Compass Lexecon Client ConocoPhillips Awarded $8.7 Billion in Expropriation of Crude Oil Assets in Venezuela

Dr. Manuel A. Abdala and Professor Pablo T. Spiller were retained in 2007 by ConocoPhillips Company et al. (Claimants) to provide their independent assessment regarding the value of two large-scale heavy crude oil projects (Petrozuata and Hamaca) and an offshore crude oil project (Corocoro) that had been expropriated by the Bolivarian Republic of Venezuela in June 2007. After a 12-year arbitration process an ICSID Tribunal awarded US$8.45 billion in damages to Claimants related to expropriation and US$286.7 million related to other compensation provisions arising from the shareholder association agreements.

The opinions of Dr. Abdala and Professor Spiller involved the fair market valuation of the expropriated assets under multiple methodologies, as well as the economic interpretation of contractual compensation caps, all of which were assessed at multiple valuation dates. The process required the preparation of nine expert reports and oral testimony at three different hearings. The Tribunal accepted Dr. Abdala and Professor Spiller’s proposed use of the DCF methodology as the main approach to valuation. It also shared the experts’ opinion that the post-expropriation performance of the companies should only be considered insofar as it would be representative of how Claimants would have managed the Projects. The Tribunal followed the Compass Lexecon experts’ explanation about the distinction between IRRs and discount rates, and the need to set interest rates commensurate with the opportunity cost of financing an investment in the expropriated assets.

Dr. Abdala and Professor Spiller were supported by a team led by Pablo López Zadicoff that included Carla Chavich who provided strategic support to the team throughout the process. The team also included Mark Sheiness, Andres Barrera, Nicholas Dayton, Rye Salerno and Rachel Marx. Compass Lexecon worked with D. Brian King and Elliot Friedman of Freshfields Bruckhaus Deringer LLP and Constantine Partasides QC, Jan Paulsson, Luke Sobota, Gaëtan Verhoosel and Manish Aggarwal of Three Crowns LLP.