A U.S. district court approved Thursday a request by defunct Canadian gold miner Crystallex International Corp. to seize control of shares from a Petrleos de Venezuela, S.A. U.S. subsidiary that owns Citgo. Legal analysts said the ruling casts doubt on the future of Citgo and its lubricant business – estimated by an industry consultant to be seventh-largest in the United States.
Judge Leonard P. Stark of the U.S. District Court in Wilmington, Delaware issued his opinion last Friday, granting Crystallexs motion to seize shares of PDV Holding Inc., a Delaware-based subsidiary of PDVSA, which owns Citgo. However, parts of his decision were redacted, including a statement on the value of shares to be awarded to Crystallex.
Crystallex filed grievances against the government of Venezuela in 2011 over lost mining rights to a Venezuelan gold mine. In seeking to collect on the judgment, the company argued it should be allowed to seize assets of Venezuelan-run PDVSA because it was an alter ego of the Venezuelan government, an argument Judge Stark agreed with.
Analysts said the ruling could set off a rush of companies to seize additional shares of Citgo, one of cash-strapped PDVSAs few profitable assets. An Aug. 9 Wall Street Journal article reported analysts estimating that Venezuelas government has approximately $150 billion in outstanding debt to creditors around the world.
Citgo holds 1 percent of the U.S. lubricant suppliers market and ranks as its seventh-largest supplier, according to an estimate by Kline & Co., a consulting firm based in Parsippany, New Jersey. In comparison, Shell ranks first at 13 percent of the market share. Its a fragmented market for lubricant suppliers in the U.S., Kline Industry Manager George Morvey told Lube Report.
Kline estimates Citgo sold less than 150,000 metric tons of automotive and industrial lubricants in 2017.
You might have some customers who get a little nervous about the continuity of supply, Morvey said about the impact of the seizure. And with rumors looming, they may look to replace product that Citgo provides with someone else.
Where it probably would be most applicable would be any large volume customers Citgo supplies. [They] could get skittish. What happens if the government comes in and stop sales?
PDVSA plans to appeal the court ruling, according to news reports.