Venezuela: ConocoPhillips Closer to Seizing CITGO Shares over Massive Award

Caracas, December 24, 2023 (venezuelanalysis.com) – Venezuela’s US-based oil refiner CITGO suffered a fresh setback with a judicial ruling favoring oil corporation ConocoPhillips.

On Thursday, Delaware District Judge Leonard P. Stark dismissed a motion seeking to stop the firm from joining a court-mandated auction of shares of CITGO’s parent company PDV Holding to satisfy a string of creditors.

Worth an estimated US $13 billion, CITGO, a subsidiary of Venezuela’s state oil company PDVSA, risks being broken up in the coming months after Stark set the share sale process in motion.

The long-drawn judicial proceedings have relied on the so-called “alter ego” ruling, which makes PDVSA, and all its subsidiaries, liable for state debts, allowing corporations to attach international arbitration awards to the ongoing auction. 

In the latest setback, lawyers representing the Venezuelan opposition had attempted to stop ConocoPhillips’ efforts by arguing that the firm had viewed the alter ego question differently in litigation before the World Bank’s International Centre for Settlement of Investment Disputes (ICSID). 

The ICSID ruled in favor of the Houston-headquartered company in 2019 and awarded $8.5 billion as compensation for three oil ventures nationalized by the former Hugo Chávez government in Venezuela. The amount has since accrued more than $1 billion in interest.

Judge Stark rejected the request and stated that the opposition lawyers had not “met the burden” to prove that ConocoPhillips’ former stance is “irreconcilably inconsistent” with its present one as it aims to collect the owed amount via CITGO.

“PDVSA and Venezuela are nominally separate,” he wrote in a memorandum. “The issue before me […] is whether they can be treated as one to the extent that PDVSA’s assets are available to satisfy judgments against Venezuela.”

In 2019, Washington recognized the self-proclaimed “interim government” as Venezuela’s legitimate authority, effectively transferring US-held assets such as CITGO to the group led by Juan Guaidó. The hardline opposition also took over legal cases in US courts. When the parallel administration was dissolved in January 2023, the responsibilities were taken over by a defunct, opposition-controlled parliament.

Guaidó and associates have faced accusations of malpractice and collusion in their handling of affairs surrounding CITGO. 

Concerning ConocoPhillips, Judge Stark alluded to an under-the-table settlement concerning a separate $1.3 billion arbitration award only to strike it off the record with no explanation. Furthermore, the oil giant won a default ruling to enforce the ICSID award after opposition lawyers failed to show up in court.

In July, the Third Circuit Court of Appeals upheld a Delaware District Court alter ego ruling which brought up the financial practices of the “interim government” as evidence of PDVSA’s liability over state debts. The decision saw six corporations attach their demands to the process that was initiated by Canadian miner Crystallex over a $1.4 billion ICSID award.

Besides Crystallex and ConocoPhillips, other creditors looking to collect debts include mining enterprises Gold Reserve and Rusoro Mining, Koch Minerals and O-I Glass. The actions of Guaidó and followers have potentially increased CITGO’s liabilities by more than $19 billion, from $3.4 to $23.6 billion, far exceeding the company’s valuation.

CITGO is Venezuela’s most important foreign asset. It owns three refineries and a network of more than 4,000 stations across the United States.

The firm’s authorities, which do not answer to Venezuela’s elected authorities, have attempted to stall the auction that officially began in October, while also urging Stark to allow an appeal of the most recent alter ego judgment. The company’s board has likewise pursued negotiations toward off-court settlements but with no progress.

The share auction, being conducted by court-appointed “Special Master” Robert Pincus, will receive a first round of bidding on January 22. The process will not have a “stalking horse” bid that would have set a minimum price for shares.

Stark expects to hold a final sale hearing in July 2024. Corporations have until April to get their writs of attachment cleared in order to get paid from the share proceedings.

Apart from the ongoing Delaware share auction, CITGO is additionally liable to holders of the PDVSA 2020 bond which saw 50.1 percent of PDV Holding pledged as collateral. 

Successive US Treasury orders blocking transactions have stopped bondholders from taking action, with the present license due to expire in January.