case, Patrick McGinn, an Exxon spokesman, said on Jan. 2 in an e- mailed statement.

To contact the reporter on this story: Nathan Crooks in Caracas at ncrooks@bloomberg.net

To contact the editor responsible for this story: Dale Crofts at dcrofts@bloomberg.net

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