HOUSTON (Reuters) -A U.S. court-organized auction of shares in the parent company of Venezuela-owned Citgo Petroleum has entered its final stages, with bidders submitting improved offers for the U.S. refiner and creditors hoping to recover a portion of the proceeds.

The auction stems from an eight-year-old case that Canadian miner Crystallex initiated in Delaware against Venezuela. The court found Citgo's parent, PDV Holding, liable for Venezuela's debts and expropriations, paving the way for over a dozen other creditors to pursue compensation of nearly $19 billion.

Despite delays, the auction has progressed, especially since last year, through two bidding rounds. A $3.7 billion offer by Contrarian Funds' affiliate, Red Tree Investment, was selected in March as a starting bid and is now being challenged by rivals.

Besides Red Tree, companies competing with improved bids include trading house Vitol, and a consortium including an affiliate of Gold Reserve ( GDRZF ), Rusoro Mining ( RMLFF ), and Koch.

Elliott Investment Management's affiliate Amber Energy is also considering whether to submit a bid, following a separate court decision favoring a possible offer, according to a source familiar with the matter.

A court officer overseeing the auction, who last month said new bidders could emerge right before a June 18 deadline to submit offers, must recommend the auction's winner by July 2. The judge and parties in the case are expected to attend a final hearing on August 18.

How big a loss could this be for Venezuela?

If Venezuela, which owns 100% of the refiner and its U.S.-based parent companies, fails to retain some equity, it would lose its most significant overseas asset. The country, with foreign debt reaching $150 billion, has already lost other assets in Europe and Asia to creditors.

Delaware Judge Leonard Stark has left open a possibility for parties representing Venezuela to submit an offer. But boards supervising the seventh-largest U.S. refiner would need to secure backing from politicians in both Caracas and Washington, a challenge given U.S. sanctions on the OPEC nation and otherwise strained ties.

Prior to the sanctions, Citgo's 807,000-barrel-per-day refining network was a primary processor of Venezuela's heavy sour crudes. Since Citgo cut ties with its ultimate parent, Caracas-based PDVSA, in 2019, Venezuela has struggled to find new markets for its oil, while the Houston-based refiner has sourced crude from other suppliers.

Venezuela's opposition has worked for years to retain Citgo, including funding legal defenses and lobbying in Washington. The U.S. Treasury Department, which has shielded Citgo from creditors in recent years, must approve the auction's eventual winner.

Opponents of Venezuelan President Nicolas Maduro have stated Citgo could aid the nation's economic recovery if democracy is restored. Maduro's officials have rejected U.S. sanctions and called the auction the "robbery" of a sovereign asset.

Can creditors claim post-auction compensation?

Yes. Many creditors including ConocoPhillips ( COP ), which holds the largest claims for almost $12 billion, and Gold Reserve ( GDRZF ), have pursued legal action outside of the U.S. to seize Venezuela-owned assets, such as bank accounts, tankers and PDVSA-controlled storage facilities.

The creditors, who rejected the outcome of a bidding round last year due to conditions imposed by the selected winner, can submit objections if dissatisfied with its results. They can also continue parallel cases in other U.S. courts.

Accumulating legal costs and uncertain recovery prospects led three of the 18 creditors originally cleared by the court to withdraw. Others, including an owner of artifacts that belonged to Venezuelan independence hero Simon Bolivar, did not fulfill all court requirements to participate.

Will all creditors be compensated?

Unlikely. While Citgo was valued between $11 billion and $13 billion as part of the Delaware case, expectations are that the auction will yield no more than $8 billion, factoring in potential side agreements with key creditors, like bondholders.

Citgo's recent weak performance, including a profit that plummeted to $305 million last year from $2 billion in 2023, is also expected to affect its valuation.

These factors suggest that more than half of the 15 registered creditors, collectively claiming $18.9 billion, may not receive distributions from the auction.