Venezuelan ownership of the country's most valuable overseas asset may rest on opposition leadership convincing a US court that it restored refiner Citgo's independence and remains a US foreign policy priority.
Attorneys for Venezuela's US-recognized opposition government argued yesterday that National Assembly leader Juan Guaido halted actions under president Nicolas Maduro that the US District of Delaware and appellate courts ruled exposed the 769,000 b/d US refining system to Venezuela's substantial debts. The US and dozens of western governments recognize Guaido as the interim president of the country, and US courts have over the past year accepted his attorneys as representing Venezuela.
The court should recognize that change and not interfere with US executive branch policy protecting Citgo from seizure. It did not matter whether Venezuelan president Nicolas Maduro — who continues to control the country — still exerted inappropriate day-to-day control within Venezuela over the national oil company and Citgo parent, PdV, attorneys argued. The US-recognized government of Venezuela did not, and so Citgo's exposure to Venezuelan debts no longer existed.
"It would make no sense to press ahead with the additional judicial process needed to prepare for execution on PdV's property," attorneys argued, "even though that determination no longer has a valid basis."
Guaido's attorneys have made similar arguments in multiple cases still churning toward decisions in New York, the District of Columbia and Delaware, all threatening to scatter Citgo's ownership to Venezuela's creditors. The decisions imperil a Venezuelan institution that represents both future sources of revenue and the only demonstration so far of opposition control since Guaido was recognized as interim president in January 2019.
Auction process recommended
Defunct Canadian mining firm Crystallex yesterday recommended an auction offering ownership stakes of Citgo increasing by 5pc until bidders fulfill the company's $1.4bn arbitration judgment. The company, controlled by New York hedge fund Tenor, has sought compensation for mining rights and projects in Venezuela expropriated under former president Hugo Chavez. Approval of the auction process could open a flood of similar sales for any remaining shares to satisfy more than $150bn in outstanding Venezuelan debts.
Crystallex's proposed auction would begin at 10pc of available shares but likely would climb to 100pc ownership "as few potential bidders are likely to be interested in becoming business partners with Venezuela," Crystallex said.
Outside estimates of Citgo's liquidated value have ranged from $1bn to $9bn. The opposition says its experts estimated Citgo's value at $10bn to $13bn. Crystallex recommended advertising the auction to US independent refiners and oil majors, major international trading houses and private equity firms.
Guaido's team requested that any sale only satisfy the Crystallex debt and leave as much of Citgo as possible under Venezuelan control. The opposition government has pushed instead for talks restructuring all debts instead of a sale. Citgo revenues would be essential to recovering the Venezuelan economy and paying those debts, the opposition says.
The Delaware court could make the sale contingent on receiving approval from the US Treasury department, which froze any change in Citgo ownership as part of sanctions imposed last year on PdV. Carlos Vecchio, Guaido's ambassador to the US, said today that he was "fully confident" those protections would remain in place.
The proposals follow a discarded settlement agreement and nearly two years of appeals fighting a decision that exposed Citgo in US courts to Venezuela's significant debts. Such subsidiaries usually enjoy a paper wall from those entanglements. But Venezuela's extensive control over the day-to-day operations of national oil firm PdV and proclivity to leverage its most valuable overseas asset left its US refining subsidiary vulnerable as an alter ego, the court found.
The Third Circuit Court of Appeals in Philadelphia, Pennsylvania, upheld the rare piercing of Citgo's shield last year, and the US Supreme Court passed on hearing the case this spring.
Opposition extended legal battles
Politics helped extend this battle in 2019. Venezuelan National Assembly leader Guaido declared that Maduro's election was illegitimate. Western governments that January recognized Guaido as an interim president leading the country to new elections. The US sanctioned Venezuela's oil industry before the end of that month, stifling US refined product sales and crude purchases from a former major trading partner and freezing Citgo's finances to wait for a Guaido transition.
Guaido appointees run Citgo's corporate board and represent the company in US courts. They made payments on Citgo debt in 2019. But Guaido has not expanded his control of Venezuelan institutions beyond the country's imperiled US assets, and may soon lose his constitutional claim to power.
The Maduro-aligned Venezuelan Supreme Court approved a rival, parallel leadership of the National Assembly in late May. Maduro this month appointed a new elections board assuring progress toward fully removing Guaido from the head of the Assembly this year — and eliminating his leadership claim.
None of Maduro's actions were leading to a valid election or new legitimate government, Vecchio said.
"Any election will not be recognized for us under the current National Assembly," Vecchio said. "I do not see the elements to say that the political situation will affect the protection that we have right now."
Whoever controls Venezuela faces long odds to keep Citgo. Venezuela did not make payment on bonds backed by a 50.1pc ownership stake in Citgo that matured this year, exposing the refiner to a more traditional seizure this fall. Bondholders and creditors such as Crystallex are racing through US courts for any remaining shares.
Citgo operates three highly complex refineries in markets with relatively long prospects. Its 167,000 b/d Corpus Christi, Texas, refinery processed a slate of 55pc discounted heavy, sour and 34pc US light, sweet crudes. The 177,000 b/d Lemont, Illinois, refinery supplies the Chicago market by distilling a predominately Canadian crude slate. Citgo's 425,000 b/d Lake Charles, Louisiana, refinery can fill its slate with up to 37pc heavy sour imports, has pipeline connections to Texas light, sweet production and can supply fuel to the Atlantic coast by way of the Colonial Pipeline system.
