LONDON A UK judge has overturned a decision to freeze $12 billion of Venezuelan assets awarded to Exxon Mobil in a setback to the oil giant's fight to win compensation for a seized oil project but a boost for leftist President Hugo Chavez.
Exxon convinced an English court to freeze the assets of Venezuela's state oil company, PDVSA, in January so cash would be available if Exxon won arbitration over an oil project which was lost to Chavez's nationalization drive.
But after hearing PDVSA's argument, the judge ruled there was no urgent risk of the company hiding its assets to avoid paying compensation and discharged the injunction.
Venezuela's government bond prices, which had been battered by the freeze, rallied after the ruling.
"Exxon has a lesson to learn," Venezuela's Ambassador to Britain, Samuel Moncada, said outside the court. "This was not the way to go about settling (the dispute) in an amicable way".
Caracas and Exxon have both said they are open to negotiations but the two are billions of dollars apart on their estimation of the heavy oil project's value.
Exxon said it had no plans to appeal and that the ruling had no impact on its claim for compensation, lodged with a New York-based arbitration body.
"We think that it's important the court did not question the merits of (Exxon's) underlying claim, but rather concluded that an English court should not issue a prejudgment worldwide freezing order," Exxon spokesman Alan Jeffers said.
Venezuela has already reached agreement with dozens of other oil companies which were forced to cede control of their oil fields, although analysts said the prices paid for these assets was much lower than their market value - half in some cases.
The interest rate premium investors demand for holding Venezuelan bonds over U.S. Treasury bonds, seen as among the safest investments in the world, fell half a percentage point on Tuesday.
Venezuela plans to issue up to $2 billion of debt in April, and this shift should save the Latin American nation tens of millions of dollars on that issue alone.
In Caracas on Tuesday, Venezuela oil minister Rafael Ramirez said the ruling was a "100 percent victory" for the South American nation.
The asset freeze had put even more pressure on already strained relations between the United States and Venezuela.
After the freeze became public, Chavez threatened to cut off oil supplies to the United States, which helped to push oil prices up to record highs above $100.
Exxon had also secured $12 billion freezes on PDVSA assets from courts in the Netherlands and Dutch Antilles. The U.S. oil giant said the ruling in the UK would not affect these orders.
However, PDVSA lawyer George Kahale said the freezes had been gained on the back of the UK ruling.
Moncada said the outstanding asset freezes, which he said were simply a negotiating tactic by Exxon, would be challenged and that he was confident of them being overturned.
"This is the beginning of the end of the harassment campaign Exxon instigated against Venezuela," the ambassador said at the High Court, outside of which supporters had displayed signs declaring "Hands off Venezuela" and "Exxon Corporate Terrorist".
James Halloran, analyst with National City Private Client Group, which owns 9.6 million Exxon shares, said he expected the company to continue to pressure Venezuela aggressively on the dispute.
"My guess is that Exxon isn't going to take this and simply say 'OK, we're going to sit down and come to a middle ground.' They're still going to play hardball," Halloran said.
Last month, a U.S. court confirmed its order freezing $300 million in Venezuelan assets in a U.S. bank.
Kahale said he expected the New York arbitration tribunal which will decide on compensation to start late this year or in 2009.
Judge Paul Walker ordered Exxon to make an interim payment of 380,000 pounds ($765,300) to cover legal costs within 21 days, although the final bill is expected to be much higher.
PDVSA lawyer Gordon Pollock added that the judge had awarded legal costs against Exxon and ordered the world's largest nongovernment-controlled oil company by market value to pay compensation for any damages caused by the imposition of the freezing order.
But he said the judge's decision apparently ruled out the possibility of Venezuela claiming compensation for higher sovereign borrowing costs, which could have cost Exxon dearly.
Shares in Exxon Mobil rose 1.8 percent to $87.34 per share in morning trading on the New York Stock Exchange, while the Standard and Poor's Energy index gained 2.2 percent.
(Additional reporting by Matt Daily in New York and Deisy Buitrago in Caracas; Editing by Brian Moss and Mark Potter)