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| Venezuela Citgo's Status Is Giving Houston the Jitters |
| 2005-03-05 |
| Citgo's Status Is Giving Houston the Jitters By SIMON ROMERO Published: March 5, 2005 HOUSTON, March 4 - Few places are as jittery as this city when it comes to the future of Citgo Petroleum, the oil refining giant owned by the government of Venezuela and based here. Popular sentiment in Venezuela is critical of Citgo's rich links to the United States, and the administration of Hugo Chävez has recently signaled its intent to exert greater control over Citgo and perhaps even dismember it. So, Rafael RamÃÂrez, the president of Venezuela's national oil company, tried to dispel uncertainty in energy markets when asked about the recent turmoil at Citgo, which is the main conduit for Venezuelan oil exports to the United States. Citgo lends its brand to 14,000 independently owned gas stations in this country. It also accounts for almost 15 percent of oil refining output in the United States. "Houston has nothing to fear," Mr. RamÃÂrez, who is also Venezuela's energy minister, said in an interview in Caracas. To be sure, at Citgo's headquarters in Houston, the view is somewhat different. Next week, a group of Venezuelan lawmakers will come to the headquarters to interview officials as part of a recently expanded investigation by Venezuela's National Assembly into reports of corruption at Citgo and PDVSA Services, the Houston-based purchasing arm of Petróleos de Venezuela. Citgo officials declined requests for interviews. About a month ago, the administration of President Chävez quietly but abruptly ousted Citgo's chief executive, Luis MarÃÂn, only the second Venezuelan to run the company since Petróleos de Venezuela bought control of Citgo in 1990. Petróleos de Venezuela replaced Mr. MarÃÂn, who had overseen the recent transfer of Citgo's headquarters to Houston from Tulsa, Okla., with Felix RodrÃÂguez, a senior executive at Petróleos de Venezuela and a vocal supporter of Mr. Chävez. Then, last week, Petróleos de Venezuela took the unusual step of purging Citgo's entire board, replacing longtime directors with people who are explicitly loyal to Mr. Chävez and who support increasingly activist policies intended to diversify Venezuela's oil exports to markets other than the United States. "It's not unusual for our C.E.O.'s to serve a relatively short term and then be replaced by another executive," said David McCollum, a Citgo spokesman. Mr. McCollum declined to comment further on the recent management upheaval at Citgo. Venezuela's ambitions for Citgo have recently come under greater scrutiny, amid statements from Caracas about the politically charged energy relationship with the United States. Though Mr. RodrÃÂguez, Citgo's new chief executive, has insisted that a sale of Citgo's refining assets is not imminent, Mr. RamÃÂrez, the president of Petróleos de Venezuela, acknowledged that Venezuela was actively considering the sale of parts of Citgo. Lukoil, a major Russian oil company, has said publicly that it is in discussions with Citgo about possibly refining Russian oil for export to the United States. "We are in conversations with several interested companies, and are reviewing which refineries are beneficial for the country and which aren't," Mr. RamÃÂrez said. "People keep asking us about the sale of Citgo as if it were as simple as selling a pair of shoes." Of course, the reliance of the United States on Venezuelan oil imports is not so simple. Oil from the Middle East, West Africa or Central Asia could potentially be redirected to American ports if Venezuela were to curtail oil exports to the United States through severing commercial ties with Citgo. But doing so could help drive up global crude prices. Energy officials in Venezuela are aware of the benefits of selling oil to the United States; the country's total oil export revenues soared 47 percent in 2004, to $29.1 billion. Yet during a time of elevated oil prices, clarity from Caracas in relation to Citgo seems in short supply in its new home city. Less than a year ago, city officials celebrated the arrival of Citgo, which is transferring 700 jobs to the Houston headquarters out of a total work force of 4,000. Now the mood has changed amid doubts over the company's future. In an editorial entitled "Our Chävez Problem," The Houston Chronicle recently criticized the handling of Mr. MarÃÂn's ouster as Citgo's chief executive and the Venezuelan government's positioning of Citgo as a bargaining tool in relations with the United States. Citgo, of course, remains an essential pillar of Venezuela's economy as the nation's principal outlet for foreign crude oil sales and one of the most important operators of oil refineries in the United States, with interests in eight installations in this country that process crude oil into gasoline and asphalt. Those refining assets, analysts say, are among the most coveted in the energy industry. The growing profitability of Citgo's refineries is the main reason many energy executives in Houston are puzzled as to why Venezuela might consider selling them. Citgo's revenue has more than doubled, to $29.9 billion in the year that ended last Sept. 30, compared with $13.3 billion for the period in 1999, the year Mr. Chävez was elected president of Venezuela, said Bryan Caviness, an analyst at Fitch Ratings who follows bonds issued by Citgo. Citgo's net income also soared during those five years, to $499.2 million in 2004 from $146.5 million in 1999, a trend illustrated by Citgo's payment of a record $400 million dividend to the government of Venezuela last December. Mr. RamÃÂrez, the president of Petróleos de Venezuela, complained that while Citgo was originally acquired with the intent of refining Venezuelan crude it now has to buy about 50 percent of the petroleum for its refineries from other countries, mainly Canada and Mexico. That fact might indicate one option Petróleos de Venezuela is considering when weighing the sale of some of Citgo's assets. "For a trader this would probably be a good business