An affiliate of Paul Singer's Elliott Management won an auction for Citgo late last year
Paul Singer has a track record of making bold and combative bets in South America.
Just a few weeks ago, a U.S. hedge-fund manager known for playing the long game in Latin America won a protracted battle for one of Venezuela's crown jewels. That bet now looks shrewd in light of the American military operation that captured Venezuela's president, Nicolás Maduro, over the weekend.
Amber Energy, an affiliate of Paul Singer's Elliott Management hedge-fund firm, emerged victorious in late November in an auction for U.S. oil refiner Citgo Petroleum Corp. The refiner is a subsidiary of Venezuela's state-owned company PDVSA.
The forced auction was a lengthy process that pitted Amber Energy against one other contender, Gold Reserves Ltd., a creditor of Venezuela that had its gold- and copper-mining assets expropriated. The winning bid from the Elliott Management affiliate came in at $5.89 billion, lower than the $7 billion bid from Gold Reserves, but a federal judge in Delaware viewed Elliott's bid as most likely to close, as it included payments to Venezuela's creditors.
The deal is expected to close this year, lawyers involved in the situation have said.
Citgo's assets include three U.S. refineries located in Lake Charles, La.; Corpus Christi, Texas; and Lemont, Ill., in addition to pipelines, terminals and other downstream assets. Venezuela has massive oil reserves that mostly consist of heavy, sour crude that U.S. Gulf Coast refineries are historically suited to handle.
Venezuela has seen waves of expropriations, starting in the 2000s under President Hugo Chavez and continuing under Maduro. The country began defaulting on its debt obligations in 2017. A U.S. judge eventually forced an auction of Citgo so the proceeds could flow to creditors of the Venezuelan government.
Analysts at Mizuho said in a note earlier Monday that in a "best possible scenario," U.S. major oil companies will invest in the infrastructure needed to boost Venezuela's oil production.
Venezuela is producing about 1 million barrels of oil a day, with Chevron Corp. (CVX )accounting for some 20% of production, the analysts said. "Production should be able to ramp up to around 1.5 million bpd rather quickly, though it will take significantly longer" to get to the 3.5 million barrels Venezuela was pumping before Chavez's rise to power in the late 1990s, they said.
U.S. publicly traded refiners such as Valero Energy (VLO) were among the top gainers Monday on hopes that their Gulf refineries, and presumably Citgo's refineries, would stand to gain from the additional Venezuelan oil arriving at their facilities.
Amber Energy and Elliott did not immediately return requests for comment. On its website, Amber says it is "focused on strengthening CITGO's world-class assets to deliver essential products that power communities and advance America's energy advantage."
Singer is known for making financial contributions to Republican political candidates, including President Donald Trump. Singer and Elliott, which manages $76 billion, also have a well-known track record of making bold and combative bets in South America that have a political dimension.
Singer's hedge fund famously waged a 15-year battle with Argentina for debt Elliott had bought before and after the country's default. Elliott and other holdouts emerged victorious in 2016, earning Singer's hedge fund $2.4 billion - a gain of about 10 to 15 times its original investment, the Wall Street Journal reported at the time.
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