Venezuelanalysis | 30 September 2023
Venezuela: ConocoPhillips targets CITGO as opposition authorities try to stall auction
by Ricardo Vaz
New York, September 30, 2023 (venezuelanalysis.com) – Multinational corporation ConocoPhillips is seeking to join a court-mandated sale of CITGO shares to collect on a US $8.5 billion international arbitration award.
The company seeks to have a writ of attachment approved by a Delaware District Court so that the upcoming auction process can fulfill the compensation granted by the World Bank’s International Centre for Settlement of Investment Disputes (ICSID) in 2019 for the nationalization of oil assets by the former Hugo Chávez government in Venezuela.
Though its award is still undergoing an appeal at the ICSID, ConocoPhillips secured a default ruling to enforce the award from a Washington, D.C. court in late 2021. The decision followed a repeated failure by lawyers representing the US-backed “interim government” to show up in court.
The Trump administration’s decision to recognize self-proclaimed Juan Guaidó as “interim president” saw Venezuela’s hardline opposition take control of assets abroad, CITGO chief among them. It also became responsible for representing the country in judicial processes.
In October 2022, Delaware Judge Leonard P. Stark set in motion an auction of shares belonging to PDV Holding (PDVH), CITGO’s parent company and sole stockholder. The collection of bids, to be conducted by “Special Master” Robert Pincus, is due to begin next month with a view toward a final decision in mid-2024.
While the sale is contingent on approval from the US government, the Treasury Department has pledged a “favorable licensing policy” for the process.
The legal process was initiated by Canadian miner Crystallex to claim $1 billion outstanding from a $1.4 billion ICSID award over the 2008 nationalization of Las Cristinas gold mine in eastern Venezuela.
ConocoPhillips reportedly appealed to join the share auction by invoking the so-called “alter ego” ruling, which makes state oil company PDVSA and its subsidiaries such as CITGO liable for debts owed by the Venezuelan state.
The alter ego was accepted by the Delaware court in 2019 and upheld by the Third Circuit earlier this year. The Court of Appeals backed Judge Stark, who pointed to a string of practices from Guaidó and associates in their management of CITGO and its proceeds.
The US-supported parallel administration has drawn plenty of criticism over its handling of foreign assets, including collusion and conflicts of interest.
Concerning ConocoPhillips, Guaidó was forced to deny an under-the-table deal with the oil giant related to a separate, $1.3 billion arbitration award from the International Chamber of Commerce. Sources likewise revealed that one of the corporation’s top lawyers is Alberto Ravell, son of the “interim government’s” former director of communications, Alberto Federico Ravell.
The opposition-appointed PDVSA ad hoc board has argued that ConocoPhillips ICSID victory relied on the premise that the state oil company and the Venezuelan Republic were separate entities.
However, the strategy is unlikely to succeed after the Delaware court already allowed 19 creditors to tag their claims stemming from similar ICSID grants to the pending auction. Corporations waiting to recoup pending debts include Rusoro Mining, Gold Reserve and ExxonMobil, with the total amount exceeding $10 billion. The ConocoPhillips award, which has accrued interest, would nearly double the amount if accepted.
CITGO owns three refineries and over 4,000 gas stations and has been valued between $10 and $13 billion.
Apart from international arbitration awards, the firm is likewise liable to holders of the defaulted PDVSA 2020 bond for which 50.1 percent of PDV Holding shares were pledged as collateral. The Treasury Department has issued temporary bans on transactions involving the debt instrument, with the present one due to run out in October.
For its part, the opposition-appointed CITGO board has sought to negotiate and reach possible off-court settlements with creditors. However, its decision has not been ratified by any elected Venezuelan authority. It answers to a defunct opposition-controlled parliament whose term expired in January 2021 but retains Washington’s backing.
In recent weeks, claimants have accused the PDV Holding and PDVSA ad hoc boards of stalling the court-mandated auction over the need for the former to issue a replacement stock certificate. The instrument is needed for the sale after the original was determined lost, stolen or destroyed.
PDV Holding claimed it required a $32-40 billion bond posted by PDVSA to face potential liabilities should the original certificate surface.
The case is being heard at the Delaware Chancery Court, with attorneys for creditors accusing the opposition-controlled board of attempting to “derail the sale” and arguing that the liability risk is minimal.
During a Friday hearing, a PDVH attorney lowered the bond amount to $1.5-2.5 billion. However, the PDVSA ad hoc board has claimed that US sanctions would prevent it from posting any bond.
Court Vice Chancellor Paul Fioravanti has pledged to move fast on the case.
