Everybody Wants Some - CITGO's Future in the Wake of a Key U.S. Court Ruling

On Thursday, August 9, a U.S. District Court judge approved a request by a Canadian mining company to seize shares of a subsidiary of Petróleos de Venezuela SA (PDVSA) that controls CITGO Petroleum Corp. The ruling was made to satisfy a $1.2 billion arbitration award against the Venezuelan government. While details of the full ruling are yet to be released, this decision could have an enormous knock-on effect on the various other parties seeking payment from the struggling oil company for asset seizures and unpaid debts. Today, we review the assets of CITGO Petroleum Corp., the U.S. arm of PDVSA.

The backstory to this new ruling is interesting and complex, so bear with us while we distill some of the details. In 2002, Canadian mining company Crystallex International entered into a mining operation agreement with a Venezuelan-owned company for gold exploration and mining. The agreement allowed Crystallex to mine, exploit and sell gold from Las Cristinas, a large gold reserve in Venezuela. However, in 2011, Venezuela unilaterally terminated the agreement, took possession of the Las Cristinas gold mine, and transferred the assets to an affiliate of PDVSA. PDVSA then sold 40% of the interests in that mine for $6.9 billion, while Crystallex was forced to file for bankruptcy protection. In 2016, Crystallex won a $1.2 billion arbitration ruling against Venezuela, specifically PDV Holdings, which owns 100% of Citgo Petroleum Corp. This latest ruling by U.S. District Court Judge Leonard Stark of the Delaware District potentially allows Crystallex to seize shares of PDV Holdings to satisfy the arbitration ruling, which may give the company partial ownership of CITGO. Others could make similar claims -- Crystallex is not alone in seeking payment for awards from Venezuela (we blogged about some of these outcomes and their effects on Caribbean refining recently in Meltdown!).

The assets held by CITGO would be a nice prize for other companies, especially those already in the refining business. We’ve written regularly about the status of the U.S. refining industry; most recently in Runnin’ Down a Dream. CITGO owns three U.S. refineries, 48 product terminals, three pipelines, and some retail stations. Figure 1 below shows CITGO’s U.S. refineries and product terminals (pipelines and retail outlets not shown).