October 29, 2010 at 11:56 am #2485
Venezuela unlikely to sell U.S. refiner Citgo soon
* Chavez slams company, calls it a “bad business” * Legal issues and poor market make sale unlikely * PDVSA sold stake in German refineries this month By Daniel Wallis CARACAS, Oct 28, 2010 Thur (Reuters) – The sale by Venezuela’s PDVSAof its biggest European refining assets shines a spotlight on its troubled U.S. subsidiary Citgo, but the state oil companyis unlikely to be able to offload the refiner any time soon. South America’s top crude exporter has almost 750,000 barrels per day (bpd) of refining capacity at three Citgofacilities including Louisiana’s Lake Charles Refinery, the fifth largest in the United States. But Citgo has drawn increasing fire from President Hugo Chavez, who says it is a bad business that makes no profit forVenezuelans — prompting speculation that it will be next after PDVSA sold its stake in the four Ruhr Oel refineries in Germanythis month. Some analysts say that is unlikely, given the weakness of the U.S. economy and a big dip in Gulf Coast refining margins. “We don’t see the sale of Citgo happening in the short term,” the economic think tank Global Source Partners said in areport this week. “To realize this dream before a change in tide would probably mean leaving too much money on the table.”There are several reasons why Chavez may want to sellCitgo. First, a bond offer this year highlighted the U.S. refiner’s financial woes. It made a $201 million loss last yearthen a $128 million loss in the first quarter of this year, down from a profit of $801 million in 2008. The company conceded that its “substantial indebtedness” could impair its ability to pay obligations under the notes. Second, its sale would fit the socialist leader’s political world view. Chavez often bashes Citgo, calling it a “perfectdeal for the gringos” at a time when he wants to boost exports to countries such as China and Belarus at the expense ofPDVSA’s traditional customer, the United States. The former soldier is a leading critic of U.S. foreign policy and says PDVSA has been subsidizing Washington’s “Yankeeempire”. He has called on Citgo, which buys about a quarter of the Venezuelan crude shipped to the United States, to paybigger dividends to his government and hire more Venezuelans. (For a table of top U.S. importers of Venezuelan crude by refinery, click on link) Caracas could offload parts of Citgo, but an outright sale would be complicated by the fact that its refineries werepledged as collateral for recent loans — and looks unlikely given the poor financial health of the U.S. refining sector. Defenders of Citgo say the refining network gives PDVSA a guaranteed home for much of the heavy, sour crude it sells.Citgo’s plants have deep conversion units, which maximize the yield of lighter, more profitable products from the lessexpensive but difficult to process Venezuelan oil. PDVSA SEEKS FUNDS, ISSUES MORE DEBT “We are evaluating (the Citgo situation) as always, and will make an announcement if we have a firm sale,” VenezuelanOil Minister Rafael Ramirez said on Wednesday. One of the main factors behind Citgo’s financial difficulties looks to be a change in 2008 to contracts on thesupply of Venezuelan crude, which raised Citgo’s costs. By contrast, Chavez said he was happy to have sold PDVSA’s stake in the Ruhr Oel refineries to Russian state giant Rosneft, partly because they processed no Venezuelan oil. In a televised speech this week, the president estimated Citgo’s price at more than $10 billion and said the countrywould at least get a reliable income from the interest if the company were sold and that money just put in the bank. While many factors argue strongly against the sale of Citgo, the energetic Chavez is nothing if not unpredictable. Another reason his government may want to offload Citgo is that PDVSA is short of cash and has big commitments, includingdeveloping ambitious projects with a range of foreign partners in its vast Orinoco extra heavy oil belt. PDVSA’s first-half net profit fell 14 percent this year despite sharply higher revenues as it ploughed billions ofdollars into social development schemes that are a cornerstone of the president’s self-styled “revolution. Caracas has sold parts of Citgo in recent years while sharply increasing its financial demands on the refiner, andnow analysts say PDVSA has few fund-raising options left. “It can only issue bonds on which it has to pay extremelyhigh interest rates, or negotiate with large customers against future oil deliveries, as it did recently with China,” saidOliver Campbell, a former finance coordinator at PDVSA. There is a lot of interest from foreign investors in the bonds issued by Venezuela’s government and its state oil firm,which offer high returns but are consistently rated by risk indicators as having the world’s greatest chance of default. This month, PDVSA launched another $3 billion bond in its latest bid to juggle its many obligations to service providers,nationalized companies and social spending. Speculation about any sale of Citgo has also jacked up interest in the $300 million of notes that were issued by theU.S. refiner and mature in 2017, secured by its refineries, its inventories and a portion of its accounts receivable. “If Citgo is sold, these bonds with an 11.5 percent coupon will fly,” said Russ Dallen, head trader at Caracas-based BBOFinancial Services. (Editing by Frank Jack Daniel and Dale Hudson)
October 29, 2010 at 11:58 am #5440
Oct 28, 2010 (Reuters) – PDVSA may want to sell its troubled U.S. subsidiary Citgo, but Venezuela’s state oil company is unlikely to offload the refiner soon.
President Hugo Chavez has slammed Citgo as a “bad business”, but market conditions make a sale difficult and the refiner remains an important outlet for the South American OPEC member’s crude.
TOP U.S. IMPORTERS OF VENEZUELA CRUDE BY REFINERY
(FROM JAN-AUG 2010) COMPANY/REFINERY BARRELS PER DAY
CITGO 281,263: Beaumont, TX 10,374, Corpus Christi, TX 125,321, Lake Charles, LA 145,568
CONOCO 193,646: Freeport, TX 153,173, Lake Charles, LA 32,296, Los Angeles, CA 5,988, Morgan City, LA 2,189
LYONDELLBASELL 193,955: Houston, TX 102,951, Texas City, TX 91,004
HOVENSA * 230,444: Virgin Islands 230,444
MARATHON 26,679: Gramercy, LA 21,432 , Morgan City, LA 5,247
NUSTAR ASPHALT 44,778: Paulsboro, NJ 42,329, Savanna, GA 2,449,
TOTAL 1,897: Port Arthur, TX 1,897
VALERO 93,753: Corpus Christi, TX 12,922, Gramercy, LA 15,103, Port Arthur, TX 65,728
TOTAL PURCHASES: 1,066,415 Source: U.S. Energy Information Administration. * Hovensa is joint venture between subsidiaries of Hess Corp and Petroleos de Venezuela, S.A. (Editing by Dale)
October 29, 2010 at 12:01 pm #5439
Here is article and table on US Refineries importing PDVSA Venezuelan crude which would be on percentage basis = Citgo @ 26.37%, Conoco 18.16%, LyondellBasell 18.14%, Hovensa 19.08%, Marathon 2.5%, Nustar 4.19%, Total 0.18% and Valero 8.79%. It should be noted that lot US Refineries have been idled or shutdown for economic reasons and projects during 2010 and so the volumes are likely lower than full year or historic utilization levels. The majority of the refineries taking in Venezuelan crude have cokers – with exception of Nustar’s Asphalt refineries and few others.
It is clear that 1/4 of Venezula import goes to Citgo that PDVSA plans to sell and major portion of remaining volume goes to former owned or partner companies who have had assets nationalized in Venezuela (COP, LyondellBasel, Total, Hovensa & Nustar) and less than 10% goes to opportunity importers. Noticeably absent are any imports to the Citgo Lemont Refinery (which was also reason for recent sale its % of German Ruhr Oel to Russia’s Rosneft = processed no PDVSA crude)
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