UPDATE: Venezuela to Fight Exxon’s $12 Billion Asset Freeze

Posted by Oil Tycoon

February 8, 2008

Feb. 8 (Bloomberg) — Venezuelan Energy and Oil Minister Rafael Ramirez vowed to fight Exxon Mobil Corp.’s effort to freeze $12 billion of the state oil company’s foreign assets, calling the move “judicial terrorism.”

Exxon won court orders in the U.S., U.K., the Netherlands and the Caribbean freezing assets of Petroleos de Venezuela SA, or PDVSA, after Venezuela seized Exxon oil projects in the country. Ramirez, who is also the head of PDVSA, said the company is ready to fight what could be a five-year battle.

“If they think that with this they will get us to backtrack on our nationalization policies, well, gentleman from Exxon Mobil, you are dead wrong again,” Ramirez told reporters today in Caracas.

Exxon is trying to “scratch a figure into the negotiating table” to affect talks about compensation for assets that Venezuela took in 2007, he said.

Petroleos de Venezuela won’t face cash flow problems as a result of the court order, Ramirez said, promising the company will continue to deliver oil to its customers. Venezuela supplies about 1.8 million barrels a day of oil and refined products to the U.S., either directly or through refineries in the Netherlands Antilles and U.S. Virgin Islands.

Bonds Sink

The only asset that has been frozen is a New York account with about $300 million, he said. Exxon says it won a worldwide freeze from a U.K. high court for a value of up to $12 billion. Exxon spokeswoman Margaret Ross, who confirmed the freeze orders yesterday, declined to comment on Ramirez’s statements.

The yield on PDVSA’s 5.25 percent bond due in April 2017 soared 40 basis points, or 0.4 percentage point, to 11.13 percent at 2:45 p.m. New York time, according to composite data compiled by Bloomberg. The yield rose 1.3 points to 11.95 percent earlier today, its biggest jump since trading began in April.

PDVSA’s banks aren’t worried about the court decisions, Ramirez said. A syndicate of 10 banks renewed a $500 million line of credit a week ago, Ramirez said. After Petroleos de Venezuela sent them copies of the orders “they discounted that this would affect our financial strength or solvency,” he said.

Borrowing Outlook

“PDVSA’s operations and debt service will be unaffected,” ABN Amro Inc. analyst Aaron Holsberg said in a note. The bank believes that the rulings “are an Exxon negotiating tactic, that this will drag on for a few months, and that PDVSA is likely to settle for far less than Exxon’s demanding but more than is currently on the table.”

The orders will “have a minimum impact on the company’s day to day operations, as well as its near term credit quality and financial flexibility,” Fitch Ratings analyst Gianna Bern said in a note, calling them “part of the legal wrangling.”

The asset freeze may make it “virtually impossible” for PDVSA to borrow money in international markets, said Boris Segura, a Latin America economist at Morgan Stanley in New York.

Ramirez previously said the company planned to reduce its pace of borrowing this year after multiplying its debt almost eightfold to $16 billion in 2007.

The U.K. injunction was granted Jan. 24 without prior notice to the Venezuelan oil company, according to a copy of the ruling. The next hearing on the matter is scheduled for Feb. 22.

Until then, PDVSA is barred from removing any assets in England or Wales up to a value of $12 billion. The Venezuelan company was also ordered not to sell or diminish the value of any assets within or outside those countries up to the same value.

Exxon Mobil fell 42 cents to $81.47 in New York Stock Exchange composite trading at 2:25 p.m. The stock has climbed 8 percent in the past 12 months.

While ConocoPhillips also left the country amid disagreements over compensation and control of projects, the company remains in talks and a negotiated solution is likely, Ramirez said.

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