Chavez Sells $2.65 Billion in Citgo Refineries. Three More Left to Go.

By Mick Gregory

UPDATE: Oct. 4, 2008

A student leader protesting the Hugo Chavez totalitarian power grabs in Venezuela was killed when his car was riddled with bullets from an AK-47 on Wednesday. Robbery was not the motive, his wallet was not touched. The Venezuelan police said they will do a full investigation. OK – it’s been three days, any ideas scum bags?

How’s this for an idea? After the first offshore drilling project hits an oil reservoir, the U.S. government should “nationalize” Citgo refineries in Texas, Louisiana and Illinois owned by PDVSA. Then sell the refineries at bid to U.S. and U.K. oil companies to help pay down the national debt. Of course that could only happen if McCain/Palin are elected along with a majority of the Senate.

Obama and the Democrat party would never do that to a friend like Hugo Chavez.

Here is an update on the state of Hugo Chavez’s Citgo state-owned company operating in the U.S. This may be the last year for Citgo. Experts in the oil industry believe that Chavez wants to sell his U.S. downstream assets because they are at risk for seizure.

Chavez has pledged to sell his country’s downstream assets in the U.S. and find a new buyers for the 1.5 million barrels per day of sour, heavy crude and downstream products that amount to about 5 percent of the U.S. market. But Venezuelaen tar oil has to be refined. So when you read about oil prices hitting $100 a barrel, that is not what Chavez is making. His country’s oil goes for about $62 a barrel.

Citgo dumped 53,000 gallons of oil in LA.

Through luck with the timing, Chavez has “earned” $2.65 billion so far and has shown he is serious about liquidating most of Citgo, the US refining and marketing subsidiary of state-owned PDVSA.

But replacing the U.S. as Venezuela’s main crude buyer is a bit difficult. Communists don’t understand the free market.

A month ago, NuStar Energy paid $550 million for Citgo asphalt refineries with a combined capacity of 110,000 b/d in Paulsboro, New Jersey, and Savannah, Georgia. This followed the $2.1 billion sale last year of PDV’s 41% stake in the 270,000 barrels per day, Lyondell Houston refinery.

Chavez is also mulling the sale of Citgo’s 20 million barrel Borco terminal in the Bahamas, as well as its small stakes in two pipelines — Colonial (15.8%) and Explorer (6.8%).

Citgo’s plants are specifically adapted to process Venezuela’s heavy, sour crude, so their new owners are keen to maintain the PDVSA shipments.

Energy Intelligence Group reports:
“PDV is selling at a high point in the [price] cycle, while at the same time it manages to keep a home for its crude,” a Citgo analyst said. “It makes perfect sense.” NuStar has agreed to expand a 42,000 b/d crude contract to 75,000 b/d for a seven-year period, extendable for another two years. In the same vein, the Lyondell stake was sold with a renewed contract to sell 230,000 b/d to the refinery.

The divestment strategy could also be a way for the government the minimize the risks of possible asset seizures, depending on the outcome of several international arbitration cases pending against Venezuela brought by ConocoPhillips, Exxon Mobil and Eni since Caracas has taken operational control of their oil assets. Energy and Petroleum Minister Rafael Ramirez says the Citgo downsizing follows a decision to allocate PDV’s assets worldwide more efficiently. In practice, since the proceeds go directly to Venezuela’s social development fund, Fonden, the income is more likely to be used to bankroll Chavez’s populist policies than to benefit PDV. In the 12 months ending Jun. 30, Citgo paid $2.42 billion to PDV, according to Fitch Ratings.

Despite the impression that PDV is bucking a trend — letting go of Citgo’s assets when other producers like Saudi Aramco, through Motiva, are either expanding in the US downstream, or like Brazil’s Petrobras are seeking exposure to it — Venezuela’s US footprint is still huge: The capacity of Citgo’s three remaining US refineries in Louisiana, Texas and Illinois is 650,000 b/d. Given the record refinery valuations and Chavez’s appetite for cash to fund his socialist revolution, further Citgo sales remain a strong possibility. Critics say a complete disposal of Citgo risks reducing the value of Venezuela’s mainly heavy oil, which has averaged $62.61 per barrel in the year-to-date. “We have gigantic reserves of this type of oil, but if no one can refine it, the value of our reserves is minimal,” said a former PDVSA staffer.