Tuesday, January 03, 2012

Exxon (XOM) Out Of Venezuela And Out Of Luck

Exxon (XOM) can't catch a break.  An international arbitration panel awarded it a mere $908M judgement for its loss of a $7B investment in Venezuela, and now Venezuela's national petroleum company wants the award reduced further to net out money it claims Exxon owes.  The portion of the claim that represents assets held in the U.S. will be hard to take seriously.

Exxon will most likely end up writing the whole thing off at zero.  It will be lucky to recover a penny from this given the Venezuelan government's attitude towards foreign direct investment.  The $7B represents about 2.3% of Exxon's total assets but as a charge-off it can take a hefty 70% from Exxon's quarterly net income if it hasn't already.  BTW, Exxon's earnings look unusually even for the last four quarters.  I wonder what accounting treatments make it so smooth.  It's worth noting that XOM has a P/E of just over 10, not really a bargain among supermajors when its peers mostly trade at single-digit P/Es.

The other majors who continue to do business in Hugo Chavez's playpen must think that keeping a minority stake in a forced corporate marriage is preferable to a total loss.  Socialism is stupid but Latin American despots find it useful.  Good luck to any oil company that wants to throw good money after bad in Venezuela.

Full disclosure:  No position in XOM at this time.