Exxon Wins Asset Freeze

In Fight With Venezuela

By RUSSELL GOLD, RAUL GALLEGOS and CHAD BRAY

February 8, 2008; Page A3

Exxon Mobil Corp. has obtained court orders freezing more than $12 billion in bank accounts and assets in Europe, the Caribbean and New York belonging to the Venezuelan state oil company as a dispute over compensation for expropriated assets heats up.

The legal salvo shows that Exxon Mobil is willing to fight back against a rising tide of resource nationalism that threatens the long-term prospects of Western oil companies. Rising oil prices have emboldened oil-rich nations, such as Venezuela, which in recent years have increasingly seized assets as well as raised taxes and royalties. So far, Western oil companies have offered little resistance.

Exxon's moves limit the company, state-controlled Petroleos de Venezuela SA, from moving certain funds and from selling assets pending a decision in arbitration hearings between the two. It argued the freezes were necessary to keep assets where it could reach them in case the Venezuelan company lost. In effect, Exxon's efforts reduce Venezuela's ability to move money through London and New York City, the world's largest financial centers.

The court orders are unlikely to reach into Venezuela, where PDVSA, as the company is known, has most of its assets. They also aren't likely to interfere with the day-to-day activity of PDVSA units such as Citgo Petroleum, its U.S. refining business.

Still, news of the court orders sent Venezuela's sovereign-debt bonds sliding and raised questions about how PDVSA will operate without tapping the world's financial capitals. Lehman Brothers Holdings Inc. sovereign-debt analyst Gianfranco Bertozzi said: "We may see follow through from other companies seeking the same sort of court support, which could severely impair PDVSA's ability to operate."

PDVSA officials declined to comment. An Exxon spokeswoman confirmed the filings but said the orders are subject to further review by the courts and declined to comment further.

The dispute stems from this past summer when Venezuelan President Hugo Chávez decided to take control of four major oil projects in the Orinoco Basin, one of the richest oil deposits in the world. Exxon, which had a significant stake in one of the projects, refused a minority stake and Venezuela seized the heavy-oil production facility.

In a series of legal steps beginning in late December, Exxon convinced a judge in the U.S. District Court for the Southern District of New York to freeze a $315 million account in New York City belonging to PDVSA. A hearing is set for Wednesday.

It also got courts in the United Kingdom, the Netherlands and Netherlands Antilles to put a global freeze order limiting PDVSA's ability to sell assets. U.K. arbitration laws give courts jurisdiction over parties who have agreed to arbitration, and therefore over party's assets world-wide. Western companies successfully used similar moves after Libya nationalized its oil fields in the 1970s.

ConocoPhillips also refused to turn over a majority stake in its Venezuelan assets and walked away rather than accept a minority role. ConocoPhillips took a $4.5 billion impairment charge to its earnings last year to reflect the lost value of its assets. Exxon hasn't written down the value of its assets, which analysts estimate were worth about $1.5 billion. Both companies have filed arbitration proceedings with the World Bank seeking compensation.

ConocoPhillips, however, hasn't attempted to freeze PDVSA's assets. The company "continues to discuss an amicable resolution specific to the assets that were expropriated in Venezuela," said spokesman Bill Tanner.

PDVSA owns assets throughout the world and regularly ships tankers full of crude oil to ports around the world. Much of its output, however, is geared to the U.S., where its Citgo unit refines the oil into gasoline, heating oil and other products. In addition to the $315 million bank account, Citgo owns refineries in the U.S. and PDVSA owns 50% stakes in refineries in Louisiana and the U.S. Virgin Islands.

Late last year, PDVSA came to terms with two European oil companies, Total SA and StatoilHydro ASA, and agreed to pay them $1.1 billion in compensation for their stakes in oil projects they controlled, less than half of their estimated net present value.

Whether this legal tactic will succeed in getting Venezuela to pay Exxon close to true market value for its expropriated assets isn't clear to legal analysts, in part because the company is in uncharted waters. "What Exxon is doing is taking a principled position and standing up for its rights. This is a message to other governments that you have one company that's not going to be pushed around," said Jose Valera, a partner at the Houston law firm King & Spaulding LLP.

Write to Raul Gallegos at raul.gallegos@dowjones.com1 and Chad Bray at chad.bray@dowjones.com2

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