The Citgo fire sale

Reuters is reporting that PDVSA wants to sell Citgo for $10 billion dollars – the equivalent of 8 months’ worth of the cost of the gasoline subsidy.

“Investment bank Lazard Ltd (LAZ.N), which is running the sale process for Citgo on behalf of PDVSA, has sent offering materials to potential buyers, the people said, asking not to be named because the matter is not public.”

Charming, eh?

38 thoughts on “The Citgo fire sale

  1. Just sell PDVSA next and 50% of the problems Venezuela endure will be instantly solved. A state should take care of education, health and security. All the rest should go to private hands.


  2. yes, it will be a sad day in the history of Venezuela when CITGO is sold, like an old aristocrat family selling its last Corot in order to pay for food… can’t wait to hear the spin behind it.


    • I bet they’ll try to sell (heh) the idea as the Venezuelan government getting tired of bailing out the US economy with its generous oil investment, and that it’s a terrible place to have assets because of the crisis, and yadda yadda yadda…


  3. What do they think is going to happen after they burn through that chunk of change? Is there a shoe collection they can auction off?


    • Bolivar state will be sold to the Chinese and so will Margarita island to an European billionaire. Isn’t it obvious?


  4. It isnt so easy , Citgo has creditors , they will not want to have Citgo sold unless it is ensured a cash flow from the processing of heavy venezuelan crudes and its sale into the US which guarantees their payment . To sell without an attached crude oil supply will lower the price significantly because the hard ware is designed to maximize the profit from processing heavy venezuelan crude not other kinds of crudes. They will make it appear as if the price is higher than what it actually is , there are a million accounting tricks they can resort to , the net money obtained from the sale may be taxable in the US . Maybe in the end its easier to sell Citgo piecemeal to find buyers which match each part of the Citgo business. The process can actuallyu take 6 month to a year. Which is a long time considering todays situation .


    • You may be overstating Citgo dependency on Venezuelan heavy crude.

      I’ve just had a look at the Oil & Gas Journal’s Refining Survey to check out the equipments at Citgo’s refinery. They have fairly chunky delayed cokers compared to total capacity, for instance 88 kb/cd coker vs. 440 kb/cd CDU for Lake Charles. So, yes, those refineries are geared towards heavy crude and the delayed cokers need to be fed to operate the site profitably. But those are fairly flexible setups and they could run many crude slates, including so-called opportunity crudes.

      As a matter of facts, if I were a buyer, I would see as a pretty serious negative any continued contractual tie with PDVSA coming with the deal. If there is one NOC I would want to deal only on a one-cargo-at-a-time basis, it’s PDVSA.


      • Citgos Gulf Coast refineries can run on different crudes but they are designed to maximixe the economic yield from the processing of heavy crudes , so that if you havent got access to the latter then the economic yield you can obtain will be lower than if you used heavy crudes . That loss of optimal economic yield for a buyer that has no steady access to heavy crude can likely have a negative impact on the price someone may be willing to pay for buying it .

        Of course heavy crudes can be obtained from other country sources ( Mexico at one time) but generally they are not as abundant as ligher crudes.

        Part of the problem of writing in blogs like these is that you can never as specifically detailed as you would like . Also that people ordinarly dont read the nuances you put into what you write but read quickly through the text and then miss on what you really attempted to say.


  5. They need sell Citgo before ConocoPhilips, Exxon, etc. are awarded damages from the ICSID. Once they rule for danmages, they will lien Citgo and freeze the sale.

    $24 billion in rulings and Citgo is goner anyway. Once they sell Citgo there is nothing else of value internationally that can be seized. Then the petro giants wait until your children and grandchildren need to figure out how to get oil out of the ground 20 years from now. 1/2 of that oil will be going to them to pay the suit and the interest. Various bond holders, countries (like China), airlines, and oil companies will be arguing over who owns Venezuela. Your children will be their serfs/slaves.


    • I’m not sure about the finer points of commercial law, but given hearsay, can the party seeking damages not slap a lien on the defendant’s property, before any ruling comes down the pike?


      • Syd .A sign that it isnt that easy was Exxon’s failed attempt to get a British court to place a kind of lien on Pdvsa offshore affiliates passing through the netherland shareholding chain a few years back . Quite sure nonetheless that they are also taking precautions , for example Why do you think that payment of venezuelan oil exports pass either through Portugal or through China and never through American or British banks .??



      • The court has already ruled in favor of ConocoPhilips, they will announce damages soon.
        Once announced, they can attempt to seize assets in any ICSID country.

