* Arbitration tribunal orders Venezuela pay $1.6 bln to Exxon
* Award lower than Exxon wanted, gov't hails "victory"
* PDVSA source says Venezuela sees final amount at $1 bln (Recasts with details from PDVSA source, comments)
By Corina Pons and Alexandra Ulmer
CARACAS, Oct 9 (Reuters) - A World Bank arbitration tribunal on Thursday ordered Venezuela to pay Exxon Mobil Corp about $1.6 billion to compensate for oil nationalization in 2007, though state oil company PDVSA expects to eventually pay closer to $1 billion.
Venezuela's socialist government hailed the long-awaited decision as a victory for its "sovereignty," given the U.S. multinational's hope for a much larger award in a compensation case typical of the sweeping nationalizations under the late Hugo Chavez's 14-year rule.
Still, the decision by the International Centre for Settlement of Investment Disputes' (ICSID) comes at a delicate time for cash-strapped Venezuela, already struggling with a sluggish economy, rampant inflation and looming bond payments.
Venezuela said it would pay the award, only after deducting a previous Exxon award from the Paris-based International Chamber of Commerce (ICC) of $908 million.
A source at state oil company PDVSA familiar with the case told Reuters that, factoring interest into the ICSID-ordered compensation, the final amount would be reduced to roughly $1 billion. PDVSA took over Exxon's operations under the nationalization.
"The award is a triumph, without doubt," said the source, adding PDVSA would pay as of November, after servicing its roughly $3 billion 2014 bond. The source asked not to be identified because he is not authorized to speak publicly.
Exxon also claimed the upper hand.
In a brief statement, the world's largest publicly traded oil company said the decision vindicated its view that Venezuela failed to compensate it fairly at the time. The company had been seeking roughly $10 billion in compensation.
Exxon added it held extensive discussions with PDVSA and the government but was unable to reach agreement on fair compensation.
The ICSID decision relates to the expropriation of the Cerro Negro project, the La Ceiba project, as well as "production and export curtailments" imposed on the Cerro Negro development in 2006 and 2007.
"The Tribunal has found that the expropriation was conducted in accordance with due process," ICSID said on its website. (tinyurl.com/onw37t4)
"The most important part of the decision is that the arbitration tribunal rejects the alleged 'illegal' nature of the expropriation," said Carlos Bellorin, petroleum analyst at IHS, meaning the compensation only reflects the value of the assets, not alleged damages and prejudice caused.
"However, it is presumed the calculation method was not the one Venezuela suggested," he said.
Each party will cover its own costs and counsel fees, ICSID said. The tribunal said it had no jurisdiction over "the claim arising out of the increase in the income tax rate for the participants to the Cerro Negro Project."
Venezuela is facing more than 20 arbitration cases over the Chavez-era nationalizations.
Many of the companies nationalized deemed the takeovers unlawful expropriations. Proponents of the nationalizations argue commodities-rich Venezuela should have the right to administer its own resources to try to improve living standards.
Several analysts said Venezuela had mostly dodged the bullet this time, but that other cases may prove trickier.
ConocoPhillips has brought the biggest case to date against Venezuela, in 2007, seeking $30 billion in compensation.
A partial decision in 2013 determined Venezuela failed to act in good faith or properly compensate ConocoPhillips for three big oil assets. A final decision is expected soon.
Cash-strapped PDVSA appears to be seeking to sell Citgo Petroleum Corp, its U.S. refining unit which would be a welcome injection of liquidity for the company and the government. (Additional reporting by Marianna Parraga and Anna Driver in Houston; Editing by Andrew Cawthorne and Richard Chang)