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Venezuela Vows to Reject Arbitration Ruling in Exxon Case

January 9, 2012 by Leave a Comment

Exxon took Venezuela to the World Bank’s International Center for Settlement of Investment Disputes, seeking as much as $12 billion in compensation after Mr. Chávez ordered the nationalization of the Cerro Negro oil project in 2007.

“I tell you now, we will not recognize any decision” by the center, Mr. Chávez said during a televised speech. He has repeatedly accused the United States oil major of using unfair deals in the past to “rob” Venezuela, an OPEC member, of its resources.

“They are trying the impossible: to get us to pay them,” he said. “We are not going to pay them anything.”

It was not immediately clear whether Mr. Chávez was also referring to about 20 other cases that Venezuela faces before the World Bank’s arbitration panel that were prompted by a wave of state takeovers in recent years.

They include separate multibillion-dollar proceedings brought by ConocoPhillips, another major American oil company.

Last week, an arbitration panel with the International Chamber of Commerce awarded Exxon $908 million in a separate case related to the Cerro Negro nationalization.

On Saturday, the Venezuelan oil minister, Rafael Ramírez, said he did not expect a verdict in Exxon’s World Bank case until the end of this year. Exxon said arguments were scheduled to start in February.

Both cases have been closely watched by the industry for precedents in future disputes between companies and oil-producing countries, which have increasingly sought a greater share of revenue as prices soar and reserves become tougher to find.

For years, Venezuela’s socialist leader has accused foreign oil companies of plundering the nation’s reserves, but he has maintained close ties with many of them.

Some lawyers said the decision by the International Chamber of Commerce covered only a commercial dispute between Exxon and Petróleos de Venezuela, the state-run oil company, over earnings Exxon lost as a result of the takeover.

By contrast, the World Bank case is over compensation for Exxon’s assets, and specialists say it could yield a larger award.

The government has insisted Exxon receive only slightly more than the $750 million it said it invested in the project, but Venezuela said in September it had offered to settle for $1 billion.

For years, Mr. Chávez has confronted oil companies with tax increases and contract changes aimed at increasing revenue from the industry to pay for state-led antipoverty programs.

Venezuela’s push to increase control over its oil industry has been followed by similar efforts in other oil-producing nations. Critics say it has scared investors away from Venezuela and left crude production stagnant.

But some oil companies have remained eager to invest in Venezuela’s Orinoco extra heavy oil belt, which is considered one of the world’s largest mostly untapped reserves of crude.

Chevron of the United States and Repsol of Spain signed deals in 2010 for new multibillion-dollar projects there.

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Exxon Mobil and Iraq Clash Over Payment

December 23, 2011 by Leave a Comment

The American oil giant Exxon Mobil and its partners are embroiled in a $50 million payment dispute with the Iraqi government over an oil field in southeastern Iraq that the companies are upgrading and modernizing. The Shiite-led government of Prime Minister Nuri Kamal al-Maliki is also unhappy with Exxon over a separate development deal the company has struck with the leaders of the semiautonomous Kurdistan region in northern Iraq.

The Iraqi government’s failure to pay Exxon, the only American oil company operating in southern Iraq, for nearly two years of work underscores the perils for Western companies seeking to do business there. The government has not explained why it has withheld the payments.

Any perception that the Iraqi government will not honor its oil contracts could also send ripples beyond Iraq to international markets worried about disruptions in petroleum supplies. Iraq is expected to ramp up oil production faster than any other country in the next 25 years, with a capacity of five million barrels of oil a day by 2035, more than traditional leaders like Saudi Arabia, according to the International Energy Agency.

“The international oil companies are putting in the capital and expertise,” Alex Munton, a Middle East analyst for Wood Mackenzie, a research and consulting firm based in Edinburgh, said. “They need to recover their costs and get a profit margin on top. For it to work, they have to be paid what they are due.

“It would certainly serve Iraq’s interests well to have that contract working smoothly,” he added.

Exxon’s 2009 deal with the Iraqi government to improve production in the West Qurna 1 field was never expected to be lucrative under the best of circumstances. The government had agreed to pay Exxon and its partners $1.90 for each additional barrel of oil they pumped after refurbishing the already producing field. The fees would barely be enough to cover the companies’ costs. Other deals between Iraq and foreign oil companies had similar terms.

International oil contracts are more typically structured to compensate companies with a percentage from sales or a share of production that takes into account the fluctuating price of oil, so that they can be more profitable for the companies when prices rise.

Western oil companies, shut out of Iraq’s oil fields for decades under the government of Saddam Hussein, were willing to do the low-profit, technical service deals to get a foot in the door with the new government that was put in place after the American-led invasion in 2003. Only a few dozen of Iraq’s 80 or so discovered fields are in production, and the government has suggested that it would give more lucrative agreements later to companies that helped the country early on.

For most of the nearly nine-year war, American government advisers aided Iraqi ministries in negotiating and fulfilling contracts. That tapered off as Iraq assumed more sovereignty. President Obama, in a meeting this month with Mr. Maliki in Washington, said Iraq was now a country “sovereign, self-reliant and democratic.”

Exxon and its minority partners in the project — which include the Anglo-Dutch oil giant Shell — increased output in the West Qurna field by more than 10 percent by last March. That was the trigger point for the Iraqi government to begin paying the companies for their work.

