Citgo also said it is redirecting advertising dollars, away from NASCAR auto racing into other sports.

The U.S. subsidiary of Venezuelas national oil company, Petroleos de Venezuela S.A., Citgo owns one base oil plant – the Lake Charles facility, which has capacity to make 9,500 barrels per day of Group I stocks. The United States currently has 80,900 b/d of Group I capacity, but industry analysts predict some plants will be upgraded or closed in coming years as base oil demand in the finished lubricant market – primarily its automotive segment – shifts toward premium products.

Citgo recently completed an in-depth analysis of how to optimize financial returns from the plant, according to a company summary of a meeting it held in Washington, D.C. Oct. 12 and 13 with Citgo distributors.

During a follow-up telephone interview with Lube Report yesterday, Special Markets Manager Russ Doerr said the company considered three possible courses of action: adding hydrocracking to raise the quality of base oils to Group II-plus and Group III; adding hydrotreating to produce Group II-plus; or making no changes.

We found that going to hydrotreating would increase the return for shareholders from the base oil plant, Doerr said. But going to hydrocracking would provide an even bigger return becausethe productwe get out of the plant would be higher quality. So we think hydrocracking looks like the best option.

Doerr said management hired an engineering firm to get a second, independent opinion, but that lubes officials expect the same conclusion from the firms analysis, which is due to be completed during the third or fourth quarter of next year.

Hydrocracking is a more severe process than hydrotreating, and generally requires more extensive and costly capital investment. But Doerr noted that Citgo must add hydrocracking to its Lake Charles fuels refinery immediately adjacent to the base oil plant.

Were already adding hydrocracking for the fuels refinery, he said. That makes an enormous amount of hydrogen available, which lowers the cost of what we would otherwise have to do for the base oil plant.

Doerr said the hydrocracking option would also allow greater flexibility in the types of feedstocks used by the base oil plant. Another factor was that Citgo officials expect demand for Group III oils to remain strong in the foreseeable future.

If the company does settle on hydrocracking, Doerr said, it is possible that the base oil plant would continue producing some Group I stocks and wax. Management has not yet commented publicly on the likely schedule for an upgrade, but officials said they are determined to follow whatever course looks best for the lubes business.

Boosted by the strength of our parent company in Venezuela, Citgo Lubricants is now a major player in the global marketplace, President and Chief Executive Officer Luis Marin said, according to a news release about the Washington meeting. And we are committed to make the necessary investments in equipment, technology and product support to solidify that position.

The company also said it has withdrawn its long-time sponsorship of NASCAR and is spending that money instead in other venues – professional and college football, college basketball and horse racing.

We had been a NASCAR sponsor as long as anyone, but the rates they charge have gone up significantly, Doerr said. You always have to measure how much bang youre getting for the buck. So we sat back and reevaluated and decided we could spend our money more wisely on more targeted types of advertising. Citgo continues to sponsor racing teams on smaller circuits.

Doerr added that Citgos lubricants business has been gaining market share the past few years and is now the fourth-largest seller of finished lubes and process oils in the United States. The company was based in Tulsa, Okla., but is in the process of moving its headquarters to Houston.