By Joe Petrowski
On August 9 a U.S. federal judge authorized the seizure of the Venezuelan state oil company Petróleos de Venezuela SA’s U.S.-based CITGO assets, to fulfill a legal finding. Creditors are lined up to recoup losses incurred mainly under the socialist Hugo Chávez regime, in many cases due to nationalizing business operations, and CITGO represents some of the last remaining assets with any value and accessibility. If Citgo goes to the auction block, as it looks likely, this is what industry mavens expect its assets are worth:
- 3 very complex refineries 750,000 barrels/day capacity $150 million
- 48 terminals 22 million barrels storage $800 million
- 6,000 flags selling 1.2 billion gallons $60 million
- 6 pipelines $425 million
- Lubricant brand and business $65 million
Total hard assets: $1.5 billion
Total debt: $21.8 billion
Net worth: -$20.3. billion
With all the liens on the assets (especially by the Russians), a negative net worth and the political chaos in Venezuela this process will not be easy or short. Complicating the situation will be multiple buyer classes and declining refinery values (last week was highest refinery run to capacity in 7 years).
If the USSR, China, Cuba, Venezuela and other failed socialist paradises have not taught us anything (and in a country where socialism is moving more mainstream in US politics we are apparently slow on the uptake) it’s that “we’ll do socialism better next time” is a time and place that never seems to arrive. Consider these other facts in Venezuela:
- Inflation 100,000% bolivar 10,000 to the dollar
- Economy contracted by 30%
- Per Capita Murder rate of 90 per 100,000
- No toilet paper
- No food or medicine
- Some 10,000 leaving per day, many on foot
- Shortage of 2 million homes
When you add it all up it is probably is wise to remove Venezuelan oil from the world balance sheet for the foreseeable future.
Joe Petrowski has had a long career in international commodity trading, energy and retail management and public policy development. He currently serves as Director of Fuels for Yesway, where he oversees all operations of the fuels team, including pricing, procurement, and management of the firm’s fleet services program. In 2005, he was named President and CEO of Gulf Oil LP and elected to the Gulf Oil LP Board of Directors. In October of 2008, he was named CEO of the now combined Gulf Oil and Cumberland Farms, whose annual revenues exceed $11 billion and that now operates in 27 states. In September 2013, Petrowski stepped down as CEO of The Cumberland Gulf Group. He is Managing Director of Mercantor Partners, a private equity firm investing in convenience and energy distribution, and a member of the Gulf Board.