Why Venezuela Is Clashing With Its Old Foe Exxon Again

(Bloomberg) -- Venezuela President Nicolas Maduro has vowed to block Exxon Mobil Corp. from exploring for oil in contested waters off neighboring Guyana. The dispute threatens the development of the world’s biggest new deepwater oil play. It has echoes in the past: In 2007, Venezuela’s then-president, Hugo Chavez, nationalized Exxon’s assets in the country. Exxon moved two vessels away from the disputed region after Venezuela’s navy confronted them last month.

1. What is Venezuela’s interest in Guyana?

The South American neighbors have been disputing their boundary since the 1800s, with Venezuela claiming everything west of the Essequibo River -- about two-thirds of what Guyana considers its territory. In 1899, an international arbitration panel awarded Britain the territory; Guyana gained independence from Britain in 1966. Venezuela says the 1899 decision was invalid and has periodically demanded the area be handed over, in some cases threatening military action.

Why Venezuela Is Clashing With Its Old Foe Exxon Again

2. What is Exxon seeking to do?

Exxon CEO Darren Woods has targeted Guyana’s oil riches in his push to arrest declining production and stagnating returns. The world’s biggest publicly traded oil company was granted an exploration permit by Guyana in 1999, but no commercial quantities of crude were found for more than a decade. It finally hit a gusher in 2015, and the discoveries have kept coming -- 10 to date, totaling 5 billion barrels, with at least a dozen exploration wells yet to be drilled. So far, the discoveries have been concentrated in the southeast part of the Stabroek block, a vast area about 100 miles (161 kilometers) from Guyana’s coast. Exxon wants to extend exploration farther east, closer to Venezuela’s border and into the disputed region. When Exxon made the initial "Liza" discovery in 2015, Maduro demanded that the drilling stop, said it threatened to "bring war to our borders” and withdrew Venezuela’s ambassador to Guyana.

3. What other companies are involved?

Exxon owns 45 percent of the Stabroek block, with Hess Corp. at 30 percent and China’s CNOOC Ltd. at 25 percent. Together they plan to produce at least 750,000 barrels a day by 2025, putting Guyana ahead of OPEC member Ecuador’s current production.

4. Will this stop Guyana’s oil development?

Not right away. Exxon said its ships were intercepted more than 68 miles (110 kilometers) west of its nearest discovery and had been conducing seismic work, mapping the geology under the ocean floor. No oil has been found in that particular area, and even exploration wells would be years away. Exxon said its plans to begin producing oil by 2020 and subsequent development plans are unaffected. Still, with expectations high that there’s a lot more oil to be found. Venezuela’s stance is causing worry. The value of Hess stocks tumbled the most in almost three years after the naval incident.

5. How might this get resolved?

United Nations Secretary-General Antonio Guterres referred the case to the International Court of Justice last year. Guyana has asked the court to affirm "the legal validity and binding effect of" the 1899 award of the disputed area to what was then known as the Colony of British Guiana. So far, Venezuela’s response has been to deny the court has jurisdiction in the matter.

6. How did the last Venezuela-Exxon clash play out?

In 2007, when Chavez nationalized Exxon’s assets, the U.S. company sued Venezuela for $1.6 billion at the World Bank’s International Center for Settlement of Investment Disputes. Venezuela was ordered to pay back only $188 million.

7. What is the U.S. government’s position?

It supports Guyana’s “sovereign right to develop those resources, which includes allowing ships to go about their business doing surveys and other seismic activities."

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