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As of April 2025, the CITGO auction is in a critical phase of definitions. The confirmation of Red Tree’s bid as the base has set a starting point, but the final hearing scheduled for July will determine the ultimate fate of the oil giant.
The case of CITGO Petroleum Corporation, the U.S. subsidiary of the state-owned Petróleos de Venezuela S.A. (PDVSA), has become a paradigm of the intricate intersection of international finance, economic sanctions, and the sovereignty of state assets. Since its full acquisition by PDVSA in 1990, CITGO not only represented a strategic pillar for the Venezuelan economy, operating as the seventh largest refinery in the United States with a capacity of 807,000 barrels per day and an extensive distribution network, but it has also transformed into the epicenter of a complex legal battle over debts exceeding $150 billion. This report from Venezuelapolitica.info delves into the historical account of this unprecedented case that marked the Venezuelan industry and the U.S. justice system.
A strategic asset in the storm: Historical context
For decades, CITGO was a crown jewel for Venezuela, a vital source of income in the competitive U.S. energy market. However, the landscape changed drastically starting in 2017 when the Bolivarian Republic of Venezuela and its flagship oil company, PDVSA, defaulted on a significant portion of their external debt. This situation, exacerbated by U.S. imposed sanctions, sovereign bond defaults, and asset expropriation policies implemented during the Chavista government, created a substrate for creditors to seek reparation through the most tangible and valuable asset of Venezuela on U.S. soil: CITGO.
The Venezuelan political crisis, which intensified with the recognition of Juan Guaidó as interim president by the United States in 2019, added an additional layer of complexity. Ad hoc supervisory boards, appointed by the opposition, were established to manage PDVSA’s foreign assets, including CITGO. These boards, aligned with U.S. policy, severed direct economic ties with PDVSA, whose assets in the U.S. were frozen as part of the sanctions. This vacuum of control and political uncertainty laid the groundwork for the litigation that now defines CITGO’s fate.
The origin of the legal dispute: The search for creditor compensation
The turning point in the CITGO case dates back to 2017 when the Canadian mining company Crystallex International Corp. sued Venezuela in U.S. courts for the expropriation of its mining assets. In 2018, Crystallex obtained a seizure order on the shares of PDV Holding, the parent company of CITGO registered in Delaware. This legal victory opened the door for other creditors, including giants like ConocoPhillips and Siemens Energy, along with investment funds like Red Tree Investments, to file their own claims, elevating the total amount of lawsuits to the astonishing sum of $21.3 billion.
The Federal District Court for Delaware, under the supervision of Judge Leonard Stark, played a crucial role by ruling that PDV Holding could be held liable for debts incurred by both the Republic of Venezuela and PDVSA, considering the state oil company as an “alter ego” of the Venezuelan government. This legal doctrine allowed creditors to pursue CITGO’s assets to satisfy the unpaid obligations.
A key moment in the process was the validation, in 2020, of the PDVSA 2020 bonds by the judge overseeing the case. These bonds, secured by 50.1% of CITGO’s shares, acquired a preferential status in the debt recovery process, adding a layer of complexity to the distribution of potential auction proceeds.
Although the Office of Foreign Assets Control (OFAC) of the U.S. Treasury initially protected CITGO from immediate seizures until 2023, it ultimately allowed the auction of PDV Holding’s shares to proceed, although conditioning any change of ownership on obtaining a specific license from the Treasury. This intervention from OFAC underscores the political and national security dimension inherent in the case.
The auction’s development: A path full of obstacles
The formal auction of PDV Holding’s shares began in 2023, with an initial timeline aiming for completion in 2024. However, the process has faced a series of hurdles, including disputes among various creditors, vehement objections from the Bolivarian Republic of Venezuela, and the inherent difficulty in assessing the bids.
First Bidding Round (2024): The first round culminated with a $7.3 billion offer from Amber Energy, a subsidiary of Elliott Investment Management. Despite being the highest offer, it was rejected by the majority of creditors due to the limitations imposed on payment terms and the lack of solid financial backing. Creditors felt the amount offered was significantly below the estimated value of Citgo, which was positioned between $11 billion and $13 billion.
Second Bidding Round and “Stalking Horse” Offer (2024-2025): In March 2025, the judicial officer appointed to oversee the auction, Robert Pincus, recommended the acceptance of a $3.7 billion offer from Red Tree Investments, a subsidiary of Contrarian Funds, as the “initial bid” or stalking horse bid. This legal figure establishes a base price for the auction and aims to encourage participation from other bidders. Although lower than the initial offer, Red Tree’s proposal was supported by its financial solidity and included an agreement to pay up to $3 billion to the holders of the PDVSA 2020 bonds, allowing for the release of the guarantee they held over 50.1% of CITGO’s shares.
