PDVSA’s Citgo Contributes To 8th Annual Houston Energy Day Festival

(Citgo Petroleum, 1.Nov.2018) — CITGO Petroleum Corporation recently participated in Houston’s largest free family festival, Energy Day. The event brought together families, students, energy professionals and other members of the community for a day of science, technology, engineering, and mathematics (STEM) programs, exhibits and activities. With more than 25,000 attendees filling Sam Houston Park on Saturday, Oct. 20, Energy Day was, once again, an impressive display of education and community.

The popular event was presented by the Consumer Energy Alliance (CEA) and the Consumer Energy Education Foundation (CEEF).

“Energy Day is a shining example of this city’s prospering energy industry and its dedication to giving back,” said Rafael Gomez, Vice President Strategic Shareholder Relations and Government & Public Affairs.

CITGO was a sponsor of the event and organized a station where visitors participated in hands on activities that demonstrated how petroleum is used in every day products. As an active corporate citizen of Houston, CITGO prides itself in demonstrating the benefits of a STEM education and careers in the energy industry.

“Inspiring students to be excited about STEM education is a pillar of our corporate social responsibility efforts,” said Gomez. “Energy Day is great way to achieve that goal outside the classroom setting. Giving children the chance to experience dozens of hands-on exhibits in a single day keeps them entertained and engaged.”

The five-hour event offered 61 exhibits, including bike riding to generate electricity, creating LED bracelets, learning about the physics behind sports, and studying out how infrared images, robotics and virtual reality are used in STEM industries. To cap off the day, more than 180 students and teachers were awarded nearly $2,300 as part of the Energy Day Academic Program.

“Teaching children about the incredible opportunities STEM offers in a layout that’s welcoming and accommodating was our goal, and we’ve been able to provide that for the last eight years thanks to the support of local schools, energy experts and sponsors, said CEEF’s Energy Day Director, Kathleen van Keppel.”

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Ex-Venezuelan Oil Exec Admits Bribes In $1.2 Bln Money-Laundering Scheme

(El Nuevo Herald, Jay Weaver And Antonio Maria Delgado, 31.Oct.2018) — A former top official of Venezuela’s state-owned oil company pleaded guilty Wednesday in Miami federal court to playing a pivotal role in a $1.2 billion money-laundering racket that U.S. authorities say was run by some of the country’s wealthiest people with close ties to the Venezuelan president.

Abraham Edgardo Ortega, the former executive director of financial planning at Petroleos de Venezuela, S.A. (PDVSA), admitted he accepted millions of dollars in bribes that were secretly wired to U.S. and other financial institutions, according to court records.

In exchange, Ortega allowed the ring’s members to embezzle hundreds of millions of dollars from the national oil company through loan- and currency-exchange schemes that ended up in European, Caribbean and U.S. banks as well as luxury South Florida real estate and other investments. Ortega, who worked at PDVSA for more than a decade, admitted he used his official role to give “priority” status to Venezuelan companies that did business with the government so they could tap into its vast oil income to make overnight fortunes.

Ortega, who surrendered to U.S. authorities in September after being charged this summer with eight other defendants, remains free on a $1 million bond as he assists the U.S. attorney’s office in the complex money-laundering case. He faces up to 10 years in prison at his sentencing Jan. 9 before U.S. District Judge Kathleen Williams and must forfeit at least $12 million stolen from the Venezuelan government’s oil company that was laundered to the U.S. and elsewhere.

His defense attorneys, Lilly Ann Sanchez and Luis Delgado, said they are hopeful that Ortega receives a substantial reduction in his sentence based on his assistance providing valuable information about the other defendants and suspects in the sprawling Homeland Security Investigations case.

Ortega, who served as PDVSA’s top financial officer from 2014 to 2016, admitted in a statement filed with his plea agreement that he conspired with the leader of the money-laundering ring, Venezuelan billionaire Francisco Convit Guruceaga, who has not been arrested, and a Miami-based investment broker, Gustavo Adolfo Hernandez Frieri, who was detained in Italy and awaits extradition to the United States. Others also collaborated with Ortega, including a money manager who operated between South America and Miami and who became a confidential source for Homeland Security agents two years ago.

Ortega’s guilty plea to the conspiracy charge follows Monday’s sentencing of Swiss banker Matthias Krull to 10 years in prison for the same offense. Krull was based in Panama and provided private banking services to Venezuela’s elite, including his most prominent client, media mogul Raul Gorrín. Gorrín has not been charged in the Miami federal case, but multiple sources have confirmed he is one of numerous unnamed co-conspirators in a criminal affidavit filed by Homeland Security Investigations.

Krull, who was arrested in July and became the first defendant to cooperate with the U.S. Attorney’s Office, remains free on a $5 million bond and is staying in a Brickell area condo. He pleaded guilty in August in a deal struck between his defense attorney, Oscar S. Rodriguez, and prosecutor Michael Nadler.

As required in his plea agreement, Krull started providing evidence about the Venezuela-based money laundering network — including inside information about Gorrín, owner of the Globovisión network in Caracas, according to multiple sources familiar with the investigation.

Gorrín is suspected of steering $600 million from the country’s state-owned oil company to a European bank to enrich himself, the three stepsons of President Nicolás Maduro and other members of Venezuela’s politically connected elite, according to court records and multiple sources.

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PDVSA Bewilders Bond Analysts By Making $949 Million Payment

(Bloomberg, Davide Scigliuzzo, 31.Oct.2018) — Venezuela just forked over almost $1 billion to stay current on a bond backed by shares of its U.S. refiner Citgo.

The question is why.

Yes, the payment ensures that Venezuela’s state-run oil company PDVSA gets to hold onto Citgo Holding Inc. for now, but many analysts think it’s just a matter of time before it has to forfeit the company.

“It is hard to visualize a scenario in which Venezuela does not sooner or later lose Citgo to one of its defaulted creditors,” Francisco Rodriguez, chief economist at brokerage Torino Capital, wrote in a note on Monday.

With the country starved for cash and already in default on many of its foreign bonds, the line of creditors that could lay their hands on Citgo is very, very long: Russia (from collateral for loans from state-run Rosneft); Canadian miner Crystallex International Corp. and U.S. oil giant ConocoPhillips (both of which won international arbitration cases against Venezuela); Citgo’s own bondholders (from collateral on debt); and the PDVSA bondholders who were paid Monday.

Given this backdrop, most analysts have struggled to come up with a clear-cut explanation for why the payment was made. Here are a handful of the most plausible theories that they put forward:

— Citgo’s strategic value for the Venezuelan government is so great that the payment may be worth it even if the company will be lost to creditors in coming months. Citgo is a reliable buyer of PDVSA crude abroad and also provides the company with additives that make Venezuela’s heavy crude easier to export.

— Venezuela is appealing a U.S. ruling that awarded Crystallex the right to collect on an arbitration award by taking shares of PDV Holding, the Delaware corporation through which PDVSA controls Citgo. By staying current on the collateralized PDVSA bonds, Venezuela can buy time as it awaits a verdict. Attempts by PDVSA to stop a sale of Citgo have so far failed. A key hearing is scheduled for Dec. 20.

— A default on the collateralized PDVSA bonds could complicate Venezuela’s relations with Russia. If holders of the bonds foreclose on the 50.1 stake in Citgo that represents their collateral and force a sale of the company, Rosneft, that has a claim to the remaining 49.9 percent, could be sidelined in that process.

— Citgo may have achieved symbolic value for President Nicolas Maduro even if the socialist regime has considered getting rid of the unit in the past. Losing Venezuela’s most valuable asset abroad could be seen as a defeat for a government that is already deeply unpopular at home and has made of standing up to hostile foreign powers a key part of its rhetoric.

— For now the 2020 bond is trading over 91 cents on the dollar with investors eyeing the next payment in April.

— With assistance by Patricia Laya, Fabiola Zerpa, Ben Bartenstein, and Jose Enrique Arrioja

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Venezuela: Oil Producer’s Slump Reflects Nation’s Decline

(Ft.com, Gideon Long, John Paul Rathbone, 28.Oct.2018) — Gideon Long in Caracas and John Paul Rathbone in Washington October 28, 2018 Print this page 95 In the lobby of the building where Iván Freites works, a photograph of an oil rig covers one wall. Emblazoned across it is the Venezuelan flag and a quote from former president Hugo Chávez. “We want Venezuelan oil to bring peace and love,” it reads.

Mr Freites, a union leader at PDVSA, the state oil company, would like that too. But having seen the Chávez government and subsequent regime of Nicolás Maduro plunder the oil producer, strip it of investment, sack experienced managers and replace them with military officers, he no longer thinks that outcome is possible, at least not for now.

“I’ve worked at PDVSA for 35 years and I’ve never seen anything like this,” he says. “What we need above all is to get our democracy back.”

The parlous state of PDVSA, which oversees the world’s largest energy reserves according to the US Energy Information Administration, helps to explain the depth of Venezuela’s collapse and why it finds itself in the eye of a political storm.

Corruption and mismanagement have seen Venezuelan oil output, which accounts for 90 per cent of legal export revenues, plummet to its lowest level in three quarters of a century. The economy has halved in five years, a contraction worse than those in the Great Depression or Spanish civil war. Rates of hyperinflation, meanwhile, are similar to those in Germany in 1923.

The brutal recession has sparked an exodus comparable with the flight of Syrian refugees. More than 2m of Venezuela’s 30m population have fled since 2015. With the UN estimating 5,000 departures each day, another 2m could have left by the end of 2019.

It has turned the country into a major source of regional instability. Latin American neighbours, especially Colombia, are struggling to cope. As the oil industry implodes and exacerbates the plight of Venezuelans, the international community increasingly believes something must be done. The burning question is: what?

