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ConocoPhillips signs $2 billion settlement with Venezuela’s PDVSA

21 August 2018

US oil and gas giant ConocoPhillips said on August 20 that it has settled with Venezuela’s state-run oil company, PDVSA, to recover about $2 billion in arbitration payments. The International Chamber of Commerce awarded ConocoPhillips that amount in April after PDVSA failed to uphold various contractual commitments.

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PDVSA has agreed to recognise the ICC judgment and make initial payments totalling approximately $500 million within a period of 90 days from the time of signing. The balance of the settlement is to be paid quarterly over a period of 4.5 years.

As a result of the settlement, ConocoPhillips has agreed to suspend its legal enforcement actions of the ICC award. Conoco has ensured that the settlement meets all appropriate US regulatory requirements, including any applicable sanctions imposed by the US against Venezuela. Further details of the agreement are confidential.

On April 25, 2018, the ICC tribunal awarded Conoco approximately $2 billion arising out of PDVSA’s failure to uphold its contractual commitments. The award relates to the unlawful expropriation of Conoco's investments in the Hamaca and Petrozuata heavy crude oil projects in Venezuela in 2007 and other pre-expropriation fiscal measures. The ICC arbitration award is final and binding upon the parties.

Additionally, Conoco has a separate and independent legal action pending against the government of Venezuela before a tribunal under the auspices of the World Bank's International Centre for Settlement of Investment Disputes (ICSID). The ICSID tribunal has already ruled that Venezuela’s expropriation of Conoco's investments violated international law. Proceedings are underway to determine the amount of compensation owed to the US company.

Bloomberg says the $2 billion represents about a quarter of international reserves held at Venezuela’s central bank. PDVSA is behind on $6.1 billion in bond payments to creditors, and a judge in Delaware recently granted Canadian miner Crystallex the right to seize shares of US refiner Citgo held by a Venezuelan parent, though the decision is being appealed.

Under the settlement, Conoco said it will suspend legal actions it had mounted worldwide, including in the Dutch Caribbean where about 16% of Venezuela’s crude exports are stored before shipping to the US, China and India.

After the international tribunal in April, the company moved to take over oil facilities on the Caribbean islands of Bonaire, Curacao, St. Eustatius and Aruba. The moves created a hurdle for exports even as Venezuela’s domestic troubles cut into production at PDVSA, further hampering the country’s ability to raise cash and pay off its debts. Vessels were ordered to immediately pull away from Caribbean ports, creating a backlog of ships around Venezuela.

The pact comes days after Venezuela President Nicolas Maduro devalued the bolivar to trade nearly in line with the black market exchange rate in the latest attempt to deal with the country’s crippling economic woes. The legal war waged by Conoco, in addition to US sanctions, has severely hampered PDVSA’s ability to export crude, the commodity that bankrolls Maduro’s regime.

In addition to ConocoPhillips, PDVSA has also reached an agreement with NuStar Energy LP, the Texas-based company said. The Venezuelan oil company, which fell behind payments for the leasing of oil storage tanks in St. Eustatius, signed an accord to meet its obligations with NuStar, according to a statement from the US company.

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