ConocoPhillips Petrozuata B.V., ConocoPhillips Hamaca B.V. and ConocoPhillips Gulf of Paria B.V. v. Bolivarian Republic of Venezuela
ICSID · Investment (ICSID and treaty) · Venezuela · 8 Mar 2019
Why it matters
This award is one of the largest ICSID awards in history, totaling over US$ 8.7 billion. It clarifies the interplay between treaty and contract claims in expropriation cases, particularly regarding the valuation of nationalized oil projects. The tribunal's detailed analysis of production forecasts, discount rates, and the treatment of contractual compensation provisions provides a landmark framework for quantum in energy sector investment disputes.
Summary
The case arises from Venezuela's nationalization of three heavy oil upgrading projects in the Orinoco Belt in 2007. ConocoPhillips held minority stakes in the Petrozuata, Hamaca, and Corocoro projects through association agreements with PDVSA, the state oil company. In 2007, Venezuela enacted a law requiring conversion of these agreements into mixed enterprises with PDVSA holding at least 60% control. When negotiations failed, Venezuela forcibly expropriated the projects on June 26, 2007. ConocoPhillips initiated ICSID arbitration under the Netherlands-Venezuela BIT. In a 2013 decision, the tribunal found Venezuela liable for expropriation in breach of Article 6 of the BIT. The 2019 award determined quantum. The tribunal valued the expropriated investments as of the date of expropriation (June 26, 2007) using a discounted cash flow (DCF) method. It rejected Venezuela's argument that the contractual compensation provisions in the association agreements set the exclusive standard for compensation. Instead, it held that those provisions were part of the legal structure affecting the investment's value. The tribunal awarded US$ 3.386 billion for Petrozuata, US$ 4.498 billion for Hamaca, and US$ 562 million for Corocoro, plus US$ 286.7 million under the contractual compensation provisions for Petrozuata. It applied a 5.5% annual compounded interest rate. The award also addressed costs, ordering Venezuela to pay US$ 20.461 million in legal fees and US$ 1.4 million in ICSID costs. The tribunal declared the award net of Venezuelan taxes and prohibited Venezuela from taxing it. The award is notable for its extensive analysis of production forecasts, operating costs, discount rates, and the treatment of contractual compensation clauses.
The detail
Parties: ConocoPhillips Petrozuata B.V., ConocoPhillips Hamaca B.V. and ConocoPhillips Gulf of Paria B.V. v. Bolivarian Republic of Venezuela
Case number: ICSID Case No. ARB/07/30
Outcome: Venezuela ordered to pay US$ 8,446,305,166 in total compensation for expropriation, plus interest, and US$ 286,740,989 under contractual compensation provisions, plus costs.
Quantum: US$ 8,446,305,166 (expropriation) + US$ 286,740,989 (contractual)
Applicable law: Netherlands-Venezuela BIT (1991), ICSID Convention, Venezuelan law, Association Agreements
Issues in play: The BIT's expropriation standard (Article 6) and the contractual compensation provisions in the Association Agreements collided on the measure of damages. The tribunal held that the contractual provisions did not replace the BIT standard but were relevant to valuation.
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