Latest Exxon Venezuela Ruling Signals Lengthy Legal Battle

HOUSTON, March 19, 2008 (Dow Jones Newswires)

ExxonMobil Corp. may have suffered a major blow in its litigation against Venezuela Tuesday, but the larger legal battle goes on -- as does as an increasingly bitter war of words.

ExxonMobil said it won't appeal a U.K. judge's ruling Tuesday that overturned a court order it won to freeze some $12 billion in Venezuelan assets. But Exxon confirmed plans to proceed with the two arbitration cases seeking billions of dollars in compensation from Venezuela.

Venezuela's oil minister celebrated the decision and said state-owned oil company Petroleos de Venezuela SA, or PdVSA, is preparing to countersue the U.S. oil giant.

The decision teaches Exxon "a great lesson, a lesson of dignity, a lesson of the strength of (PdVSA)," said Oil Minister Rafael Ramirez, according to a statement by the Ministry of Information.

The upshot: Tuesday's proceedings suggest the Exxon-PdVSA battle for compensation is shaping up to be every bit the multi-year litigious saga first described by legal watchers after Exxon announced plans to seek international arbitration.

"What this means is that the battle will continue," said Joseph Profaizer, an international arbitration expert at the law firm Paul Hastings. "In the short term, the fight is over the assets and cash frozen, but the long-term fight is about the arbitration process."

After Tuesday, the chance of an out-of-court settlement between Exxon and Venezuela is even lower than before, said Patrick Esteruelas, analyst at Eurasia Group.

"Both companies will likely harden their positions and continue to battle each other out in the courts over the next several years," Esteruelas wrote in a note to clients released Tuesday. "In the meantime, with the freeze order lifted, PdVSA will continue to sell its overseas assets to reduce its exposure to a potential asset seizure down the line."

The U.S.'s largest oil company by market value previously secured court orders in the U.K., among other countries, to freeze PdVSA's international assets -- a move it said was necessary to ensure it will get paid for the loss of its Venezuelan projects and future revenues, if an international arbitration court rules in its favor. The U.K. ruling was the largest of three orders.

Exxon also secured an order to freeze more than $300 million held by PdVSA in the U.S. The company has also obtained orders in the Netherlands and Netherlands Antilles, which aren't affected by Tuesday's ruling.

On Tuesday, U.K. judge Paul Walkerset aside the worldwide freeze, saying that ExxonMobil had failed to demonstrate any link between PdVSA and the jurisdiction of England, according to the summary of conclusions, which was made public Tuesday afternoon in London.

"In the absence of any exceptional feature such as fraud, and in the absence of substantial assets of (PdVSA) located here, the fact that the seat of the arbitration is not here makes it inappropriate to grant an order," the document said.

Walker's full ruling will be made public Thursday.

Irena Agalliu, principal legal adviser of energy consultancy IHS, described Walker's order as a "setback." However, she added that the London proceeding "is only one of the various legal avenues that Exxon chose to pursue."

ExxonMobil said the company won't appeal and that it will continue with the arbitration process.

"This (freeze order in London) was an attempt to prevent PdVSA from moving assets to places where we would have difficulties reaching them when an arbitration award is made," said Alan Jeffers, ExxonMobil's spokesman. "We are asking the judicial system to have PdVSA honor the terms of the contract we had with them; this is what this is all about."

Jeffers also said that ExxonMobil remains willing to engage in "meaningful substantial discussions with the Venezuelan government" in order to resolve the issue.

Venezuela reacted saying that it's preparing to countersue ExxonMobil for damages resulting in the company's bid to freeze worldwide PdVSA assets and also for "irregularities" in its former operations in the South American nation.

Venezuelan Oil Minister Ramirez added that Venezuela suspended shipments to the refinery ExxonMobil and PdVSA jointly owned in Chalmette, La.

HOUSTON, March 19, 2008 (Dow Jones Newswires)