        There are dozens of cases pending. Venezuela withdrew from the ICSID, but the court can rule on all cases from before the withdrawal.

        The ICSID has heard all arguments (In the Conoco case). It has reached final stage. Venezuela has been found to be in breach of contract. It is now simply a matter of how much is awarded. Once the ruling comes in, no more appeals are allowed.

        May 13 (Reuters) – ConocoPhillips Chief Executive Ryan Lance on Tuesday said his company and Venezuela are due to argue damages before the World Bank’s arbitration panel as their dispute over oil assets in the South American country moves forward.

        The arguments are “imminent,” Lance told reporters after the company’s annual meeting, adding it was uncertain when the International Centre for Settlement of Investment Disputes (ICSID) would issue a final ruling.

        Conoco’s projects were taken over during the socialist administration of deceased former President Hugo Chavez, who led a wave of nationalizations that included the oil, electricity and steel industries.

        In a partial resolution, the arbitration panel in September said Venezuela failed to act in good faith or properly compensate ConocoPhillips for three big oil assets the country expropriated in 2007. The court also limited the scope of the company’s claims by excluding future tax credits .

        This month the panel also said it rejected Venezuela’s request to change the arbitrators reviewing the dispute.

        Independent lawyers expect a final ruling, including a compensation amount, in 2014-2015.

        ConocoPhillips initially asked Venezuela for $30 billion in compensation for its stakes in the Hamaca and Petrozuata heavy crude upgraders and a separate offshore project called Corocoro, but Venezuela offered no more than $2 billion.

        The Andean country has more than 20 arbitration cases pending at ICSID and other courts stemming from Chavez’s nationalizations. The country pulled out of the ICSID in 2012, but will still be subject to cases submitted beforehand.


  6. It’s how they intend to “win” the elections without too much cheating, I think. The sale will not be finalized until June next year or so, just in time for a big spending boom right before the elections. Then comes the hard part …


    • It’s tempting to think that $10 billion can be traded into $10 billion worth of stuff which can be traded into the political support that accrues to you when you hand out $10 billion worth of stuff. But to think this way is to fail to grasp the depth of the currency misalignment problem.

      Under the extreme distortions that CADIVI engenders, $10 billion doesn’t buy $10 billion worth of stuff. It buys a few billion worth of stuff and a few billion worth of corruption and empresa-de-maletín fraud.

      Worse, the few billion worth of stuff it does buy is not fungible for a proportionate amount of political support, because most of the loot will disappear into the black market or its ugly sister, smuggling.


      It’s not a problem of money. There is no amount of money big enough that it won’t be overwhelmed by distortions on the scale Venezuela faces.


      • That’s what I meant. It buys, say 2 billion worth of loan repayments, staving off a deafult, and maybe 2 billion worth of pre-election goodies. I’m sure they will find sellers if they pay money in advance for whatever they’re buying. The rest goes in their pockets through whatever means.
        It could be enough. They may well think so.


      • Francisco,

        I agree with you that, for a given level of FX revenue, the multiple exchange rate system with gigantic parallel premia leads to enormous distortions in the allocation of FX (favoring subsidized capital flight in the form of empresas de maletin and affecting imports of much needed goods). So the scarcity inside the country feels much worse than what the FX revenue would suggest. Frod deduces from this, and from his previous analysis, that there is no major BoP problem (because the external adjustment already took place and FX revenue is sufficent), only a relative price problem.

        But the plans to sell Citgo suggests the FX misallocation is only part of the story. There is a BoP crisis in the making, and the external adjustment on its own seems clearly insufficient for the external obligations that are looming.


  7. I think much of Cavismo behavior can be explained by the psychology of a bully. They they can take things without paying anything. They can make their own rules. They can punish whomever they want for any reason. They can make excuses as they please and blame whomever they please. The don’t tolerate disrespect, and they don’t tolerate criticism. They make fun of others as a sport. They like to be worshipped, and they like to brag. They pat each other on the back a lot, and make a big deal out of insignificant achievements. They like to show off their superior strength by brutally punishing innocent people just to make them an example that makes others fear them more and makes themselves feel more powerful and important. Am I leaving anything out?


  8. Anyone here can answer this?

    Let’s assume that we consider citgo a strategic asset and the government does to (wishful thinking). However, in the brink of an unfavorable ruling we will simple lose citgo in damages and we want to mitigate our losses.

    Let’s also assume that we have some 6-8 billion stashed somewhere (FONDEN or any other legal instrument that is NOT PDVSA). Could FONDEN or any other fund buy CITGO from PDVSA and make a new distinct company; such as the Unified Petroleum Users Revolutionizing Against Socialist Servitude “UP-UR-ASS”) and save our industry?

