Venezuela will retain control over CITGO Petroleum Corp. following settlement of a $1.2 billion arbitration claim with a Canadian mining company that sought to force a sale of the U.S.-based subsidiary of state-owned oil company PDVSA.
Crystallex International Corp. Chief Executive Robert Fung on Monday confirmed reports that his Toronto-based company had reached a settlement in the case, which stemmed from the 2011 nationalization of a gold mining project in Venezuela. Fung would not discuss specifics of the settlement, referring instead to published reports.
CITGO did not respond to requests for comment Monday.
Crystallex had been seeking to force a court-ordered auction of the U.S.-based CITGO as a way of enforcing its arbitration award and collecting the money from Venezuela. The Canadian company in 2011 had sought protection from its own creditors as a result of the nationalization.
The settlement means that Crystallex should receive compensation sooner than others who also have claims against Venezuela or CITGO's parent, PDVSA. It also ensures, for now, that cash-strapped Venezuela can hold onto one of its most valuable international assets as it struggles to deal with an ongoing financial crisis.
The development is noteworthy in several ways, bankruptcy attorney Daniel Lowenthal told OPIS.
"The settlement should be viewed by other companies and creditors with claims against Venezuela as part of an emerging pattern," said Lowenthal, a partner at Patterson Belknap Webb & Tyler in New York.
"Venezuela is trying to protect oil-related assets by making huge settlement payments to judgement creditors," he said, citing multi-billion-dollar awards won by Conoco-Phillips and Rusoro Mining and related settlements in recent months.
The Crystallex settlement also suggests a clearer order to the resolution of competing claims.
"The potential auction of the PDV Holding shares by Crystallex posed problems for certain bondholders," Lowenthal said, "particularly the holders of the PDVSA senior secured 2020 bonds, which have a 50.1 percent stake in CITGO. If Venezuela defaults on those bonds, then the Crystallex settlement should reduce the competition for CITGO's assets, assuming that Venezuela performs its part of the Crystallex settlement."
CITGO's assets in the United States include three valuable refineries (in Illinois, Texas and Louisiana), 48 product terminals, three pipelines, and a large branded terminal network.
The settlement with Crystallex came ahead of a scheduled Dec. 20 status meeting between the parties' attorneys and a U.S. district judge in Delaware on the company's efforts to force a sale of CITGO.
Citing Canadian court documents, Reuters reported that on Nov. 23 Venezuela paid Crystallex $425 million. Part of the payment was made in bonds issued by Venezuela and PDVSA, the newswire story said.
Venezuela agreed to pay the remainder of the settlement in installments made through 2021. However, the country must post collateral for the remaining payments by Jan. 10 or Crystallex can restart legal proceedings, according to the report.
Reuters reported that Crystallex and Venezuela had previously reached an agreement last year. But that deal fell apart after Venezuela paid $75 million, but then did not continue payments, according to the story.
--Steve Cronin, scronin@opisnet.com
--Beth Heinsohn, bheinsohn@opisnet.com
Copyright, Oil Price Information Service
Crystallex International Corp. Chief Executive Robert Fung on Monday confirmed reports that his Toronto-based company had reached a settlement in the case, which stemmed from the 2011 nationalization of a gold mining project in Venezuela. Fung would not discuss specifics of the settlement, referring instead to published reports.
CITGO did not respond to requests for comment Monday.
Crystallex had been seeking to force a court-ordered auction of the U.S.-based CITGO as a way of enforcing its arbitration award and collecting the money from Venezuela. The Canadian company in 2011 had sought protection from its own creditors as a result of the nationalization.
The settlement means that Crystallex should receive compensation sooner than others who also have claims against Venezuela or CITGO's parent, PDVSA. It also ensures, for now, that cash-strapped Venezuela can hold onto one of its most valuable international assets as it struggles to deal with an ongoing financial crisis.
The development is noteworthy in several ways, bankruptcy attorney Daniel Lowenthal told OPIS.
"The settlement should be viewed by other companies and creditors with claims against Venezuela as part of an emerging pattern," said Lowenthal, a partner at Patterson Belknap Webb & Tyler in New York.
"Venezuela is trying to protect oil-related assets by making huge settlement payments to judgement creditors," he said, citing multi-billion-dollar awards won by Conoco-Phillips and Rusoro Mining and related settlements in recent months.
The Crystallex settlement also suggests a clearer order to the resolution of competing claims.
"The potential auction of the PDV Holding shares by Crystallex posed problems for certain bondholders," Lowenthal said, "particularly the holders of the PDVSA senior secured 2020 bonds, which have a 50.1 percent stake in CITGO. If Venezuela defaults on those bonds, then the Crystallex settlement should reduce the competition for CITGO's assets, assuming that Venezuela performs its part of the Crystallex settlement."
CITGO's assets in the United States include three valuable refineries (in Illinois, Texas and Louisiana), 48 product terminals, three pipelines, and a large branded terminal network.
The settlement with Crystallex came ahead of a scheduled Dec. 20 status meeting between the parties' attorneys and a U.S. district judge in Delaware on the company's efforts to force a sale of CITGO.
Citing Canadian court documents, Reuters reported that on Nov. 23 Venezuela paid Crystallex $425 million. Part of the payment was made in bonds issued by Venezuela and PDVSA, the newswire story said.
Venezuela agreed to pay the remainder of the settlement in installments made through 2021. However, the country must post collateral for the remaining payments by Jan. 10 or Crystallex can restart legal proceedings, according to the report.
Reuters reported that Crystallex and Venezuela had previously reached an agreement last year. But that deal fell apart after Venezuela paid $75 million, but then did not continue payments, according to the story.
--Steve Cronin, scronin@opisnet.com
--Beth Heinsohn, bheinsohn@opisnet.com
Copyright, Oil Price Information Service
