ConocoPhillips pressured to ease PdV liens

An aggressive strategy by US independent ConocoPhillips to pressure Venezuelan state-owned PdV into paying a $2bn arbitration awardby levying liens on its Dutch Caribbean assets is at risk of cracking, legal and diplomatic sources tell Argus.

If the liens are overturned, PdVwould regain some access to its critical offshore refining and logistical assets — unlocking import and export operations that have been stymied by the wave of pre-judgment attachments levied in the region since 4 May.

A bellwether ruling is scheduled for 21 May in a Curacao court, which will decide whether to order a partial lifting of the attachments, as petitioned by state-owned fuel distributor Curoil and power and water utility Aqualectra. Their case is backed by the Dutch-controlled island's government.

ConocoPhillips is seeking to force PdV to fulfill an April ruling by the International Chamber of Commerce to pay the firm more than $2bn for Venezuela´s 2007 takeover of two of its Venezuelan heavy crude upgrading projects. The US company is pursuing attachments on PdV assets in the US, Europe and Asia as well, but the Caribbean seizures have moved faster because Dutch law facilitates pre-judgment attachments that are more complex to execute in other jurisdictions — much to the chagrin of the island communities.

The plaintiffs argue that the liens are harming the local economy, threatening 2,000 local refinery jobs and fuel supply for transportation and electricity service in a debt dispute that is dwarfed by the breadth and overall potential value of the attached assets.

"We´re very worried, and don´t want to be collateral damage in this dispute," one island representative says.

The Curacao court is seen by both sides as sympathetic to the islanders' cause. In one possible scenario, the judge could order the removal of liens on some product storage tanks and block any further seizures of crude cargoes. This would allow the PdV-operated 330,000 b/d Isla refinery and Bullen Bay terminal to resume operations, and free up fuel supply for local consumption.

But such an outcome could also take the teeth out of ConocoPhillips' offensive by easing pressure on PdV to cut a payment deal. More importantly, it would set a precedent for courts in other Dutch Caribbean islands such as Bonaire where PdV's storage and logistics assets have been blocked.

The US firm would welcome a lifting of the liens if it were tied to a robust payment arrangement. For example, PdV revenue could be channeled into an escrow account from which the US company would be gradually paid. But such a set-up requires PdV to cooperate, and so far there is no sign that the Venezuelan company is willing to strike a deal.

Unexpectedly, neither PdV nor its legal representatives showed up at a 15 May Curacao court hearing on the local bid to partially lift the liens on the island. That surprise move was interpreted as a way for the Venezuelan firm to avoid engaging with the court or ConocoPhillips on possible payment arrangements. For PdV, the risk is that any deal to pay would encourage its many other creditors to follow ConocoPhillips' lead.

Time may be on Venezuela's side, politically if not operationally. PdV seems to be banking on local pressure on ConocoPhillips from the islands, and from The Hague, to find a quick solution, whether the Venezuelan company cooperates or not. That could hand Caracas a propaganda victory just as it is about to conduct a 20 May presidential election that is widely seen as fraudulent.

PdV executives tell Argus that a prolonged dispute that denies the company access to the key island facilities would eventually force it to shut in some production for lack of storage. The Opec country had already lost 500,000 b/d of oil production over the past year, long before the debt dispute erupted. Output could now tumble ever faster, accelerating a run-up in global oil prices.

ConocoPhillips anticipated that its approach of targeting the small island assets could be seen as heavy-handed, and would have local repercussions. But it laid these at the feet of PdV for not honoring the debt.

"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," the company has said.

The US firm is one of many creditors seeking to collect on combined total external Venezuelan debt estimated at $190bn, including around $64bn in PdV and sovereign bond debt. The oil company has taken the most aggressive action so far, leaving other creditors feeling left behind.

"We know PdV can´t pay, so we´re being patient," said a lawyer representing a group of jilted bondholders says. "But we don´t want to be at the end of the line."