Court OKs ConocoPhillips' Caracas debt award

A US federal court has allowed ConocoPhillips to collect an $8.5bn international arbitration award related to a 2007 expropriation of the US producer's Venezuela assets.

But the order by the US district court for the District of Columbia does not guarantee that ConocoPhillips will be able to collect its debt, given the multiple claims totaling $60bn by all of Venezuela's creditors competing against Caracas' dwindling international assets.

The $8.5bn award stems from a claim ConocoPhillips filed with the World Bank's International Centre for Settlement of Investment Disputes (Icsid) after Caracas in 2007 expropriated two of the US company's Orinoco oil belt projects — Petrozuata and Hamaca. The US federal court in 2019 deferred to the Icsid to allow ConocoPhillips to collect the award, but objections by Caracas and procedural issues with an arbitration panel tasked with the case delayed a final decision.

The Icsid panel in March cleared the US company to proceed with collecting the award, and the Venezuelan government failed to defend its case before the US court, judge Carl Nichols said in an opinion issued on 19 August and released today. The court order allows ConocoPhillips to proceed with collecting the award.

One of the biggest obstacle for ConocoPhillips is competition from other creditors for Venezuela's assets abroad, including its biggest foreign-based asset — US refiner Citgo. A separate proceeding in the US district court for the District of Delaware is weighing competing claims by defunct Canadian mining company Crystallex — New York hedge fund Tenor Capital holds its shares now — and ConocoPhillips, a consortium of investors in bonds backed by shares in Citgo holding company PDVH and other creditors.

The Delaware court proceeding is the most advanced in the hypothetical path of enforcing awards against Caracas after the court ruled in March that a final sale can proceed.

But any sale of Venezuelan assets in the US is on hold under executive orders issued by former president Donald Trump's administration in 2018-19. President Joe Biden's administration maintained the same prohibition because it considers US-based Venezuelan assets to be held on behalf of the people of Venezuela by the government of "interim president" Juan Guaido, the former speaker of the Venezuelan National Assembly.

The Guiado authority has no real claim to power in Venezuela, but the US still recognizes him as the sole legitimate leader of Venezuela. An ad-hoc board appointed by the Guaido camp controls Citgo, while its parent company PdV is under the control of Venezuelan president Nicolas Maduro's government.

Both the Maduro government and the Guaido authority are represented in the Delaware court proceedings.

The Maduro government previously agreed to pay ConocoPhillips a $2bn award for a different set of expropriated assets, having paid about $754mn before defaulting in 2019.

Broad US sanctions

Venezuela remains under broad US sanctions that prohibit the sale of Venezuelan oil and products in the US and inhibit foreign companies' dealings with PdV. Chevron is the biggest remaining US company in Venezuela, but it is also unable to lift crude cargoes from the country.

Most Venezuelan crude heads to China. A slight relaxation of the sanctions regime earlier this year allowed Chevron to negotiate its future activities in Venezuela, without altering current prohibitions on crude exports, and cleared Italy's Eni and Spain's Repsol to trade Venezuelan crude through non-cash transactions.

But even those companies are now unable to lift Venezuelan crude because the US clearance allowed sales in exchange for settling prior debt, while Venezuela is keen to trade its oil in exchange for diesel because of its limited refining capacity, an industry source says. Eni and Repsol were able to carry out diesel-for-crude swaps in 2018-20 before the US cracked down on the trade. The US Treasury Department, which enforces US sanctions, does not comment on individual companies' sanctions authorization.

The US will not relax its Venezuela sanctions policy unless it sees "meaningful progress" in negotiations between the Maduro government and its opposition on working out a pathway to holding new parliamentary and presidential elections, the State Department said today.

Biden administration officials visited Venezuela twice earlier this year to explore possible sanctions relief and to press for the release of US citizens held in Venezuelan jails. But even such discussions met fierce opposition from leading Democrats and Republicans on the US Senate Foreign Relations Committee, who want the White House to maintain a strict sanctions regime against Venezuela unless Maduro agrees to step down.

By Haik Gugarats and Ruxandra Iordache