Aug. 10–Financially crippled Venezuela likely will lose control of its Houston refining arm Citgo Petroleum once a slew of lawsuits eventually are resolved, and it’s just a matter of when and to whom, finance and energy analysts said Friday.
A federal judge ruled late Thursday that a defunct Canadian mining firm can go after Citgo’s assets to collect $1.4 billion it allegedly lost from Venezuela when the government seized mining and energy assets more than a decade ago under the late socialist leader Hugo Chávez.
While the Canadian firm, Crystallex International, is unlikely to take control of Citgo’s refining and retail gasoline assets throughout the U.S., the ruling is expected to kick off an array of new legal claims against Venezuela and its state oil company — from Houston-based ConocoPhillips to other oil and gas firms — with the goal of winning Citgo as the prize, , legal and finance experts said. After all, Venezuela owes a lot of money to a lot of different companies.
Whichever company eventually wins out could sell to refiner that might be interested, including San Antonio’s Valero Energy, Houston’sPhillips 66, Ohio-based Marathon Petroleum and New Jersey’sPBF Energy, said Jennifer Rowland, and energy analyst with Edward Jones in St. Louis.
“It’s not every day that a suite of refineries becomes available, especially along the Gulf Coast,” Rowland said. “Those assets would definitely fit in some companies’ portfolios.”
Citgo, which declined comment Friday, owns oil refineries in Corpus Christi, Lake Charles, La., and Illinois. The company employs about 4,000 people in the U.S., including 800 in Houston. Citgo has roughly 160 branded gas stations in the Houston area, and about 5,500 nationwide. The company is valued at nearly $8 billion.
Citgo is a U.S. company with a more than 100-year history. It was acquired by Venezuela’s state-run oil company three decades ago. The state oil company, Petroleos de Venezuela SA, is known as PDVSA.
The Citgo assets are seen as the crown jewel for companies targeting PDVSA legally because they’re the most accessible assets outside of Venezuela, said Craig Pirrong, a University of Houston finance professor specializing in energy markets. Thursday’s court ruling opened the door for many more claims made against Citgo by those owed money by Venezuela, he said, because the judge allowed Venezuela’s debts to extend to its U.S. refining assets as an “alter ego” of the government.
“It’s going to be like a feeding frenzy going after Citgo,” Pirrong said.
And now a series of complex legal battles will ensue, possibly dragging out into next year, said Franciso Monaldi, a fellow in Latin American Energy Policy at Rice University’sBaker Institute for Public Policy.
“I don’t expect PDVSA to immediately lose control of Citgo, but I think eventually it will happen,” Monaldi said. “It’s really just a matter of who will get it.”
Venezuela has suffered a financial and geopolitical freefall under Chavez’ socialist successor and current president, Nicolas Maduro. Many thousands of people have fled the country, fearing starvation and violence, including some PDVSA workers, as the country’s oil production has plummeted.
As he’s consolidated power in the destabilized nation, Maduro jailed an opposition lawmaker this week after a failed assassination plot that involved two flying drones with explosives.
Citgo has faced increasing uncertainty since November, when its acting president and five other Houston-based executives with dual citizenship were arrested in Venezuela on corruption charges.
Maduro installed Chávez’s cousin, Asdrúbal Chávez, as the new Citgo president. Although he remains in charge, the new Citgo leader was ordered in July by the U.S. State Department to surrender his U.S. visa amid an ongoing probe into PDVSA. Citgo said Chávez would continue in his role remotely for now.
The future of Citgo is further complicated because 49.9 percent of Citgo is pledged to Russian oil giant Rosneft as collateral for a $1.5 billion loan. The U.S. government would fight losing control of Citgo to Russian interests, analysts said.
As for Crystallex, Thursday’s ruling doesn’t actually hand Citgo over to the defunct firm. But it does position Crystallex to force a large settlement from Venezuela, Monaldi said.
He added that ConocoPhillips could make a stronger claim for Citgo because it’s already won a $2 billion ruling against PDVSA, and not just Venezuela as a whole. In the spring, ConocoPhillips won court orders to seize PDVSA assets on Caribbean islands, quickly taking action against refining and oil storage assets in the Caribbean islands of Curacao, Bonaire and Sint Eustatius.
But ConocoPhillips said it is still a good ways off from recouping the full $2 billion. ConocoPhillips also argued PDVSA has transferred some petroleum products to Citgo to prevent their seizure.
“It’s looking bleak for Venezuela,” Pirrong added.
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