HOUSTON (Reuters) -A U.S. court officer has selected miner Gold Reserve's ( GDRZF )$7.38 billion bid as the preliminary winner of an auction of shares in the parent of Venezuela-owned Citgo Petroleum, following heavy competition for the seventh largest U.S. refiner.

Court officer Robert Pincus, who oversees the auction, made his recommendation on Wednesday after evaluating a total of five offers submitted in the "topping" period of the bidding round, completed in late June.

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

The bidding round initiated this year is expected to be completed soon if Judge Leonard Stark approves the bid next month, following a string of delays. The final hearing on results is set for August 18.

A $3.7 billion starting bid by Contrarian Funds' affiliate Red Tree Investments, which included a separate $2 billion agreement to pay holders of a defaulted Venezuela bond, kicked off the round in March. Rivals began placing their offers in April.

Rival bidders included the group led by Gold Reserve's ( GDRZF ) Dalinar Energy Corporation; a consortium led by private equity firm Black Lion Capital Advisors; and a group led by commodities house Vitol, according to court filings and sources. 

Some bidders' names were not revealed by the court, and some offers received did not meet the requirements to qualify.

Pincus had said the recent resolution of parallel legal cases in pursuit of the same assets was encouraging new bids.

Even though the cash component of Gold Reserve's ( GDRZF ) winning bid seems lower than rival offers, it covers 11 of the 15 creditors in the auction, including its own $1.18 billion claim for the expropriation of assets in Venezuela.

Pending claims by oil producer ConocoPhillips ( COP ), miners Rusoro and Crystallex and conglomerates Koch, OI Glass and Siemens Energy would also be compensated.

The Gold Reserve ( GDRZF ) group's offer did not include an agreement to pay holders of a Venezuelan defaulted bond, which could ultimately delay or interfere with the distribution of auction proceeds, according to bidders and analysts.

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.

Judge Stark has left open a possibility for parties representing Venezuela to submit an offer. But boards supervising the 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 state-run oil company PDVSA, in 2019, Venezuela has struggled to find new markets for its oil, while the Houston-based refiner has resorted to other crude suppliers.

Venezuela's opposition, which through its Congress majority in 2019 appointed the boards that now supervise the refiner, 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 said 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 of 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 winner, Elliott Investment Management's affiliate Amber Energy, can submit objections if dissatisfied with its results. 

They and other creditors outside the Delaware case can also continue parallel cases in other U.S. courts, which so far have not significantly progressed to enforce bond-related claims or prove that PDVSA's U.S. subsidiaries should be liable for Venezuela's debts, a necessary step to pursue Citgo's assets.

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. Citgo was valued in up to $13 billion as part of the Delaware case, but offers in all bidding rounds have remained below $11 billion.

The refiner's profit plummeted to $305 million last year from $2 billion in 2023.

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