Exxon Mobil Corp.'s four-year hunt for billions of dollars innationalized Venezuelan oil profits isn't finished after aninternational panel slashed the U.S. oil company's claim by 89percent.

Venezuela's state-controlled oil producer, known by the acronymPDVSA, was ordered to pay Exxon $746.9 million for the 2007 seizureof oil wells, crude-processing facilities and related equipment,according to a copy of the International Chamber of Commerce's Dec.23 ruling obtained by Bloomberg News. The award represents 11percent of the $7 billion sought by Exxon, the world's largestcompany by market value.

Exxon, the first international energy explorer to abandonVenezuela four-and-a-half years ago when Hugo Chavez consolidatedcontrol of the nation's oil industry, is counting on a separatearbitration case overseen by the World Bank to win billions inpotential profits the company says were lost as a result of thenationalization, said Lysle Brinker, director of energy equityresearch at IHS Inc.

“Initially, this looks like a pretty low number because it doesnot fully reflect the value of the assets Exxon lost,” Brinker saidyesterday in a telephone interview from Norwalk, Connecticut. “Butthis is not over yet.”

Exxon and the Venezuelan government are scheduled to resumearguments before the World Bank panel in February.

Exxon sought arbitration with PDVSA and the Venezuelangovernment in 2007, a decade after Mobil Corp. began drilling wellsin the Orinoco River basin and building facilities to process theregion's thick, tar-like crude. Exxon acquired Mobil and assumedoperations of the Cerro Negro venture in 1999.

PDVSA said yesterday on its website that it will pay $255million in cash for the judgment, after accounting for about $300million in a frozen New York bank account and $191 million in Exxondebt that the Venezuelan company will cancel. The total amount ofthe International Chamber of Commerce ruling was for $907.6million, minus a $161 million counterclaim by PDVSA.

ConocoPhillips, which joined Exxon in rejecting Venezuela's newterms in 2007, also is awaiting a ruling in its case before theWorld Bank panel.

During the final year of operations under Exxon's control in2006, the Venezuelan assets had net income of $362 million on salesof $758 million, a profit margin that was quadruple the company'sworldwide average. Exxon originally sought $12 billion incompensation for the nationalization and later lowered its demandto $7 billion.

Exxon's $406 billion market value exceeds Venezuela's totaleconomic output and is larger than the gross domestic products ofall but 23 of the world's nations.

'Fair-Market Value'

Chavez's seizure of assets cost Exxon 425 million barrels ofproved reserves at the end of 2007, which had a market value of $38billion at the time of the nationalization, based on Bloombergcalculations.

The ruling by the New York-based International Chamber ofCommerce probably has few implications for foreign investment inVenezuela's energy sector, Brinker said. Although U.S. and Europeanproducers such as Chevron Corp., Total SA and Statoil ASA yieldedto the 2007 seizures that made them junior partners to PDVSA,Chavez has been increasingly courting investments from Russian andChinese energy firms, Brinker said.

The separate proceeding before the World Bank's InternationalCentre for the Settlement of Investment Disputes is “larger” thanthe ICC case, Patrick McGinn, an Exxon spokesman, said yesterday inan e-mailed statement.

“We recognize Venezuela's legal right to expropriate assetssubject to compensation at fair-market value,” McGinn said. “ThisICC arbitration award represents recovery on a limited, contractualliability of PDVSA that was provided for in the Cerro Negro projectagreement. Contract sanctity and respect for the rule of law arecore principles used to manage our business over the longterm.”

The three-person World Bank panel was created in August 2008 andbegan deliberations in November 2008, according to case documentspublished on the ICSID's website. The panel was occupied withjurisdictional arguments until June 2010 and disputes aboutdocument production through March 2011, the filings showed.Hearings are scheduled to resume next month, McGinn said.

The panel members are French jurist Gilbert Guillaume,University of Geneva professor Gabrielle Kaufmann-Kohler, andEgyptian lawyer Ahmed Sadek El-Kosheri, according to the ICSID'swebsite.

Guillaume, 81, adjudicated a century-old territorial disputebetween Indonesia and Malaysia when he was president of theInternational Court of Justice from 2000 to 2003. He also presidedover Belgium's unsuccessful attempt to prosecute an Africanpolitician for war crimes.

Kaufmann-Kohler, a former director of Zurich-based UBS AG, wasExxon's nominee to the panel. El-Kosheri, 79, was Venezuela'snominee. He's a former legal adviser to the Kuwaiti oil ministryand a partner in the Cairo law firm Kosheri, Rashed & Riad.Guillaume was assigned to the case by the ICSID.

Bloomberg News

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