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Settlement allows Venezuela to keep Citgo’s three U.S. refineries

November 27, 2018

A payment on a $1.4 billion arbitration award to a Canadian gold mining company is allowing Venezuela to keep ownership of Citgo Petroleum’s three U.S. refineries — at least through January.

The Venezuelan government recently paid Toronto-based Crystallex International Corp. $425 million as part of a settlement to resolve a legal dispute over gold mines seized by the South American nation’s late President Hugo Chavez in November 2008. Under the terms of the agreement, Venezuela has until 2021 to pay the nearly $1 billion balance, but Jan. 10 looms as a critical deadline for the Venezuela government to issue Crystallex a promissory note, post collateral and set up installment dates

In a statement, Crystallex CEO Bob Fung said the company is prepared to take additional legal action to seize Citgo shares if Venezuela does not comply. “If that process moves forward, the shares would be sold at auction under the auspices of the U.S. Marshals Service in order to satisfy the remainder of Crystallex’s award,” he said.

Citgo did not immediately comment.

Crystallex won an award from an international arbitration panel following the seizure of its Venezuelan assets and turned to federal court in Delaware to enforce the award. The U.S. court ruled in August that Crystallex could seize the shares of Citgo, the U.S. subsidiary of the Venezuelan national oil company, PDVSA, to satisfy the judgment.

The ruling was significant because Venezuela and PDVSA owe billions of dollars to creditors, including other foreign companies whose assets were seized by the government, and it opened the door for them to also target Citgo, one of Venezuela’s most valuable and accessible foreign assets. Several analysts have pegged Citgo’s value between roughly $4 billion and $8 billion, excluding debt, and many expect the refiner to eventually end up in other hands.

Among the companies seeking compensation from Venezuela is the Houston oil company Conoco Phillips, which recently reached a $2 billion settlement with PDVSA for the 2007 seizure of two of its joint ventures. The company is also seeking compensation from the government of Venezuela through arbitration. The award, expected to be determined this year, could be as high as $4.5 billion, analysts said, a tall order for a cash-strapped government.

Founded in 1910, Citgo employs 800 people in Houston and another 3,600 people at the company’s refineries in Corpus Christi, Lake Charles, La. and Lemont, Ill. Citgo has roughly 160 branded gas stations in the Houston area and about 5,500 nationwide.

PDVSA bought a 50 percent stake in Citgo in 1986 and bought the remaining shares of the storied refining company some years later. During the first Gulf War in 1990, PDVSA was seen as a reliable supplier of crude oil amid the Middle East’s turmoil.

Nearly three decades later, both Venezuela and PDVSA are in shambles with sagging oil production amid allegations of corruption and mismanagement that began during Chavez’s socialist regime. The late Venezuelan president accused mining companies of damaging the environment and violating worker rights.

Under the rule of Chavez’s successor Nicolas Maduro, oil production has dropped to its lowest level in seven decades while the Venezuelan economy has deteriorated amid hyperinflation that could reach the 1 million percent mark by the end of the year.

As the South American nation’s massive debts continue to grow, so does the list of creditors awaiting payments. It remains to be seen if Venezuela will be able to honor those agreements. Venezuela stopped paying down the $65 billion owed to bond holders and other creditors still awaiting settlement deals last year, The Associated Press reported.

sergio.chapa@chron.com

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