ConocoPhillips Slams PDVSA Debt Swap as $5.3 Billion Fraud (2)

By Joe Carroll and Sophia Pearson

• Debt swap is PDVSA’s attempt to ‘cash out’ of Citgo: lawsuit
• Proposed debt exchange deadline delayed amid skepticism

(Bloomberg) --

ConocoPhillips sued Venezuela’s state-owned oil company over an already-troubled $5.3 billion debt swap proposal that the U.S. explorer said is set up to defraud creditors and move assets to the Latin American country.

Petroleos de Venezuela SA, known as PDVSA, has offered a majority stake in its U.S.-based Citgo refining arm as collateral for bonds it wants to exchange for notes maturing next year. The swap, which was met with so much skepticism among holders that a preliminary deadline was extended for six days on Thursday, is intended to monetize Citgo while avoiding paying reparations to foreign operators for Venezuelan oilfield seizures, ConocoPhillips said in a lawsuit filed in Delaware Thursday.

“The financing operations objected to are perfectly legal and legitimate, and ConocoPhillips’ claims are unfounded,” PDVSA said in e-mailed statement.

ConocoPhillips, the second-largest independent U.S. oil producer, is one of several natural-resources companies whose Venezuelan oilfields, mines and other assets were nationalized during the past decade as the regime of former President Hugo Chavez sought to increase control of the nation’s economy. Foreign companies have appealed to international arbitration panels for more than $10 billion they say they are owed for the seizures.

Citgo Assets

Citgo, which can process about 750,000 barrels of crude daily at three U.S. refineries, is one of the few significant PDVSA assets that ConocoPhillips and the other companies may be able to lay their hands on. Stung by the worst oil-market slump in a generation, cash-strapped PDVSA is scrambling to roll over debt to stave off interest and principal payments that will eat up billions of dollars of its dwindling cash reserves.

The suit seeks a court order barring PDVSA from further disposing of assets.

The proposed debt swap “is a continuation of Venezuela and PDVSA’s campaign to liquidate, expatriate, encumber and/or shield its U.S. assets so they cannot be seized by Venezuela and PDVSA’s many judgment creditors,” according to the complaint.

‘Unfounded Allegations’

“The claim filed on Thursday is just another maneuver from ConocoPhillips, and it’s not the first time they have resorted to such actions and unfounded allegations,” PDVSA said. “PDVSA will face this new action in the same way that it has faced similar actions in the past.”

After PDVSA’s 2014 attempts to sell Citgo failed, the company raised $2.8 billion in February 2015 in a complicated Citgo-backed debt offering and sent all the proceeds back to Venezuela, ConocoPhillips said in its complaint.  

In September, PDVSA again continued with its efforts to “cash out” its Citgo interest, according to the complaint. The company has proposed exchanging about $5.3 billion in debt maturing this year and next with new notes with staggered maturities over the next four years.

Last month, a judge in the same Delaware court ruled that a PDVSA subsidiary must face a similar lawsuit filed by Crystallex International Corp. over Venezuela’s alleged unlawful expropriation of mining rights and investments belonging to the Canadian company. PDVSA, which was also named in the lawsuit, has asked the court to dismiss the case. Crystallex said Venezuela orchestrated a scheme to monetize its U.S. assets in order to evade a potentially large arbitration award in a pending case.

Fraud Claim

The proposed debt swap is one of “numerous attempts by Venezuela and PDVSA to defraud creditors who hold arbitration awards or anticipate to hold them,” Daren Beaudo, a ConocoPhillips spokesman, said in an e-mailed statement. “We are asking that the court recognize these transfers as fraudulent, direct defendants to return any assets that were fraudulently transferred, award money damages, invalidate any security interests or other obligations resulting from the fraudulent transfers as may be appropriate, and prevent any further fraudulent transfers.”

The ConocoPhillips case is ConocoPhillips v. Petroleos de Venezuela SA, 16-00904, U.S. District Court, District of Delaware (Wilmington). The other case is Crystallex International Corp v. Petroleos de Venezuela SA, 15-01082, U.S. District Court, District of Delaware (Wilmington).

(Updates with comments from PDVSA in third and eighth paragraphs and from ConocoPhillips spokesman in 12th paragraph.)

Related tickers:
COP US (ConocoPhillips)
PDVSA VC (Petroleos de Venezuela SA)

--With assistance from Joe Schneider and Nathan Crooks