Venezuelan Firm Plans to Buy 50% of Citgo Petroleum

The state-owned oil firm Petroleos de Venezuela will sign an agreement on Monday to purchase half of Citgo Petroleum from Southland Corp. for $290 million, Venezuelan Energy and Mines Minister Arturo Hernandez Grisanti announced Wednesday.

Officials of Dallas-based Southland confirmed that they intend to sign the agreement if it is approved by Venezuelan government officials.

“We anticipate signing on Monday or shortly thereafter. We don’t have the terms of the agreement,” said Henry Stanley, vice president of investor relations.

The accord is Petroleos de Venezuela’s third joint venture and obeys its policy of associating with firms in its major foreign markets in order to assure sales and improve earnings.

Along with joint ventures with the West German refiner Veba Oel and the Swedish asphalt maker Nynas Petroleum, the Citgo deal will enable Petroleos de Venezuela to sell about 20% of total daily exports to associated firms.

The company is also negotiating to buy into the U.S. firm Champlin Petroleum of Fort Worth. Talks with Steuart Petroleum, another U.S. refiner, failed earlier this year when Steuart pulled out.

Hernandez told a news conference that $120 million of the $290 million total purchase price in the Citgo deal will be paid in cash and the remainder in crude oil.

Venezuela’s Cabinet approved the transaction on Wednesday, after a congressional committee released a report praising the proposed deal, Hernandez said.

“The profit margins (of the Citgo deal) are above the levels that are normal for refining and marketing of finished products,” the Energy and Mines Committee wrote.

The committee concluded that Petroleos de Venezuela’s joint venture policy “is a valid alternative to assure stable and secure markets for Venezuelan crudes and products in international markets.”

Since a letter of intent was signed by Southland and Petroleos de Venezuela in February, Petroleos de Venezuela has been sending 140,000 42-gallon barrels of oil per day to Citgo for a total of $300 million in revenue, the report said.

Under the purchase agreement, Petroleos de Venezuela has the option of increasing its daily sales to Citgo to 200,000 barrels daily.

Last July, Petroleos de Venezuela signed a $20-million contract to buy half of the Axel Johnson industrial group’s Nynas Petroleum, to which Venezuela sends 40,000 barrels daily.

Petroleos de Venezuela’s first joint venture was formed in 1983 with the West German refiner Veba Oel, to which it sends 140,000 barrels a day.

Petroleos de Venezuela officials say the firm’s goal is to place about half of its 1.5-million-barrel daily production in exports with associated firms.