Nearly $9 billion win for ConocoPhillips as Venezuela loses arbitration case over three oil projects

As the World Bank’s International Centre for the Settlement of Investment Disputes (ICSID) has upheld the previous decision, rejecting Venezuela’s appeal, the country is required to dish out $8.7 billion to ConocoPhillips, a U.S.-headquartered oil major, over the expropriation of three oil assets close to 18 years ago.

Venezuela expropriated two extra-heavy oil projects in the Orinoco Oil Belt region (Faja Petrolífera del Orinoco), known as the Petrozuata and Hamaca upgrading projects, and the Corocoro offshore project for the extraction of light to medium-grade crude oil in 2007, as part of the nationalization drive quest of Hugo Chavez, South American country’s former President.

In response, ConocoPhillips’ affiliates, ConocoPhillips Petrozuata, ConocoPhillips Hamaca, and ConocoPhillips Gulf of Paria, filed a dispute with ICSID based on the agreement on encouragement and reciprocal protection of investments between Venezuela and the Netherlands, which entered into force on November 1, 1993 (BIT) and the Convention on the Settlement of Investment Disputes between states and nationals of other states, which entered into force on October 14, 1966 (ICSID Convention).

After the Tribunal issued its award on March 8, 2019, ordering Venezuela to pay around $8.7 billion for damages and $20.4 million to defray ConocoPhillips’ arbitration costs, the country applied for annulment of the award, with applications also containing a request for the stay of enforcement until the decision was made on its application.

Kelly B. Rose, Senior Vice President, Legal, General Counsel and Corporate Secretary of ConocoPhillips, said at the time: “We welcome the ICSID tribunal’s decision, which upholds the principle that governments cannot unlawfully expropriate private investments without paying compensation.”

As a result, the Secretary-General of ICSID informed the duo on December 16, 2019, that the enforcement of the award was provisionally stayed. Following several developments over the years and hearings on annulment, the parties filed their submissions on costs on December 15, 2023. The proceeding was closed nearly a year later, on December 2, 2024.

Regarding the application for annulment of the award rendered on March 8, 2019, in the arbitration proceeding between ConocoPhillips and Venezuela, which deemed the expropriation as “illegal,” triggering the full reparation, the committee decided not to annul any part of the award, rendering the South American country’s claim moot.

The arbitration decision underlined: “The Committee therefore holds that Venezuela, having failed on all grounds to annul the Award, has to bear the legal fees and expenses of its representations and shall compensate Conoco for its legal representation costs and expenses (USD 6,460,974.86) spent in defending itself against an unsuccessful challenge of the Award.

“Venezuela shall also bear the costs of the annulment proceeding, including the costs of the application for the stay of enforcement and those of the application for representation which were reserved with the Application for Annulment.”

Therefore, the committee unanimously dismissed Venezuela’s applications to annul the award and ordered the country to bear its own costs, fees, and the costs of the annulment proceedings amounting to $1.35 million, and pay ConocoPhillips $6.46 million for legal fees and expenses, rejecting all other claims and requests.

As a result, Venezuela has to foot a total bill of around $9 billion to comply with the ICSID annulment committee’s decision. Given the staggering amount of claims in international courts that surpass $60 billion, ConocoPhillips is likely to face an uphill battle in collecting the award, despite this win.

The United States has imposed sanctions on Venezuelan individuals and entities since 2005 via both executive and congressional action. The Trump administration expanded U.S. sanctions to include financial and sectoral sanctions, alongside sanctions on the Maduro government, in response to what was described as “increasing repression and corruption” under President Nicolás Maduro, who has been in power since 2013.

The Biden Administration offered limited sanctions relief in November 2022 after Maduro and the opposition resumed negotiations and granted a six-month general license in October 2023 for companies to engage in Venezuela’s oil and gas sector to incentivize the Maduro government to comply with an electoral roadmap it had made with the opposition.

However, the general license was not renowned in April 2024, as the State Department said that Maduro officials had violated parts of the electoral roadmap, including by barring opposition primary winner, Maria Corina Machado, from running.

On September 12, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) imposed financial sanctions on 16 Maduro officials for their role in either electoral fraud or repression, with another 21 security and Cabinet officials joining the fray on November 27, 2024.

Meanwhile, an international arbitration tribunal constituted under the rules of the International Chamber of Commerce (ICC) awarded ConocoPhillips approximately $2 billion from Petróleos de Venezuela, S.A. (PDVSA), Venezuela’s state-owned oil company, and two of its subsidiaries in April 2018, in a separate and independent legal action.

The ICC tribunal’s ruling arose out of PDVSA’s failure to uphold its contractual commitments in response to Venezuela’s “unlawful” expropriation of ConocoPhillips’ investments in the Hamaca and Petrozuata projects.

The oil major entered into a settlement agreement with PDVSA in August 2018 to recover the full amount owed under that award and had a pending contractual ICC arbitration against the firm related to the Corocoro project.