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Caracas Capital Markets, C.A.

A decision is likely any day now from the
World Bank’s arbitration forum, the International
Center for the Settlement of Investment Disputes
(ICSID), in the multi-billion dollar case brought
by ExxonMobil for its expropriated investments in
the Cerro Negro heavy oil project in the Orinoco
belt of Venezuela.

In September, ICSID announced its largest
judgment ever, awarding US/Canadian mining
company Gold Reserve $740.3 million against
Venezuela over the Chavez government’s takeover
of Gold Reserves’ Brisas mine.

We have now had a chance to go through
the Gold Reserve judgment in its entirety (
7&ArticleId=2353211 ) and can confirm that the
award represents $713 million for the “fair market
value” of the Brisas Project, $22.3 million for
interest on the Award since the April 2008 breach
based on the US Treasury Bill rate compounded
annually and $5 million for reimbursement of
some of Gold Reserve’s $20.5 million in legal
fees. Payment of the Award is due and payable
immediately with any unpaid amounts accruing
interest at Libor plus 2% per annum.

There are a couple of things for Venezuela
investors to be concerned about in the Gold
Reserve judgment. First, the arbitration panel used
the “fair market value” – not the book value -- to
compute damages, which they arrived at by
discounting expected cash flows from the project
using 2008 gold prices (interestingly, Venezuela
tried to claim that the project had no – even
What Liabilities Await Venezuela
from International Arbitrations?
If you would like to make sure that you
receive this report by e-mail from us
each week, please let us know with a
message to Russ Dallen
or Miguel Villalba at
or call us on:
Caracas (58) 212 335 1906
Miami 305 735 8280
New York 646 201 5843
London (44) 207 993 4557
negative – value). This is something that investors
should consider if the ExxonMobil and
ConocoPhillips arbitrations decide to use the same
damages calculation method (while there is no
mandatory use of what we call stare decisis – the
adherence to decided cases or legal precedents -- in
international arbitrations, for the most part, most
judges are heavily influenced to decide in a similar
vein). This opens several possibilities, including
calculations based on the previous International
Chamber of Commerce (ICC) judgment that Exxon
already won against PDVSA for $908 million for
expected contractual losses in 2012. The
permutations are a little too complicated to go
through here but we are available to discuss (the
$908 million judgment is available here:
oryId=10717 ).

Second, we corresponded with Gold Reserve
president Doug Belanger last week, and one of the
things he made clear was that "Gold Reserve has
commenced steps to ensure the recognition and
collection of the Award,” which to us meant that
they might indeed attach or put a lien on
For more information call: Russ Dallen, Miguel Angel Villalba, Jonathan Leo or Yajaira Cana
Phone: (305) 735-8280
Although the information in this report has been obtained from sources that Caracas Capital Markets, C.A. and Caracas Capital Advisory, C.A. believe to be
reliable, we do not guarantee its accuracy and completeness. All opinions and estimates included in this report are subject to change without notice. This report is
for information purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.
6 October 2014

CCM Venezuela Weekly Report

Page 2

Venezuela’s Citgo or Chalmette refineries. “There are
well documented procedures in place for identifying and
attaching sovereign commercial assets located in States
that are party to the New York Convention. The
Company is already well advanced in this effort,”
according to Belanger.

Venezuela has been rushing to sell assets in the
United States, mainly its multi-billion dollar Citgo and
Chalmette refineries, possibly to avoid potential
preliminary actions or liens on them that could result
from the Gold Reserve case or the other 27 cases
pending against Venezuela at ICSID. Despite what
headlines might have suggested last month, Venezuela
President Nicolas Maduro did NOT say that he was
going to keep Citgo. He merely mentioned Citgo,
saying that Venezuela was strengthening the company,
so that he could then brag about the $25 million in free
heating oil Citgo distributes to the poor of America.

Third, there is NO APPEAL from ICSID
judgments; however, there is an annulment procedure.
Argentina used the annulment procedure quite
effectively to delay – and even win – some of the ICSID
judgments against it.

What this means is that Venezuela now has 120
days to bring an annulment application over the
judgment, arguing that the tribunal was “not properly
constituted;” that the tribunal “manifestly exceeded its
powers;” that there was “corruption on the part of a
member of the tribunal;” that there was a “serious
departure from a fundamental rule or procedure;” or that
the award “failed to state the reasons on which it was

Unless Venezuela has a buyer lined up for their
refineries, Venezuela is likely to wait until the 120
to file their annulment application, which puts the filing
in late January – the idea being to delay. Then
Venezuela will likely be given a stay of the $740 million
judgment (if Gold Reserve or Exxon have attached an
asset, how the court that issued the lien will handle the
stay remains to be seen). At that point a new arbitration
panel will be appointed by ICSID and they will probably
take another 2 years to make a decision.

