Exxon Mobil negotiating $74 billion fine with Chadian government

December 01, 2016 | Chad, Government & Regulations

London, UK | – World’s biggest oil producer by market value Exxon Mobil Corporation 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 for a dispute over royalties.

While the company has appealed the October 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.

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 Texas-based Exxon had not met tax obligations. The court also demanded the oil explorer pay US$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.

“It is vital for all parties to honour 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 GDP, is in line with the customs code of a regional organisation 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.

The code stipulates that “in the event of fraudulent behaviour, as is the case, the fine should amount to double the value of the object of the fraud,” Operal said.

He declined to elaborate. Chad says that the consortium should pay two percent 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 percent, 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 Corporation and Malaysia’s state-owned Petroliam Nasional Bhd.  Chevron sold its stake in Chad in 2014.