Exxon Gets Fined by Chad Six Times its GDP (XOM)
By Ryan Donovan | October 7, 2016 — 3:00 PM EDT
Exxon Mobil Corp. (XOM) was fined a record $74 billion by the High Court in Chad for allegedly underpaying royalties for 15 years, according to a report by Bloomberg. The penalty is in addition to the $819 million in royalties Chad claims Exxon owes the Central African nation. Exxon plans to dispute the court's ruling and the fine, which is greater than Chad's total revenue of $57.6 billion for Q2 2016. (See also: Exxon Said to Buy Stake in Major Gas Field.)
The $74 billion fine is almost six times the total GDP of the Republic of Chad, which the World Bank estimates at $13 billion. Chad is currently struggling with several major economic issues, including decreased revenue due to lower oil prices, the violent Islamist militant group, Boko Haram, and a series of strikes and student protests due to budget cuts.
Exxon's legal dispute centers around a pipeline that carries crude oil from Chad to an export terminal located in Cameroon. Pipeline consortium members Chevron Corp (CVX) and Malaysian state-owned oil and gas company, Petroliam Nasional Berhad (also known as Petronas), were also named in the ruling, though Chevron sold its stake in the pipeline in 2014.
Chad's Finance Ministry claims Exxon has not paid the appropriate taxes on the pipeline. In July, Exxon and its partners filed for arbitration with the International Court of Arbitration in Paris over an exemption from export duties they claimed was included in the agreement with Chad.
“This dispute relates to a disagreement over commitments made by the government to the consortium, not the government’s ability to impose taxes,” Exxon spokesman told Bloomberg News. “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.”
This is not the first time that Exxon and Chad have clashed over oil royalties. In 2006, President Idriss Deby ordered Chevron and Petronas to leave the country over non-payment of taxes. In 2014, Chad filed an $837 million suit against all three members of the pipeline consortium for alleged unpaid taxes. Both cases were eventually settled.
The full fine will likely not be assessed; instead, it's likely Exxon will settle with Chad. However, if Chad continues to act aggressively and punitively toward external oil producers, it may make continued production in the area less feasible.
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