Chad fines Exxon more than five times nation's GDP: Is that realistic?
The central African nation's high court ruled that a consortium led by the oil giant owed $75 billion – more than 70 times what it paid for the 1989 Valdez oil spill – for unpaid royalties.
Chad’s highest court has fined an oil consortium led by Exxon Mobil Corp. roughly $75 billion for failing to pay royalties – an amount more than five times the central African nation’s gross domestic product.
Chad, whose GDP the World Bank estimates at around $13 billion, is relatively new in the oil game. Exxon, the world’s largest oil producer by market value, has been drilling there for 15 years.
Exxon has indicated it disagrees with the court’s ruling, as Exxon media spokesman Todd Spitler told Reuters that the oil giant was “evaluating next steps.” Independent analysts say there is no way the Chadian government will get close to the full amount.
“Nobody is going to cooperate outside of Chad in enforcing this judgment,” Jeffery Atik, who teaches international law at Loyola Law School in Los Angeles, told Bloomberg. “This leaves Exxon exposed to possibly losing everything it has inside Chad but that’s such an extraordinary number, I can’t imagine the assets they have there are worth that much.”
To put the size of the fine in perspective, BP Plc paid $61.6 billion in fines for the 2010 Deepwater Horizon explosion that killed 11 rig workers and spewed more than 200 million gallons of oil into the Gulf of Mexico. It is also 70 times more than Exxon was required to pay – $977.5 million – to those affected by the 1989 Valdez oil spill in Alaska, according to Bloomberg.
"This dispute relates to disagreement over commitments made by the government to the consortium, not the government's ability to impose taxes," Exxon's Mr. Spitler told the Associated Press.
"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," he added.
Exxon, along with the two other consortium members – Malaysia's state-run Petronas and Chadian company SNT – sought mediation from the International Court of Arbitration in July over an exemption from export taxes on crude production, which the consortium claimed is written into its agreement with Chad’s government.
The Chadian government has previously said the consortium must pay a two-percent royalty rate, but Exxon and co. say the amount is higher than the agreement stipulates.
The court's ruling, released Wednesday, said the consortium owed 484 billion Chadian Francs (CFA) in unpaid royalties ($825.2 million), but a Reuters analysis said there was no explanation as to why the ruling demanded those companies pay fines 90 times that amount.
“It’s not a realistic thing and it will never be collected,” Robert Amsterdam, a lawyer at Amsterdam & Partners LLP, told Bloomberg. “This is much more about signaling that a renegotiation is in order than something that should trouble shareholders in any way.”
Chad began producing oil in 2003 and currently puts out around 120,000 barrels per day. The International Monetary Fund expects its economy to contract by 1.1 percent this year, hit hard by the steep drop in global oil prices.
The landlocked country pipes its oil to a port in Cameroon.
This report contains material from Reuters and the Associated Press.