From the start of his presidency, Donald Trump made Venezuela a US foreign policy priority, alongside North Korea and Iran. “President Trump started on day one — literally on day one — asking about Venezuela,” says Fernando Cutz, a former Trump White House adviser, at a recent seminar at the Wilson Center in Washington. “It was a priority of his from the very start.”

The US, alongside Canada and Europe, has since levied sanctions on officials accused of corruption and human rights abuses. Last month, Mr Trump hinted again at the possibility of invasion. “All options are on the table,” he said. “The strong ones, and the less than strong ones. Every option — and you know what I mean by strong.”

Regional leaders and diplomats are usually the last to support such belligerence. But Luis Almagro, head of the Organisation of American States, believes no option should be discarded. “The entire premise of ideas such as ‘responsibility to protect’ is that we must act before we are counting the dead,” he has said.

Amnesty International has called Venezuela’s human rights crisis “unprecedented” and five Latin American countries, alongside Canada and France, have asked the International Criminal Court to investigate Mr Maduro for crimes against humanity.

All the while, Mr Maduro repeats his mantra that the US is subjecting Venezuela to “economic war”, and wants to get its hands on the nation’s oil. Few believe him. And given PDVSA’S shrinkage, there is currently not much of an oil industry to seize.

“Leave Maduro be for the next year and you’ll see where that level of production goes to. The US really doesn’t have to do much,” says Raul Gallegos, a Venezuela analyst at Control Risks.

Ever since it was discovered in Lake Maracaibo in the 1920s, oil — or “the devil’s shit” as one energy minister called it — has dominated the country’s economy. Venezuela was a founding member of Opec and when President Carlos Andrés Pérez nationalised the industry and founded PDVSA in 1976, it pumped over 3m barrels a day.

Today, the figures speak for themselves. Production has halved in six years and dropped by a third in the past year alone. Rig counts, an indicator of future production, are at historic lows, pointing to further declines. In September, Venezuela pumped just 1.2m b/d, its lowest output since the 1940s. Although most analysts consider 1m b/d to be a floor given its joint ventures with foreign producers, some believe output could drop as low as 700,000 b/d by the end of 2019.

“It is one of the worst collapses in history,” says Francisco Monaldi, a fellow in Latin American energy policy at the Baker Institute.

PDVSA’s demise has rippled through the country. The biggest refinery, Amuay, is running at 20 per cent capacity, Mr Freites says. The smaller Cardón, El Palito and Puerto La Cruz refineries barely function as PDVSA struggles to deliver mixing chemicals and crude to these sites.

With less oil being refined, blackouts are common. “There are towns and villages that go five or six days without electricity,” Mr Freites says. Gasoline is also in short supply. “I’ve just been to fill up my car and I waited in line for an hour,” he says. “That’s quite normal.”

PDVSA itself is on the brink of financial collapse. It has defaulted on all its bonds except a 2020 issue because, if it fails to pay that, PDVSA risks losing Citgo, its US refining asset, which has been pledged as collateral.

The scale of the theft and mismanagement that lie behind PDVSA’s collapse has been prodigious.

In 2015, Jorge Giordani, a former planning minister, estimated that of the $1tn that Venezuela received from the windfall of the commodities boom, two-thirds was spent on social programmes. The rest, around $300bn, was stolen or misappropriated.

In one recent case, a judge in Andorra charged 29 people, including two Venezuelan former deputy energy ministers, with a scheme to launder $2.3bn allegedly stolen as kickbacks from company contracts with PDVSA.

This August, US investigators revealed another scheme to launder $1.2bn of PDVSA funds. According to court documents seen by the FT, the plan involved companies in Spain and Malta, money launderers from Portugal and Uruguay, a German financier, unnamed US and British banks, fake mutual funds, Miami real estate, Russia’s state-owned Gazprombank and a shell company in Hong Kong.

Some elements of the swindle, recorded by a whistleblower wearing a wiretap, read like a Quentin Tarantino movie. On one occasion, a Venezuelan businessman opened proceedings in Caracas by placing his handgun on the table and pointing to a German Shepherd dog at his feet with an electronic “shock collar” around its neck. The businessman held the remote control.

The effects on the broader economy of such thuggery have been disastrous. As oil exports have collapsed, imports have crashed 80 per cent in six years to $11.1bn from $66bn in 2012, levels not seen since the 1940s. Scarcities of basic goods have prompted anger, spontaneous demonstrations and flows of refugees in ever greater numbers.

On the face of it, the situation cannot continue. Economic reforms announced by Mr Maduro in August have done nothing to tame hyperinflation, still running at nearly 500,000 per cent a year. The International Monetary Fund forecasts that gross domestic product will shrink by 18 per cent this year, 5 per cent next, and continue to shrink steadily after that.

Allies such as China, which has loaned Venezuela $60bn in return for oil over the past decade, seem reluctant to lend more. When Mr Maduro travelled to Beijing in September, his finance minister claimed China had agreed to lend a further $5bn. But Beijing has never mentioned the loan.

Nonetheless Mr Maduro, who survived an assassination attempt in August, faces no immediate political crisis at home. With the help of Cuban advisers, he appears to control the military and is set to win what will certainly be rigged municipal elections in December. The following month he will formally begin another presidential term — the consequence of a sham election victory in May.

There is increasing talk in Europe and around the Americas that any eventual solution to Venezuela’s quagmire lies with Havana — long the main counsel to Caracas. But diplomatic attempts to pry Cuba away from Venezuela have failed so far. Spain has also suggested re-opening dialogue between the government and the opposition. But the prospect of fresh talks having any success are dim.

That puts more drastic options on the table.

One US plan involves ending its purchases of Venezuelan oil. Such a ban would push up US pump prices — something Mr Trump will want to avoid before midterm elections on November 6, although Mr Cutz says the White House estimates it would add just 5-7 cents to the gallon.

Yet the impact on Venezuela would be devastating. That is because after it has sent oil to China and Russia to pay debts, shipped oil to Cuba and fed its domestic fuel market, the country earns cash on only about 450,000 b/d of its exports, a third of production. As much of 80 per cent of those sales are to the US.

PDVSA’s collapse has since made such action moot. “The guy who’s doing the best job at sanctioning himself is Maduro. He’s essentially destroyed the oil sector,” says Mr Gallegos.

That leaves the even more extreme idea of invasion. As Francisco Rodríguez, a Venezuelan economist at New York-based Torino Capital, says: “The idea of a military intervention has gained support . . . evolving from its previous status as a fringe position.”

But China and Russia would oppose any attempt by the UN Security Council to authorise intervention. Nor does the idea cut much ice in the region, which has opposed it.

Moreover, Venezuela is not Panama, which the US invaded in 1989 aided by US troops stationed in a local army base. Venezuela is twice the size of Iraq and has 100,000 civilians organised into heavily-armed local pro-government militias. The Pentagon opposes the idea.

“Intervention faces legal challenges in the UN and elsewhere, but more importantly it is unrealistic given the scope and scale that would be necessary,” says Shannon O’Neil, a senior fellow at the Council on Foreign Relations.

The key question in Venezuela comes back to: what can be done now to pre-empt an even worse situation later?

Diplomacy is not entirely dead. Bob Corker, chairman of the US Senate Foreign Relations Committee, met Mr Maduro in Caracas in October. “One option is to keep doing exactly what we’re doing,” he suggested on his return. “And there maybe is another option or two,” he added, without elaborating.

But the diplomatic track requires patience. In the interim, hopelessness leads more Venezuelans to flee, and more still to indulge the fantasy of a Trump-led invasion.

“The world has plenty of time to wait for a peaceful and democratic solution,” says Ramón Muchacho, an exiled opposition leader. “The people who do not have that time are Venezuelans . . . especially those who are dying.”

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Venezuela To Make $949M Bond Payment To Keep Citgo Assets

(OilPrice.com. Tsvetana Paraskova, 26.Oct.2018) — Although Venezuela is regularly delaying or avoiding bond payments and is behind on billions of U.S. dollars in such payments, it is preparing to make a rare US$949-million payment on one bond, because that bond is backed by a stake in its key U.S. asset, Citgo, Bloomberg reports, quoting a person with direct knowledge of the plans.

Venezuela’s state oil firm PDVSA is getting ready to pay the coupon and partial principal repayment due on October 29 on 2020 notes, which are backed by a stake in Citgo.

Analysts say that Venezuela continues to consider Citgo as a very important asset and doesn’t want to open the door to investors who would lay claims on it if it doesn’t make the bond payment.

Although it’s not clear how much longer PDVSA will be able to continue servicing the payments on this particular bond, analysts at JP Morgan, Torino Capital, and Eurasia Group told Bloomberg that the government of Nicolas Maduro would make the payment due at the end of this month because it will want to hang onto this key asset as long as possible.
“The government’s strategy with regards to various creditor obligations seems to be to avoid or delay paying wherever possible but pay or settle when valuable external assets are in jeopardy,” Bloomberg quoted a note by Risa Grais-Targow, a senior analyst at Eurasia Group, as saying this week. The analyst, however, notes that this strategy of Venezuela has its limits. The Maduro government faces declining export revenues from its only cash cow, the oil industry, where production continues to plunge.

But even if Venezuela makes the upcoming bond payment next week, it has to service other debts to keep control of its strategic U.S. asset, Bloomberg notes. Citgo itself has debts of US$3 billion, and some of it may have to be repaid. Earlier this year, Canadian gold miner Crystallex won the right to tap Citgo for compensation of US$1.4 billion for the forced nationalization of its assets by the Hugo Chavez government. Russia’s largest producer Rosneft could also claim Citgo shares, if PDVSA, which had pledged 49.9 percent in Citgo as collateral for loans from Rosneft in 2016, defaults on those loans.

