CARACAS --The World Bank's International Center for the Settlement of Investment Disputes (ICSID) international arbitration tribunal ruled today that Venezuela unlawfully expropriated ConocoPhillips’ significant oil investments in the Petrozuata and Hamaca heavy crude oil projects and the offshore Corocoro development project and that Venezuela’s actions amounted to an unlawful expropriation. In doing so, ICSID also confirmed its jurisdiction over the dispute.
“We welcome this decision by the Tribunal,” said Janet Langford Kelly, senior vice president, Legal, General Counsel and Corporate Secretary of Conoco. “This ruling sends a clear message that countries cannot expropriate their investments without fair compensation.”
ConocoPhillips, headquartered in Houston, Texas, has operations and activities in 30 countries, $55 billion in annualized revenue, $117 billion of total assets, and approximately 17,500 employees as of June 30, 2013.
While today’s ruling is a major milestone, the arbitration process will continue for a period of time in order to determine compensation owed for ConocoPhillips’ substantial investments.
In the early 1990s, in order to induce foreign investments in its heavy oil projects in the Orinoco Belt, Venezuela created a new fiscal framework that applied specifically to these projects. Relying on these terms, ConocoPhillips helped Venezuela develop the Petrozuata, Hamaca and Corocoro projects with its technology and substantial long-term investments.
In 1995, Venezuela's Petroleos de Venezuela, S.A. (PDVSA)-affiliate Maraven and Conoco Inc. signed a contract creating the $1.4 billion joint-venture Petrozuata to develop Venezuela's tar-like heavy crude, along with U.S. At the time, the partners estimated production and upgrading costs of just $9 a barrel while Maya crude was then trading around $14 a barrel in international markets. Because of Petrozuata's success, the partners also built an upgrader bringing total initial project costs to $2.464 billion.
In addition to Petrozuata, Conoco went on to invest in the Hamaca and CoroCoro projects for a total of over $2 billion in the 1990s.
However, in the summer of 2007, the government of Venezuela President Hugo Chavez expropriated ConocoPhillips’ investments in their entirety without fair compensation. Consequently, in late 2007, the company initiated arbitration proceedings against Venezuela before ICSID, an arm of the World Bank.
"The award is likely to be large," said Russ Dallen, head of Venezuela-based investment bank Caracas Capital Markets and an international lawyer who has been following the case since its beginining and studied under one of the originial arbitrating judges, Sir Ian Brownlie QC, at Oxford University. "The majority of the ICSID panel specifically ruled that the valuation of the ConocoPhillips assets will be from the 'date of the award' over the wishes of the Venezuelan-appointed judge Egyptian Professor Georges Abi-Saab. That means that the loss to Conoco will be valued for what it is worth today with $100 a barrel oil."
ConocoPhillips v Venezuela ICSID by LatinAmerican Herald Tribune
Venezuela Letter to ICSID 8 Sept 2013 Re ConocoPhillips