PdV weighing offers to sell Citgo

Venezuela´s state-owned PdV is weighing offers to buy its US downstream subsidiary Citgo to raise cash for long-delayed upstream projects at home, augment crude supplies to China and reduce the government´s exposure to foreign litigation.

The government has received three separate offers to buy Citgo submitted through Goldman Sachs, JP Morgan and Deutsche Bank, energy ministry officials tell Argus.

The banks are acting as intermediaries for potential buyers including oil companies, the officials added. The offers are in the range of $10bn to $15bn for the Citgo assets, including three US refineries with a combined nameplate crude processing capacity of 757,000 b/d, 48 products storage facilities, three wholly owned Citgo pipelines and stakes in six other US pipelines, the ministry officials added.

Citgo's refineries include the 425,000 b/d Lake Charles refinery in Louisiana, the 165,000 b/d Corpus Christi refinery in Texas, and the 167,000 b/d Lemont refinery in Illinois.

PdV, which owns Citgo through its PdV America unit, and a Citgo spokesman at the company's Houston headquarters both declined to comment.

Goldman Sachs, JP Morgan and Deutsche Bank were not immediately available for comment.

Any oil company eyeing the purchase of part or all of Citgo would have to consider the long-term availability of heavy crude, as Lake Charles and Corpus Christi are designed to process heavy Venezuelan grades. PdV has restructured its long-term supply contracts with Citgo's refineries in recent years, reducing their term length. But Venezuelan crude continues to make up roughly 60pc of imports processed at Citgo's US Gulf coast refineries, according to Energy Information Administration data.

In Venezuela, PdV has been struggling to foot its share of investment in upstream projects centered in the Orinoco extra-heavy oil belt that are aimed at raising production capacity to 6mn b/d.

Even with billions of dollars in oil-backed loans from China and loans from joint venture partners such as Chevron and Russia´s Rosneft, PdV´s crude production capacity remains stalled at around 2.3mn b/d.

At the same time, PdV is under increasing pressure from China to fulfill supply commitments tied to about $56bn worth of oil-backed loans that Venezuela's government and PdV have received from Beijing since 2007.

The sale of Citgo would free up additional exportable volumes that PdV would direct to China as part of a bilateral commitment to increase China-bound exports from about 600,000 b/d currently to 1mn b/d in 2016, the officials said.

Ministry officials said the decision to sell Citgo is also motivated by concerns in Caracas that two arbitration panels at the World Bank's International Center for Settlement of Investment Disputes (Icsid) likely will issue rulings soon ordering PdV to compensate ConocoPhillips and ExxonMobil for their stakes in Venezuelan integrated Orinoco assets that were nationalized in 2007.

ConocoPhillips and ExxonMobil filed separate arbitration requests to Icsid in 2009 seeking combined total compensation of about $42bn.

But Caracas-based attorneys monitoring the activities of the two arbitration panels estimate final rulings against Venezuela could total about $10bn, with about $7bn earmarked for ConocoPhillips and $3bn for ExxonMobil.

Venezuela's government is concerned that an Icsid ruling ordering PdV to pay compensation to the US companies could be followed by US court litigation resulting in attachments and liens on Citgo assets in the US, the ministry officials said.

The government's concerns increased "considerably" after a US court in May 2014 upheld the seizure by Phillips 66 of PdV's 50pc stake in a 70,000 b/d delayed coker at the Sweeny refinery in Texas on grounds that PdV breached a long-term crude supply contract, the ministry officials said.

PdV bought 50pc of Citgo in 1986 from US Southland, and purchased the remaining 50pc in 1990.

The acquisition was part of a strategy of buying downstream assets in a bid to establish a stable wellhead-to-pump integrated business in the US, the traditional market for Venezuela´s crude.

This is not the first time that PdV has sought to put its international assets on the auction block. In late 2010 energy minister Rafael Ramirez unveiled plans to "dismantle all of the international refinery purchases made by the old PdV in the 1980s and early 1990s," including Citgo assets.

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