Must-know: What happened in Venezuela in 2007?

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Nov. 20 2020, Updated 12:19 p.m. ET

Exxon Mobil’s Cerro Negro production

In late 2007, Exxon Mobil (XOM) had an operation in the Orinoco region of Venezuela, where it was processing heavy oil into a lighter grade of crude. The operation was taken over by the then Venezuelan government.

Before this event transpired, Exxon Mobil controlled a total of 0.1 million onshore acres in Venezuela, primarily in Cerro Negro, in the oil-rich Orinoco basin. It also held acreage stake in the La Ceiba project.

The expropriation

On May 1, 2007, a subsidiary of Venezuela’s national oil company—PDVSA—assumed operational control of the Cerro Negro heavy oil project in accordance with a nationalization decree issued by Venezuela’s president in February 2007. Exxon Mobil’s affiliate owned a 41.67% interest in the project.

The decree required an increase to PDVSA’s or one of its affiliate’s ownership interests in the project. Exxon Mobil refused to accede to these terms, and on June 27, 2007, the government expropriated ExxonMobil’s interest in the Cerro Negro project.

Exxon Mobil went to the international arbitration court to resolve the matter, citing “wrongful expropriation” and “unfair compensation” by the national government. Exxon Mobil put the value of its Cerro Negro investment at $750 million.

Several other major upstream oil companies were affected by the the 2007 take-over in Venezuela. These include Chevron Corporation (CVX), ConocoPhillips (COP), and Total SA (TOT). XOM, COP, and CVX are components of the Energy Select Sector SPDR ETF (XLE).

Check out An Overview of ExxonMobil’s 2Q14 earnings to learn more about Exxon Mobil. Or, read Market Realist’s Why Mexico’s energy reforms are an opportunity for US investors.

For oil and gas investors, it’s important to know how events in Venezuela affected the trade balance. Read on to find out why.

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