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Guaido team favoring COP in Citgo fight: Update

  • : Crude oil, Oil products
  • 20/06/19

Adds COP statement, other details throughout.

Another senior Venezuelan opposition figure has resigned following the government's leak of a strategy to favor ConocoPhillips in an escalating battle for Venezuelan state-owned PdV's US refining unit Citgo.

Jose Ignacio Hernandez, who held the title of special attorney general in opposition leader Juan Guaido's US-backed exiled administration, announced his resignation late yesterday shortly after President Nicolas Maduro's US-sanctioned administration leaked audio of Hernandez discussing the strategy in a meeting with the opposition-controlled National Assembly's energy commission.

The opposition attorney general's office confirmed the veracity of the audio in which Hernandez describes an "understanding" with ConocoPhillips. The US independent producer would "pause" a stalled case against PdV in Portugal to focus on an ongoing case in a Delaware court, which has already ruled that Citgo shares can be sold to satisfy a debt to former Canadian mining company Crystallex, now owned by New York hedge fund Tenor Capital Management.

ConocoPhillips, which is the second creditor in line behind Crystallex in the Delaware case, will seek equal rights to Citgo shares once an embargo order is issued, according to Hernandez's account to the commission.

He said lawyers were still discussing the details of the understanding with ConocoPhillips.

"Conoco's objective is to obtain this embargo measure in order to get rights equal to that of Crystallex," says Hernandez, a former academic who led Guaido's legal team from the US since his 2019 appointment.

In the audio, which was posted on social media by Venezuela's executive vice president Delcy Rodriguez, Hernandez warns that Citgo is close to falling into creditors' hands, contradicting the Guaido team's public assertions that the asset is protected.

"I am surprised at how long these walls of defense that I built have lasted. Sooner or later…and no one knows the walls of the legal defense better than me, these walls are weak and fractured and they will collapse," Hernandez warns, adding that with a possible change of government in the US on top of political changes in Venezuela "we could be in a worse situation even than we were in January 2019" when Guaido declared his interim presidency.

Crystallex and ConocoPhillips are among a myriad of companies, governments and bondholders that are owed at least $150bn by PdV and the Venezuelan state. PdV 2020 bondholders in particular have a pledge of 50.1pc of Citgo shares. The rest is pledged to Russia's Rosneft for oil-backed loans to PdV.

In the audio, Hernandez also discusses his "personal" effort to win recognition for the Guaido administration through the president of the World Bank — former US Treasury official David Malpass — and its International Center for Settlement of Investment Disputes (Icsid), which issued arbitration awards for numerous companies, including ConocoPhillips, whose Venezuelan assets were expropriated under Venezuela's late president Hugo Chavez.

Legacy claims

"On behalf of the company's shareholders, we remain 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," ConocoPhillips said in a statement late today.

ConocoPhillips' claims stem from the 2007 takeover of its stakes in two Venezuelan projects that were designed to upgrade Orinoco extra-heavy crude into lighter synthetic grades for export. The 120,000 b/d PetroZuata project, now known as Petro San Felix and wholly owned by PdV, has been mothballed for years. The 190,000 b/d Ameriven project became PetroPiar, which is controlled by PdV with a minority stake owned by Chevron. PetroPiar is among the few PdV ventures that continues to operate, but at a diminished level. Chevron remains in Venezuela under a US sanctions waiver that expires in December.

Hernandez, a protege of Venezuela's former planning minister and Harvard professor Ricardo Hausmann, says he had already resigned before the audio leaked. Hausmann previously served as Guaido's head of debt restructuring and IDB governor, and remains a key informal adviser to the opposition.

Yesterday Hernandez released a resignation letter dated 28 May to Guaido in which he urges "deep institutional reforms in the State's legal defense". In an earlier twist, Hernandez provided court testimony on behalf of Crystallex before he was appointed the opposition's top lawyer last year.

Last month, two directors of an "ad hoc" PdV board of exiles resigned and they have not yet been replaced. Guaido's envoy to Chile Guarequena Gutierrez recently departed as well.

Inside Venezuela, Maduro is tightening his grip on power ahead of National Assembly elections that would remove the constitutional basis of Guaido's claim to an interim presidency. His supreme court appointed an electoral board and is seeking to replace the leadership of opposition parties.

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