Watching Government: Is a Citgo sale imminent?

Sept. 8, 2014
Reports that the Venezuelan government wants to sell Citgo Petroleum Corp. have surfaced periodically for nearly a decade.

Reports that the Venezuelan government wants to sell Citgo Petroleum Corp. have surfaced periodically for nearly a decade. Petroleos de Venezuela SA acquired a 50% stake in the independent refiner-marketer in 1986 and bought the rest of the company in January 1990. PDVSA, like other overseas crude oil producers at the time, saw owning US downstream assets as a way to secure one of its biggest markets.

That idea didn't fit with Hugo Chavez's plans once he was elected Venezuela's president. He was more interested in using PDVSA to fund aggressive social reforms and subsidize crude exports to countries pursuing similar goals. He also reportedly suggested selling Citgo as early as 2005.

Chavez's successor, Nicolas Maduro, now faces such a heavy economic calamity that reports of PDVSA is at least preparing to seek a buyer for Citgo emerged in early August. The national oil company was asking $10 billion although the assets are worth "much, much more," Oil Minister Rafael Ramirez told reporters on Aug. 5. It reportedly hired investment banker Lazard Freres to investigate a possible sale a week later.

Citgo's operations are substantial. It owns 3 refineries-a plant at Lake Charles, La., with 425,000 b/d of crude capacity, the nation's 6th largest; a 165,000-b/d plant at Corpus Christi, Tex.; and a 167,000-b/d plant at LeMont, Ill. The Houston company also fully owns 48 product terminals and 3 pipelines, and jointly owns 6 additional more pipelines.

PDVSA separately holds a half interest with ExxonMobil Corp. in Chalmette Refining LLC, which operates a 184,000-b/d plant near New Orleans, that reportedly would be sold separately.

Possible purchasers

Who would be a potential buyer? Carmine Rositano, managing analyst for downstream oil and gas at GlobalData, a London research and consulting firm, said on Aug. 27 that a Chinese company with both the capital and ambition to strategically expand its influence is the most likely suitor.

He noted that Chinese companies, such as Sinopec and China National Offshore Oil Corp., already have invested billions of dollars in Canadian oil sands projects and could use their equity production to supply heavy sour crude oil to the Citgo refineries.

While Citgo's assets are domestically strategic, Rositano said a Chinese bid would be more flexible in meeting Venezuela and PDVSA's requirements. "Venezuela currently exports 500,000 b/d of crude to China to pay off its $17 billion debts, but additional loans now require a further 100,000 b/d," he explained. "Freeing crude which otherwise would be sold to Citgo would let Venezuela meet its obligations with China."

Canadian companies seeking more US capacity to process heavy crude also might be interested, Rositano added.