CARACAS -- ConocoPhillips, the second largest independent exploration and production company based on reserves and oil production in the U.S., has filed suit against Venezuela’s state-owned oil company Petroleos de Venezuela, S.A. and Russia's state-controlled oil company Rosneft, challenging PDVSA's pledge of part of its U.S.-based Citgo refinery.
The Houston, Texas-based ConocoPhillips claims PDVSA fraudulently transferred 49.9% of Citgo Holding Inc. as collateral for a loan from Russia’s Rosneft PJSC, according to a lawsuit filed in federal court in Wilmington, Delaware. While the suit alleges the loan was for $1.5 billion, Venezuela has declined to confirm the amount.
The suit is the latest salvo in the legal war between ConocoPhillips and PDVSA over the cash-strapped Venezuelan energy company’s handling of the Citgo assets.
In October, ConocoPhillips sued PDVSA for using the other 50.1% of Citgo to back a $2.8 billion debt swap. The U.S. firm says the deal is intended to monetize Citgo while avoiding paying reparations to foreign operators for Venezuelan oilfield seizures.
ConocoPhillips says that it's companies are "multi-billion dollar creditors of the Bolivarian Republic of Venezuela (“Venezuela”), Venezuela’s national oil company, PDVSA, and two of PDVSA’s subsidiaries, PPSA and PDVH."
The government of Hugo Chavez expropriated 3 of ConocoPhillips multibillion dollar investments in Venezuela in 2008. Analysts believe that ConocoPhillips, which is suing Venezuela over the expropriations at the World Bank's International Center for the Settlement of Investment Disputes (ICSID), will be awarded a judgment of between $4 to $5 billion by the end of the year.
In 2014, ConocoPhillips also brought two other suits against Venezuela at the International Chamber of Commerce (ICC) for contractual losses. Those suits are ongoing.
After the Latin American Herald Tribune broke the story about Russia's investment in December, PDVSA President Eulogio Del Pino admitted the Rosneft transaction, but also seemed to give weight to the lawsuit's argument by virtually admitting that Venezuela had levered up CITGO to frustrate the large amount of legal claims coming down against the country.
“In no way are we going to use that asset to pay for any kind of toxic practice of oil politics,” Del Pino said on December 27th on state television, referring to pending arbitration cases against the country over the billions of dollars of expropriations.CITGO - A Strategic Asset?
A Delaware Uniform Commercial Code (UCC) filing of the lien against Citgo parent PDV Holding, Inc. on November 30 by lawyers for Rosneft was what revealed to REDD and LAHT that Venezuela had mortgaged its Citgo refineries in the United States to Russia's state-controlled oil company Rosneft.
PDV Holding Inc., owned by Venezuela state oil company Petroleos de Venezuela, S.A. (PDVSA), owns Citgo Holding Inc., which in turn, owns Citgo Petroleum Corporation, which has 3 refineries and pipelines throughout the United States.
The lien means that should Citgo or PDVSA default -- and ConocoPhillips (or Crystallex, which is also suing under similar grounds) be unsuccessful in their "fraudulent transfer" claim, Russia's state controlled oil company Rosneft could end up owning strategically important oil refineries and pipelines in the United States.
Citgo owns oil and gas pipelines throughout the country as well as oil refineries in Corpus Christi, Texas; Lake Charles, Louisiana; and Lemont, Illinois (outside of Chicago).
Citgo can refine a total of 749,00 barrels per day from its 3 refineries in the United States. Its largest of the three refineries, located at Lake Charles, Louisiana, can refine 427,800 bpd, making it the 6th largest refinery in the U.S.
The Citgo refinery in Lemont, Illinois, can refine 176,000 bpd, making it the 41st largest in the U.S. Its refinery at Corpus Christi, Texas can handle 158,00 bpd, making it the 46th largest in the U.S.
A factor that makes the refineries unique is that they can refine heavy sour crudes, with 57% of their input being from that cheaper category. In addition, Citgo owns and has shares in terminals and pipelines all over the country.CFIUS ISSUE?
The Committee on Foreign Investment in the United States (CFIUS) is a U.S. government committee that reviews the national security implications of foreign investments in U.S. companies or operations.
CFIUS is required to investigate proposed mergers, acquisitions, and takeovers where the acquirer is acting on behalf of a foreign government. Since Rosneft is majority-owned by Russia and controlled by a right hand man of Putin, it could potentially qualify for further investigation.
