By Fernando Cabrera Diaz
May 11, 2010
(NOTE: A correction has been made to this article. An explanation is posted below)
Houston-based Exterran Holdings has taken Venezuela to ICSID over the nationalization of its gas services support business in the country. The arbitration, registered by ICSID on April 12, 2010, is the second in as many months initiated by firms in the hydrocarbons services sector, an area that is the target of a new wave of Venezuelan nationalizations.
Exterran, which formed from a merger of Hanover Compressor Company and Universal Compression Holdings, principally operates compression pumps used to extract and transport natural gas. The company is seeking U.S. $500 million in compensation for its nationalized assets in Venezuela.
ITN spoke to Exterran spokesperson Susan Nelson, who would only confirm that the arbitration had been filed under the Spain-Venezuela bilateral investment treaty. There was no word on what connection the American firm had to Spain. Venezuela has no bilateral investment treaty with the U.S.
Universal Compression Holdings operated gas compressors and electrical generators in Venezuela. It also owned minority shares in PIGAP II and El Furial – two companies that operated natural gas compression plants – and SIMCO, which owned and operated water injection plants.
According to an Exterran press release, in February 2009 the Venezuelan National Guard occupied SIMCO facilities and handed them over to Venezuelan state-owned oil company Petróleos de Venezuela S.A. (PDVSA). In May of 2009 PIGAP II and El Furrial were also taken over after each had sent a notice of default to their sole customer PDVSA the previous month due to its lack of payments for their services.
In June 2009 Petrosucre, a subsidiary of PDVSA, took over Exterran’s gas compressors and electrical generators in Venezuela, terminating most of the company’s investment in the country.
These takeovers are part of a new wave of Venezuelan nationalizations that target companies that provide services for oil and gas extraction in order to cut costs for PDVSA. PDVSA claims that Exterran was charging excessive fees that were causing losses for Venezuela, according to AP reports.
Last month ITN reported that New Orleans-based Tidewater Inc launched another arbitration against Venezuela for the expropriation of its operations including vessels that provided transportation services for petroleum companies including PDVSA.
As reported previously by ITN, under President Hugo Chavez Venezuela has sought to nationalize most of the extractive sectors. The government’s policy has been to convert private petroleum and mining projects into joint ventures with private companies under which the Venezuelan state, usually represented by PDVSA, retains majority ownership.
Venezuela was successful in renegotiating these joint venture contracts with most oil companies operating in its territory, but hold outs such as Exxon Mobil and ConocoPhillips launched ICSID arbitrations against Venezuela that are still pending. In the mining sector, Canadian firm Gold Reserve Inc. also filed a claim against Venezuela at ICSID that remains pending.
Venezuela has previously threatened to withdraw from ICSID, most notably at a meeting of the Bolivarian Alternative for the Americas (ALBA), but has yet to follow in the footsteps of fellow ALBA members Ecuador and Bolivia, both of which have withdrawn from the Convention.
CORRECTION: The original article posted on May 11, 2009 indicates that [Exterran] is seeking U.S. $500 million in compensation for its nationalized assets in Venezuela. However, a representative from the company has confirmed that the total amount claimed by Exterran in its arbitration against Venezuela has not yet been quantified.
“Event Brief of Q4 2009 Exterran Holdings, Inc. Earnings Conference Call – Final,”
CQ FD Disclosure, 25 February 2010
“Canadian mining company Gold Reserve commences ICSID arbitration against Venezuela,” By Fernando Cabrera Diaz , Investment Treaty News, 6 December 2009
“Exterran may seek money from Venezuela for assets,” Reuters News, 16 June 2009,
“Exterran Holdings Expects to Record Non-Cash Impairment Charge in First Quarter 2009 Related to Non-Operated Investments in Venezuela,” Business Wire, 1 May 2009
“Gobierno venezolano toma operación de Exterran, de EEUU,” AP Spanish Worldstream, 10 June 2009