February 26, 2019
By Marianna Parraga
(Reuters) – U.S. refiner Citgo Petroleum Corp is formally cutting ties with its parent, state-run oil firm Petroleos de Venezuela SA, to meet U.S. sanctions imposed on the OPEC country, two people close to the decision told Reuters on Tuesday.
Executives at the Houston-based firm set a Feb. 26 deadline to end relationships with PDVSA following sanctions designed to curb oil revenues to socialist President Nicolas Maduro and support the nation’s transition government formed by Venezuelan congress head Juan Guaido.
The United States, Canada and dozens of other nations have recognized Guaido as Venezuela’s legitimate president, but Maduro still controls the military, public institutions and PDVSA, which provides 90 percent of the country’s export revenue.
Citgo has halted payments to its parent, subscriptions to corporate services, email communications and minimized mentions to PDVSA on marketing materials and its website.
Expatriate Venezuelan employees this month returned to Venezuela and a procurement subsidiary operating from Citgo’s headquarters, PDVSA Services, was shut, the people familiar with the matter said.
A Citgo spokeswoman did not respond to requests for comment.
The company is trying to free itself of sanctions that have hampered access to financing. It is prioritizing refinancing a revolving credit and term loan by the end of July, the sources said. Credit rating firm Fitch on Monday placed Citgo on rating watch citing heightened refinancing risk due to sanctions.
“We have been told that we have to organize the house by Feb. 26 to avoid conflicts with sanctions,” one of the sources said.
A new Citgo board of directors was appointed this month by the Venezuelan congress under Chairwoman Luisa Palacios, who last week named a management team under Rick Esser, the company’s new executive vice president. New boards for PDVSA and subsidiaries, PDV Holding and Citgo Holding, also have been appointed by the Venezuelan National Assembly.
Citgo is Venezuela’s main foreign asset. It is the eighth largest U.S. refiner, with a 750,000-barrel-per-day refining network capable of supplying 4 percent of the country’s fuel through a network of some 5,000 gas stations in 30 states.
The Venezuelan congress has been researching the South American nation’s assets and bank account around the globe in an effort to gain access to cash and foreign facilities.
It is unclear if Citgo’s new board has completed a registration process in Delaware to legally take control of the company. The new board could face a legal challenge by PDVSA’s current leadership if the board was not legally constituted.
(Reporting by Marianna Parraga in Mexico City; Editing by Richard Chang)