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Venezuela halts deliveries to Exxon in oil field dispute

February 13, 2008|Chris Kraul and Mery Mogollon Special to The Times

CARACAS, VENEZUELA — Venezuela on Tuesday suspended all commercial relations with Exxon Mobil Corp., including any deliveries of crude and oil products, amid a bitter dispute over the nationalization of the U.S. oil giant's heavy oil field.

The move comes days after Exxon Mobil won backing from courts in the United States, Britain and the Netherlands to freeze as much as $12 billion in assets belonging to the Venezuelan state oil company as part of its strategy to recoup its investment. On Tuesday, Exxon Mobil extended an olive branch of sorts, saying it was willing to negotiate a settlement of its fight.

But Petroleos de Venezuela, known as PDVSA, was having none of it. It fired back in a statement, saying that as a "reciprocal act" it was cutting all ties to Exxon. Energy Minister Rafael Ramirez earlier told local media that PDVSA was preparing for "economic war."

It was not clear how many barrels of oil Venezuela had been providing to Exxon in recent months, and company spokeswoman Margaret Ross declined to comment Tuesday. However, it was believed to be a small fraction of the U.S. oil giant's daily production.

Meanwhile, PDVSA also announced that it was selling a 20-million-barrel petroleum "tank farm," or storage facility, in the Bahamas to First Reserve Corp., an investment firm with offices in Greenwich, Conn., plus Houston and London. Terms were not disclosed, though news reports put the sale price at $900 million.

The sale of the storage terminal 80 miles off the coast of Florida seems likely to feed rumors that the Venezuelan oil giant is strapped for cash and is resorting to the sale of assets to meet its short-term operating obligations.

In June, Venezuelan President Hugo Chavez nationalized the Cerro Negro oil field developed by Exxon Mobil in the Orinoco Belt region of eastern Venezuela. Ever since, the U.S. company has been seeking billions of dollars in restitution. Exxon Mobil has lodged a complaint against PDVSA with the World Bank's dispute resolution tribunal in an attempt to recover its investment. It took the unusual step of asking foreign courts to freeze PDVSA assets, apparently because it believed that the Venezuelan company would not pay up.

On Tuesday, a measure was introduced in Venezuela's National Assembly to withdraw from the World Bank tribunal. The legislature is dominated by Chavez supporters.

It was unclear Tuesday whether such a withdrawal, if completed, would affect the Exxon Mobil case. The original contract that PDVSA signed with Exxon Mobil in the early 1990s to develop Cerro Negro specifically said the tribunal was the competent court to settle any dispute.

The legislators also proposed a "national mobilization" to protest unspecified "judicial actions" by Exxon Mobil.

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chris.kraul@latimes.com

Mery Mogollon is a special correspondent in Caracas.

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