Confirmation of Red Tree’s Offer (April 21, 2025): Judge Leonard Stark formally confirmed Red Tree’s offer as the initial offer, dismissing objections made by a consortium led by Gold Reserve, which had proposed a higher offer of $7.1 billion. In his ruling, Judge Stark argued that Red Tree’s bid represented the best balance between the offered price and the certainty of closing the transaction, and that its designation as a stalking horse bid should incentivize greater competition in subsequent rounds. Additionally, he ordered Robert Pincus to prioritize price in his final recommendation and set a timeline for receiving competing bids, scheduling a final hearing for the approval of the sale for July 2025.
Transnational legal implications
The CITGO case transcends mere commercial dispute, generating a series of legal challenges in various areas:
Priority of Creditors and the Complexity of Securities: The auction faces an inherent conflict between original creditors, such as Crystallex and ConocoPhillips, whose claims are based on firm arbitral awards and therefore enjoy legal priority, and the holders of the PDVSA 2020 bonds, whose guarantee over a majority of CITGO’s shares grants them a preferential right over those assets. Red Tree’s offer, by proposing substantial payment to bondholders, inevitably reduces the funds available for other creditors, leading to tensions and parallel lawsuits in other jurisdictions, such as the Siemens Energy case in Texas, seeking to maximize their chances of recovery. This fragmentation of litigation could complicate and potentially delay the conclusion of the main auction.
The CITGO auction jeopardizes the actual value of Venezuela’s most valuable asset abroad.
State Sovereignty and the Judicialization of Foreign Assets: The CITGO case sets a significant precedent regarding the ability of U.S. courts to seize and auction assets belonging to foreign state-owned companies in order to satisfy sovereign debts. The court’s decision to consider PDVSA as an “alter ego” of the Venezuelan government paved the way for creditors to pursue CITGO, despite Venezuela’s vigorous objections, labeling the auction as an act of “theft” and a violation of its sovereignty. This scenario raises crucial questions about the protection of state assets in foreign jurisdictions and the complex interplay between international sanctions and internal judicial processes. The alter ego theory was presented by José Ignacio Hernandez, then an expert hired by Crystallex, but later, paradoxically, was appointed as the attorney for Guaidó’s interim government, which drew the judge Stark’s attention.
The Strategic Role of the U.S. Treasury Department: OFAC’s authorization is an essential requirement for the validity of any transfer of CITGO ownership, introducing an unavoidable political component into the judicial process. The sanctions imposed by the United States against Venezuela have severely limited PDVSA’s ability to negotiate or refinance its debts. The Treasury’s decision not to block the auction, but rather to allow it to proceed under certain conditions, reveals a strategic shift in U.S. policy, prioritizing the resolution of creditor claims.
Impact on CITGO’s operations and future: Despite the legal uncertainty, CITGO continues to operate normally. However, its future is intrinsically linked to the final outcome of the auction. A successful sale could mean a radical change in its ownership structure, altering its historical relationship with PDVSA and redefining its role in the U.S. energy market. Meanwhile, attempts by the Venezuelan opposition to delay or even stop the auction, aiming to preserve control of the asset, have lost momentum following the dissolution of Juan Guaidó’s interim government.
The intrinsic labyrinth of the auction process: The confirmation of Red Tree’s offer as the initial bid does not guarantee it will be the final winning offer. Judge Stark’s instruction to prioritize price in subsequent rounds may incentivize the submission of higher bids. However, the necessity of earmarking a significant portion of the proceeds for payment to PDVSA 2020 bondholders and the ongoing regulatory uncertainty surrounding the final Treasury authorization could limit the amounts of final bids, possibly keeping them below $8 billion. This figure would be insufficient to cover the entirety of the $21.3 billion claimed by creditors, potentially exacerbating legal disputes and leaving some without the expected compensation.
An uncertain ending
As of April 2025, the CITGO auction finds itself at a critical juncture. The confirmation of Red Tree’s offer as the base has established a starting point, but the final hearing scheduled for July will determine the ultimate fate of the oil giant. The process remains vulnerable to a series of factors:
- The possibility of new rival bids emerging that significantly exceed the initial $3.7 billion offer.
- The persistence of parallel lawsuits brought by creditors in other courts, which could generate additional legal complications and potentially derail the main auction.
- The need to obtain final approval from the U.S. Treasury, which may impose additional conditions on the sale.
- The continued legal objections and public criticisms from the Venezuelan government and its legal representatives, who seek to block the auction arguing the illegality of the PDVSA 2020 bonds and a violation of Venezuelan sovereignty.
The CITGO case is a microcosm of Venezuela’s economic and political collapse, as well as a clear example of the inherent obstacles to resolving sovereign debts in international law. The auction will not only define the future of one of Venezuela’s most valuable assets abroad but will also set important precedents for future cases of disputed state assets. The final outcome will depend on an interplay of legal, economic, and political factors, where the ability of creditors to submit competitive bids, the transparency of the judicial process, and strategic decisions made by the U.S. government will play a determining role.