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Bondholders Raise Hopes Venezuela Will Pay Up On Due Debt

(Ft.com, Gideon Long, 25.Oct.2018) — In a month in which emerging market government bonds have been hammered by the prospect of US rate increases, geopolitical risk and fears of a US-China trade spat, one bond — in crisis-racked Venezuela of all places — has rallied to record highs.

The 2020 bond issued by the state oil company PDVSA has rallied 14 per cent in six weeks to trade at over 91 cents, up from a year low of 80 cents in early September. By contrast, most PDVSA bonds trade at around 20 cents.

The reason for this unusual outperformance is that investors are increasingly convinced that the cash-strapped oil company will come up with an $842m principal payment due this weekend to avoid default and potentially lose a key asset, US-based refiner Citgo.

“I believe that they [Venezuela and PDVSA] are willing to pay,” said Siobhan Morden, head of Latin America fixed income strategy at Nomura. “Their track record suggests willingness to pay to protect strategic assets.”

Payment in itself would be remarkable: Venezuela and PDVSA have defaulted on all their other commitments to bondholders over the past year and are now $7bn in arrears on their combined traded debt of about $60bn.

But this bond is different. If PDVSA fails to service it, the company risks losing its prized US asset Citgo, a Houston-based group with three refineries in the Gulf of Mexico and the Midwest that process about a third of Venezuela’s oil exports to the US.

PDVSA has pledged half of Citgo as collateral on the $2.5bn 2020 bond, and the other half as security on a loan from the Russian oil company Rosneft. If it fails to pay, bondholders could in theory go after their half. There is no grace period on the amortisation payment, although the company has an additional 30 days to make an interest payment of $107m, also due this weekend.

Even so, 2020 bondholders would have a fight on their hands because everyone, it seems, wants a bit of Citgo. Having largely given up on ever being paid by Venezuela or PDVSA, creditors are increasingly going after their assets abroad, Citgo being the jewel in the crown.

The Canadian mining company Crystallex is trying to seize Citgo to compensate it for $1.4bn owed by the Venezuelan state. The US oil company ConocoPhillips is in a similar position, seeking payback for money owed by PDVSA. It has previously seized assets in the Caribbean, where PDVSA processes much of its oil exports.

As for bondholders, in what has become a complex multi-directional legal battle, the world’s largest asset manager BlackRock and New York-based Contrarian Capital Management have waded in on behalf of US and UK investment managers who hold some 60 per cent of the 2020 bonds.

For now, Rosneft is watching from the sidelines but if PDVSA were to default on its separate loan from the Russian company, it too would be eligible to claim almost half of Citgo. In theory, that could leave the Russians in the novel position of having a major holding in a US refiner, something US President Donald Trump would want to avoid.

Even if PDVSA makes this payment, Venezuela faces a daunting debt mountain. The sovereign must pay a final $1bn on its 2018 bonds in December, and alongside PDVSA must find $9.3bn for bondholders in 2019 and more than $10bn in 2020, although no one expects it to do so.

Faced with these desultory figures, Venezuela is rumoured to be considering a complete overhaul of PDVSA. This week the specialist energy reporting agency Argus said Caracas was thinking of replacing PDVSA with a new national energy company that would inherit PDVSA’S physical assets, including Citgo, but not its debts. That could pave the way for PDVSA to be formally declared bankrupt.

In addition to its traded debt, Venezuela owes billions of dollars to China and Russia. Meanwhile, oil production has plummeted to its lowest level since the 1940s, the economy has halved in size in five years and inflation is running at almost 500,000 per cent. Central bank reserves stand at $8.8bn, close to their lowest level for 30 years.

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CITGO Expands Innovation Academy Presence In Texas

(CITGO, 25.Oct.2018) — CITGO Petroleum Company announced the West Oso Independent School District has approved the launch of a CITGO Innovation Academy in Corpus Christi, Texas. This is the fourth CITGO Innovation Academy established in the Corpus Christi region and the seventh Innovation Academy established in the CITGO operational footprint.

The CITGO Innovation Academy at West Oso school district programming will introduce and encourage students to explore career paths in Science, Technology, Engineering and Math (STEM). By inspiring and nurturing creative, ethical and scientific minds that advance the world through questioning, collaboration, personalized learning and use of technology and outreach, participants will be well-prepared for STEM college or technical programs.

The school district will utilize the Project Lead The Way Pre-K-12 Engineering and Computer Science curricula. Project Lead the Way (PLTW) provides the most comprehensive and rigorous Engineering and Computer Science programming for schools. PLTW curriculum will be used in Pre-Kindergarten through Fifth grade classrooms for the 2018-2019 academic school year. On line PLTW training will be provided for junior high teachers. The program will also include after school robotics clubs for K-12.

A donation from CITGO will also fund STEM-oriented training for two junior high school teachers and an expanded robotics program for students.

“I am excited that the CITGO Innovation Academy will spark the curiosity of our talented students, generating dynamic, positive and enriching experiences that go beyond the classroom,” added West Oso ISD Superintendent of Schools Conrado Garcia.

The first CITGO Innovation Academy was launched in 2013 at Foy H. Moody High School in Corpus Christi, Texas, which serves as the flagship campus. Since then, three more Innovation Academies have been implemented at Cunningham Middle School and Garcia Elementary School, both in Corpus Christi, and E.K. Key Elementary School in Sulphur, Louisiana. Another two were recently approved in Lemont, Illinois and Houston, Texas.

Through the CITGO STEM Talent Pipeline, the company actively supports the academic exploration of STEM education in the schools nearby its refineries in Corpus Christi, Texas; Lake Charles, Louisiana; and Lemont, Illinois. Since the initiative’s inception, CITGO has awarded more than $1.5 million toward programs that promote the importance of STEM education and provide educators with the resources they need.

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PDVSA Prepares To Make $949 Mln Payment On Citgo-Backed Bond

(Bloomberg, 24.Oct.2018) — Petroleos de Venezuela SA’s plan to make a $949 million bond payment would mark a rare exception for Nicolas Maduro’s regime as it tries to hold on to the crown jewel of its U.S. assets.

Venezuela’s state-run oil company is preparing to make the coupon and partial principal repayment that’s due Oct. 29 on the 2020 notes, according to a person with direct knowledge of the matter. The socialist state is behind on almost $7 billion in debt payments owed to investors, but this bond is backed by a majority stake in Citgo Holding Inc., meaning a non-payment would allow holders to lay claim to that asset.

The payment has been anticipated by investors. The $2.5 billion of notes traded as high as 92.75 cents on the dollar this week, far above most Venezuelan bonds, which hover near 25 cents. Analysts from JPMorgan Chase & Co (NYSE:JPM)., Torino Capital and Eurasia Group have also said the Maduro government would pay because of its desire to hold on to Citgo, although there are doubts about how much longer PDVSA can service the debt.

“The government’s strategy with regards to various creditor obligations seems to be to avoid or delay paying wherever possible but pay or settle when valuable external assets are in jeopardy,” Risa Grais-Targow, a senior analyst at Eurasia Group, wrote in a note Monday. “There are limits to this strategy, as the government still faces meaningful cashflow constraints owing to declining cash-generating oil exports.”

Calls and emails seeking comment from PDVSA’s vice president of finance, Iris Medina Fernandez, weren’t returned. A representative for Venezuela’s oil ministry declined to comment. The person with knowledge of the situation asked not to be named because the matter is private.

Even with the payment, Citgo’s fate remains in flux. The 2020 notes fell by the most in nearly two months on Wednesday amid a broader sell-off across risky assets. Here are some of the other hurdles that Venezuela needs to navigate to maintain ownership of the company:

— Citgo Petroleum and its parent Citgo Holding have more than $3 billion of their own debt outstanding. At least some of that might need to be repaid if the company changes ownership through a foreclosure or a sale.

— PDVSA pledged a 49.9 percent stake in Citgo Holding as collateral for loans it received from Rosneft in 2016. If it defaults on those loans, the Russian state-controlled oil company could seek to seize the shares.

— A small Canadian mining company, Crystallex International Corp., was awarded the right to collect on an arbitration award by taking shares of PDV Holding (the U.S. parent of Citgo Holding), a verdict Venezuela is appealing.

— PDVSA is due to pay $500 million to ConocoPhillips (NYSE:COP) in November as the first installment of a $2 billion settlement the two companies reached this summer. If it misses the payment, Conoco could seek to attach PDVSA assets, including Citgo.

— Separately, an $8 billion bondholder group advised by Guggenheim Securities has said it’s “exploring options” to ensure that the nation’s overseas assets are available to satisfy its claims.

So far, PDVSA has shown it is determined to hold on to Citgo, even as U.S. sanctions prevent the refiner from distributing dividends back to Venezuela. Citgo plays a key role in facilitating the export of Venezuelan crude — the country’s main source of foreign exchange — and also provides Venezuela with much-needed refined products.

“It is not about the value of the equity, which may not be much,” said Richard Cooper, a partner at law firm Cleary Gottlieb Steen & Hamilton LLC, who has advised holders of Venezuela’s debt. “Citgo remains an incredibly important asset for PDVSA.”

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Citgo, Valero Drive Up U.S. Purchases of Venezuelan Oil in September

(Reuters, Marianna Parraga, 4.Oct.2018) — Venezuela’s September crude sales to the United States rose to their highest in over a year, boosted by purchases by Citgo Petroleum, the U.S. refining arm of Venezuela’s state-run PDVSA, and Valero Energy, according to Refinitiv Eikon trade flows data.

A collision in August at a dock of Venezuela’s main oil port of Jose has limited exports in large vessels to Asia, spurring loading of more medium-size tankers including those typically covering routes to the United States.

Venezuela’s overall crude exports fell 14 percent in September to 1.105 million bpd due to declining oil output and dock woes at Jose terminal. The OPEC-member country’s crude production fell for third time in a row to 1.448 million bpd in August, according to official figures.

