HOUSTON, Oct 22 (Reuters) – For the past four years, the United States protected oil refiner Citgo Petroleum from creditors seeking to seize Venezuela’s foreign crown jewel for billions of dollars in claims. But on Monday, a U.S. judge will kick off an auction expected to place the Houston-based company in the hands of rivals or investors.
The auction could start a new chapter for the 113-year-old company, which has been owned by Venezuela for almost 40 years. An unknown is whether Biden administration’s decision last week to ease energy sanctions on Venezuela could allow the country to repay creditors and end the lawsuit.
A senior U.S. State Department official in Washington last week said in a briefing the sanctions easing should not affect the auction. The U.S. separately extended Citgo’s protection from creditors until January.
Reuters has tracked the court case for more than a year and has spoken with nearly two dozen people including employees, investors, board members, attorneys, U.S. officials, rivals and creditors involved with the company. The story they tell is one of miscalculations and a federal judge determined to make Venezuela pay its debts.
Citgo likely will end up next year in the hands of one or more of the largest refiners operating in the U.S., potentially leaving Venezuela with nothing, according to the people most closely involved.
Washington and Venezuela’s political opposition wanted Citgo to anchor the country’s economic future under a democratically elected government. But both have failed to break Venezuelan President Nicolas Maduro’s grip on power since a disputed 2018 re-election.
Now, the forced auction, which involves a parent whose only asset is the refining firm, offers potential for raising some $13 billion to pay a small number of a long list of Venezuela-linked creditors, according to official estimates. 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 biggest court auction ever held. Bidders are expected to include Marathon Petroleum (MPC.N), Saudi-owned Motiva Enterprises, Valero Energy (VLO.N) and Koch Industries. Infrastructure investors might also place bids, according to people close to the matter.
Motiva, Valero and Citgo’s ultimate parent, Venezuela’s state oil company PDVSA, did not reply to requests for comment. Marathon, Citgo and the U.S. Treasury Department declined to comment.
The price tag and anti-trust concerns will limit the pool of bidders for the entire company, said Matthew Blair, managing director for refining research at financial firm Tudor, Pickering, Holt & Co.
“We expect it will have to be broken up,” he said. In addition, “the assets come with some wholesale/retail gasoline exposure, which could make it tough for foreign buyers,” Blair said.
Venezuela’s chance of retaining some stake in Citgo is very slim, according to experts. When offered for sale in 2014, the company was valued at nearly $12 billion, and its sharply improved profitability since then likely will draw higher bids. But the nation’s foreign debt surpasses $90 billion.
“Citgo will be lost. It is now just a matter of how long the auction will take. We won’t be able to even find the leftovers,” said Venezuela’s former attorney general Jose Ignacio Hernandez.
DETERMINED JUDGE
U.S. District Court Judge Leonard Stark in Delaware in 2019 found PDVSA was the alter ego of Venezuela, a rare court ruling that opened the door for Crystallex International to pursue shares in one of Citgo’s parents, PDV Holding, to recoup losses from Venezuela’s expropriation of its assets.
Venezuela had believed it was shielded from creditors’ advances because U.S. courts generally treat corporations as separate from their owners. Since Citgo severed ties with PDVSA in 2019, the U.S. government has recognized a series of supervisory boards appointed by Venezuela’s opposition-led National Assembly and its former head Juan Guaido.
“It was helpful to have the ad-hoc board,” said Natalie Shkolnik, a litigation partner at law firm Wilk Auslander who has written about the finding. “It just wasn’t enough to avoid the alter ego finding.”
Venezuelan President Nicolas Maduro fought the boards’ appointments, and recently said Citgo had been “kidnapped” by the U.S.
Stark, 54, methodically laid the groundwork for Monday’s auction by hiring an investment bank and naming a court official to deal with U.S. agencies that protect Citgo.
His 2018 alter ego ruling for the first time tied PDV Holding to Venezuela’s debts, a ruling Venezuela’s lawyers continue to fight before the U.S. Supreme Court. The appeal is pending.
Stark declined to hand off the case to another judge after being promoted in 2022 to an appeals court. He…
Read More: A tale of setbacks as Venezuela’s Citgo heads to US auction