But the payments have not been made, according to Hans Nijkamp, Shell’s country manager for Iraq.

“There are a lot of admin-type issues that we’re working through with the government,” Mr. Nijkamp said in an interview.

He said Shell did not believe the delays were deliberate and that the issues would eventually be resolved.

An Exxon Mobil spokesman declined to comment, saying the company has a policy of not discussing commercial matters.

Omar al-Jawoshy contributed reporting.

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Higher Prices Buoy Profits as Oil Companies Scramble for New Fields

July 29, 2011 by Leave a Comment

HOUSTON — Exxon Mobil and Royal Dutch Shell reported large increases in second-quarter profits on Thursday, benefiting from oil and gasoline prices that have been propelled upward by political turbulence in the Middle East and North Africa.

It was the strongest quarter for Exxon since it set a corporate quarterly earnings record in 2008, when crude oil prices approached $150 a barrel before collapsing as the world economy slowed.

Exxon, the biggest American oil company, reported earnings of $10.7 billion for the quarter, up from $7.56 billion the year before, but a bit less than Wall Street had been expecting. Shell, the largest European oil company, posted profits of $8.7 billion, up from $4.4 billion a year ago.

The results of Exxon and Shell, as well as ConocoPhillips and BP earlier in the week, highlighted the oil majors’ dependence on high oil prices for profit growth at a time when they are straining to pick up new reserves to increase or even sustain future production.

Major oil companies are finding it difficult to acquire new reserves because countries rich in oil and gas have become increasingly grudging in their dealings with foreign companies, striking production-sharing agreements that offer them a smaller share of the profits. That is prompting oil companies to drill deeper below the ocean’s surface and explore in the Arctic for oil — expensive propositions that put pressure on profits — or drill for less profitable gas.

“We are going into a world where finding the oil and gas is going to be more complex,” Shell’s chief executive, Peter R. Voser, acknowledged as his company released its results. “It needs more money.”

Smaller oil and gas companies like EOG Resources and Cabot Oil and Gas have proved to be more nimble than the giants in recent years, moving into shale oil and gas fields in the United States and booking new reserves at a far faster rate. The major companies have tried to follow suit over the last two years, but a glut of natural gas from rising production has weakened the profitability of some fields.

Growth in oil company profits for the rest of the year is uncertain, given that oil and gas prices are strongly tied to the health of the global economy. Demand in the United States for diesel, gasoline and other petroleum products has eased in recent months after starting the year strongly, and the growth in Chinese oil demand has slowed somewhat.

“If the economy does not grow faster, earnings growth in the energy sector is obviously going to be limited,” said Fadel Gheit, a senior oil analyst at Oppenheimer Company. “You can’t grow energy demand in a flat economy.”

The Energy Department reported on Thursday that United States oil demand in May fell by nearly 2.5 percent from the same month the year before, representing a decline of 464,000 barrels a day. The department also reported that oil inventories last week were up by 2.3 million barrels from the week before, suggesting a less-than-robust summer driving season.

Oil prices have eased more than 10 percent since the spring, when crude prices peaked because of the loss of 1.3 million barrels of oil a day of production caused by the turmoil in Libya and fears that instability could spread to major producers like Saudi Arabia and Algeria. Since then, increased production in Saudi Arabia and the release of oil from strategic reserves in the United States and other industrialized countries have helped prevent shortages.

Even if oil demand and prices increase, large oil companies will strain to keep up production.

ConocoPhillips reported a 90,000-barrel-a-day decline in oil and gas production for the quarter on Wednesday, though earnings were higher anyway as a result of higher oil prices. Shell also reported a decline of 100,000 barrels of daily oil and gas production for the quarter, in part because of permitting delays in the Gulf of Mexico after the BP accident last year.

Exxon’s earnings were lower than analysts had expected despite strong revenue growth, reflecting a record $10.3 billion in capital and exploration expenditures in new oil and gas projects, up 58 percent from the second quarter of 2010.

Exxon’s purchase of XTO Energy last year to become the nation’s biggest natural gas producer has been questioned by some investors in light of low gas prices, but the acquisition helped Exxon’s oil and gas production to increase by 10 percent from a year ago.

Exxon is continuing to invest heavily in natural gas, purchasing 317,000 acres for $1.7 billion in Pennsylvania’s Marcellus shale field in June. It is also drilling deep in the Gulf of Mexico, and last month announced the discovery of a new deepwater field holding the equivalent of 700 million barrels of oil.

Edward Westlake, an analyst at Credit Suisse, said Exxon profits were hurt by the shutdown in production in several oil fields and refineries around the world for maintenance reasons. He said he was optimistic about the company’s prospects because of an increase of annual capital expenditures from $21 billion in 2007 to around $35 billion currently, along with its aggressive acquisition of oil and gas acreage.

“One day this will pay off,” Mr. Westlake added.

While Exxon has tried to buy reserves, Shell has invested heavily over the last decade in complex projects, particularly in the Persian Gulf state of Qatar. Its $20 billion Pearl project, which will produce liquid fuels out of natural gas on an enormous scale, has been going through final tests this year and should begin to produce profits in coming months.

For Shell, “earnings and cash flow should greatly improve over the next few years,” said Brian M. Youngberg, an oil analyst at Edward Jones.

Julie Werdigier contributed reporting from London.

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