The United States imported 601,505 barrels per day (bpd) of Venezuelan crude last month, a 28-percent increase versus August and the highest monthly average since August 2017, according to the Refinitiv Eikon data.

Valero and Citgo bought over 250,000 bpd each of Venezuelan crude last month compared with an average of 170,000 bpd earlier this year, according to the data.

A total of 38 cargoes were purchased by U.S. customers from PDVSA and its joint ventures in September. At least three of those shipments were co-loaded in different Venezuelan ports to avoid problems at Jose, where repairs are expected to take at least one more month to be completed.

PDVSA’s exports last month included more light and medium crudes, generally produced at very low levels in Venezuela and leaving less of these grades for PDVSA’s domestic refineries to produce fuels.

In September, PDVSA sold Citgo and Valero some 84,000 bpd of Santa Barbara, Mesa and Leona crudes, which are typically processed at Venezuelan refineries.

PDVSA regularly imports gasoline, diesel, liquefied petroleum gas and refining feedstock to offset low production at its refineries.

(Reporting by Marianna Parraga; Editing by Cynthia Osterman)

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PDVSA to Reopen Damaged Port Dock by Month’s End -Documents

(Reuters, Marianna Parraga, 12.Sep.2018) — PDVSA expects to reopen the south dock of Venezuela’s main oil port Jose by the end of September, easing strains on crude exports delayed due to a tanker collision last month, according to internal trade documents from the state-run oil firm seen by Reuters.

Last week, PDVSA began diverting tankers to Puerto la Cruz for loading, but the South American country’s crude exports have remained slow in recent weeks as few customers have accepted the 500,000-barrel-per-cargo maximum neighboring terminals can handle.

Besides Puerto la Cruz, tankers waiting to load a total 2.65 million barrels of Venezuelan upgraded and diluted crudes also plan to be serviced this month by two monobuoys at Jose, including cargoes scheduled for U.S.-based Chevron Corp and Russia’s Rosneft, the documents showed.

But a 1-million-barrel cargo of diluted crude oil (DCO) scheduled to be lifted by Rosneft at Jose between late September and early October was cancelled, according to the documents.

Rosneft and PDVSA in April agreed to a “remediation plan” to refinance an oil-for-loan agreement after delays to deliver cargoes of Venezuelan crude on time. DCO shipments scheduled since then belong to that plan.

PDVSA did not immediately reply to a request for comment.

At least three other 500,000-barrel cargoes for Valero Energy and PDVSA’s U.S. refining unit Citgo Petroleum plan to be loaded at Jose’s available docks and monobuoys in the coming days, after delays.

Valero also would pick up two additional 600,000-barrel cargoes of Morichal crude after a maintenance project that would halt the 150,000-barrel-per-day Petromonagas crude upgrader in August was again postponed, allowing more production.

PDVSA and its joint ventures exported 1.292 million barrels per day (bpd) of crude last month, a 7.7 percent decline versus July, according to Thomson Reuters trade flows data.

The country’s oil output fell again in August to 1.448 million bpd, according to numbers reported by OPEC on Wednesday. Venezuela’s accumulated annual production this year is 1.544 million bpd, the lowest since 1950. (Reporting by Marianna Parraga in Mexico City Editing by Marguerita Choy)

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The Latest Episode in the Crystallex-Venezuela Saga

(Mining.com, Valentina Ruiz Leotaud, 29.Aug.2018) — State-owned Petróleos de Venezuela SA or PDVSA announced on Twitter that it filed an appeal requesting that a Delaware court vacate a decision made public on August 23 granting Canadian miner Crystallex the right to seize its U.S. assets.

In its statement, the oil company said it had filed a petition on Friday, August 24, 2018, to the 3rd U.S. Circuit Court of Appeals. The petition is to direct the Delaware District Court to acknowledge it had been “divested of jurisdiction with respect to PDVSA and its property.”

The petition refers to a decision made on August 9, 2018, by U.S. District Judge Leonard Stark in the eastern U.S. state. Stark approved a request by Crystallex to attach shares in PDV Holdings, a U.S. subsidiary of PDVSA that indirectly controls refiner Citgo.

Citgo owns three refineries in Louisiana, Texas and Illinois, as well as other assets that have been valued between $8 billion and $10 billion.

With this move, Crystallex is aiming at collecting a $1.4-billion-award in compensation following a decade-long dispute over Venezuela’s 2008 nationalization of its gold mine in the southern Bolívar state. The amount is comprised of $1.2 billion plus $200 million of interest awarded by a World Bank arbitration tribunal in 2016.

If PDVSA’s appeal does not proceed, the Nicolás Maduro government could be forced to comply to Crystallex’s demands.

The Canadian firm has accused the Nicolás Maduro government of performing “fraudulent transfers” to avoid paying what it owes. Among those transactions, Crystallex has cited the payment of dividends from PDV Holding to PDVSA for $2.2 billion and the issuance of 49.9% of Citgo’s shares to secure a $1.5 billion loan granted by Russian giant Rosneft in 2016.

A lawsuit introduced by the miner against such asset transfers by Citgo was initially dismissed in January 2018, but the Toronto-based company requested a new hearing.

Nevertheless, PDVSA’s lawyers have argued that Crystallex cannot seize the holding company’s shares because it doesn’t have proper grounds for suing in the U.S. and because it couldn’t show the unit was the Venezuelan company’s “alter ego.”

In November 2017, Crystallex and Venezuela agreed to settle the dispute before Ontario Superior Court Justice Glenn Hainey. However, the deal did not resolve the fight over the $1.2 billion award because the cash-strapped South American country did not honour its payments.

With files from Reuters, Bloomberg, El Universal.

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CITGO Awards Grant, Continues Restoration Work

(Citgo, 29.Aug.2018) — Through the CITGO Caring for Our Coast initiative, a program designed to boost ecological conservation, restoration and education, The Conservation Foundation (TCF) has been awarded a grant to continue its restoration work in the Heritage Quarries Recreation Area (HQRA) in Lemont.

In partnership with TCF and the Village of Lemont, the CITGO Lemont Refinery has been funding semiannual projects and working alongside local volunteers in the HQRA since the fall of 2014, removing invasive plant species and brush, and harvesting native species’ seeds for replanting.

Located half a mile east of downtown Lemont, the HQRA is situated among thousands of acres of forest preserves, which includes more than 65 miles of hiking and biking trails, as well as access to fishing and boating along the I & M Canal and the Consumers, Great Lakes and Icebox Quarries.

According to Scott LaMorte, senior advancement officer at TCF, the transformation of the HQRA, in just four years, has been remarkable.

“During a community workday last year, my group was assigned to clear a section near the picnic grove. After cutting out some of the weedy shrubs, we uncovered a pond that hadn’t been seen in decades! The ‘before’ and ‘after’ photos are just incredible,” said LaMorte.

Dennis Willig, Vice President and General Manager of the CITGO Lemont Refinery, describes the HQRA project as neighbors-serving-neighbors.

“We are proud to partner with the local community, because not only are natural resources being preserved, but residents will be able to enjoy the benefits of this outdoor recreational space for years to come,” said Willig.

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PDVSA, Citgo Evaluating Aruba Gas Plan

(Energy Analytics Institute, Piero Stewart, 25.Aug.2018) — Venezuela is evaluating a plan to implement a natural gas project with Aruba.

Officials from Venezuela’s state oil company PDVSA, and its refining arm Citgo Petroleum Corporation continue to evaluate the potential of such a project that would imply a gas interconnection between Venezuela and Aruba, reported PDVSA in an official statement.

No further details about the plan were revealed by PDVSA.

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Rosneft May Challenge Crystallex Claim To Citgo Shares

(Oilprice.com, Irina Slav, 23.Aug.2018) — Rosneft has asked a U.S. federal court to establish “a robust appraisal and sale process” of Citgo shares following Canadian miner Crystallex’ win at court against the parent company of Citgo, PDVSA, Argus Media reports citing documents submitted by Rosneft to court.

“Such a course of action is particularly appropriate under the circumstances given the multitude of parties and interests potentially affected by a sale of PdVH,” the documents said.

Crystallex was ruled the winner in a long-running case against Venezuela, which it has sued over the forced nationalization of its assets by the Hugo Chavez government. A U.S. federal judge last week awarded the miner the right to approach Venezuela’s U.S. oil unit, Citgo, to seek its compensation of US$1.4 billion.

Yet the Russian state company has priority rights over 49.9 percent in Citgo. PDVSA used the stake as collateral for a US$1.5-billion loan provided by Rosneft in 2016. The move at the time sparked a lot of negative comments in the United States, with some legislators worried that Rosneft could at some point take control over the U.S. company. The rest of the Citgo stock has been pledged as collateral to a PDVSA bond issue that matures in two years, Argus Media notes.

Now Crystallex wants to take control over the refiner, which operates a refinery network with a daily capacity of 750,000 bpd, and then sell the stock on to another investor or investors to get its US$1.4 billion. The sum was awarded to the Canadian miner as compensation for the forced nationalization of its operations in Venezuela by the Hugo Chavez government.

At the time, the Associated Press noted that the ruling by Chief Judge Leonard P. Stark is unique: government assets such as Citgo’s parent, PDVSA, are as a rule protected from lawsuits targeting a state. Yet in Stark’s ruling, the judge said that Venezuela had blurred the lines between the government and the state oil firm, with a military official at the helm of PDVSA.

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PDVSA and ConocoPhillips Reach New, Positive Settlement

(Citgo, 21.Aug.2018) — As officially reported by Petróleos de Venezuela, S.A. (PDVSA) and ConocoPhillips, the two companies recently reached a settlement agreement resulting from the nationalization of the Hamaca and Petrozuata projects in 2007.

