COP ConocoPhillips

By Kimberly Chin and Kejal Vyas 

ConocoPhillips will halt further legal actions against the troubled state-run energy giant Petroleós de Venezuela SA over an unpaid $2 billion arbitration award after both sides agreed on a payment plan.

The Venezuelan company, known as PdVSA, agreed to make initial payments of about $500 million within 90 days following the closing of the settlement, and make quarterly payments over the next 4 1/2 years in compensation for two oil projects that Venezuela's leftist government nationalized in 2007, ConocoPhillips said Monday.

But analysts who track Venezuela said they still questioned its capacity to make the payments. Roiled by a punishing economic crisis, the South American country has already defaulted on some $6 billion in debt and its lifeblood oil industry is seeing production drop precipitously due to what critics say is underinvestment and rampant corruption.

"This buys Venezuela time," said Russ Dallen, managing partner at the investment bank Caracas Capital Markets. "But, of course, they just may default on it again."

There was no immediate response from PdVSA or the Information Ministry in Caracas, where government offices were closed Monday for a holiday.

A tribunal representing the Paris-based International Chamber of Commerce handed ConocoPhillips the $2 billion arbitration award in April. A month later, a series of court orders permitted the Houston company to seize Venezuela's oil assets on Dutch Caribbean islands.

The orders resulted in severe operational hurdles for PdVSA, forcing its oil tankers to avoid its refining and storage facilities in the Caribbean, whose deep-sea ports it relies on to load large Asia-bound ships -- especially those going to China, which receives Venezuelan crude as debt repayment.

But by settling with ConocoPhillips, Venezuela could regain access to those Caribbean facilities and clear up backlogs that had hit its oil rigs. "As a result, we believe this settlement could potentially slow the decline rate of Venezuela's oil production," analysts at ClearView Energy Partners said in a statement.

The International Energy Agency reported that Venezuelan oil output at 1.2 million barrels a day in July, a 22% decline from January.

ConocoPhillips, which also has a separate arbitration case pending against Venezuela at a World Bank tribunal, is only one of several creditors to have won large judgments against Caracas.

The rulings have set off a scramble for the country's remaining foreign assets as its economy crumbles. President Nicolás Maduro and his aides, meanwhile, are facing toughening U.S. sanctions over alleged human-rights abuses and graft that has left the country broke to pay for imports of food, medicines and other basics.

Last week, a Spokane, Wash.-based mining company called Gold Reserve Inc. said it received an estimated $88.5 million in government bonds instead of cash as partial payment for the $1 billion it is owed. The move has perplexed Venezuela watchers because U.S. sanctions last year barred similar transactions using bonds, whose value in debt markets has plummeted.

Others like Crystallex International Corp. are looking at PdVSA's U.S.-based refining unit, Citgo. The defunct Canadian gold mining company won a U.S. court ruling earlier this month allowing it to seize Citgo, to satisfy its $1.4 billion arbitration award for a nationalized mining project.

In addition to creditors' claims and Washington's sanctions, PdVSA faces other legal and regulatory troubles in the U.S.

Multiple PdVSA executives have pleaded guilty or are charged in a continuing U.S. criminal investigation into bribery allegations at the company. Separately, in late July, prosecutors filed charges in an alleged billion-dollar scheme to launder funds from PdVSA using, among other things, real estate in Miami.

Court documents in that case say that former PdVSA officials were among the alleged conspirators, and they joined money managers, brokerage firms, banks and real-estate-investment firms in the U.S. and elsewhere to operate "as a network of professional money launderers."

Write to Kimberly Chin at kimberly.chin@wsj.com and Kejal Vyas at kejal.vyas@wsj.com

(END) Dow Jones Newswires

August 20, 2018 17:04 ET (21:04 GMT)

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