The US may intervene in the interim Venezuelan government’s legal fight with creditors over control of Citgo, but it wants negotiations over this weekend’s bond payment deadline to play out first, a State Department official said Tuesday. PDVSA has until Sunday to make a $913 million payment on 2020 bonds, which are backed by a 50.1% stake in its US refining arm Citgo.

“We’ve been tracking the negotiations very, very closely, and we want to make sure that there’s an opportunity for this to be resolved between the parties before there’s any other action taken,” US State Department Deputy Assistant Secretary Carrie Filipetti said Tuesday on the sidelines of an Atlantic Council event in Washington. “We’re aware of the sensitivity of this issue,” Filipetti added. “It’s important to us that we’re doing as much as we can to resolve it in a fair way.”

Control of Citgo’s three complex US refineries are at stake: its 418,000 b/d plant in Lake Charles, Louisiana; 157,000 b/d plant in Corpus Christi, Texas; and 179,265 b/d plant in Lemont, Illinois. Before the US imposed sanctions in January, PDVSA depended on Citgo for supply of refined products and diluent, and as an export destination for its crude.

Alejandro Grisanti, a director on the interim government’s PDVSA board, told reporters at the same event he remains optimistic either a deal for a new payment plan can be reached with bondholders or the US administration can take action to prevent a default.

The 2020 bondholders currently have a Treasury Department license shielding them from Venezuela sanctions. The administration could revoke the waiver to block bondholders from taking control.

Grisanti said the Guaido administration has been making the case to the US government that losing Citgo would be a major blow for Venezuela’s transition to democracy. “The people need to recognize and understand that these are debt that we are receiving from Nicolas Maduro,” he said. “The transition is taking longer than what we expected and would like, but we are sure we will win this battle.

“We’re basically asking for time in order to try to look for the solution of all the claims that PDVSA has,” he added. Grisanti said Venezuela’s oil production collapse will accelerate as long as Maduro stays in power, likely hitting 450,000 b/d next year.

VENEZUELA OIL OUTPUT

S&P Global Platts estimates Venezuela’s October oil production at 650,000 b/d, which it sees falling to 550,000 b/d by December 2020. However, “risks are greater to the downside,” said Paul Sheldon, chief geopolitical adviser. Venezuela’s crude output shrank to 600,000 b/d in September, according to the latest Platts OPEC survey, even less than the 650,000 b/d it pumped in January 2003 amid a PDVSA strike.

Luisa Palacios, Citgo’s chairwoman, said in Washington earlier this month the company has aggressively tried to consolidate its debt, including replacing maturing $1.2 billion lines of credit with a five-year, $1.2 billion term loan, and $1.87 billion in bonds with a four-year term loan and five-year bonds. Palacios said Citgo still represents roughly 10% of total finished product exports out of the US Gulf Coast, but said this year has been a challenge for the company, primarily because it lost its biggest customer, PDVSA. But other factors, including Mexico’s declining oil output and production cuts in Alberta, Canada, have caused heavy crude supply to shrink.

“This is not the best environment, particularly for the type of refineries that we have,” she said.