As background, ConocoPhillips initiated arbitration before the International Chamber of Commerce (ICC), demanding that PDVSA pay approximately $20 billion in return for its assets. This amount was based on the theory that PDVSA should have unlimited liability for the actions of the country. However, on April 24, 2018 the ICC ruled that PDVSA should pay only $1.87 billion, an amount based on the previous association agreements between the two companies.

As a result of the settlement, ConocoPhillips has agreed to suspend its legal enforcement actions of the ICC award, including in the Dutch Caribbean. At the same time, PDVSA will pay approximately 25 percent of the award in the short term and the remaining balance in quarterly installments over the next 4.5 years.

PDVSA confirmed in a statement that it will continue serving both the international and domestic markets. Furthermore, the company affirmed that this agreement reached with ConocoPhillips demonstrates, once again, the firm will of PDVSA to reach commercial solutions with its creditors while continuing to strengthen itself and its commercial operations.

CITGO also continues serving its customers in the United States, and the resolution of this matter helps to ensure the stability in the overall CITGO commercial supply chain. As a leading refining and marketing company, with strong financial and operational performance, CITGO will continue producing and selling quality products and is well positioned for the future.

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Venezuela Agrees to Pay $2 Bln Over Seizure of Oil Projects

(The New York Times, Clifford Krauss, 20.Aug.2018) – More than a decade ago, Venezuela seized several oil projects from the American oil company ConocoPhillips without compensation. Now, under pressure after ConocoPhillips carried out its own seizures, the Venezuelans are going to make amends.

ConocoPhillips announced on Monday that the state oil company, Petróleos de Venezuela, or Pdvsa, had agreed to a $2 billion judgment handed down by an International Chamber of Commerce tribunal that arbitrated the dispute. Pdvsa will be allowed to pay over nearly five years, but as it is nearly bankrupt, even those terms may be hard to meet.

After winning the arbitration ruling in April, ConocoPhillips seized Pdvsa oil inventories, cargoes and terminals on several Dutch Caribbean islands. The move seriously hampered Venezuela’s efforts to export oil to the United States and Asia, and emboldened other creditors to seek financial retribution.

“What they did was choke the exports and made it clear to Pdvsa that the cost of not coming to an agreement would be higher than actually settling on a payment schedule,” said Francisco J. Monaldi, a Venezuelan oil expert at Rice University.

As its oil production has plummeted to the lowest levels in decades, Venezuela has fallen behind on more than $6 billion in bond payments. Pdvsa has already defaulted on more than $2 billion in bonds after failing to make interest payments over the last year, and owes billions of dollars more to service companies.

Adding to Venezuela’s woes, the Trump administration has imposed sanctions that prohibit the purchase and sale of Venezuelan government debt, including bonds issued by the state oil company.

Mr. Monaldi said Pdvsa would be forced to pay ConocoPhillips with money it would have paid other creditors and would probably delay some oil shipments to China it owes in separate loan agreements. He added that “there is not a negligible probability” that at some point it will discontinue payments for lack of money.

Hyperinflation, corruption and growing starvation have crippled the Venezuelan economy, as the socialist government is forced to choose between buying food and medicine and satisfying the demands of creditors. Over the last few days, the government has scrambled to deal with its economic crisis by sharply devaluing its currency, raising wages and promising to shave energy subsidies.

Venezuela has the largest oil reserves in the world. Its crisis has tightened global oil markets at a time when threatened United States oil sanctions against Iran could drive up prices.

The settlement with ConocoPhillips over the 2007 seizure resolves a drawn-out legal struggle, at least for the time being.

“As a result of the settlement, ConocoPhillips has agreed to suspend its legal enforcement actions of the I.C.C. award, including in the Dutch Caribbean,” ConocoPhillips said in a statement.

Pdvsa, which did not comment on the agreement, is to pay the first $500 million within 90 days.

ConocoPhillips is pursuing a separate arbitration case over the same seizure against the government of Venezuela before the World Bank’s International Center for Settlement of Investment Disputes, which could result in another large settlement award, perhaps as high as $6 billion.

That amount would probably be unpayable, experts say, but it could put ConocoPhillips in a strong position to obtain access to Venezuelan oil fields in the future if the current government eventually falls.

Pdvsa’s problems with creditors are far-reaching, putting its American Citgo assets, including three large refineries and a pipeline network, in jeopardy. A federal judge in Delaware recently ruled that Crystallex, a Canadian gold mining company, could seize over $1 billion in shares of Citgo as compensation for a 2008 nationalization of a mining operation in Venezuela.

Citgo is appealing. If it loses, that may open the way for more claims on Citgo assets by companies whose investments have been expropriated in Venezuela, including Exxon Mobil.

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Rafael Ramírez Says Maduro Destroyed PDVSA

(Energy Analytics Institute, Jared Yamin, 19.Aug.2018) – Former PDVSA President Rafael Ramírez says Venezuela produced 3 million barrels per day until December 2013. That figure has dropped by 1.8 million, according to his statements.

“When we were in the revolutionary government of Comandante Chávez, we had fiscal balance and enough income for all social programs, not because the price was 100 dollars a barrel, as the infamous say (we showed that we only had those prices for 4 years, the rest of the years prices were between 22 and 42 dollars a barrel, much less than now), but, precisely, because we charged transnationals and PDVSA all the taxes and royalties without exemptions of any kind. But, in addition, we had oil production of 3 million barrels per day until December 2013,” writes Ramírez in a blog post on Medium.

A PDV petrol station in the once popular Las Mercedes section of Caracas, Venezuela. Prior to its takeover, the station was controlled and run by Chevron Corporation. Source: Energy Analytics Institute (EAI)

“Now, the government has destroyed PDVSA, its production has fallen, in just 4 years (with a dramatic drop since Quevedo entered) to 1.2 million barrels a day due to the inability and irresponsibility of Maduro in the management of oil issues. In PDVSA, we have lost 1.8 million barrels per day, at an average price of 63 dollars per barrel, we are talking about 113.4 million dollars every day, which [is to say] they [have] stopped receiving, 4.139 million dollars a year!,” writes Ramírez, who also served as Venezuela’s Minister of Petroleum, among other posts during the governments of the late President Hugo Chávez and current Venezuelan President Nicolas Maduro, until his departure and rupture with the latter.

“Now, the owners of the petroleum, that’s to say, the Venezuelan citizens, have to pay the international price for gasoline, as if [Venezuela] were not a petroleum country.” — Ramírez

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Citgo Petroleum Company Profile

(Energy Analytics Institute, Aaron Simonsky, 11.Aug2018) – Houston-based Citgo Petroleum Corporation is the refining arm of Venezuela’s Petróleos de Venezuela, S.A. (PDVSA). What follows is a brief company profile.

Citgo, a Delaware corporation with headquarters in Houston, refines, markets, and transports gasoline, diesel fuel, jet fuel, lubricants, petrochemicals, and other petroleum-based industrial products. Citgo has 3,500 employees and is owned by Citgo Holding, Inc., an indirect, wholly owned subsidiary of PDVSA, the national oil company of the Bolivarian Republic of Venezuela, according to data posted to the company’s website.

Citgo owns and operates three highly complex crude oil refineries located in the following cities:

— Lake Charles, LA (425,000 barrels-per-day [b/d]),

— Lemont, IL (167,000-b/d), and

— Corpus Christi, TX (157,000-b/d).

These refineries process approximately 200,000 b/d of Venezuelan crudes, including supplies from Orinoco Oil Belt upgraders. The combined aggregate crude oil refining capacity of 749,000-b/d, positions Citgo as one of the largest refiners in the nation. The company owns and/or operates 48 petroleum product terminals, one of the largest networks in the country.

In 2016, Citgo sold approximately 13.6 billion gallons of refined products, including exports. The company markets quality motor fuels to independent marketers who consistently rate Citgo as one of the best-branded supplier companies in the industry. Citgo branded marketers sell motor fuels through more than 5,200 independently owned, branded retail outlets.

Citgo markets jet fuel directly to airlines and produces a variety of agricultural, automotive, industrial and private label lubricants which are sold to independent distributors, mass marketers and industrial customers as well as other clients. In addition, the company sells petrochemicals and industrial products directly to various manufacturers and industrial companies throughout the United States.

Citgo History

From the gasoline that helps your family take vacations to the advanced medical equipment at your community hospital, Citgo is fueling good, the company reported on its website.

It’s amazing the difference petroleum-based products make in our everyday lives. Based in Houston, Texas, Citgo is a refiner and marketer of transportation fuels, lubricants, petrochemicals and other industrial products. In addition to these products, there’s probably a Citgo in your neighborhood, a convenient place to fill up with gas and grab a quick snack.

The story of Citgo Petroleum Corporation as an enduring American success story began back in 1910 when pioneer oilman, Henry L. Doherty, created the Cities Service Company.

When Cities Service determined that it needed to change its marketing brand, it introduced the name CITGO in 1965, retaining the first syllable of its long-standing name and ending with “GO” to imply power, energy and progressiveness. The now familiar and enduring Citgo “trimark” logo was born.

Occidental Petroleum bought Cities Service in 1982, and Citgo was incorporated as a wholly owned refining, marketing and transportation subsidiary in the spring of the following year. Then, in August, 1983, Citgo was sold to The Southland Corporation to provide an assured supply of gasoline to Southland’s 7-Eleven convenience store chain.

In September, 1986, Southland sold a 50 percent interest in Citgo to Petróleos de Venezuela, S.A., (PDVSA), the national oil company of the Bolivarian Republic of Venezuela. PDVSA acquired the remaining half of Citgo in January, 1990 and the company is owned by Citgo Holding, Inc., an indirect, wholly owned subsidiary. With a secure and ample supply of crude oil, Citgo quickly became a major force in the energy arena.