In addition, both Rosneft and Igor Sechin have restrictive sanctions imposed upon them in the wake of the Crimea and Ukraine invasion.
"When China's state-owned oil company CNOOC made an $18.5 billion bid for U.S. oil company Unocal in 2005, Unocal ended up having to accept a lower bid from ChevronTexaco after "political tensions," notes Russ Dallen, who helped uncover and investigate the Rosneft lien.
"But even if a Trump administration that seems to regard Putin as a friend -- despite the experiences of Bush and Obama -- approves the transaction, more likely, as happened in 2006 when CFIUS approved the takeover of P&O (which owned and leased ports and terminals in the U.S.) by state-owned Dubai Ports World (DPW), Congress will move to block it. DPW ended up divesting P&O's U.S. operations to American International Group after the furor," Dallen notes.UCC FILING
The Uniform Commercial Code (UCC) filing is used to protect creditors and let other potential creditors know that they have an interest in the asset.
In October, in addition to a 20% bonus, PDVSA used 50.1% of Citgo Holding Inc. as collateral to induce $2.8 billion of holders of PDVSA debt maturing within the year to extend into a new 4 year amortizing bond. As a result, should PDVSA default, the holders of the new $3.4 billion PDVSA 8.5% of 2020 would be able to take 50.1% of Citgo Holding Inc.
The Rosneft UCC filing meant that 100% of Citgo Holding is now encumbered and potentially at risk.RUSSIA'S EXPANDING ENERGY FOOTHOLD
Rosneft is a minority shareholder in five joint crude oil-producing companies in Venezuela: Petro Miranda, Petro Victoria, Petro Perijá, Petro Monagas and Boquerón.
In 2010, Venezuela President Hugo Chavez sold PDVSA's stakes in 4 Ruhr oil refineries in Germany to Rosneft for $1.6 billion, giving Rosneft a key foothold in the European market.
"Last week, Rosneft managed to gain control of the shares in Ruhr Oel that it did not yet own," points out Dallen. "As a result, Rosneft is now the third largest refiner in Germany -- an aggressive expansion by Rosneft that we are seeing all over the world."
Founded in 1992, Rosneft became the world's biggest oil and gas producer by volume (5.2 million barrels per day) through acquiring others. In 2004, Rosneft took over competitor Yukos after Vladimir Putin jailed Yukos head Mikhail Khodorkovsky and in 2013 Rosneft took over TNK.
In 2014, Rosneft took over Bashneft after its owner, too, was arrested.
BP owns 19.75% and a consortium of mining and trading firm Glencore and the Qatar Investment Authority just paid Russia $11.3 billion for 19.5% of Rosneft. Another 10.75% floats on the Russian stock exchange.
The Russian government owns the remaining 50% of Rosneft, and Rosneft head Igor Sechin is a long-time ally and assistant to Russian President Vladimir Putin.
In October, Rosneft acquired Indian refiner Essar Oil in a $13 billion deal. The transaction included India's second-largest refinery at Vadinar (400,000 bpd), as well as port terminals, power plants and pumps.
Earlier this month, Rosneft acquired 30% of the Shourouk concession in Egypt and its supergiant offshore Zohr gas field from Italy's Eni SPA for $1.575 billion.
And it is now the third largest refiner in Germany.
In spite of European and U.S. sanctions on Rosneft and its head Sechin over the annexation of Crimea, Dallen points out that Rosneft has made billions of dollars in overseas acquisitions this year in addition to raising billions from an equity sale to Glencore and Qatar.
"Even as sanctions against them continue to be renewed, it is clear that the Russians are using Rosneft to further Putin's geopolitical ambitions," says Dallen. "But will the U.S. government stand for a country with which we have an increasingly adversarial relationship owning strategic energy assets in the United States? It could be an early test for a Trump administration that has seemingly conflicting viewpoints and relationships with Russia."
ConocoPhillips v PDVSA Rosneft - USDC Del - Originating Complaint - 10 Jan 2016 by Latin American Herald Tribune on Scribd
Citgo UCC filed by Rosneft by Latin American Herald Tribune on Scribd
ConocoPhillips v Venezuela ICSID by Latin American Herald Tribune on Scribd