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Venezuela loses US refinery stake to ConocoPhillips after court ruling

24 September 2015

A US Federal Court has upheld an International Chamber of Commerce (ICC) arbitration allowing US oil giant ConocoPhillips to take Venezuelan state oil company PDVSA’s 50% stake in a delayed coking unit at the Sweeny refinery in Old Ocean, Texas. The 70,000 barrel-per-day coking unit was originally owned by a joint venture between PDVSA and Phillips. 

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When Venezuela failed to supply its contractually agreed amount of crude, ConocoPhillips announced it was exercising its right to buy out its deficient partner.

After four years of arbitration, an International Chamber of Commerce (ICC) arbitration panel ruled in April 2014 that Phillips could exercise its right to acquire PDVSA’s 50%, since PDVSA had indeed violated the supply and investment contribution agreements.

After losing at the ICC, Venezuela took the matter to the US Federal Court in New York to try to block enforcement of the arbitration award, while ConocoPhillips counter-claimed for enforcement of the award. Venezuela has till the end of September to appeal the latest ruling.

As Venezuela was deemed to have breached the contract by not supplying crude and also not contributing further investment to the venture, ConocoPhillips will be able to take PDVSA’s share of the refinery for nothing, despite its 50% stake in Sweeney having been valued at up to $540 million. According to an international lawyer quoted by the Latin American Herald Tribune, this was because PDVSA had already received dividends totalling over $1.1 billion — far in excess of its capital contribution of $270 million.

The Venezelan company said it would appeal the ruling. "PDVSA is convinced the decision is incorrect and that the acquisition was unlawful. Therefore, a notice of appeal will be filed shortly to continue defending PDVSA's interests," it said in a statement.

ConocoPhillips lodged several multibillion dollar suits against Venezuela and PDVSA, after President Hugo Chavez expropriated its investments and companies in Venezuela.

In 2007, ConocoPhillips filed an arbitration claim against Venezuela at the World Bank’s International Center for Settlement of Investment Disputes (ICSID) for the takeover of ConocoPhillips’ assets in Venezuela, including two heavy crude projects in the Orinoco Belt.

ICSID found Venezuela liable for the expropriations without compensation in 2013 and is now arbitrating damages that are expected to be around $5 billion. Venezuela's Attorney General's Office has requested various reviews of recent ICSID decisions, which critics see as attempts to stall the payment of fines.

ConocoPhillips has also filed a contractual claim for losses from the expropriations before the ICC. This case is also ongoing.

The country is in the midst of a recession, due partly to low oil prices. Crude accounts for 96% of the country's foreign income.

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