Citgo at center of international fight
Amid Venezuelan turmoil, creditors seeking billions of dollars as U.S. tries to keep Houston company intact
Houston’s Citgo Petroleum has become a key piece in an international chess game over the future of Venezuela as creditors of the nearly bankrupt South American country and now the Trump administration use the moneymaking refiner as leverage against the government of President Nicolás Maduro.
From a bankrupt gold mining company to a Russian oligarch to the Houston oil company ConocoPhillips, creditors are circling Citgo, the U.S. subsidiary of Venezuela’s national oil company, PDVSA, as they seek billions of dollars owed them by PDVSA and the Venezuelan government.
But with a challenge to the Maduro regime from the opposition leader, Juan Guaidó, the Trump administration is trying to keep Citgo intact, with an eye toward helping a new government and the Venezuelan economy recover from years of misrule.
Guaidó, who is recognized by the U.S. and other Western countries as the acting president, is expected to soon name his own board of directors to run Citgo, setting up another battle for control with Maduro.
“Citgo is the big prize,” said Francisco Monaldi, a fellow in Latin American Energy Policy at Rice University’s Baker Institute for Public Policy. “I previously said there’s going to be a sharkfest of payments to
creditors, but now there seems to be a bigger actor stopping the sharks, which is the U.S. government.”
Citgo, an American company controlled by PDVSA since 1990, has over 3,000 employees in the U.S., including about 800 in Houston, and an estimated value of as much as $7 billion. It has been a steady source of cash for the Maduro government as the nation’s oil industry has withered and the economy has collapsed.
If Guaidó succeeds in replacing the board, it will add more pressure on Maduro, who was recently inaugurated as president after an election marred by fraud and voting irregularities and condemned as neither free nor fair by independent observers. Citgo executives, who operate under U.S. law, appear likely to follow the direction of the new board and Guaidó, analysts said.
“He’s taking one of the purses from the Maduro government,” said Fernando Valle, senior oil and gas analyst at Bloomberg Intelligence. “I think it can trigger changes in Venezuela because you’re basically giving a cash cow (to Guaido).”
‘Increase the pressure’
Citgo, which operates three U.S. refineries, including one in Corpus Christi, has been buffeted by the ongoing political crisis in Venezuela. In late 2017, the Maduro government arrested the Citgo president and five other top executives, and has held them in Venezuela without trial for more than 14 months.
The U.S. government is working to remove Maduro with sanctions announced Jan. 28 that ordered Citgo to divert payments for the 500,000 barrels per day of Venezuelan crude oil imported to the U.S. into an account that Maduro cannot access. Two days later, White House national security adviser John Bolton met with Citgo’s executive team, stating that the U.S. is working to make sure that Venezuela’s resources are not “pilfered by Maduro and his cronies.”
“The administration is following the right policies, but they’re going to have to increase the pressure and not give Maduro time to catch his breath,” said Otto Reich, a former U.S. ambassador to Venezuela under President Ronald Reagan and head of a political consulting firm.
Venezuela has already defaulted on $63 billion in debt and arbitration claims, according to JP Morgan. The country has over $37 billion in outstanding bonds, and Venezuela and PDVSA are on the hook for nearly $8 billion in late interest payments. PDVSA alone has said it owes $24.7 billion to bondholders. The only payments the country keeps making are on $3 billion of PDVSA 2020 bonds. The reason: If PDVSA misses those payments, it could lose Citgo because it is the collateral on the loans.
No Christmas cards
Of great concern to the U.S. is that an auction of Citgo triggered by a PDVSA or Venezuela default would put the refiner into the hands of Russia’s state-owned oil company Rosneft, which already holds a 49.9 percent stake in Citgo as collateral for a $1.5 billion loan. Analysts, however, said they believed that the U.S. would intervene to block Rosneft from gaining control of Citgo.
“Rosneft is not very high up on the U.S. Christmas card list,” said Craig Pirrong, a University of Houston finance professor who specializes in energy markets. “The U.S does not want Citgo falling into (CEO Igor) Sechin’s hands, and by extension, (Russian President Vladimir) Putin’s hands.”
Rosneft and PDVSA bondholders thus far have held off because payments keep coming. But other creditors, owed billions of dollars by PDVSA and Venezuela, also are eyeing Citgo as a way to collect. In the event of an auction, an August ruling in U.S. courts may have opened the door for companies to seize Citgo shares if PDVSA and Venezuela are not able to pay up because the court ruled that PDVSA and its assets are essentially an extension of the Venezuelan government.
“If the U.S. government does not deal with it, it could get auctioned by a judge and the shares might go very quickly,” said Monaldi, the Rice fellow.“Until recently, the U.S. government didn’t seem to care what happened to Citgo, but now, the U.S. government is signaling that they will try to protect Citgo from creditors to preserve that company for the new regime of Venezuela.”