Exxon loses billions in fight against Venezuela

Exxon Mobil has lost billions of dollars after the Paris-based International Chamber of Commerce (ICC) ruled against them in a legal battle against the government of Venezuela.

PARIS, FRANCE (Catholic Online) - The recent verdict is the result of four years of arbitration before the ICC. Exxon has been protesting Venezuela's nationalization of their assets. The company was suing for as much as $12 billion citing potential lost profits and other concerns, however the ICC only awarded Exxon Mobil $255 million.

The award is far less than the original Venezuelan offer of $1 billion for the nationalization. It is a significant setback for Exxon in the region.

Four years ago, Petroleos de Venezuela (PDVSA), the state oil company, took control of Exxon's assets in the oil-rich Orinoco belt of Venezuela. Protesting the move, Exxon Mobil and ConicoPhilips both withdrew from the country.

Other US firms have remained including ChevronTexaco, the potential riches are too much to leave behind for most firms, despite the risks.

Venezuela's Orinoco belt contains an estimated 513 billion barrels of heavy oil and is believed to be "the largest accumulation ever assessed" by the US Geological Survey. Until recently, the oil was thought to be too heavy to recover however, skyrocketing prices have made recovering and refining the oil potentially profitable.

Those potential profits have drawn great interest from oil firms and the Venezuelan government.
The Venezuelan government has been using oil profits to fight poverty for decades. The PDVSA has poured billions of dollars into social projects substantially cutting into that firm's profits. In fact, the firm has spent so much on social projects, that according to analysts, it is not investing enough to develop new reserves. Over the past 13 years, the firm's production has dropped from 3.3 million barrels per day to about 2.25 million barrels per day.

A large portion of the this oil is refined and shipped to Venezuela's allies at discount rates. Countries such as Cuba consume Venezuelan oil prices far below fair market value.

The end result is that while some poverty has been alleviated, and the price of oil remains low for Venezuelan allies, that nation is seeing diminishing returns on what could now be a lucrative natural resource. Nationalizing foreign holdings in an effort to shore up falling profits, may be domestically popular, but experts also point out that Venezuela does not have the technology or the means to extract and refine the heavy oil in the Orinoco belt.

Environmentalists are also steadfast against extracting oil in the Orinoco belt. While the region may have the largest volume of oil on the planet, a volume even greater than that belonging to Saudi Arabia, it is very difficult to extract. It is expensive both financially and environmentally. The extraction process requires the use of large volumes of water, which can lead to widespread pollution.

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Refining of the fuel also emits large quantities of greenhouse gases into the atmosphere. In fact, much of the oil is so heavy, trapped in the sands and deposits, that it must actually be mined instead of drilled.

The result is, the government of Venezuela needs the assistance of companies like Exxon Mobil to extract this resource. However, nationalization of private holdings, does little to inspire foreign investment, and using the profits to alleviate poverty while causing substantial destruction to the environment, is a questionable practice. Indeed, Venezuela's activity is little more than an elaborate form of robbing Peter to pay Paul, for eventually these activities will cease to provide dividends that justify their costs.

Hugo Chavez may be smiling today, but the future of this resource, and the people who rely on it for their well being, there won't be anything to smile about for long. 

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