Since 1985, Citgo has sold its various products through independent marketers. Our relationship with these individuals is really what makes CITGO different from other petroleum companies.

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Crystallex Cuts Others In Line for Citgo Assets

(Energy Analytics Institute, Jared Yamin, 11.Aug.2018) – Crystallex seems to have cut in line while there are many others already in line for CITGO assets and value.

What follows are comments published by Venezuelan oil analyst Francisco Monaldi in a series of tweets related to the legal battle over CITGO:

1) The value of CITGO is much higher than the claim by Crystallex, which by the way was an outrageously high amount for that expropriation,

2) This is the beginning of a shark fest of claims and lawsuits. There are many others in line for CITGO assets and value, CITGO bond holders, CITGO creditors, PDVSA 2020 bondholders, Rosneft, Conoco, other PDVSA and Venezuela creditors and ICSID claimants. It seems to me that Crystallex should not be ahead in this line,

3) In the short term this would be a blow for PDVSA making it harder to get diluents from the US and to earn cash from its heavy exports, but it is just the last in a long list of troubles including default and sanctions,

4) In the long term it would be a big blow to Venezuela, losing a strategic asset to access the USGC market in competition with Canadian heavy, particularly after Keystone is completed,

5) Outside of CITGO, Venezuela has only a few much less valuable assets, what claimants will try is to seize or disrupt PDVSA’s flows of oil and receivables, and force them to negotiate something, and

6) This is a tragic story of recklessness and incompetence by the chavismo, increasing the debt without investment, expropriating and destroying value, in the middle of an oil boom. The consequences, collapsed oil production and now the final reckoning with their claimants…

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Venezuela Facing Compounding Oil Woes

(UPI, Daniel J. Graeber, 10.Aug.2018) – Though it holds the largest reserves of oil in the world, production levels put it only in the middle of the pack among OPEC member states.

Venezuelan plans to stabilize crude oil production do little to address bottlenecks and the shortage of investments, an analyst said Friday.

Manuel Quevedo, the head of state-controlled Petróleos de Venezuela, or PDVSA, announced crude oil production has stabilized after a chronic decline and the country was looking to pick up the pace by tapping its mature assets.

Despite its vast reserves, corruption and international isolation have impacted oil production from one of the founding members of the Organization of Petroleum Exporting Countries. Secondary sources reporting to OPEC economists put Venezuelan production at 1.3 million barrels per day on average last month, down 38 percent from the 2016 average.

Adrian Lara, a senior oil and gas analyst at GlobalData, said in comments emailed to UPI that Venezuela has issues building up on issues, from actual production to refinery problems.

“So not only (do) the challenges remain, but they compound on each other on a path that could prolong and increase the decline rate of oil production in the Orinoco Belt,” he said.

The U.S. Geological Survey estimates the Orinoco Belt holds a mean volume of 513 billion barrels of technically recoverable oil reserves. An annual review of global reserves from Italian energy company Eni put Venezuela at the top of the list. While the United States was the top producer last year, its total reserves represented about 10 percent of Venezuela’s.

Lara said focusing on mature assets could be a sound strategy for Venezuela, but that would require significant investments in a country facing profound economic crises.

“Without details on the strategy it is difficult to assess how PDVSA can implement a plan where the loss of production in the Orinoco Belt can be compensated by these fields’ production,” he said.

In an outlook on Latin America, the International Monetary Fund noted real gross domestic product for Venezuela is on pace to drop 18 percent this year, the third year in a row for a double-digit decline in oil revenue was $22 billion last year, compared with about $70 billion in 2011. Total Venezuelan exports are 10 percent lower than 2016 levels.

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PDVSA Appeals Ruling Regarding Citgo Seizure

(AFP, 10.Aug.2018) – Venezuela’s state oil company PDVSA on Friday appealed a US court ruling that would allow a Canadian mining company to seize shares of PDVSA’s US-subsidiary Citgo in payment of a $1.2 billion debt.

The case dates from 2011, when the Venezuelan government seized a mine Crystallex had been awarded and despite a settlement through an arbitration panel Caracas failed to repay the company.

US District Court Judge Leonard Stark ruled Thursday the mining firm could seize Citgo shares from PDVSA, although the order will not be issued until final details are worked out.

He 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.

It is another blow to the embattled government of President Nicolas Maduro, who has overseen the collapse of the nation’s once-thriving oil-based economy, which is now in default.

Thousands of Venezuelans flee the country daily, malnutrition is rife and the International Monetary Fund said inflation could reach one million percent this year.

PDVSA, once the jewel in the crown of the nation’s economy, has been hamstrung by debt and lack of investment that has shrunk output.

Losing Citgo would dry up one of the last remaining sources of foreign revenue. And even that is already at risk since a nearly 50 percent stake in Citgo was used as collateral for a $1.5 billion loan from Russia’s Rosneft.

PDVSA’s bonds represent 30 percent of Venezuela’s external debt — estimated to be around $150 billion.

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Analysts: Only a Matter of Time Before Venezuela Loses Citgo

A tanker sails out of the Port of Corpus Christi in Texas after discharging crude oil at the Citgo refinery. Photo: Eddie Seal, Stf / Bloomberg

(Houston Chronicle, Jordan Blum, 10.Aug.2018) – Financially crippled Venezuela likely will lose control of its Houston refining arm Citgo Petroleum once a slew of lawsuits eventually are resolved, and it’s just a matter of when and to whom, finance and energy analysts said Friday.

A federal judge ruled late Thursday that a defunct Canadian mining firm can go after Citgo’s assets to collect $1.4 billion it allegedly lost from Venezuela when the government seized mining and energy assets more than a decade ago under the late socialist leader Hugo Chávez.

While the Canadian firm, Crystallex International, is unlikely to take control of Citgo’s refining and retail gasoline assets throughout the U.S., the ruling is expected to kick off an array of new legal claims against Venezuela and its state oil company – from Houston-based ConocoPhillips to other oil and gas firms – with the goal of winning Citgo as the prize, legal and finance experts said. After all, Venezuela owes a lot of money to a lot of different companies.

Whichever company eventually wins out could sell to refiners that might be interested, including San Antonio’s Valero Energy, Houston’s Phillips 66, Ohio-based Marathon Petroleum and New Jersey’s PBF Energy, said Jennifer Rowland, and energy analyst with Edward Jones in St. Louis.

“It’s not every day that a suite of refineries becomes available, especially along the Gulf Coast,” Rowland said. “Those assets would definitely fit in some companies’ portfolios.”

Citgo, which declined comment Friday, owns oil refineries in Corpus Christi, Lake Charles, La., and Illinois. The company employs about 4,000 people in the U.S., including 800 in Houston. Citgo has roughly 160 branded gas stations in the Houston area, and about 5,500 nationwide. The company is valued at nearly $8 billion.

Citgo is a U.S. company with a more than 100-year history. It was acquired by Venezuela’s state-run oil company three decades ago. The state oil company, Petroleos de Venezuela SA, is known as PDVSA.

The Citgo assets are seen as the crown jewel for companies targeting PDVSA legally because they’re the most accessible assets outside of Venezuela, said Craig Pirrong, a University of Houston finance professor specializing in energy markets. Thursday’s court ruling opened the door for many more claims made against Citgo by those owed money by Venezuela, he said, because the judge allowed Venezuela’s debts to extend to its U.S. refining assets as an “alter ego” of the government.

“It’s going to be like a feeding frenzy going after Citgo,” Pirrong said.

And now a series of complex legal battles will ensue, possibly dragging out into next year, said Franciso Monaldi, a fellow in Latin American Energy Policy at Rice University’s Baker Institute for Public Policy.

“I don’t expect PDVSA to immediately lose control of Citgo, but I think eventually it will happen,” Monaldi said. “It’s really just a matter of who will get it.”

Venezuela has suffered a financial and geopolitical freefall under Chavez’ socialist successor and current president, Nicolas Maduro. Many thousands of people have fled the country, fearing starvation and violence, including some PDVSA workers, as the country’s oil production has plummeted.

As he’s consolidated power in the destabilized nation, Maduro jailed an opposition lawmaker this week after a failed assassination plot that involved two flying drones with explosives.

Citgo has faced increasing uncertainty since November, when its acting president and five other Houston-based executives with dual citizenship were arrested in Venezuela on corruption charges.

Maduro installed Chávez’s cousin, Asdrúbal Chávez, as the new Citgo president. Although he remains in charge, the new Citgo leader was ordered in July by the U.S. State Department to surrender his U.S. visa amid an ongoing probe into PDVSA. Citgo said Chávez would continue in his role remotely for now.

The future of Citgo is further complicated because 49.9 percent of Citgo is pledged to Russian oil giant Rosneft as collateral for a $1.5 billion loan. The U.S. government would fight losing control of Citgo to Russian interests, analysts said.

As for Crystallex, Thursday’s ruling doesn’t actually hand Citgo over to the defunct firm. But it does position Crystallex to force a large settlement from Venezuela, Monaldi said.

He added that ConocoPhillips could make a stronger claim for Citgo because it’s already won a $2 billion ruling against PDVSA, and not just Venezuela as a whole. In the spring, ConocoPhillips won court orders to seize PDVSA assets on Caribbean islands, quickly taking action against refining and oil storage assets in the Caribbean islands of Curacao, Bonaire and Sint Eustatius.

But ConocoPhillips said it is still a good ways off from recouping the full $2 billion. ConocoPhillips also argued PDVSA has transferred some petroleum products to Citgo to prevent their seizure.

“It’s looking bleak for Venezuela,” Pirrong added.

