Argus is reporting that PDVSA is entertaining offers of $10 billion to $15 billion for Citgo Petroleum Corp. and is marketing its stake in the Chalmette refinery in Louisiana:
Venezuelan state-owned PdV has retained Deutsche Bank to find a buyer for its 50pc stake in the 184,000 b/d Chalmette refinery in Louisiana, a US-based PdV official told Argus… The energy ministry in Caracas confirmed today that Deutsche Bank is leading the search to find a buyer for PdV’s interest in the Chalmette refinery “as soon as possible.” …
Venezuelan officials told Argus yesterday that PdV is weighing offers in the range of $10bn-$15bn to buy its downstream subsidiary Citgo. The planned sale of Citgo is aimed at raising cash for upstream projects at home, redirecting more crude supply to China in exchange for oil-backed loans, and reducing the government´s potential exposure to international litigation.…
I don’t know if this will all be feasible from a legal standpoint, as the sale of assets that are subject to attachment in an arbitration claim could be frozen by the courts so that a potential winner can grab the assets. But assuming there’s a way to sell this stuff, does it make financial sense for PDVSA to do it?
Four years ago, I argued that it would make sense so long as Venezuela is able to get more than about $6 billion for the asset:
Let’s say the off-the-books benefits and costs wipe one another out, more or less. That leaves the big benefit – the dividends of, on recent average, $650 million a year. Venezuela has huge capital expenditure needs at home, whether it’s fixing up the Puerto la Cruz refinery or building the new Orinoco Belt oil production projects. A total of about $250 billion. That money has to come from somewhere. If Venezuela borrows to get the cash, it has to pay more than 10% interest. So, without getting too much into time value of money and inflation expectations, if PDVSA could get anything above $6.5 billion for Citgo, it would be quite worthwhile to cash out and invest the money in Venezuela, rather than borrowing.
The problem, then, is that nobody is buying North American refineries…
Not much about the first paragraph has changed — so long as the country can get about 10x its dividend, it’s worthwhile to sell.
And then there’s the second paragraph. I don’t know how the dividend is doing these days, but in general, US refining has gotten very profitable again, thanks in part to fracking. Check out the market value of Valero, the biggest independent refiner in the US: the share price has more than tripled since 2010, from 15 to above 50. Sounds like people are buying North American refineries.
There is the issue that Citgo is partially mortgaged, but we’re talking about a pretty small piece of the overall take. $1.5 billion of debt can be rolled into a sale without any big problem.
So while anti-Chavistas will likely howl about the loss of crown jewels and such, the sale of Citgo probably makes sense from a business point of view.