For example, the decision in an ICSID
annulment case brought by Argentina in February of
2012 was just announced last week, 2 & ½ years later.
International law firm Shearman & Sterling has
been defending Venezuela in 4 expropriation
cases at ICSID since 2012 – Vestey, Koch (yes, the
Tea Party Kochs), & 2 Owens-Illinois cases – but
Shearman has mysteriously disappeared as
counsel in the last few months. We reached out to
them to ask if it was because Venezuela wasn’t
paying their bills, but received no comment.
(Argentina lost the annulment, so that the $43
million dollar judgment won by El Paso Energy on
October 31, 2011 stands. And to give you an idea
of how long Argentina was able to delay, El Paso
initially filed the case in June of 2003!).

For its part, Gold Reserve, which originally
filed its case on November 9, 2009, says it plans to
distribute a substantial majority of any proceeds
received to its shareholders. With its Brisas
operation gone since 2008, the company has had no
other operations aside from suing Venezuela.

As of September 22, Gold Reserve had 76.1
million Class A common shares outstanding and
holds approximately $8.8 million in cash and has
about $37 million in convertible bond debt.

Venezuela now has 27 cases pending against
it at ICSID -- the most of any nation in the world.
Faced with all the suits, Chavez withdrew
Venezuela from ICSID jurisdiction in 2012, but
pending cases and new cases brought under bilateral
investment treaties and contracts continue to give
ICSID jurisdiction to settle the arbitrations.

Other companies with pending ICSID
arbitrations against Venezuela include mining and
smelting companies Anglo American, Rusoro
Mining Ltd., Crystallex International Corporation,
Highbury International and Tenaris SA; food
industry companies Gruma, Polar, Longreef,
Vestey, and Owens-Illinois Inc.; and oil industry
companies Tidewater Inc., Williams Cos. Inc., Koch
Industries Inc., ConocoPhillips, and ExxonMobil.

The Gold Reserve case was officially closed
by ICSID on July 23, 2014. The Exxon case was
officially closed 5 days later on July 28, meaning
that a decision in that case is imminent. The last
briefs in the Exxon case were submitted in May of

Page 3
CCM Venezuela Weekly Report

Venezuela Oil Price Falls to
Lowest Since 2011 as
Ministry Misstates Average
Venezuela's weekly oil basket fell to a new
3 year low this past week.

According to figures released by the
Venezuela Ministry of Energy and Petroleum, the
average price of Venezuelan crude sold by
Petroleos de Venezuela S.A. (PDVSA) during the
week ending October 3 was $85.89, down $0.76
from the previous week's $86.65.

WTI in New York averaged $92.00 -- down
$0.16 -- for the week, while Brent crude traded in
London averaged $95.09 -- down $2.14 from the
previous week.

According to official Venezuelan
government figures, the average price in 2014
for Venezuela's mix of heavy and medium crude
is now $96.23, but according to our calculations,
the government figure is incorrect and
overstates the 2014 average. According to our
calculations, the Venezuela oil price average for
2014 should currently be below $95.48. The
Ministry has maintained that the price was
$96.95 until 2 weeks ago without changing it
since July 25, and then hasn't changed it for two
weeks, despite the fact that the average price for
all of August was just $91.74 and was $89.27 for
September. Last week -- 9 months after the end
of the year -- Venezuela changed the reported
2013 average price from $99.49 to $98.08 with
no explanation.

In 2013, Venezuela's average oil price for
the year was $98.08, down from 2012's $103.42
and 2011's $101.06, but higher than 2010's $72.43,
and much higher than 2009’s average price of

In 2013, WTI averaged $97.96 while Brent
averaged $108.70. Prior to 2010, Brent and the
heavier Venezuelan crude had historically traded
below WTI.

At $85.89, Venezuela's oil price this week
was below the low for Venezuela's oil basket in
2013 of $93.98, which was set during the week
ending November 22. This is the lowest price that
Venezuela's oil basket has had since January of
2011 during the beginnings of the Arab Spring.

Venezuela's basket set its highest weekly
average on July 18, 2008, when it hit $126.46
before economies around the world began crashing
under the weight of expensive oil and crashing sub-
prime debt. By January of 2009, Venezuela's oil
basket had fallen to a low of $27.10 a barrel.

The United States is the largest importer of
Venezuela’s oil exports. According to the US
Department of Energy, Venezuela was the fourth-
largest supplier of imported crude oil and petroleum
products to the United States behind Canada, Saudi
Arabia, and Mexico.