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Venezuela’s Crisis Imperils Citgo, Its American «Cash Cow»

Citgo, which runs this refinery in Lake Charles, La., has 6,000 employees and full-time contractors in the United States. It is a subsidiary of the government-controlled Petróleos de Venezuela, or PdvsaCredit Todd Spoth for The New York Times

LAKE CHARLES, La. — The Calcasieu River ship channel is a fisherman’s paradise for speckled trout. It is also a vital thoroughfare for Venezuelan oil.

Tankers with Venezuelan crude sail up to the Citgo refinery, while tankers carrying fuels processed in the refinery head down to the Gulf of Mexico for delivery to gas stations in Venezuela.

That two-way traffic makes the refinery a lifeline for the besieged Venezuelan government of President Nicolás Maduro. It’s a role that’s now in jeopardy. As a subsidiary of the government-controlled oil company Petróleos de Venezuela, Citgo has been mortgaged to raise money.

The production of the parent company, known as Pdvsa, has been hard hit by the country’s turmoil. It is struggling to meet more than $1 billion in payments due in the next couple of months on its bonds and other obligations, including compensation for property it had nationalized. Trump administration sanctions are squeezing its ability to borrow.

If Pdvsa defaults, its collateral — Citgo — could become prey. It would be vulnerable to a takeover by creditors, with other oil companies or private equity investors watching for the opportunity to take a stake.

“The loss of Citgo would be the coup de grâce for Pdvsa,” said Gustavo Coronel, a former member of the parent company’s board. “The psychological impact for Pdvsa and the Maduro regime would be catastrophic.”

It would also be a turning point for a brand whose American identity long predates its Venezuelan connection, with its iconic sign mounted above 5,300 gasoline stations and towering behind Fenway Park’s outfield wall in Boston.

Though bought by Pdvsa three decades ago, Citgo likes to project itself as an American company. Founded as Cities Service more than a century ago in Oklahoma, it has 6,000 employees and full-time contractors in the United States. It prides itself on community service projects, raising funds for charities like the Muscular Dystrophy Association and financing science education for public schools.

The company donated $500,000 to President Trump’s inaugural celebration, despite years of sour relations between Washington and Caracas.

Volunteers from Citgo, which prides itself on its service projects, sorting donated goods at a community center in Sulphur, La. Credit Todd Spoth for The New York Times

Its giant Lake Charles refinery and its refineries in Texas and Illinois produce roughly 4 percent of the nation’s refined petroleum products. But Citgo is even more crucial to Venezuela. It imports 175,000 barrels of Venezuelan crude daily — nearly one of every five barrels the country exports worldwide, providing the leftist government with desperately needed dollars.

“Citgo is a hard-currency cash cow for Venezuela,” said Ramón Loureiro, global business development director for KBC Advanced Technologies, a consulting firm that works with Citgo.

Citgo also sends roughly 29,000 barrels a day of refined fuels like gasoline back to Venezuela.

For all of Citgo’s American roots, Venezuelan themes abound in its modern Houston headquarters. A Venezuelan flag flies out front, and a bronze statue of three Venezuelan workers adorns the lobby. A mural depicting Venezuela’s liberator, Simón Bolívar, decorates the hallway outside the executive suites inscribed with his motto: “God grants victory to perseverance.”

Perseverance is a theme repeated by Citgo’s executives. “It’s really business as usual,” said Rick A. Esser, a Citgo vice president and chief strategy officer. “We are focused on doing the day to day every day.”

Events are sorely testing that determination.

Several of Citgo’s most senior executives have been imprisoned in Venezuela since late last year, awaiting trial on corruption charges. Asdrúbal Chávez, Citgo’s chief executive and a cousin of former President Hugo Chávez, has had his American visa revoked, forcing him to direct operations by videoconference calls.

Then there is the existential threat posed by Pdvsa’s debt. This month Venezuela must pay more than $840 million to holders of Pdvsa’s 2020 bonds. A default would prompt a foreclosure on the bonds’ collateral, 50.1 percent of the company stock of Citgo Holdings, one of Citgo’s two holding companies. Lenders could then demand accelerated principal and interest payments.

The Russian oil company Rosneft, which holds the other 49.9 percent stake in Citgo Holdings as collateral for a loan to Pdvsa, could also make a claim, although it is unlikely that Washington would allow a Russian state company to take a piece of the refiner.

Other foreign companies have a stake in Pdvsa’s assets as well. The company must come up with $500 million by late November as a first payment to ConocoPhillips after a $2 billion judgment was handed down by international arbiters over the nationalization of Conoco facilities.

And a federal judge has authorized Crystallex, a defunct Canadian mining company, to seize shares of PDV Holding, the other holding company that formally owns Citgo, as payment for a $1.4 billion arbitration award for a government confiscation of a mine in Venezuela.

(Pdvsa wholly owns PDV Holding, which holds 100 percent of Citgo Holding, which, in turn, owns all of Citgo, an arrangement that could delay a legal settlement.)

A soldier guiding cars at a Pdvsa-owned gas station in San Antonio, Venezuela. Citgo’s operations in the United States send roughly 29,000 barrels a day of refined fuels like gasoline to Venezuela. Credit Carlos Eduardo Ramirez/Reuters

There may be other claims yet to pay. Altogether, an estimated $17 billion in assets have been confiscated by the government from foreign oil, mining and manufacturing companies since Hugo Chávez took power in the late 1990s. There are also unpaid bills for oil-field services.

What made the Crystallex decision particularly important was that it asserted that Pdvsa, and therefore Citgo, is legally indistinguishable from the Venezuelan government, and therefore a sale of assets should proceed unless Pdvsa can manage to issue a bond to cover the judgment.

Pdvsa is appealing the ruling. For their part, holders of its 2020 bonds, including BlackRock and Contrarian Capital, have requested a stay on any future sale of Citgo assets pending final appeal.

A bronze statue of Venezuelan workers in the lobby of Citgo headquarters in Houston. Credit Todd Spoth for The New York Times

“Citgo’s integrity as a company is at stake,” said Luisa Palacios, a Venezuelan energy analyst at Medley Global Advisors, a policy research firm. “I don’t see how Pdvsa keeps Citgo, because all of Citgo is pledged one way or another to different types of lenders and disgruntled creditors are managing to disrupt its stability.”

Energy and legal analysts say the courts may eventually auction off shares of Citgo to other American oil companies and use the proceeds to pay off claims. Refinery profits are healthy, and a company like Valero might pursue an acquisition.

Many oil analysts say the company is worth more split than as a whole since its three refineries are far apart. But others say it is still possible Citgo can survive intact. It could eventually be acquired as an investment by a private equity firm as a whole or in pieces if it is detached from Pdvsa in court proceedings or otherwise as part of a bankruptcy of one of its holding companies.

Citgo still makes money, its executives say, and is current in its payments on its own bonds. Independent refinery analysts say the company is well maintained and could be valuable to another company or companies.

The Lake Charles refinery, Citgo’s largest and the sixth most productive refinery in the nation, continues to make capital improvements, including more than $20 million in new investments to increase efficiency, and more are planned to produce more gasoline, jet fuel and diesel.

Jerry Dunn, general manager of the Lake Charles refinery, said Pdvsa’s problems had had no significant effect on his operations. “The output of our plant hasn’t changed,” he said.

Citgo’s workers here say all the tumult is concerning, but they insist that it doesn’t distract them from their jobs.

“We worry about boiling oil,” said Craig Barber, a maintenance supervisor. “And as long as we are boiling oil and making money, this company will survive.”

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