Citgo credit rating still falling as strike in Venezuela lingers

www.newsok.com 2003-02-08 By Adam Wilmoth The Oklahoman

TULSA -- The credit rating of Tulsa- based Citgo Petroleum Corp. continued to tumble Friday as the oil strike in Venezuela continues after nearly 10 weeks.

Citgo, which is owned by Venezuela's national oil company and until December received more than half the oil for its three refineries from its parent company, took its second downgrade from Fitch Ratings this year. It is the company's fourth downgrade since the strike began Dec. 2. All three credit agencies have dropped Citgo's debt rating to junk status.

Fitch on Friday dropped the company's debt rating to B+ from BB- citing the volatile situation in Venezuela and the potential for Citgo to acquire more debt.

Citgo spokesman Kent Young declined to comment on the downgrades, but he said the company's three key refineries -- in Lake Charles, La., Corpus Christi, Texas, and Lemont, Ill. -- were running at full capacity.

In an SEC filing Friday, Citgo said the company continues "to be able to locate and purchase adequate crude oil, albeit at higher prices than under the contracts with (parent company) PDVSA, to maintain normal operations at our refineries and to meet our refined products commitments to our customers."

But in December 2002, Citgo received only 59 percent of the crude oil volumes it received from its parent company the previous December. Volumes improved to 94 percent in January, but are expected to fall to about 80 percent in February, according to the SEC filing.

The Tulsa company is having to make up for the lost crude by buying oil on the market, where crude oil traded above $35 on Friday.

"They're facing a triple whammy," said Bruce Bell, chairman of the Mid- Continent Oil and Gas Association's Oklahoma division. "Their supply is gone, they're having to buy oil and prices are higher than they have been in a significant amount of time."

And every time Citgo's credit is downgraded, it makes borrowing money to pay for that more expensive crude more costly.

"A downgrade always comes at the wrong time," Tulsa money manager Fred Russell said. "It comes at a time when a company with a lot of debt needs refinancing or more loans. Downgrades are painful confirmation of the nervous existence companies with much debt must face, and you can almost be assured that one downgrade, especially in bad economic times, leads to more downgrades."

Citgo's output represents about 5 percent of the nation's refining capacity. The company also has 13,400 gasoline retail outlets.

Opponents of Venezuelan president Hugo Chavez have staged a general strike for nearly 10 weeks in hopes of causing a nonbinding referendum on his rule. They say the twice-elected Chavez is authoritarian, while his supporters accuse strikers of plotting a coup.