According to recent reports, ExxonMobil Corporation (XOM - Free Report) is in talks with the Chadian government regarding a record fine of $74 billion that the oil major was asked to pay last month by a court in the country owing to dispute over royalties.
The fine was imposed by a court in the central African nation after the Finance Ministry said that a consortium led by ExxonMobil had not met tax obligations. Alongside, the court also ordered the company to pay overdue royalties of $819 million.
Per the sources, ExxonMobil has appealed against the Oct 5 ruling by the High Court. Reportedly, the appeals court hearing has been deferred because of negotiations between the company and the Chadian government.
The penalty exceeds the $61.6 billion financial blow BP plc (BP - Free Report) incurred after the Deepwater Horizon disaster in 2010. Notably, the accident had killed 11 rig workers and contaminated the Gulf of Mexico with crude for months. The aforesaid fine is also 70 times larger than the $977.5 million ExxonMobil was ordered to pay fishermen and other victims of the 1989 Valdez oil spill in Alaska.
According to the government’s general director of legal affairs, the penalty is in sync with the customs code of a regional organization – the Economic and Monetary Community of Central African States – of which Chad is a member. Interestingly, the charge is almost six times Chad’s gross domestic product.
The code specifies that, “in the event of fraudulent behavior, as is the case, the fine should amount to double the value of the object of the fraud.”
According to the central African nation, the consortium should pay 2% in royalties on crude exports even if ExxonMobil argues that it inked an agreement with the government in 2009 that set the royalties at 0.2%. Further, the government’s general director of legal affairs pointed out that the previous “convention wasn’t ratified by parliament and never signed by the head of state.”
Earlier in the year, the government announced a series of strict measures to deal with the steep decline in oil income – its main source of foreign revenues. For about two weeks judicial workers, including judges, have been on strike alongside medical staff and teachers.
ExxonMobil started exploring Chad for crude in 2001 and has been procuring oil from the region since 2003. The company also operates a pipeline that transfers Chadian oil to a marine terminal in Cameroon for export. The two other companies named in the case are Chevron Corp. (CVX - Free Report) and Malaysia’s state-owned Petroliam Nasional Bhd. Chevron divested its stake in Chad in 2014.
None of the partners of the consortium disclosed any details regarding the progress.
ExxonMobil currently has a Zacks Rank #3 (Hold). Another better-ranked player from the same sector is SunCoke Energy Inc. (SXC - Free Report) , sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
SunCoke Energy posted a positive earnings surprise of 177.78% in the preceding quarter. It reported a positive earnings surprise in three of the four preceding quarters.
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