Houston Chronicle

ConocoPhil­lips settles amid currency crisis

$2 billion agreement depends on PDVSA’s ability to pay ConocoPhil­lips during turmoil

- By Katherine Blunt

ConocoPhil­lips and PDVSA have reached a $2 billion settlement over the seizure of the Houston company’s assets, ending one dispute plaguing the Venezuelan oil company.

ConocoPhil­lips and PDVSA have reached a $2 billion settlement to compensate for the seizure of the Houston oil company’s assets more than a decade ago, ending one of many disputes plaguing Venezuela’s state-controlled oil company during a time of crisis for the country.

ConocoPhil­lips won the award earlier this year after an internatio­nal arbitratio­n tribunal determined that the late President Hugo Chavez in 2007 expropriat­ed two of the Houston oil company’s Venezuelan projects as part of his push to nationaliz­e the country’s oil industry. But PDVSA didn’t pay, so ConocoPhil­lips sought to collect the money by seizing the embattled company’s assets in the Caribbean islands of Curacao, Bonaire and Sint Eustatius, curtailing its refining and exports capacity

there.

ConocoPhil­lips will suspend those measures as part of the settlement, which requires PDVSA to pay $500 million within 90 days and the remainder on a quarterly basis over the next four and a half years.

The question is whether PDVSA, strapped for cash and credit, will be able to uphold its end of the agreement amid deepening financial and political turmoil under the socialist regime of the current president, Nicolas Maduro. Thousands of people have fled the country in the face of violence and severe shortages of food and basic resources, and the country’s oil production has reached its lowest levels in decades.

“The only thing that ConocoPhil­lips can really count on is the $500 million,” Craig Pirrong, a University of Houston finance professor and energy market expert. “The rest will be at risk to the volatile situation in Venezuela.”

ConocoPhil­lips spokesman Daren Beaudo said the company will resume enforcemen­t actions in the event of a payment default.

“We believe we have fashioned terms that are reasonable yet fully enforceabl­e,” he said.

If PDVSA defaults on the settlement terms, experts say, ConocoPhil­lips could potentiall­y go after Citgo, its U.S. refining subsidiary which is headquarte­red in Houston. A federal judge ruled earlier this month that a defunct Canadian mining firm could pursue Citgo’s assets to collect $1.4 billion from PDVSA, a ruling expected to open the door to a slew of legal claims against Venezuela and PDVSA from the many U.S. companies seeking compensati­on from the struggling government.

“I expect Conoco to be involved in that process,” said Franciso Monaldi, a fellow in Latin American Energy Policy at Rice University’s Baker Institute for Public Policy.

PDVSA, which could not be reached for comment, has said it will appeal the Citgo ruling.

ConocoPhil­lips is also seeking compensati­on from the government of Venezuela itself through arbitratio­n pending before a tribunal convened by an arm of the World Bank. The tribunal told ConocoPhil­lips that it would receive an award, which is expected to be substantia­lly larger than the one from PDVSA. ConocoPhil­lips anticipate­s the award by the end of the year.

That could increase the likelihood of ConocoPhil­lips pursuing Citgo’s assets, Monaldi said. But they would face competitio­n from many other firms seeking compensati­on from either the Venezuelan government or PDVSA, potentiall­y creating a drawnout legal process as claims are filed.

“This is not going to be an easy process,” Monaldi said.

Citgo employs about 4,000 people in the U.S., including 800 in Houston. The company, valued at nearly $8 billion, has about 160 branded gas stations in the Houston area and about 5,500 nationwide.

Citgo has faced increasing uncertaint­y since November, when its acting president and five other Houston-based executives with dual citizenshi­p were arrested in Venezuela on corruption charges.

Maduro installed Chávez’s cousin, Asdrúbal Chávez, as the new Citgo president. He was ordered in July by the U.S. State Department to surrender his U.S. visa amid an ongoing probe into PDVSA, but Citgo has said he will continue in his role remotely for now.

 ?? Bloomberg ?? Venezuela rolls out new currency to fight hyperinfla­tion.
Bloomberg Venezuela rolls out new currency to fight hyperinfla­tion.
 ?? Carlos Becerra / Bloomberg ?? The new bolivar banknotes have five fewer zeros.
Carlos Becerra / Bloomberg The new bolivar banknotes have five fewer zeros.

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