In the last four years, USA protected Citgo Petroleum of creditors seeking to seize the Venezuelan refiner, but a U.S. judge on Monday began an auction process that is expected to put the Houston-based company in the hands of rivals or investors.
The auction could start a new chapter for the company that has been owned by Venezuela for almost 40 years.
A U.S. State Department official said in Washington last week that the Joe Biden administration’s oil sanctions relief should not affect the auction. In a separate decision, the United States extended Citgo’s protection against creditors until January.
It is likely that Citgo end next year in the hands of one or more of the largest refiners operating in the United States, potentially leaving Venezuela empty-handed, according to people most closely involved in the case.
Washington and Venezuela’s opposition wanted Citgo to anchor the country’s economic future under a democratically elected government. But both have failed to break President Nicolás Maduro’s grip on power since his disputed re-election in 2018.
Now, the forced auction, involving a parent company whose only asset is the refining company, offers the potential to raise some US$13 billion to pay a small number of a long list of creditors linked to Venezuela, according to official calculations.
Few companies are expected to be able to bid for the entire business: three refineries, six pipelines and 4,200 independent gasoline retailers.
The sale could become the largest judicial auction ever held. Bidders are expected to include Marathon Petroleum, Valero Energy, Koch Industries and Saudi-owned Motiva Enterprises. Infrastructure investors could also submit bids, according to people close to the matter.
Motiva, Valero and the parent company of Citgo, the Venezuelan state oil company PDVSA, did not respond to requests for comment. Marathon, Citgo and the U.S. Treasury Department declined to comment.
Price and antitrust concerns will limit the pool of bidders across the company, said Matthew Blair, managing director of refining research at financial firm Tudor, Pickering, Holt & Co.
“We hope that it will have to be divided,” he claimed. Besides, “The assets come with some exposure to gasoline wholesalers and retailers, which could make things difficult for foreign buyers.”
Venezuela’s chances of retaining some share in Citgo They are very rare, according to experts.
When Venezuela put Citgo For sale in 2014, the company was valued at almost $12 billion. Its profitability has improved markedly since then, which could attract higher bids. But the country’s external debt exceeds US$90 billion.
“Citgo it’s going to be lost. Now it’s just a matter of seeing how long the auction will take.“said former Venezuelan Attorney General José Ignacio Hernández. “We’re not even going to get the remains.”.
determined judge
In 2019, Delaware District Judge Leonard Stark showed that PDVSA was the alter ego of Venezuela, a rare court ruling that opened the door for Crystallex International to seek to take shares of one of Citgo’s parent companies, PDV Holding, to recover assets that he had lost due to expropriation in Venezuela.
Venezuela believed it could shield itself from advancing creditors because U.S. courts generally treat corporations as separate entities from their owners.
Since Citgo severed ties with its parent PDVSA in 2019, the US government has recognized a series of supervisory boards appointed by Venezuela’s opposition-led National Assembly.
“It was useful to have an ad hoc meeting”said Natalie Shkolnik, a litigation partner at law firm Wilk Auslander, who wrote about the finding. ““It was simply not enough to prevent the discovery of the alter ego.”.
Maduro opposed the board appointments and has said that Citgo was “kidnapped” by the United States.
Stark, 54, methodically laid the groundwork for the auction by hiring an investment bank and appointing a special judicial officer to deal with the U.S. agencies protecting Citgo.
His alter ego display in 2018 first linked PDV Holding to Venezuela’s debts, a ruling that Venezuela’s lawyers continue to fight before the U.S. Supreme Court. The appeal is pending.
Stark declined to transfer the case to another judge after being promoted in 2022 to an appeals court. This year he hired investment firm Evercore Group to collect financial data and market the company.
Evercore is requesting an initial offer that could be released this week. Such a bid could include companies with the largest arbitration awards, including ConocoPhillips and Exxon Mobil.
Conoco said he is “seeking all available legal avenues” to collect his three arbitration awards. Exxon declined comment.
Stark acknowledged from the beginning that the case had a broader scope than Citgo. He sent a judicial officer to the U.S. Treasury Department’s Office of Foreign Assets Control, which has long blocked claims against Citgo, and received prior approval for the auction.
Judge Stark did not respond to a request sent to the court to be interviewed. Bidders are expected to submit confidential offers to Evercore.
“The auction is not a fair or equitable process. Only the first to arrive will be paid by destroying an asset”Horacio Medina, who chairs one of the boards that oversee Citgo, told Reuters. “The game is not over”.
Carlos Jordá, Citgo’s respected CEO who was appointed in 2019 to lead the company, has managed to counteract years of poor maintenance that the Caracas-based parent company had ignored, reducing debt and improving finances.
Its three refineries operated at an average of 98% of capacity over the past four quarters. During that same period, the company’s cumulative net income amounted to $4.92 billion, compared to its first year, when the company posted a profit of $246 million.
Jordá declined through a spokesperson to be interviewed.
But if Citgo and their supervisory boards fail to reach payment agreements before the auction winners are declared next year, Venezuela, which bought Citgo to consolidate your internationalization strategy, you could end up with nothing.
Citgo’s 807,000-barrel-per-day refining network, which is geared toward processing Venezuelan heavy crudes, is as essential today as it was when PDVSA acquired the company.
“Citgo will continue to be strategic for Venezuela in the next 20-25 years, not as a pure refining company, but with a different role”Medina stated. Citgo could one day compete with PDVSA by operating as a vertically integrated oil company with production assets in Venezuela.
Today, that seems like a diffuse hope.
“The loss of Citgo will have enormous moral damage for Venezuelans and will not have any benefits, except for the lucky few who manage to sneak into the auction.“said former attorney Hernández.
Source: Gestion
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