Exxon in negotiations with Chad about $74-billion penalty

By Daniel N'doh Nadjitan on 11/16/2016

N'DJAMENA, Chad (Bloomberg) -- Exxon Mobil Corp. is negotiating with Chad’s government about a record $74-billion fine the oil company was told to pay last month by a court in the central African nation because of a dispute over royalties.

While the world’s biggest oil producer by market value, valued at $360 billion, has appealed the Oct. 5 ruling by the High Court, the appeals court hearing has been delayed because of the talks, Thomas Dingamgoto, a lawyer for the company, said in an interview in the capital, N’Djamena.

The penalty exceeds the $61.6 billion financial blow BP Plc incurred after the Deepwater Horizon disaster in 2010 killed 11 rig workers and fouled the Gulf of Mexico with crude for months, and is more than 70 times larger than the $977.5 million Exxon was ordered to pay fishermen and other victims of the 1989 Valdez oil spill in Alaska.

The Chadian court imposed the fine after the Finance Ministry said a consortium led by Irving, Texas-based Exxon hadn’t met tax obligations. The court also demanded the oil explorer pay $819 million in overdue royalties.

“This dispute relates to disagreement over commitments made by the government to the consortium, not the government’s ability to impose taxes,” Todd Spitler, an Exxon spokesman, said in an e-mailed statement. “It is vital for all parties to honor the terms of a contract and abide by applicable law in order to achieve the desired long-term benefits envisioned when projects begin.”

The penalty, almost six times Chad’s gross domestic product, is in line with the customs code of a regional organization of which Chad is a member, the Economic and Monetary Community of Central African States, according to the government’s general director of legal affairs, Fang Langou Operal.

‘Fraudulent behavior’

The code stipulates that “in the event of fraudulent behavior, as is the case, the fine should amount to double the value of the object of the fraud,” Operal said in an interview in N’Djamena late Monday. He declined to elaborate.

Chad says that the consortium should pay 2% in royalties on crude exports, even if Exxon argues that it signed a convention with the government in 2009 that set the royalties at 0.2%, according to Dingamgoto.

“That convention wasn’t ratified by parliament and never signed by the head of state,” Operal said.

Judicial workers, including judges, have been on strike for at least two weeks to protest a reduction of allowances, alongside medical staff and teachers. The government announced a series of austerity measures earlier this year to cope with a steep decline in oil income, which is its main source of foreign revenue.

Exxon began exploring Chad for crude in 2001 and has been pumping oil there since 2003. The company also operates a pipeline that hauls Chadian oil to a marine terminal in Cameroon for export. The two other companies named in the case are Chevron Corp. and Malaysia’s state-owned Petroliam Nasional Bhd. Chevron sold its stake in Chad in 2014.

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