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The Future of the Monolines   Why Non-Borrowed Reserves Don't Matter
Feb 8 2008 1:54PM EST

Exxon Mobil Plays Hardball With Venezuela

Did you have any idea that the bonds of PDVSA, the Venezuelan state oil company, are trading at just 65.7 cents on the dollar? I didn't, but are now, partly because of an injunction that Exxon Mobil has managed to get in three international courts, freezing as much as $12 billion of PDVSA's assets.

The size of the asset freeze seems enormous, relative to the size of the dispute between the two oil companies:

Exxon Mobil's 41.7 percent stake in a heavy oil project in Venezuela's Orinoco Belt region had a net-book value of about $750 million, according to a September filing with the U.S. Securities and Exchange Commission.

I have a copy of one of the injunctions, but it's no help at all in terms of working out how the $12 billion figure was arrived at. I have a feeling it's just an enormous number calculated to be bigger than the sum total of assets which PDVSA has offshore, forcing PDVSA into an arbitration process and preventing the company from simply refusing to follow through on whatever the arbitrator decides.

Still, these kind of hardball tactics are eyebrow-raising in the world of oil companies, given that Exxon Mobil has every incentive to want to have access to many international waters over the long term. Other oil-rich countries might well be following these proceedings very closely, and wondering whether they really need to be doing business with such a litigious firm.

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