Lyondell buys out Citgo refinery stake for $2.1B - owned by Venezuela's national oil company

Marketwatch ^ | Last Update: 7:47 PM ET Aug 16, 2006 | Jim Jelter, MarketWatch

[Ernest_at_the_Beach]

SAN FRANCISCO (MarketWatch) -- Lyondell Chemical Co. said late Wednesday it bought out Citgo Petroleum Corp.'s stake in the Lyondell-Citgo refinery, a giant 268,000 barrel-per-day facility on the Houston Ship Channel, for $2.1 billion.

Citgo, a wholly-owned subsidiary of Venezuela's national oil company Petroleos de Venezuela S.A. (PDVSA) since 1990, held a 41.25% stake in the joint refining venture.

Lyondell said the move, made when refining margins are running high along the Gulf Coast, will add immediately to the company's bottom line and help it to reduce its debt load.

At he same time, Lyondell said it secured a five-year contract to buy 230,000 barrels of crude a day from PDVSA to ensure a steady supply of oil to the refinery. Terms of the deal were not disclosed, but Lyondell said the heavy, high-sulfur crude that the plant is designed to process would be bought at market price.

Heavy crude typically brings a lower price in the oil market because it costs more to refine. Lyondell-Citgo was among the few U.S.-based refining operations that designed their plants to cash in on that discount, handing in some of the highest refining margins in the business. Those margins have improved dramatically over the past year amid tight refining capacity and continued strong demand for petroleum products.

Valero Energy Corp. is another Texas-based company that has tooled its refining operations to take advantage of the price spread between heavy and light crude oil.

Citgo's exit from Lyondell-Citgo brings to a close an increasingly strained relationship between the partners, the result of Venezuelan President Hugo Chavez's push to make foreign oil companies pay higher production taxes while insisting that Venezuela exert greater control over its strategic resources.

Before the announcement, Lyondell shares closed with a 78-cent gain, or 3.4%, at $24.

Jim Jelter is Industrials Editor for MarketWatch in San Francisco.

[1rudeboy]

I hope they know what they're doing. Sounds like a gamble that oil prices will remain at their level.

[Ernest_at_the_Beach]

Good move from a national security point of view as is this:

Bomber synthetic fuel tests to start in September - B-52 as a test vehicle for coal based fuel

[SierraWasp]

Wull crap! I just posted this and pinged you guys!!!

[Dog Gone]

Chavez is going to phase out his US operations over time. He'd rather sell oil and refined products at a discount to other countries in order to boost his political stature and clout.

He'll probably sell Citgo altogether.

[green iguana]

Now that Citgo no longer has a stake in the refinery, watch for Venezuela to tear up that 5 year contract and stop supplying it (us) with oil.

[Ole Okie]

Sounds like a gamble that oil prices will remain at their level.

Depends on how the contract with PDVSA is framed. The writeup says they have contracted for 230,000 bbl/day of heavy, high sulfur Venzuelan crude "at market prices". If those are the actual contract terms, they are probably all right.

[Ernest_at_the_Beach]

I don't see a ping.

Did I miss something?

[Ernest_at_the_Beach]

Valero seems to be expanding, see a few more of those stations out here, usually low man in the area.

I think they came out of Diamond Shamrock....Texas Panhandle company I think in origin....

[Admin Moderator]

SW posted the same story within a couple minutes of Ernest's thread, and it was pulled as a duplicate.

That's nobody's fault. You were both preparing your articles at the same time. The first one to get posted stays.

[Dog Gone]

That's correct. They are a big refiner and also market under the brand names of Beacon and Ultramar.

[SierraWasp]

Hey "green iguana," what did you say to me on the pulled, duplicate thread? Anything important?

[SierraWasp]

Well, I still don't get why their holding company's (Valero) Initial Public Offering (VEH) is wilting, rather than taking off!!! VLO is their regular stock and I don't think it's slipping. I think I'll go look. Maybe that's what's wrong...

[Admin Moderator]

To: SierraWasp
Now that Citgo no longer has a stake in the refinery, watch Venezuela tear up that 5 year contract and stop supplying it with crude oil.

6 posted on 08/17/2006 1:18:57 PM CDT by green iguana

[green iguana]

Same exact thing as my post up-thread. Probably not very high on the importance scale ;-)

[Dog Gone]

I don't really know. Valero is a well-run company. They are respected in the industry by their competitors.

[The South Texan]

"Valero seems to be expanding, see a few more of those stations out here, usually low man in the area'

Valero is based in San Antonio and started refining operations along time ago here in Corpus. They bought out Diamond Shamorck (both refining and retailing) a few years ago and just in the last year or two started rebranding all of Diamond Shamrocks assests to Valero.

I'd love to see Citgo bought out here in Corpus. They have two huge refineries that employ alot of people. But I can't stand buying gas from a Citgo outlet because I know a portion of of every dollar I spend goes right into the back pocket of Hugo Chavez. The sooner they sell everything in this country, the better.

[green iguana]

VEH is not the holding company for VLO - it's the holding company for the terminal and pipeline system that VLO formally owned. Actually, VLO still owns 59% of VEH, so I guess you could say that VLO still owns VEH, just not 100% anymore.

[The South Texan]

VEH was the IPO for their pipeline divsion and it didn't take off.

VLO is the common stock for the refining and marketing divsion. It has done real well. Everyone I've ever talked to has or is working for Valero love it.

[Ernest_at_the_Beach]

Hey I wouldn't have bothered if I knew you were already doing this.....