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Venezuela’s Oil Sales to U.S. in July Below 500 Mb/d

(Reuters, 10.Aug.2018) – Venezuela’s crude exports to the United States declined to 494,400 barrels per day (bpd) in July after rising the prior three months, showing the impact of asset seizures against state-run oil firm PDVSA, according to Thomson Reuters data.

July was the first month crude exports fell below 500,000 bpd since the months of January through March.

U.S. oil producer ConocoPhillips in May began seizing PDVSA’s overseas assets in an attempt to collect on a $2 billion arbitration award. Its legal actions have left PDVSA with no access to most of its Caribbean terminals, restricting the company’s already dwindling exports.

Most of PDVSA’s customers in the United States, where flows of Venezuelan oil have also been affected in the last year by financial sanctions imposed by U.S. President Donald Trump’s administration, are now receiving fewer barrels.

In July, 30 cargoes of Venezuelan crude arrived at U.S. ports, compared with 33 in June. The volumes in July were 12 percent lower than the prior month and 22.5 percent below the same month a year earlier, according to the data.

Only two cargoes of Venezuelan crude were shipped last month from the Caribbean island of Aruba, where PDVSA’s unit Citgo Petroleum operates an oil terminal. A local court in May temporarily froze inventories and cargoes there at Conoco’s request, but weeks later it allowed the U.S. refining subsidiary to resume normal operations at the facility.

No Venezuelan crude has been shipped to the United States since mid-June from Curacao, Bonaire or St. Eustatius, neighboring Caribbean islands that PDVSA has used to refine, store and ship oil, according to the data.

The largest importer of Venezuelan crude in the United States last month was Valero Energy, which has managed to ramp up imports of Venezuelan oil in recent months amid the country’s export crisis.

The second largest importer was Citgo.

Even amid declining crude exports, shipments to the United States of Diluted Crude Oil (DCO) made with Venezuelan extra heavy oil and imported naphtha continued rising in July, to 252,820 bpd, suggesting limited output of upgraded crude at Venezuela’s main crude producing region, the Orinoco Belt.

PDVSA has limited the damage from the asset seizures by transferring oil between tankers at sea and loading vessels in neighboring Cuba. But the company is fulfilling less than 60 percent of its supply obligations with customers.

(Reporting by Marianna Parraga; editing by Gary McWilliams and Phil Berlowitz )

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Crystallex Court Win Against Venezuela Aided by Finding

(Reuters, Brian Ellsworth, 10.Aug.2018) – Crystallex’s victory in a legal battle with Venezuela that paves the way for it to collect a $1.4 billion award hinged on a finding that state oil company PDVSA is not separate from the Venezuelan government, court documents showed on Friday.

The U.S. District Court for the District of Delaware granted Crystallex’s request to take ownership of shares in PDVSA subsidiary of PDVH, which owns U.S.-based refiner Citgo, as part of a decade-long dispute over the 2008 nationalization of Crystallex assets.

“Crystallex has met its burden to rebut the presumption of separateness between PDVSA and Venezuela and proven that PDVSA is the alter ego of Venezuela,” wrote Judge Leonard P. Stark in the decision.

The issue has been closely watched by investors holding billions of dollars in Venezuelan bonds, which are almost all in default as the OPEC nation struggles under the collapse of its socialist economy.

Legal experts had generally believed that creditors of Venezuela, which has few foreign assets available to be seized by creditors, would have a difficult time pursuing claims against PDVSA because the two were considered separate.

Venezuela two years ago put up 49.9 percent of Citgo shares as collateral for a $1.5 billion loan from Russian oil major Rosneft. The remaining 50.1 percent was set aside as collateral for PDVSA’s 2020 bond.

Judge Stark said the court had not yet determined when it would issue a writ allowing Crystallex to assume ownership of the shares of PDV Holding Inc, or what mechanism should be used to sell those shares.

“The decision could make it more complicated if other courts ignore the boundary between the government and PDVSA,” said Mark Weidemaier, a professor at the University of North Carolina School of Law. “It expands the pool of creditors that could go after PDVSA and casts a shadow over its ability to keep its oil receivables safe.”

PDVSA did not immediately respond to a request for comment.

Information Minister Jorge Rodriguez, asked by a reporter about the decision during a press conference on Friday, declined to comment on it.

Legal counsel for Crystallex declined to comment.

PDVSA’s 2020 bond dropped 4.500 points in price to 85.500 on Friday

Bonds issued by PDVSA and Venezuela were down slightly, in line with a broad selloff in global markets on Friday.

( Additional reporting by Jonathan Stempel in New York, Editing by Paul Simao and Cynthia Osterman)

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Crystallex Can Go After Venezuela’s US Refineries

(Associated Press, 9.Aug.2018) – A Canadian gold mining company on Thursday won the right to go after Venezuela’s prized U.S.-based oil refineries and collect $1.4 billion it lost in a decade-old take-over by the late socialist President Hugo Chavez.

Chief Judge Leonard P. Stark of the U.S. Federal District Court in Delaware made the ruling in favor of Crystallex, striking a blow to crisis-wracked Venezuela, which stands to lose its most valuable asset outside of the country – Citgo.

Chavez took over the gold mining firm and many other international companies as part of his Bolivarian revolution that’s left the country spiraling into deepening economic and political turmoil.

Venezuelans struggle to afford scarce food and medicine as masses flee across the border. In a sign of rising political tensions, current President Nicolas Maduro threw an opposition lawmaker in jail this week, charged in a failed assassination plot using two drones loaded with explosives.

The latest order by the U.S. judge could set off a scramble by a long list of creditors owed $65 billion from bonds that cash-strapped Venezuela has stopped paying within the last year, said Russ Dallen, a Miami-based partner at the brokerage firm Caracas Capital Markets.

“This was the most vulnerable low hanging fruit for debtholders to go after,” Dallen said. “It looks like Crystallex is the lucky lottery winner because they got there first.”

Chavez in early 2009 announced Venezuela’s take-over of the Canadian mining operations in Bolivar state, a mineral rich region with one of the continent’s largest gold deposits. He accused mining companies of damaging the environment and violating workers’ rights.

Crystallex spent years trying to negotiate a deal with Venezuela before making its case in 2011 to a World Bank arbitration panel, which sided with the Canadian firm, despite Venezuela’s vigorous fight.

U.S.-based Citgo, part of the state-run oil company PDVSA, has three refineries in Louisiana, Texas and Illinois in addition to a network of pipelines. If the order is carried out, Crystallex won’t get all of Citgo – valued at $8 billion – but Venezuela could be forced to liquidate it to make good on the court order.

Today, the gold mining region once operated by Crystallex is largely lawless and dangerous, run by rogue miners who blast the earth with water and mercury to expose gold nuggets and sell them to government forces, often leading to deadly conflicts.

The judge’s ruling is unique, because government assets, like PDVSA, are normally protected from lawsuits against a sovereign nation. But the judge found that Crystallex can attach Citgo’s parent because Venezuela has erased the lines between the government and its oil firm, now run by a military general.

Upon issuing the order, the judge delayed enforcing it for a week, which Dallen said could be a move to give Crystallex and Venezuela time to reach an agreement, such as returning to payment terms of an earlier resolution, Dallen said.

“This gives Venezuela the chance to honor its settlement agreement,” Dallen said. “Or they’ll lose Citgo.”

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Venezuela Dodges Oil Asset Seizures

(Reuters, Marianna Parraga, Mircely Guanipa, 7.Aug.2018) – Reuters) – Venezuela’s state-run oil company PDVSA has limited the damage from an unprecedented slump in crude exports by transferring oil between tankers at sea and loading vessels in neighboring Cuba to avoid asset seizures.

But the OPEC member nation is still fulfilling less than 60 percent of its obligations under supply deals with customers.

Venezuela has been pumping oil this year at the lowest rate in three decades after years of underinvestment and a mass exodus of workers. The state-run firm’s collapse has left the country short of cash to fund its embattled socialist government and triggered an economic crisis.

PDVSA’s problems were compounded in May when U.S. oil firm ConocoPhillips began seizing PDVSA assets in the Caribbean as payment for a $2 billion arbitration award. An arbitration panel at the International Chamber of Commerce (ICC) ordered PDVSA to pay the cash to compensate Conoco for expropriating the firm’s Venezuelan assets in 2007.

The seizures left PDVSA without access to facilities such as Isla refinery in Curacao and BOPEC terminal in Bonaire that accounted for almost a quarter of the company’s oil exports.

Conoco’s actions also forced PDVSA to stop shipping oil on its own vessels to terminals in the Caribbean, and then onto refineries worldwide, to avoid the risk the cargoes would be seized in international waters or foreign ports.

Instead, PDVSA asked customers to charter tankers to Venezuelan waters and load from the company’s own terminals or from anchored PDVSA vessels acting as floating storage units.

The state-run company told some clients in early June it might impose force majeure, a temporary suspension of export contracts, unless they agreed to such ship-to-ship transfers.

PDVSA also requested the customers stop sending vessels to its terminals until it could load those that were already clogging Venezuela’s coastline.

Initially, customers were reluctant to undertake the transfers because of costs, safety concerns and the need for specialist equipment and experienced crew.

But PDVSA has managed to export about 1.3 million barrels per day (bpd) of oil since early July, up from just 765,000 bpd in the first half of June, according to Thomson Reuters data and internal PDVSA shipping data seen by Reuters.

That was still 59 percent of the country’s 2.19 million bpd in contractual obligations to customers for that period, and some vessels are still waiting for weeks in Venezuelan waters to load oil.

There were about two dozen tankers waiting this week to load over 22 million barrels of crude and refined products at the country’s largest ports, according to Reuters data.

“We are not tied to one option or a single loading terminal,” PDVSA President Manuel Quevedo said on Tuesday of the company’s exports. “We have several (terminals) in our country and we have some in the Caribbean, which of course facilitate crude shipping to fulfill our supply contracts.”

