*

Selection of Amber's bid as frontrunner triggered

objections

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Previous Amber bid last year failed to please creditors

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If bondholders lose NY case, Delaware can proceed with

Amber's

bid or go to re-bidding process

By Marianna Parraga

HOUSTON, Sept 16 (Reuters) - Creditors lining up in a

U.S. court to cash proceeds from the auction of Citgo

Petroleum's parent began examination proceedings in a hearing of

experts, advisers and an executive from Elliott Investment

Management, whose affiliate Amber Energy has emerged as the

bidding round's frontrunner.

Amber's $5.9 billion bid for Citgo parent PDV Holding was

recommended last month by a court officer as winner of the

auction, aimed to compensate 15 creditors for debt defaults and

expropriations in Venezuela.

The bid's defining feature is a $2.1 billion payment

agreement with holders of a defaulted bond issued by Venezuelan

state company PDVSA that was collateralized with Citgo equity.

The choice triggered objections from rival bidder Gold Reserve ( GDRZF )

, some junior creditors and Venezuela, which argue that

the bondholders need to first win a separate New York case over

the validity of the notes before claiming any compensation.

As part of an eight-year case, the Delaware court has been

trying since last year to complete the auction of shares of PDV

Holding to satisfy up to $19 billion in claims from debt

defaults and expropriations against its ultimate owner,

Venezuela.

Delaware Judge Leonard Stark on Monday said he could decide on

the auction's winner after the hearing, set to go through

Thursday, or next month if the court sets a new date for more

arguments to be presented.

A previous bid from Amber last year failed to please the

creditors, leading the court to change the structure of the

auction and organize two new bidding rounds this year. The

resolution of some parallel legal cases in pursuit of the same

assets encouraged improved offers, unleashing a bidding war in

the auction's final stage.

"We probably learned our lesson with respect to the original

Amber bid," Elliott's counsel Michael Turkel told the court on

Monday. "We didn't understand the importance and necessity of

engaging with the writ holders and understanding effectively how

our bid would not just be a purchase of the asset for us, but be

a problem-solving mechanism for them."

Lawyers asked if Amber's bid, and its linked pact with the

bondholders, would stand if they lose the separate New York

case.

William Hiltz, managing director at Evercore ( EVR ), which

is advising the court, said on Tuesday that if those bondholders

win their case, Amber's bid would be set to move forward. If

they lose, the court could still proceed with Amber's bid or

choose to begin a quick re-bidding process, he added.

Amber declined to comment.

Parties also discussed challenges related to obtaining antitrust

clearance and asked about Elliott's role at rival energy

companies, including at Phillips 66. An alleged conflict

of interest was flagged this year following Elliott's

acquisition of a stake in the U.S. refiner.