Reply #2: The ExxonMobil and ConocoPhillips cases are still on [View All]

[Braulio]

Exxon didn't have its anything handed to it. What Exxon lost was a move to freeze all of PDVSA's assets worldwide, claiming they would win the case and wanted to make sure PDVSA would pay off - ie they didn't want to see PDVSA sell its assets abroad to avoid payment to Exxon.

PDVSA showed the court they had no intent to sell their assets, and in any case, should they decide to sell, the court could at that time block the sale, therefore the Exxon move was premature. The court agreed. The ICSID case is still taking place in the USA, and the latest I heard was that PDVSA's lawyers were very worried because it was likely they would lose the case by the end of the year.

A multinational such as Chevron may be relying on a bilateral treaty to protect investments. This short article discusses how they work:

http://www.petroleumworld.com/Ed07071701.htm

Thus Chevron's future investments in Venezuela may be protected if they use a third nation subsidiary (a Dutch subsidiary is common).

For example, the Russians have disclosed to their media their intent to invest in Venezuela, provided the Venezuelan Congress approves a bilateral treaty which allows arbitration in a third country (the most likely being Sweden).

In conclusion, while Ali Moshiri is willing to provide cosmetic coverage for PDVSA, it's doubtful we'll see Chevron invest more in Venezuela unless they have bilateral coverage and international arbitration. The same will apply to any other foreign investor who has to commit large sums of money.

Furthermore, large service and construction companies are also going to insist on international arbitration for large contracts, plus possibly having PDVSA post bonds outside Venezuela. The exception may be the large Brazilian construction firms, such as Odebretch, which are getting very sweet contracts thanks to Lula's great touch with Chavez.

As an observer of the oil market, I like stability, and thus it's better if Venezuela behaves as any other player in the oil industry, establishing a track record of honoring its contracts and paying its contractors on time. Their record has been quite spotty recently. It is this spotty record which leads to concerns over their ability to execture real projects and deliver the oil to the market, and this of course influences (although in a minor way), the overall projection for supply/demand in the future. And this is the reason why, long term, Brazil appears to be a better bet to become the premier oil supplier to the USA from Latin America.