PDVSA may transfer 49.9% claim as part of  debt settlement

Russian state-owned oil giant Rosneft may end up owning U.S. downstream operator CITGO if Venezuela’s state-owned PDVSA is unable to pay back dues on a $1.5 billion loan from the Russian company. A 49.9% stake of CITGO, which is owned by PDVSA’s U.S. subsidiary, was used as collateral in December of last year in a loan with the Russian oil giant, just months after the company used the other 50.1% as collateral in a bond operation.

The company owns three refineries with total capacity of 749 MBOPD, three fully-owned pipelines, six jointly-owned pipelines and a number of terminals along the East and Gulf Coasts, according to the company.

CITGO’s parent company PDVSA has been struggling with lower oil prices since the beginning of 2015, which put Venezuela’s highly oil-dependent economy into a tailspin. With the picture for PDVSA not looking much brighter today than it was two years ago, it seems unlikely that the state-run company will be able to pay its bills to Rosneft.

CITGO terminals across the US which may be claimed by Rosneft if PDVSA fails to pay back its loan

Source: CITGO

U.S. politicians concerned about Russia’s stake in an energy company

While the 749 MBOPD is a small fraction of the nearly 20 MMBOPD the U.S. consumes, it is enough to have politicians concerned. Russia is often accused of using oil and gas as tools of coercion in its diplomacy, including several instances in which it shut off flows of natural gas to Ukraine, the impetus for Europe’s drive to wean itself off of Russian oil and gas. With tensions between the U.S. and Russia rising over Syria, several politicians would prefer not to give Russia any foothold into U.S. energy supplies.

“We are extremely concerned that Rosneft’s control of a major US energy supplier could pose a grave threat to American energy security, impact the flow and price of gasoline for American consumers, and expose critical US infrastructure to national security threats,” a bipartisan group of senators led by Republican Marco Rubio of Florida and Democrat Bob Menendez of New Jersey wrote Monday in a letter to US Treasury Secretary Steve Mnuchin.

“The Russians have a lot to gain through the PDVSA-Rosneft-Citgo asset transfer to the detriment of US interests,” wrote Republican Congressman Jeff Duncan and Democratic Congressman Albio Sires in a letter to Mnuchin on Thursday. “We urge your immediate attention and review of this matter.”

Mnuchin is chair of the Committee on Foreign Investment in the United States, which determines whether foreign ownership of US companies or assets is a good idea.

Rosneft would not take control of CITGO in the immediate future, but many are speculating that PDVSA could miss its payments in October or November, opening the door to Rosneft collecting on its collateral.

Fears may be overblown, however, John LaForge, head of Real Assets strategy at Wells Fargo, told CNN. “The Russians can’t hold the U.S. hostage… Other refineries would love to pick up the slack.”

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