    Could we buy our own assets from PDVSA into a completely different new entity not subject to the damages obligations PDVSA is subject to, but still under the control of the Venezuelan government and give it UP-UR-ASS to everyone?


    • As long as you can show the link to the government you can seize the asset. If the asset is not truly independent of the government then this will not work. All you have to do is show the control via directorships, reporting structures, etc.


    • Citgo didn’t expropriate anything. Neither did PDVSA. Its on the block because of where it’s located, not because of its corporate entity. Ultimately, it’s an asset of the Venezuelan State even if purchased by FONDEN.


      • Since it’s PDVSA who broke the contracts. Don’t know why I figured it might be different, was the actual action an expropriation or a breach of contract? if it was expropriation Venezuela has to answer, if it was breach of contract it would be Venezuela (a defacto expropriation but done through PDVSA).

        Wouldn’t it be nice if we privatized it? if the government sold CITGO to all Venezuelans (institutional investors, pension funds, mom and pop etc), we would buy the shares using BsF. at any given exchange rate, there would be a significant reduction in liquidity and we “could” invest abroad. We would keep PDVSA “in house”.although I’m sure many people would sell their shares as soon as they got them. It would be cheaper for the government kill two birds with one stone.

        just saying…


    • I understand your despair. I share it. However, we need to remember that Europe and Japan were in worse shape after WWII, and they recovered very rapidly. Why should it not be so for Venezuela?


      • Because Europe – at least those parts you probably mean – had a highly qualified population and the same went for Japan whereas Venezuela’s average citizen has education levels that are bottom among Latin American countries, which are not precisely very well.


        • Most of Europe’s population were not that qualified in 1950. Even today the share of 50-year-olds with higher education in Italy, Portugal, Spain and a couple others “developed countries” is not very different from what you have in Mexico or Brazil, which in turn mustn’t be that different from what you have in Vnzla. See:


          • We are not talking about Italy and much less Spain or Portugal, which could hardly be considered “Europe” back then. We are talking about Britain, Netherlands, Belgium, France, Germany, Austria, Czechoslovakia and Poland, to a lesser but still meaningful extent in Hungary.

            In late 1945 you could already see Volkswagen and many other companies starting to rise from the ruins.

            Of course, US aid helped a lot.


      • Both places had the USA pumping money into them (Western Europe/Japan), as the US had a very strong strategic interest in making sure they recovered rapidly.

        Also, the countries mentioned had cultures that didn’t expect everything to be handed to them, and that valued strong institutions, rule of law, etc.

        None of the above is the case here.


  9. “asking not to be named because the matter is not public.”
    Yeah, selling a chunk of the first public state company in Venezuela, but the matter is not public, fucking hypocrites.

    Also, “$10 billion dollars – the equivalent of 8 months’ worth of the cost of the gasoline subsidy.”
    13 billion dollars is roughly one year of cuba’s plunder in cold, hard cash from Venezuela.


  10. Just a reminder that Venezuela is following the Cuban model of seizing private assets. The Castro regime expropriated many businesses, buildings, machinery, etc that they never bothered to pay the owners. This led to the U.S. trade embargo with Cuba which will end when Cuba reimburses the U.S. owners of the stolen property.

    Wake up Venezuela. These lawsuits from foreign oil companies could continue for the next century. A multinational company can fight back a lot harder than a suppressed poor Venezuelan citizen.


  11. Llevamos IMO dos strikes: Franklin Brito y las elecciones legislativas del 2005.

    Two major occasions in which the establishment has been defeated in principle, but the opposition, rotten to the core as the establishment, choose to play the status quo game and wait for their turn at the bat….

    The February 2014 intifada was a prelude of what is needed, and also a prelude of the measures the invasion force is ready to take to neutralize an uprising.

    What is wrong is the order of the disobedience and resistance. First it must be idealogical-to resolve to get rid of the failed state/ cha vista regime by all means at all costs- then a physical insurrection.

    The regimes’ intelligence apparatus has manages to neutralize common sense and the societies capacity to resist. It will be very hard to wake up to the damages the day after the party.

    This blog (and others) preaches to the choir. The effrot is needed at street level and All I see happening is Congreso Ciudadano, and other very small initiatives…

    IMO not enough.


  12. I heard Citgo refineries in the US are retooling to refine lighter crude from Texas Eagleford and Bakken shale oil. Cuts the cord to PDVSA.


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