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Will Venezuela Lose Control of CITGO?

Several refiners likely to pursue the assets if legal claims lead to sale

HOUSTON -- The government of Venezuela could lose control of CITGO Petroleum Inc. after a U.S. federal judge ruled Aug. 10 that a creditor could seize the assets of the Houston-based refiner and owner of the CITGO fuel brand to collect on a judgment over lost mining rights. And several similar lawsuits also are waiting to be resolved.

CITGO declined comment on the issue to CSP Daily News.

State-run oil company Petroleos de Venezuela SA (PDVSA), owner of CITGO Petroleum Inc., has appealed the court ruling that would allow defunct Canadian mining company Crystallex International Corp., Toronto, to seize shares of CITGO in payment of a $1.2 billion debt, reported Agence France-Presse (AFP).

While Crystallex is unlikely to take control of CITGO’s refining and retail gasoline brand, the ruling likely will launch a round of new legal claims by ConocoPhillips and others against Venezuela and Caracas-based PDVSA, reported The Houston Chronicle.

If another company eventually gains control of CITGO, it could sell it to an existing refiner, Jennifer Rowland, an analyst with Edward Jones, St. Louis, told the Chronicle.

Interested companies could include San Antonio-based Valero Energy Corp., Houston-based Phillips 66 Co., Findlay, Ohio-based Marathon Petroleum Corp. and Parsippany, N.J.-based PBF Energy Inc., Rowland said. "It's not every day that a suite of refineries becomes available, especially along the Gulf Coast,” she told the newspaper. “Those assets would definitely fit in some companies' portfolios."

Ken Shriber, managing director and CEO of Petroleum Equity Group, Chappaqua, N.Y., told CSP Daily News that "it is unclear whether the judge’s order will impact domestic operations" of the oil company.

"CITGO has made significant efforts over the past couple of years to enforce branding compliance, upgrade the appearance of many sites and install new multipump dispensers," he said. "Should there be a need to raise significant capital or sell the company to pay off Venezuelan debt, there will be many companies interested in acquiring some or all of CITGO’s assets in the United States."

U.S. District Court Judge Leonard Stark ruled the mining company could seize CITGO shares from PDVSA, although the order will not be issued until final details are worked out. The judge rejected PDVSA's argument that it is separate from the government in Caracas and should not be held liable, favoring the assertion that the company is an "alter ego" of the government, AFP said.

CITGO owns oil refineries in Corpus Christi, Texas; Lake Charles, La.; and Lemont, Ill. Through CITGO and its three refineries, the Venezuelan government is the largest foreign owner of U.S. domestic refinery capacity. The refineries account for about 4% of domestic fuel capacity and are major suppliers of gasoline, diesel and jet fuel through a network of pipelines and terminals across 24 states. Independent CITGO-branded retail marketers sell motor fuels through approximately 6,000 gas stations and convenience stores in 30 U.S. states.

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