Page 6 - NorthAmOil Week 30

NorthAmOil COMMENTARY NorthAmOil
PdVSA losing control over Citgo
A US court ruling has cleared the way for the NOC’s creditors to seize shares in the downstream operator to clear debts
US-VENEZUELA
WHAT:
PdVSA has failed to secure reversal of a lower court’s decision involving debts to Crystallex.
WHY:
As a result, the Canadian company is in a position to take Citgo equity as compensation.
WHAT NEXT:
Even if Interim President Guaido secures an asset protection order from the US government, PdVSA’s hold over its subsidiary is likely to weaken further.
VENEZUELA’S national oil company (NOC) PdVSA is looking increasingly likely to lose an irreplaceable asset: the US-based downstream operator Citgo Petroleum.
Such a loss would have unpleasant implica- tions for the state-owned company, which has su ered as a result of US sanctions and domestic turmoil. Citgo has long been one of the NOC’s best-performing units and is still capable of attracting investors’ interest, despite the deterio- ration in its performance in the rst half of 2019. Just last week, Bloomberg quoted an anonymous source as saying that the company’s latest debt o ering, worth $1.9bn, had been oversubscribed to the tune of $5bn.
Nevertheless, the bond between Citgo and its parent company appears to be fraying. Indeed, the PdVSA subsidiary’s executives apparently took pains to play up the growing distance between the two entities when they held meet- ings and phone calls with potential buyers of the debt earlier this month.
They told investors that they had blocked telephone and email communications from the NOC in order to remain in compliance with US sanctions, Bloomberg explained. Additionally, they stressed that PdVSA had no way of access- ing Citgo’s funds.
Order in the court
On another front, the NOC has su ered a set- back in the US court system.
Earlier this week, PdVSA lost its bid to appeal
against a federal court’s order allowing Crys- tallex International, a Canadian gold-mining company, to seize shares in Citgo. Crystallex had won compensation worth $1.4bn for the expro- priation of its assets in Venezuela under the late President Hugo Chavez, and the 3rd US Circuit Court of Appeals in Philadelphia said that the lower court was right to attach PdVSA’s shares in Citgo’s parent rm to the original ruling.
Venezuela had argued that Citgo should be immune from the billions of dollars of debt that the country has accrued, on the grounds that they were separate entities. But the US courts disagreed, ruling that PdVSA did not act su - ciently separately from the Venezuelan govern- ment, which had accrued the debt.
“ e District Court acted within its juris- diction when it issued a writ of attachment on PdVSA’s shares of [US unit] PDVH [PDV Hold- ing] to satisfy Crystallex’s judgment against Ven- ezuela, and the PDVH shares are not immune from attachment,” Judge Leonard Stark wrote.
e decision allowed Crystallex to auction the shares in order to settle Venezuela’s unpaid debt to it, provided that the verdict is not suc- cessfully appealed or blocked by the govern- ment of US President Donald Trump. PdVSA could theoretically still dispute the ruling at the US Supreme Court, but this appears unlikely to happen. e Venezuelan company had not yet commented on the decision as of press time, and it has not divulged any information about what it might do next.
Citgo owns three re neries in the US, which process a combined total of over 750,000 bpd.
P6
w w w . N E W S B A S E . c o m
Week 30 01•August•2019