CARACAS, Venezuela -- Citgo Petroleum Corp. parent and Venezuelan government-owned Petroleos de Venezuela (PDVSA) is seeking to renegotiate crude supply contracts with Citgo as part of government efforts to increase oil revenues.
"We are trying to change the structure of the supply agreements to maximize returns from the crude sales," a spokesman for the Ministry of Energy and Mines told Reuters Tuesday. Under the new supply terms, Citgo would pay market prices for heavy sour oil purchased from PDVSA, rather than the discounted prices the subsidiary currently enjoys. The new contracts would make it easier for the government to access oil money and increase profits to Venezuela, the world's No. 4 oil exporter, from the U.S. downstream operation, the spokesman added.
Citgo officials told Reuters the company had not been contacted by PDVSA to renegotiate supply deals.
In recent years, according to the report, Citgo has been paying between $1.50 to $2.50 below market prices for a barrel of Venezuelan crude under current agreements. Citgo processed 413,500 barrels per day (bpd) of crude from Venezuela in 2001, primarily through long-term supply deals. Venezuela exports over 2 million bpd of crude and refined products, primarily to the United States. Citgo is the top buyer of Venezuelan crude.
It was not clear whether there would be an attempt to modify joint venture supply contracts between Citgo and U.S. firms, the Ministry official said.
PDVSA is currently facing a lawsuit Lyondell Chemical Co. for breaking a crude sales contract at their joint venture refinery in Houston. Lyondell claims PDVSA broke its contract in recent years by reducing oil supplies in order to comply with Venezuela's OPEC quotas. Renegotiating the contracts will not be easy as Citgo has several outstanding bonds which would be affected, analysts and Citgo sources told Reuters.
The move to maximize crude revenues comes after a February shake-up of PDVSA's board of directors by President Hugo Chavez aimed at bringing the state oil giant more firmly under government control. Chavez says the state company should contribute more to Venezuela's wider economy and that the funds are needed to support his self-proclaimed "revolution" for the nation's poor. Oil sales contribute a half to a third of government revenues.
As previously reported, dissident PDVSA executives and managers, fighting the board reshuffle, have staged protest demonstrations over the past four weeks, including work slowdowns and a one day administrative stay-away. These protests have not so far affected vital production, refining and export operations.
