Interest in Citgo sale may be limited

Few companies look ready to buy US refiner Citgo in the ongoing court-ordered auction, amid industry downsizing and the challenge of integrating 805,000 b/d of capacity into an existing business. But there may still be interest in specific parts of the seventh-largest US refiner.

A US federal court began the auction process for Citgo's parent PdV Holding (PdVH) in October, part of the process of satisfying debts owed by Venezuelan-state owned oil company PdV.

If the auction is successful, it would mark the largest sale of US refining assets since Andeavor's acquisition by Marathon Petroleum in 2018. But the most obvious buyers, large independent refiners, have publicly expressed limited desire to bid.

"We're not interested in the auction process," Marathon Petroleum's chief executive Michael Hennigan said on an earnings call in October. HF Sinclair said in the same week that it is focused on improving its existing operations.

PBF's chief executive Matthew Lucey called the auction a "quagmire" on a third quarter earnings call, considering the undesirable auction process and its ties to a complex geopolitical situation in Venezuela. He does not expect the sale to go anywhere in the near term.

Valero left itself the most room for a bid — "We'll run it through our processes and figure out whether it makes sense for us or not," Valero's chief operating officer Gary Simmons said.

But the price tag, which independent analyst Paul Sankey said is rumored to be in the $32bn-$40bn range, could push potential buyers away.

"General feedback from US refiners is one of disinterest with bemused skepticism," Sankey wrote in a research note last month.

But US investment bank Wells Fargo has pegged the enterprise value of Citgo's assets at a more modest $6.5bn-$14bn, comprising a $4,700-8,000 b/d value for the company's 805,000 b/d of refining capacity. That is in line with the most recent US refinery sale — Par Pacific's purchase of ExxonMobil's 62,000 b/d Billings, Montana refinery for $310mn which closed this year.

The auction is timed to move fast, with the first round of bidding scheduled to take place on 22 January and a conclusion set for 20 May. If the sale process goes as planned, Citgo could have new owners as early as July 2024.

Too big for sale

But there's a significant challenge trying to sell Citgo's US operations in one go, McKinsey senior refining business expert Tim Fitzgibbon told Argus.

"A lot of refiners are doing a big shuffle right now, shedding assets that don't fit their strategy and then some are acquiring ones to fill it out and pivot towards what they see as the best position for the energy transition," McKinsey's Fitzgibbon told Argus. "I don't think the expressed skepticism is all gamesmanship."

The Citgo auction also coincides with multiple North American refineries either up for sale or coming to market soon. Irving Oil's 320,000 b/d Saint John, New Brunswick, refinery is on the market with no clear buyer and Phillips 66 (P66) announced plans in October to divest $3bn of its assets as part of broader cost-cutting measures.

Integrated oil companies Chevron and ExxonMobil have been busy with megadeals in the upstream and the latter in March started operations at a $2bn expansion of its Beaumont, Texas, refinery. ExxonMobil, like P66, is also eyeing downstream divestments.

LyondellBasell's failed sale of its 264,000 b/d Houston, Texas, plant is symptomatic of the limited interest in acquisitions, even in one of the most desirable US markets. The company announced in 2022 that it would shutter the facility, before reversing the decision and extending operations to early-2025.

The Citgo refineries are generally regarded as higher-quality plants than Lyondell's Houston refinery, but a multi-billion dollar acquisition at a time when US refining margins are expected to normalize is a big ask, even as historically wide margins led to record profits and cash on hand for some refiners in the last two years.

Lubricants, retail and midstream assets included in the auction could sweeten the deal for a potential bidder, but other refiners may quickly divest them.

If the auction fails to attract bidders, the court may consider selling off parts of the business instead. This could benefit a US refining sector more open to cherry-pick assets.

By Nathan Risser

Citgo US refining and lubricants