New Guaido lawyer takes over Citgo defense

Market: Crude oil, Oil products
23/06/20

A battle among creditors, arbitration claimants and bondholders for Venezuelan state-owned PdV's US refining arm Citgo is entering a critical stage, just as a new opposition attorney takes over the withering defense.

Veteran constitutional law scholar Enrique Jose Sanchez Falcon was appointed special attorney general in the skeleton exile team of Venezuelan opposition leader Juan Guaido.

Sanchez's outspoken predecessor, Jose Ignacio Hernandez, announced his resignation last week after the leak of controversial remarks to the opposition-controlled National Assembly energy commission in which he cited an "understanding" with US independent ConocoPhillips to pursue control of the refiner in an ongoing Delaware district court case. Hernandez forcefully described how the opposition's legal defense of Citgo was crumbling, contradicting the opposition's public assertions.

ConocoPhillips, one of PdV's pioneering heavy crude upgrading partners in the 1990s and early 2000s, is among the many foreign companies seeking to collect arbitration awards for asset expropriations under the late president Hugo Chavez. In a statement last week, the company said it remains committed to "pursuing all available legal avenues to obtain a full and fair recovery of the award. Any allegations to the contrary are wrong and baseless."

On 17 June, the Delaware court plaintiff, former Canadian mining firm Crystallex, now owned by Tenor Capital Management, recommended to the court a scaled auction of Citgo ownership stakes, with an offer increasing by 5pc until bidders fulfill the company's $1.4bn arbitration judgment. ConocoPhillips proposed the court instead place Citgo in receivership, similar to a bankruptcy process, to find a higher value for the assets.

Guaido's team argues that Citgo cannot be sold without a US Treasury license, so any discussion of a divestment is premature. Crystallex asserts that an auction should proceed now, giving the winner a period of time to secure the license to execute the award.

Among the key dates to watch in the Delaware court case are further filings on 7 and 13 July and oral arguments on 17 July.

Watching the proceedings from the wings are holders of a defaulted PdV 2020 bond that is backed by a 50.1pc stake in Citgo's parent. The other 49.9pc is pledged on an oil-backed loan to PdV from Russia's Rosneft.

On the horizon is the 22 July expiry of a US Treasury license that blocks the bondholders from executing a Citgo takeover.

Blessing and vetting

President Donald Trump's administration gave its blessing to opposition control of Citgo last year, shortly after endorsing Guaido's interim presidency and imposing oil sanctions on Venezuela.

In his new Trump-era memoir, former US national security adviser John Bolton, an architect of the US "maximum pressure" campaign against Caracas, described how the US government helped to vet Guaido's Citgo board nominations and advised the company's executives on how to fend off Moscow's potential lien on the asset.

Citgo is the fifth largest US refiner. The company operates three complex refineries — the 157,000 b/d Corpus Christi refinery in Texas, 167,000 b/d Lemont refinery in Illinois, and 425,000 b/d Lake Charles refinery in Louisiana.

By Patricia Garip

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