CUBAN CONNECTION

PDVSA has also used a route through Cuba to ease the impact of the Conoco seizures. That route is for fuel rather than crude.

The Venezuelan company has used a terminal at the port of Matanzas as a conduit mostly for exporting fuel oil, according to two people familiar with the operations and Thomson Reuters shipping data. Venezuela’s fuel oil is burned in some countries to generate electricity.

Two tankers set sail from the Matanzas terminal for Singapore between mid-May and early July, Reuters data showed. Each ship carried around 500,000 barrels of Venezuelan fuel, Reuters data shows.

In recent months, Venezuela has been shipping fuel to Matanzas in small batches, according to the data.

PDVSA and Cuba’s state-run oil firm Cupet have used Matanzas to store Venezuelan crude and fuel in the past but exports from the terminal to Asian destinations are rare.

That is in part because vessels that use Cuban ports cannot subsequently dock in the United States due to the U.S. commercial embargo on Cuba.

Cupet did not respond to requests for comment.

PDVSA has also used ship-to-ship transfers to fulfill an unusual supply contract it has with Cuba’s Cienfuegos refinery.

The refinery dates from the 1980s – when Cuba was a close ally of the Soviet Union during the Cold War – and the facility was built to process Russian crude.

PDVSA typically uses its own or leased tankers to bring Russian crude from storage in the nearby Dutch Caribbean island of Curacao to Cienfuegos. But it is now discharging the imported Russian oil at sea in Cayman Islands’ waters via these seaborne transfers.

ConocoPhillips last month ratcheted up its collection efforts by moving to depose officials from Citgo Petroleum, PDVSA’s U.S. refining arm, arguing it had improperly claimed ownership of some PDVSA cargoes.

Citgo declined to comment.

ConocoPhillips is also preparing new legal actions to get Caribbean courts to recognize its International Chamber of Commerce arbitration award. If it succeeds in those efforts, it would be able to sell the assets to help satisfy the ruling.

Reporting by Marianna Parraga in Houston and Mircely Guanipa in Punto Fijo, Venezuela; additional reporting by Marc Frank in Havana; Editing by Simon Webb and Brian Thevenot

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EIA Publishes Updated Venezuela Country Report

(EIA, 21.Jun.2018) – Venezuela holds the largest oil reserves in the world, in large part because of the heavy oil reserves in the Orinoco Oil Basin. In addition to oil reserves, Venezuela has sizeable natural gas reserves, although the development of natural gas lags significantly behind that of oil, reported the US-based Energy Information Administration (EIA) in its updated Venezuela country report posted online. However, in the wake of political and economic instability in the country, crude oil production has dramatically decreased, reaching a multi-decades low in mid-2018.

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Citgo Says No to Heating Oil Program

(Energy Analytics Institute, 26.Mar.2017) – Houston-based Citgo Petroleum Corporation, the U.S.-based refinery arm of PDVSA, had to skip out on sending heating oil to citizens in the U.S. northeast under a program dubbed “Joe-4-Oil” amid a continued economic crisis in the oil-rich nation, reported the news agency AP.

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PDVSA Says It Maintains Full Ownership of Citgo

(Energy Analytics Institute, Ian Silverman, 25.Dec.2016) – PDVSA maintains full ownership and control over its Houston-based subsidiary Citgo Petroleum Corporation.

PDVSA, in an official statement, also downplayed media versions and comments emitted by persons it claims are only interested in generating political instability in Venezuela based on speculation, rumors and biased information in an attempt to discredit the company.

In October, PDVSA used a 50.1 percent interest in Citgo as a guarantee for bond swap operations and the remaining 49.9 percent interest in its U.S.-based refining subsidiary as a guarantee to raise new financing, according to the statement.

Redd Intelligence, on November 30, uncovered a Delaware Uniform Commercial Code (UCC) filing and broke initial news regarding the filing against Citgo parent PDV Holding, Inc. that revealed Venezuela had secretly mortgaged its Citgo refineries in the U.S. to Russia’s state-controlled oil company Rosneft.

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CITGO, Aruba Gov’t Finalize San Nicolas Refinery Deal

(Energy Analytics Institute, Pietro D. Pitts, 11.Jun.2016) – Authorities from the governments of Aruba, the Bolivarian Republic of Venezuela, and officials from Venezuela’s state oil company Petróleos de Venezuela, S.A. (PDVSA) and CITGO Aruba, gathered in Caracas, Venezuela to take part in the execution of a commercial agreement between CITGO Aruba and the Aruban government to reopen a 209,000 barrel per day refinery located in San Nicolas, Aruba.

Officials in attendance at the gathering included: Venezuela’s President Nicolás Maduro, Venezuela’s Oil Minister Eulogio del Pino, Aruba’s Primer Minister Mike Eman; Aruba’s Economy, Communication, Energy and Environment Minister Mike de Meza, and CITGO Petroleum Corporation President and CEO Nelson P. Martínez, reported CITGO in an official statement on its website.

Following several months of negotiations, officials from the Aruban government and CITGO Aruba, announced plans to reactivate operations — which had been idled since 2012 — through a refining facilities 15-year lease agreement, with a 10-year extension option. CITGO Aruba, a group of operating companies under PDV Holding (a PDVSA subsidiary), will operate the facility with CITGO providing services to the group.

“This project will transform the refinery into an upgrader for Venezuelan extra-heavy crude within 18 months to two years. This process — which will require an investment ranging from $450 million to $650 million, to be obtained from external financing sources — can be compared to a large turnaround. This is an area in which CITGO is well positioned to provide technical expertise and services,” Martínez said, adding that with these changes, the refinery would become a successful economic venture for all parties.

“This has been a very well thought-out process which involved the participation of the best available technical consultants from CITGO and PDVSA, as well as the input of several leading international refining industry consulting firms, such as KBC Advanced Technologies, KBR of Venezuela and Aruba continue to evaluate the possible construction of a natural gas pipeline that would link the two countries which are just 17 miles apart …

Germany and others that assessed the project’s technical and financial viability,” Martínez added.

Once the adaptation process has concluded, the facility will upgrade extra-heavy crude from the Venezuela’s Orinoco Heavy Oil Belt or Faja, transforming it into intermediate crude, which in turn will be sent on to the CITGO refining network in the United States of America for further processing, Martínez explained. At the same time, naphtha will be sold to PDVSA for use as diluent for its extra-heavy crude.

A complementary project under consideration would allow the utilization of excess natural gas available in the Paraguaná region of Venezuela. Besides the significant energy cost savings in operations that this would generate, using natural gas would substantially reduce refinery emissions and contribute to environmental protection efforts in the region, the CITGO CEO said, adding that the construction of a gas pipeline linking the coasts of Venezuela and Aruba, which are just 17 miles apart, is being evaluated towards this end.

“This is a very strong project from both the technical and financial perspective. It is a strategic partnership that will benefit CITGO Aruba, PDVSA, Venezuela and Aruba through operations that reduce costs in terms of transportation, energy and storage needs, fully utilize existing infrastructure and maximize the benefit of extra-heavy crude oil production from the Orinoco Oil Belt, the largest oil reservoir in the world,” Martínez concluded.

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Citgo’s Garay Comments on PDVSA Imports

(Energy Analytics Institute, Piero Stewart, 17.Jun.2013) – The Public Affairs Manager with Houston-based Citgo Petroleum, Fernando Garay, comments via phone regarding declining imports of Venezuelan crude oil in the U.S.

“We are not worried about the prospect of declining oil supplies from our Caracas-based parent company PDVSA and have no problem looking to other markets for supply.”

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Citgo’s Garay Comments on PDVSA Imports

(Energy Analytics Institute, Piero Stewart, 17.Jun.2013) – The Public Affairs Manager with Houston-based Citgo Petroleum, Fernando Garay, comments via phone regarding declining imports of Venezuelan crude oil in the U.S.

“We are not worried about the prospect of declining oil supplies from our Caracas-based parent company PDVSA and have no problem looking to other markets for supply.”

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Venezuela Seizes Helmerich & Payne Rigs

(TulsaWorld, Rod Walton, 2.Jul.2010) – The action comes amid a payment dispute in which the company left the equipment idle.

Helmerich & Payne’s 52-year business relationship with Venezuela came to at least a temporary end Thursday as President Hugo Chavez’s government seized 11 rigs owned by the Tulsa contract drilling company.

The conventional drilling rigs have been idle since last year because Petroleos de Venezuela SA, the national oil company, has not paid Helmerich & Payne Inc. for work, H&P has said.

The company says PDVSA owes it about $43 million. The amount owed once exceeded $100 million.

Venezuela had threatened to seize the rigs since last week, saying that “forced acquisition” was necessary because Helmerich & Payne would not put the equipment back to work.

H&P’s “long-lived” assets in Venezuela are valued at about $67 million, the company’s spokesman Mike Drickamer said in an e-mailed response to the Tulsa World.

The seized rigs make up all of H&P’s equipment in Venezuela.

CEO Hans Helmerich and other company executives initially downplayed the impasse, saying they simply wanted to be paid for past work. Venezuela’s National Assembly and Chavez followed through with the threat by issuing an official decree earlier this week.

Venezuela has been a financial thorn in the side of several companies in recent years.

Williams Cos. Inc. of Tulsa, a natural gas producer, lost two joint-venture compression plants to seizure last year and also was forced to take a $241 million write-down on its books because of nonpayment.

ConocoPhillips, the integrated oil giant with significant offices in Bartlesville, lost multibillion-dollar joint venture projects to seizure by PDVSA. The Houston company later sought international arbitration over the compensation offered by Venezuela.

Citgo, a Houston marketing and retail company once based in Tulsa, is the U.S. wing of the Venezuelan state oil industry.

Helmerich & Payne had no further comment.

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