The Energy Regulation and Markets Review - Stikeman Elliott

Venezuela
The Mobil Cerro Negro Ltd dispute arose from an association agreement that was
entered into between PDVSA and Mobil Cerro Negro Ltd. The project consisted of an
agreement for the activities relating to extra-heavy crudes in the Cerro Negro Reservoir
situated in the Orinoco Oil Belt. The activities included extraction, transportation,
upgrade and refining of the crudes. In this agreement, PDVSA granted a bond in favour
of Mobil Cerro Negro Ltd, which alleged that PDVSA should indemnify them for the
discriminatory measures taken by the Venezuelan government.
Mobil Cerro Negro Ltd’s arguments focused on the fact that the government had
enacted discriminatory measures that gravely affected their long-term fiscal situation.
According to Mobil Cerro Negro, PDVSA breached the association agreement due
to lack of compensation for the discriminatory measures, absence of good faith in the
negotiations and a lack of a compensating indemnity for the discriminatory measures.
Compensation was requested by Mobil Cerro Negro Ltd, to be calculated on the terms
of the association agreement, interest, costs and other fair indemnities.
According to PDVSA, the claims were not valid under the dispositions of the
association agreement, and the breach derived from a decision of the government, hence
the parties were not responsible.
PDVSA alleged that Mobil did not have a legal basis to claim discriminatory
measures since the government measure did not fall within such definition under the
association agreement. Moreover, they insisted that Mobil did not comply with the
necessary conditions to make such claims. PDVSA also argued that the association
agreement included that the parties would be free from any responsibility if the breach
was caused by governmental orders or decisions.
The amounts claimed generated even more controversy, as PDVSA alleged that
even if there were a debt, the amount would not even be a fraction of what Mobil
was claiming. PDVSA requested the Tribunal to grant certain claims for the harassment
campaign it alleged it suffered, plus reimbursement for sold products and operations
related to the project finance.
In January 2008 granted were measures in England by the Royal Court of Justice
Queen’s Bench Division Commercial Court of England and Wales, freezing the assets of
PDVSA in England. Two months later, the same court revoked the measure, which had
frozen $12 billion of PDVSA’s assets.
The ICC arbitration court made a decision in December 2011, affirming
its jurisdiction over the association agreement, and confirming the existence of
discriminatory measures causing a materially adverse impact as defined in the agreement.
Moreover, they declared PDVSA-CN and PDVSA responsible for the discriminatory
measures under the association agreement.
PDVSA-CN and PDVSA were declared jointly and severally liable to pay
Mobil $12.68 million for 2007 and $894.9 million for the period 2008–2035, a
total of $907.581 million. This amount was subject to a set off arising from PDVSA’s
counterclaim, which resulted in a net amount of $746.9 million.
In the past year, PDVSA has signed agreements with Eni and Repsol for gas
purposes, with the objective of buying gas for the Perla field in the Gulf of Venezuela,
the country’s largest gas field. Thanks to these agreements, production in Venezuela will
increase to 33 billion cubic metres by 2016, further reaching to 44 billion cubic metres
by 2021.
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