but it doesn't make any sense for us," Mr. RamÃÂrez said in reference to its refineries that do not use Venezuelan crude. "Does that mean we're going to abandon our refineries and leave the American market? No." Nor does that mean, of course, that Citgo will remain out of play in Venezuela's strategy of finding new markets for its oil as far afield as China. For several years it has been impossible to separate any discussion of Citgo from the whirlwind of Venezuelan politics. The Chävez administration is critical of the way previous administrations opened up the oil sector to private investment and acquired foreign refining assets under Citgo's control, insisting these were attempts to hide revenue from the state. Many Venezuelans, particularly supporters of Mr. Chävez, remain profoundly mistrustful of Citgo and skeptical of a company that employs few Venezuelans and until recently did not return large dividends to Petróleos de Venezuela. "Citgo has never been a good business for Venezuela, and the general population knows it," said Rafael Quiroz, a former board member of Petróleos de Venezuela and a vocal supporter of selling Citgo. He said there were "serious and legitimate doubts" whether Citgo's revenue had helped ease poverty in Venezuela. This mistrust was evident in a hearing this week in Caracas on reports of financial irregularities at Citgo. A five-member commission questioned Mr. MarÃÂn, the former Citgo president, for more than two hours on Tuesday about issues like pension funds and crude oil contracts. When asked whether Citgo was in fact profitable for Venezuela, or whether it should be sold, Mr. MarÃÂn offered few clues about the ultimate fate of the company. "That evaluation must be made by the shareholder," he said, referring to the Venezuelan state. Brian Ellsworth, in Caracas, Venezuela, and Erin E. Arvedlund, in Moscow, contributed reporting for this article. |
| Posted by:TMH |
| #13 Chavez is extremely stupid and short-sighted. It would take the US about 15 minutes to put his entire oil-exporting industry out of action for years. What's he going to do in the meantime - drink that stuff? He's doing everything in his power to show he's "Macho". In the meantime, he's setting himself up as enemy number one south of the border. |
| Posted by: Old Patriot 2005-03-05 11:30:47 PM |
| #12 The problem is that energy is a fundamental input to economic activity. Economic activity increases then energy demand increases. Over the last 15 years the worlds economy has been growing by around 4% a year primarily thanks to China and India, so demand for energy has risen and will continue to rise as long as economic expansion continues. There is no way out of this except a severe recession caused by $100 a barrel oil and thats only temporary until we find a permanent replacement for oil (and that isn't windmills or fuel cells). Increasing prices alone will only tend to decrease consumption. They will not necessarily lead to an actual decrease below a price no one is prepared to talk about - well over $100/barrel, because of the economic growth effect. |
| Posted by: phil_b 2005-03-05 10:03:47 PM |
| #11 Something that people who go on and on about the geopolitical significance of side deals with China, Japan, et al, is that there is *one* market for raw materials. If prices go up, overall demand goes down, which eventually brings prices down, as producers try to sell more to keep their revenue streams level with what they got at peak prices. (This is because raw materials producers usually get used to living large during the good times. When oil prices dive, they jump pump more). |
| Posted by: Zhang Fei 2005-03-05 6:26:07 PM |
| #10 Citgo - primarily a 7-11 supplier, think Apu - wonder if we'll have a Paki/Indian war on Venezuela? The possibilities boggle the mind. |
| Posted by: Frank G 2005-03-05 3:28:42 PM |
| #9 At least India's an "ally." Who knows what info or biz might come our way? |
| Posted by: anonymous2u 2005-03-05 3:27:24 PM |
| #8 Citgo, of course, remains an essential pillar of Venezuela’s economy as the nation’s principal outlet for foreign crude oil sales and one of the most important operators of oil refineries in the United States, with interests in eight installations in this country that process crude oil into gasoline and asphalt. Those refining assets, analysts say, are among the most coveted in the energy industry. Hugo trying something even remotely underhanded will not go unanswered. |
| Posted by: Bomb-a-rama 2005-03-05 3:25:38 PM |
| #7 I'm of mixed minds, here. Were the tables turned, that is, if a US corporation was supposed to pay a healthy chunk of change to the US government, but was siphoning off most of the profits, the feds would be on them "like flies on manure". Especially if the US corporation's board was stacked with foreigners. Lastly, though improbably, if the US was dependant on this corporation for most of its resources, I can imagine Washington getting downright nasty. |
| Posted by: Anonymoose 2005-03-05 3:20:19 PM |
| #6 it's NYTimes. If it'll hurt America, they're all for it. |
| Posted by: Frank G 2005-03-05 2:24:57 PM |
| #5 One thing for sure is that US Multinationals are being slowly faced out. India signs deal to operate Venezuelan oilfield http://in.news.yahoo.com/050305/137/2jzwk.html |
| Posted by: TMH 2005-03-05 2:20:08 PM |
| #4 Does this mean they're taking down the Citgo sign near Fenway Paahhk? |
| Posted by: Raj 2005-03-05 2:06:47 PM |
| #3 Where's Mark Espinosa? |
| Posted by: Shipman 2005-03-05 2:05:58 PM |
| #2 Sometimes I think these guys really believe that our economy will just stop dead if they can dry up our oil. It would be more like 9/11. It would knock us down to one knee - but we'd be back up in no time. I don't wish it would happen, but if it did - we would create technology that would have these oil shieks farming dirt within 10 years. |
| Posted by: 2b 2005-03-05 2:05:02 PM |
| #1 Their gas is usually cheaper than Shell's. Eh, oil's fungible. It'll suck, but that's the way it is. |
| Posted by: anonymous2u 2005-03-05 1:39:21 PM |
