A Chinese company with both the capital and ambition to strategically expand its influence is the most likely suitor for Citgo Petroleum Corporation (CITGO), which state-owned Petróleos de Venezuela, S. A. (PDVSA) is looking to sell for at least $10 billion, with a Canadian bid also possible, says an analyst with research and consulting firm GlobalData.
Carmine Rositano, GlobalData's Managing Analyst covering Downstream Oil & Gas, states that Chinese companies, such as Sinopec and China National Offshore Oil Corporation, have already invested billions of dollars in Canadian oil sands projects and could use their equity production to supply heavy sour crude oil to the CITGO refineries.
GlobalData asserts that while the assets on offer are strategic to the US energy complex, a Chinese bid would be more flexible in terms of structuring a deal that meets PDVSA and Venezuela's requirements.
Rositano says: "Venezuela currently exports 500 thousand barrels per day (mbd) of crude to China to pay off its $17 billion debts, but additional loans now require a further 100 mbd. Despite extensive reserves, PDVSA has struggled to meet production targets as the government has allocated increasingly less funding to upstream development.
"As such, freeing up crude that would otherwise be sold to CITGO would enable Venezuela to meet its obligations with China."
Another possibility is that a Canadian oil company will bid for CITGO's assets. Suncor and Husky Oil own refineries in the US, with Suncor processing Canadian crudes at its facilities and Husky Oil upgrading its refinery to increase the running of Canadian oil sand crudes.
Rositano explains: "Canadian oil sands crude production is forecast to increase steadily, and the status of proposed pipelines to transport crudes to Canada's west coast for exports is now uncertain, with lawsuits against the proposals pending.
"Purchasing the three CITGO refineries, which are already geared to run heavy sour oil sand crudes, would appear to be a good option for a Canadian oil company."
Although PDVSA has long considered selling CITGO, Rositano believes the timing is now better than ever, and says that reasonable offers are not only likely to be considered, but previous deals suggest that they will be lower than the reported $10 billion asking price.
