Trump’s oil strategy for Venezuela leaves Citgo auction in limbo

By Marianna Parraga

HOUSTON, Jan 9 (Reuters) – As U.S. President Donald Trump moves quickly to put together a $100 billion effort to revive Venezuela’s oil industry, the administration has yet to finalize the fate of the crown jewel of the country’s foreign assets, U.S. refining company Citgo Petroleum, sources close to the matter said.

Houston-based Citgo has been tied up in the lengthy auction of its parent, PDV Holding, organized by a Delaware court to pay billions of dollars to creditors for debt defaults and expropriations in Venezuela.

In November, the court approved a $5.9 billion bid and ordered the sale of Citgo parent’s shares to Amber Energy, an affiliate of U.S. hedge fund Elliott Investment Management, but its execution still needs regulatory approvals, particularly from the U.S. Treasury Department.

The Treasury’s Office of Foreign Assets Control (OFAC) has six months until the end of May to either approve or reject the auction’s winner, temporarily putting the process on hold.

A strategy for Citgo has become a “sticky” topic, the sources said, in the wake of the U.S. capture of President Nicolas Maduro. The U.S. has since said it would take control of Venezuela’s oil resources indefinitely.

After the rapid changes in Venezuela, the many conflicting parties involved in the complex auction are raising their voices and expanding their lobbying to influence Washington’s course of action on Citgo, with some asking for the auction to be executed and others wanting the process frozen.

Boards controlled by Venezuela’s political opposition that oversee the refiner have unsuccessfully pushed for meetings with U.S. officials since early January, two of the sources said.

But the message those boards have received from Washington through indirect channels is that the company’s fate is not a priority for Trump’s administration right now. Some U.S. officials have said that Washington would prefer the refiner to be run by an American company, one of the sources said.

The eight-year-old case, where creditors including expropriated foreign oil and mining companies and defaulted noteholders are collectively claiming some $19 billion, has been fraught, triggering many appeals and injunctions.

How much influence each party will have as Trump advances his agenda and supports Maduro’s ally Delcy Rodriguez as interim president is yet to be seen. His relationship with the opposition, especially with leader Maria Corina Machado, seems fragile for now, the sources added.

Citgo in 2019 severed ties with its ultimate parent, Venezuela-owned state energy company PDVSA, and has not had access to Venezuelan crude since.

Citgo’s board on Thursday approved the company’s participation in tenders the U.S. would be putting together to sell Venezuelan oil as part of an initial 50-million-barrel deal to sell Venezuelan oil, sources said. No buyers have yet been approved.

Citgo and Amber declined to comment. The refiner’s supervising boards and the U.S. Treasury did not immediately reply to requests for comment.

Citgo, a well-known brand in the U.S. with a logo overlooking Kenmore Square in Boston, is the seventh largest refiner in the country. 

The company’s 829,000 barrel-per-day network, which has refineries in Louisiana, Texas and Illinois, is among the few in the U.S. with large capacity to process heavy crude grades like Venezuela’s. 

NO OFFICIAL WORD FROM OFAC

OFAC was expected to deliver on Thursday an opinion on the Citgo auction requested by a U.S. court of appeals that is listening to parties challenging the process, including Venezuela and rival bidders led by miner Gold Reserve. But the opinion has not yet arrived.

Venezuela’s legal team also on Thursday asked the same court to cancel the sale, saying the process was “legally indefensible and deeply unjust.” 

The Venezuelan parties, some rival bidders and creditors have also alleged conflicts of interest with court advisors, while Amber and a court officer overseeing the auction have denied any wrongdoing.

The opposition, board members close to Citgo and top executives are pressing for the judge’s sale order to be frozen while U.S. and Venezuelan officials make decisions.

Other participants, especially the selected winner Amber, are pressing for the sale process to continue, the sources added. Many creditors have complained about the process’ length and hefty legal fees.

Both the Venezuelan government and the opposition have pushed for the OPEC country to at least partially retain Citgo, a subject of Venezuelan pride.

Machado, who is expected to meet with Trump next week, wants to use Citgo as a tool for Venezuela’s oil industry reconstruction. Her team has proposed that creditors in the court-ordered auction join a wider foreign debt restructuring effort.

(Reporting by Marianna Parraga; Editing by Nathan Crooks, Simon Webb and Anna Driver)