PDVSA scraps sale of Citgo

| Oct. 28, 2014 | Caracas, Venezuela

Event

Venezuela's state-owned oil company, Petróleos de Venezuela (PDVSA), is no longer seeking a buyer for Citgo Petroleum, its US refining company.

Analysis

The sale of Citgo was ruled out by the finance minister, Rodolfo Marco Torres, in an interview with El Universal, a newspaper based in Caracas, the capital. The pronouncement is a reversal of previous reports that the cash-strapped company was looking to bring in between US$10bn and US$15bn with the sale. Venezuela is known to be short of cash, and faces debt payments totalling US$17.6bn over the next three years. The president, Nicolás Maduro, insists that the government will pay its debts "down to the last dollar", although the government is thought to be looking to restructure some of the upcoming papers. Venezuela's cashflow problems are underscored by this week's news that the government has sought a revision of a recent ruling by a World Bank arbitration court that Venezuela must pay ExxonMobil (US) around US$1.6bn to compensate for the 2007 expropriation of the company's assets. The order was suspended after Venezuela requested the revision, a rare course of action likely to have been taken to delay the payment (which Venezuela has previously stated that it intends to pay). There are currently 27 unresolved cases involving Venezuela at the international arbitration court, totalling just under US$50bn. A major case involving another US energy corporation, ConocoPhillips, is expected to be determined in the coming months. As well as bringing in cash, the sale of Citgo would have limited Venezuelan assets abroad, which could be seized upon in lawsuits involving PDVSA. Citgo currently owns three refineries in the US capable of handling around 750,000 barrels/day and sells gasoline through 5,600 branded stations. Citgo's sales totalled US$42.3bn in 2013, with earnings of US\$1.8bn. The quantity of crude that Citgo refineries purchased from Venezuela fell by almost 14% year on year in 2013 and in the first quarter of 2014.

In the interview, the minister gave short answers which were light on new information to the questions posed by the newspaper. Mr Torres also praised the work of the Banco Central de Venezuela (the Central bank).

Impact on the forecast

The sale of Citgo was not expected to be a simple one, and was not incorporated into previous forecasts. We will therefore make no adjustments to our forecasts at this time.