ConocoPhillips action strains PdV oil exports

Venezuela could be forced to shut in some of its already declining crude production, reprogram exports and sell distressed cargoes to cope with the indirect impact of liens on Venezuelan state-owned PdV´s Dutch Caribbean assets imposed by ConocoPhillips, a leading arbitration claimant.

PdV has begun recalling its oil tankers from Dutch Caribbean waters to forestall further asset seizures, effectively restricting its ability to import critically needed fuel and diluent, and export crude and fuel oil, industry officials say.

ConocoPhillips is seeking to enforce a $2bn award that was recently granted by the International Chamber of Commerce (ICC) for Venezuela´s 2007 expropriation of the US company´s Hamaca and Petrozuata integrated heavy crude projects based in the Orinoco oil belt.

PdV has yet to respond to ConocoPhillips´ offensive. But the recall of its vessels suggests that the operational impact will be immediate, with implications for the government of president Nicolas Maduro on the eve of controversial 20 May elections that have been widely denounced abroad as fraudulent. Venezuela relies on oil exports for nearly all of its revenue.

Debt-laden PdV has been dogged by repeated pre-judgment attachment orders in recent years, such as the one that has grounded the Venezuelan-flagged 105,000t Terepaima crude tanker off the Dutch island of Bonaire for the last month. Attachments on the crude and bunker aboard the tanker Proteo in Curacao were lifted in March.

Although diminished crude production has left open some storage at the Venezuelan ports of Jose and Guaraguao, these will fill up "in a matter of days" if PdV cannot sustain exports. The alternative would be extensive floating storage, but PdV could not afford that, a senior company official tells Argus.

A main asset targeted by ConocoPhillips is PdV´s 10mn bl Bopec storage and transshipment facility on Bonaire. Other assets include a storage lease on NuStar´s St Eustatius facility, a 325,000 b/d refinery leased on Curacao and storage in Aruba. NuStar said today that it is assessing its "legal and commercial options" while maintaining a conservative forecast for its earnings in light of "uncertainties associated with the difficulties in Venezuela".

The Dutch Caribbean has long provided a key logistical network for PdV´s import and export operations. As the firm´s Venezuelan installations have deteriorated because of scant investment in recent years, the company has come to rely even more on its Caribbean assets.

This dependence has exposed PdV to pre-judgment attachments that are easier to execute in the Dutch Caribbean than in other jurisdictions such as the US.

At this stage, PdV and ConocoPhillips are waiting for a local Dutch Caribbean court to recognize the ICC award before making a judgment. The process is likely to be drawn out as PdV tries to persuade the court not to recognize the award, attorneys observing the case say.

For ConocoPhillips, the objective of the action is less about the value of the assets or the oil stored in them, and more about putting an operational "stranglehold" on PdV to force it to pay the ICC award, one of the attorneys says. The strategy appears to be to "grab something so vital to PdV, the company will have no choice but to pay the award," the attorney said.

ConocoPhillips confirmed general "enforcement actions" in the Caribbean, without specifying specific locations or assets. Anticipating local impacts from the dispute, the firm said "… any potential impacts on communities are the result of PDVSA's illegal expropriation of our assets and its decision to ignore the judgment of the ICC tribunal. PDVSA should immediately comply with the ICC ruling and compensate us for our losses."