Ongoing Arbitration for Mobil Oil Over Venezuelan Assets

International commercial disputes of all sorts are designated by contract to be resolved by arbitration, from basic disagreements over the quality of goods shipped from suppliers overseas to complex claims with hundreds of millions of dollars at stake. One good example of a current high-value dispute is Mobil Corporation's claims against the national oil company Petroleos de Venezuela (PDVSA) over the expropriation of the assets of Mobil subsidiaries in that country's abundant oil fields.

The Mobil/Venezuela proceedings, which originated in 2007, are being heard by the International Centre for Settlement of Investment Disputes (ICSID), which was established under the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (also known as the Washington Convention). Formulated under the auspices of the World Bank, the ICSID has more than one hundred and forty member states.

The ICSID recently decided that it has jurisdiction to review Mobil's claims. However, the tribunal's review is limited by one factor: it only concerns the period after Mobil's investments were covered by a Bilateral Investment Treaty (BIT), and will not extend back to the point of expropriation. Likely as a result of this preliminary ruling, Mobil recently reduced its damages claim from $12 billion to $7 billion.

Commentators have speculated that one shortsighted move on Mobil's part was failing to secure BIT coverage for subsidiaries until 2006, when it formed a holding company based in The Netherlands, which has such a treaty with Venezuela. In another notable development, Venezuela has recently announced that it is considering the exclusion of arbitration clauses from future oil contracts, taking a cue from Ecuador. PDVSA is currently involved in similar high-stakes arbitration with other oil companies, including ConocoPhillips, Tidewater and Exterran.

Regardless of the Amount in Dispute, International Commercial Actions Are Complex

In the 21 st century economy, a company's growth is not restricted by borders and oceans. As foreign markets grow more prosperous, goods, ideas and obligations flow at ever increasing rates from continent to continent. But with global opportunity comes global complexity.

Companies must lay a foundation for protection in the event of a breach of contract action, joint venture dissolution or alleged violation of any type of formal agreement. By enlisting attorneys who have experience with international litigation and the diversity of foreign and domestic arbitration venues, principals and in-house counsel can contract profitably and securely to avoid undue legal pitfalls.