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Citgo: New CEO Faces Crisis, Challenges
Without Venezuelan oil, Citgo’s value is negatively affected, experts say.
BY ENERGY ADVISOR
Inter-American Dialogue
U.S.-based refiner Citgo Petroleum’s ad-hoc board on Aug. 14 announced it had selected Carlos Jordá as its new chief executive. Citgo officials loyal to Venezuelan President Nicolás Maduro were ousted earlier this year, and the opposition-controlled National Assembly named the ad-hoc board for the company in February. Since then, the Maduro government and the opposition have struggled for control of Citgo. How important is Citgo for Venezuela? Who is currently in control of the U.S.-based subsidiary, and is that likely to change in the period ahead? How has the struggle for power in Venezuela affected how Citgo operates and conducts business? What does Jordá bring to the job, and does his appointment as CEO quell creditors’ worries?
Frank L. Holder, managing director, global head of investigations and regional head of Latin America at Berkeley Research Group: Citgo has always been central to PDVSA for strategic purposes, as it completed the value chain of Venezuela’s oil industry by adding to the downstream factor in its most important market. Over time, Citgo’s infrastructure was also optimized to deal with Venezuelan heavy crude. While over the last decade and a half PDVSA has sought new markets for its crude, reducing some of the key role the company has played, it still holds considerable importance in terms of the survival and recovery of Venezuela’s economy. At this moment, Citgo’s operations in the United States are being controlled by the board of directors that was appointed by the Venezuelan opposition in February of this year. The two key figures who have wielded control of the operations have been Luisa Palacios (as chairman) and industry veteran Rick Esser (as executive vice president), who joined the company in 1997 and has stayed on since. That could change quickly if either Citgo’s ownership is transferred to Crystallex and other companies as arbitration awards or if the Maduro administration wins the lawsuit filed in Delaware to regain control of Citgo. However, neither of those options seem likely right now. The current crisis has affected Citgo’s supply chain, which was dependent on PDVSA’s oil shipments, and the new leadership should be making operative adjustments to stabilize profitability. It is my understanding that Carlos Jordá is an oil industry veteran with strong planning skills and experience in upstream, midstream and downstream projects, making him a good candidate to help stabilize Citgo’s current situation and diminish some creditors’ worries. However, I think that the Venezuelan debt situation is presently more reliant on political factors.
Arturo H. Banegas Masiá, partner at the Latin America and the Caribbean practice of Akerman: As the struggle for control of Venezuela continues between interim President Juan Guaidó and embattled President Nicolás Maduro, the control over Venezuela’s assets in the United States and in particular the control of PDVSA’s U.S. refinery and marketing subsidiary, Citgo Petroleum Corporation, and its revenue of more than $30 billion continues to unravel. The Delaware Court of Chancery in a recent and very detailed opinion set the grounds for a final resolution on who constitutes the board of the Citgo entities. The court declared that the U.S. recognition of Guaidó as president of Venezuela binds the court; and that Guaidó’s reconstitution of the board of Citgo’s parent company, PDVSA, was valid. The PDVSA board, which Guaidó reconstituted, appointed a new board for the Citgo entities at the beginning of the year. Led by the very well respected Luisa Palacios, as chairman, one of the new board’s most important tasks was to appoint a new CEO to lead the company through strenuous times, operationally separated from a shareholder sanctioned by the U.S. administration and through the very difficult geopolitical landscape in which the company operates. Citgo recently designated as CEO Carlos Jordá, a Venezuela-born executive, former president of PDV America and chairman of the Citgo board of directors. Jordá separated from Citgo early in Hugo Chávez’s presidency of Venezuela. He was the head of a Tennessee-based refining and marketing company. His appointment denotes Citgo’s board desire to strengthen the leadership of the company on operations and continuing its business in the global oil industry. Citgo also faces other challenges, as it is under siege by Maduro, who does not recognize the company’s leadership and claims that the United States has unlawfully snatched it from the government and its creditors, who seek to liquidate PDVSA’s assets in payment for their debts.
Carlos A. Rossi, president and owner of EnergyNomics in Caracas and professor of petroleum economics: The importance of Citgo for Venezuela has been paramount since it was purchased in 1986. Citgo is the fifth-largest independent oil refiner, with a 749,000 barrel-per-day (bpd) capacity, offering more than 600 types of lubricants and 13 billion gallons of refined products annually through a market outreach of 5,300 independent retail outlets. Citgo also has presented a good geographical location and deep refining convertibility for Venezuela’s heavy crude oil to the world’s biggest economy. As Asian countries increased demand in the new millennium while long-term oil availability became a concern, the sentiment switched to one of a ‘seller’s market,’ and Citgo has remained important because heavy crude increased its participation in Venezuela’s oil mix. U.S. sanctions limit refining outlets for Venezuela, forcing dependence on Russia.
Considering that oil exports account for 97 percent of Venezuela’s foreign exchange earnings, plus its government’s destruction of the economy, Venezuela’s loss of freedom without Citgo is obvious. Sanctions put Citgo under the control of Venezuela’s National Assembly president, Juan Guaidó. It is hard to tell how long this arrangement will last; It all depends on the Venezuelan military and on Russia, which now have the upper hand in Venezuela’s conflict. A coalition, power-sharing proposal, as the one I am drawing up, could be acceptable to all concerned.
Without Venezuelan oil, Citgo’s value is negatively affected, as it’s forced to compete for feedstock with other refineries. The appointment of Carlos Jordá as CEO assures stakeholders. He has a 48 years of career experience in the hydrocarbon business.
Fabiana Perera, assistant professor at the William J. Perry Center for Hemispheric Defense Studies: Though its valuation is lower than it was a few years ago, Citgo Petroleum is still probably Venezuela’s most valuable asset abroad. Analysts estimate its value somewhere between $4 billion and $8 billion, net of debt. Citgo’s refining capacity makes it an important source of foreign currency for Venezuela, if not its main destination for oil exports. Whoever controls Citgo controls a very important source of revenue, and everyone involved—Nicolás Maduro, Juan Guaidó and the U.S. government—is aware of that. Maduro sought to have Citgo remain tied to PDVSA so that it could retain control of the U.S. company. Guaidó’s camp argued for and won the separation of Citgo from PDVSA, so that the U.S. company is not affected by the sanctions targeted at what used to be its parent company. The United States is continuing to find ways to restrict Maduro’s income and to channel it instead to Guaidó. Just as there are two people who claim to be president of Venezuela—Maduro and Guaidó—there are two groups of people that claim to be the board of Citgo: one loyal to Maduro and one loyal to Guaidó. Jordá was selected by the latter for the CEO job. Given the many restrictions put on people associated with Maduro, Jordá will be able to have effective control of the company.This is in many ways an extension of the broader Maduro-Guaidó power split: Maduro controls the institutions in Venezuelan territory, and Guaidó is recognized from the borders out.
Republished with permission from the Inter-American Dialogue's weekly Energy Advisor
