Petroleos de Venezuela SA is seeking a buyer for Citgo Petroleum Corp., its U.S. refining and marketing company, in a deal that may be worth as much as $15 billion.
PDVSA, as the state-owned oil company is known, “is currently seeking to monetize its ownership interest in us,” Citgo said in a July 29 bond prospectus document. “There can be no assurance as to whether a transaction will occur or as to the nature or timing of any potential transaction.”
Citgo owns three refineries capable of handling about 749,000 barrels a day in Louisiana, Texas and Illinois. The company sells gasoline through 5,600 branded stations. It could fetch $15 billion because its midstream storage terminals and docks are eligible for tax advantages, said Sam Margolin, a New York-based analyst for Cowen & Co.
By creating a master-limited partnership for those assets and getting better-than-expected returns from the refineries, a buyer could get “a return on that price,” Margolin said today in a telephone interview. “Nobody should have a problem getting financing even up to that $15 billion level.”
Potential buyers include Gulf Coast refiners looking to capitalize on the region’s rising crude supply, and those operators seeking entry, Margolin said.
Citgo had sales of $42.3 billion last year and earnings before interest, taxes, depreciation and amortization of $1.8 billion. A call and e-mail to Citgo’s Houston office weren’t immediately returned.
Master-limited partnerships have proliferated because of demand from investors for cash payouts that beat debt yields. A buyer could reduce Citgo’s tax burden because partnerships don’t pay federal income tax.
“We have been evaluating possibilities to sell the Citgo assets for five or more years and continue to view possibilities as always,” PDVSA said in a July 25 e-mailed response to questions. “We have previously sent messages to the market about these possibilities and continue to evaluate any opportunities.”
Argus Media reported July 24 that the company had received three offers of $10 billion to $15 billion for Citgo.
PDVSA is also considering the sale of its stake in a refinery run with Exxon Mobil Corp., the Wall Street Journal reported yesterday, citing people familiar with the matter. A PDVSA official, who isn’t authorized to speak publicly, declined to comment when asked if the company plans to sell its 50 percent stake in the Chalmette refinery in Louisiana.
The government of President Nicolas Maduro probably is looking to sell offshore refineries to boost hydrocarbons exports to China, raise cash and reduce the risk of having assets seized as part of PDVSA lawsuits abroad, GlobalSource Partners’ Ruth de Krivoy and Tamara Herrera said today in an e-mailed report to clients.
The sale of U.S. assets “would put PDVSA in a better position to negotiate settlements should adverse decisions be handed down in pending international arbitration cases,” they wrote.
Contract disputes and expropriations have been filed at the International Centre for Settlement of Investment Disputes and the International Chamber of Commerce’s Court of Arbitration by mining and oil companies that operated in the country including Gold Reserve Inc., Phillips 66 and ConocoPhillips.
The extra yield, or spread, investors demand to buy Venezuela’s benchmark bonds due in 2027 instead of U.S. Treasuries fell three basis points to 895 basis points at 11 a.m. in New York today. The price rose to 84.1 cents on the dollar.