Saturday, April 12, 2008


On America’s doorstep a battle is being fought between ExxonMobil, the world’s largest company by revenue, and Venezuela’s Hugo Chavez. The battle field includes the oil refinery in Chalmette, Louisiana, co-owned by Exxon and Petroleos de Venezuela S.A. (PdVSA). Chavez has decided that he wants to replace Exxon as the operator of the refinery. The circuitous route that brought Chavez so much influence over a Louisiana refinery provides evidence that while wide open trade has benefits, there exists ample justification for the implementation of rules and guidelines on agreements and deal structures pertaining to assets critical to the state.

Exxon is looking for compensation on losses incurred in the nationalization of its interests in a high-sulfur, heavy oil venture, called Petromonagas located in Venezuela’s Orinoco basin. The dispute is rooted in the wide spread between Exxon’s expectation of $5 billion in restitution, and PdVSA’s claim that $750 million is adequate. Exxon’s efforts to freeze Venezuelan assets were defeated recently in the U.K., and it is pursuing action in the Netherlands, although international support leans in favor the country rather than the corporation. Venezuela’s OPEC peers have a vested interest in not allowing Exxon to successfully set such a precedent, regardless what losses it is Exxon’s right to claim. Talk about a line being drawn in the sand, … (had to say it) this precedent will have broad consequences beyond the oil industry.

Venezuela’s stake in the Chalmette refinery was purchased through part of the deal that created Petromonagas. This was not a front-page-news, publicly-visible, congress-looking-in type of deal. Yet here we are witnessing a foreign power making decisions over another’s strategic assets and fairness isn’t in the cards regardless where it lies.

It cannot be assumed that foreign powers will make strategic investments in North American companies and not use those positions of control to impress influence in the future. Rules and regulations must be established on all foreign investments, or deals, directly affecting industries and companies considered of strategic national interests. Near the top of that list should be natural resources, which have historically been left on the road with the sign-post “open season.”

For trade relationships to meet with the approval of all countries and for harmony to prevail, rules should be balanced and apply to both sides of any transaction, regardless what border the contract crosses. These transaction should be within the purviews of federal jurisdictions, and the rules must be set and applied accordingly.


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