(Oil Price) – The fate of Citgo, the jewel in the crown of Venezuela’s PDVSA, may be decided by the end of this week. The Venezuelan state-owned oil company may lose its prized asset. The creditors that fueled the process that led to the auction for Citgo may be left with empty hands, as well.
The U.S.-based refining company used to have a total processing capacity of over 800,000 barrels daily, the biggest U.S. outlet for Venezuelan heavy crude. Yet in 2019, amid tightening U.S. sanctions on the government in Caracas, Citgo cut its ties with the parent company and was briefly put under the control of Venezuela’s then-opposition leaders.
While this was happening, more than a dozen companies were suing PDVSA and the Venezuelan government for money they lost from their Venezuelan operations when the Hugo Chavez government came into power over 20 years ago and nationalized and expropriated foreign company-operated assets. It was these lawsuits that eventually led to the tender that is currently being conducted in the United States. The proceeds from the sale that this tender will likely end with by Friday will be used to compensate some of the creditors, but there will not be money for everyone.
“This sale hearing represents a significant milestone in an 18-year litigation effort that ConocoPhillips has been engaged in since its assets were expropriated in 2007 by President Hugo Chavez,” one of the attorneys representing Citgo’s biggest claimant, ConocoPhillips, told Reuters this week. The publication noted in its report that Conoco’s claim alone is for $11 billion. The company’s value has been estimated at around $12 billion. Yet the total of the claims for compensation is close to $19 billion.
The top bids made so far are far below this sum. The original favorite, a bid by a consortium led by mining company Gold Reserve, was worth $7.4 billion. However, in the last minute, a new bidder emerged, by the name of Amber Energy—a company affiliated with activist investment firm Elliott Management. Its bid was actually lower than Gold Reserve’s, at 5.86 billion. This total would be paid to PDV Holding (the Citgo parent company) creditors, and another $2.86 billion would be distributed in settlements for claims made by the holders of a bond, on which PDV Holding’s parent, Venezuela’s PDVSA, defaulted.
The Amber Energy bid prompted the Golden Reserve-led consortium to improve its own offer, although the company did not provide any details about the size of the improvement. The company that represents the consortium, Dalinar Energy, had “materially increased its proposed purchase price, arranged for additional financial support, and increased the certainty of its bid in non-economic ways,” Golden Reserve said in August.
This month, yet another bid emerged, made by a special purpose acquisition vehicle by the name of Blue Water. Submitted at the last moment, the bid was worth $10 billion, of which $3.2 billion was in settlements for the bondholders of the abovementioned debt instrument. The court in charge of the sale process, however, rejected the bid after Blue Water admitted it did not have the money for its bid available. “Perhaps they (Blue Water) can spend this week seeing if they can get the financing committed,” Judge Leonard Stark said, leaving the door open for further progress on that bid by saying he could task the court officer responsible for the Citgo auction with looking into the Blue Water bid.
A decision on the sale of Citgo is expected by Thursday, although the possibility of a postponement is always present. The bottom line remains that, regardless of the outcome, not all claimants trying to recoup losses made from Venezuela’s change of government in the late 90s would end up getting what they want.
By Charles Kennedy for Oilprice.com
