Matt Levine / Bloomberg: Citgo, Boy oh boy
U.S. refiner Citgo Petroleum Corp is formally cutting ties with its parent, state-run oil firm Petroleos de Venezuela SA, to meet U.S. sanctions imposed on the OPEC country, two people close to the decision told Reuters on Tuesday. …
Citgo has halted payments to its parent, subscriptions to corporate services, email communications and minimized mentions to PDVSA on marketing materials and its website.
Corporations are people, my friend, and every so often people become estranged from their parents and stop speaking to them, so at first glance this may not seem that weird. But it's super weird! PDVSA is Citgo's “parent” in the sense that it is Citgo's sole shareholder; it would not be at all unusual to say that this means that PDVSA“owns” Citgo. If you owned a car, and your car one day decided to formally cut ties with you, you'd be perplexed. Of course Citgo is not just a machine, or a collection of machines; it's also a collection of humans, and those humans are always free to cut ties with their corporate bosses. Normally people do this by “quitting their jobs.” But that's not what they're doing here. They're keeping their jobs, and the corporate structure, and the corporate name and the business relationships, and still going to work each day with the machines. The entity has survived intact and mostly unchanged; its ownership has not.
So who … does … own Citgo? The U.S. government has rendered it impossible for PDVSA to own Citgo's shares, but it hasn't confiscated those shares; the U.S. Treasury does not own Citgo. The workers and managers of Citgo are still going to work after cutting ties with their corporate parent, but they have not expropriated the company for themselves; it is not a worker-owned cooperative. It is not a non-profit. It's just a sort of floating ownerless anomaly?
The real answer seems to be that Citgo is still owned by PDVSA, but not by the actually existing PDVSA in Venezuela; Citgo is owned by a hypothetical future PDVSA that will be controlled by a Venezuelan regime that is recognized by the U.S. (Or perhaps by a semi-hypothetical present PDVSA that has no operations, but that does have a skeletal management appointed by the U.S.-recognized opposition Venezuelan regime? Or perhaps Citgo's shares are held in trust for the future PDVSA?) Like Venezuela's interim opposition government, Citgo's emancipation is a provisional interim step, and eventually things will get back to normal.
But what if they don't? What if the government of Nicolás Maduro remains in power, and the sanctions remain in effect, and the hypothetical PDVSA never merges with the real one? What if the opposition loses its credibility and its claim to govern Venezuela, and Venezuela just continues indefinitely under U.S. sanctions? Will Citgo just continue indefinitely as an ownerless corporation? Who will appoint its board and its managers? What will it do with its profits? Who will it work for? How will it decide? Sometimes corporations are a mystery.
Elsewhere: “The U.S. is considering sanctions against Wall Street billionaire David Martinez as part of its effort to topple Nicolas Maduro's regime by cutting off its access to financing.” And: “ Evolving Venezuela Sanctions Pose Problems for Banks.”
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Matt Levine is a Bloomberg Opinion columnist covering finance. He was an editor of Dealbreaker, an investment banker at Goldman Sachs, a mergers and acquisitions lawyer at Wachtell, Lipton, Rosen & Katz, and a clerk for the U.S. Court of Appeals for the 3rd Circuit. Petroleumworld does not necessarily share these views.
Editor's Note: This article was originally published by Bloomberg, on Feb.26, 2019. Petroleumworld reprint this article in the interest of our readers. All comments posted and published on Petroleumworld, do not reflect either for or against the opinion expressed in the comment as an endorsement of Petroleumworld.
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