*

Judge Failla rules PDVSA's 2020 bonds valid under

Venezuelan law

*

Citgo's assets at risk due to PDVSA's default

*

Delaware Judge Stark moves to support Amber Energy's bid

for

Citgo parent

(Recasts lede, adds decisions by Delaware judge in paragraphs

11-14)

By Luc Cohen and Marianna Parraga

NEW YORK/HOUSTON, Sept 18 (Reuters) - A U.S. judge

upheld the validity of Venezuelan state oil company PDVSA's 2020

bonds on Thursday, prompting a judge in another court to move

towards the completion of an auction of shares in the parent of

Venezuela-owned U.S. refiner Citgo Petroleum.

The bonds are secured by a majority stake in Citgo,

which is ultimately owned by Caracas-headquartered PDVSA. The

state oil company defaulted on the bonds in 2019, putting the

Houston-based refiner at risk of seizure by creditors.

For years, bondholders and companies expropriated in

Venezuela have clashed in U.S. courts in pursuit of the

country's overseas assets, especially its crown jewel Citgo,

after winning arbitration cases.

After Washington sanctioned PDVSA in 2019 as part of its

push to oust Venezuelan President Nicolas Maduro, Citgo severed

ties with PDVSA and the refiner's control was taken over by

Venezuela's political opposition through supervising boards.

The opposition has been trying to protect Citgo and

other assets from creditors seeking redress for defaulted debt

or expropriated assets. The opposition had argued that the 2020

bonds were not properly issued under Venezuelan law.

On Thursday, U.S. District Judge Katherine Polk Failla in

Manhattan ruled that the bonds were indeed properly issued. She

had declared the bonds valid in 2020, but an appeals court later

ordered further review.

"Today's decision is as bad as the previous one, and we will

appeal it. We have plenty of grounds for that," said Horacio

Medina, head of a board supervising Citgo.

After Failla's ruling, the final hearing of a separate

auction of shares in Citgo's parent before U.S. District Judge

Leonard Stark in Delaware was temporarily suspended to allow the

court to review the impact of the New York judge's decision.

The auction, in which 15 companies and noteholders are

pursuing Citgo's assets, is expected to determine the future of

the seventh-largest U.S. refiner. Frontrunners include a unit of

miner Gold Reserve ( GDRZF ) and Amber Energy, an affiliate of

hedge fund Elliott Investment Management. A decision on the

winner is pending.

Failla's decision is expected to help untangle the auction,

which has seen three bidding rounds since last year, lawyers and

experts said.

After the hearing resumed hours later, Judge Stark denied

Gold Reserve's ( GDRZF ) motion to disqualify Amber's bid and instructed a

court officer overseeing the auction to terminate a stock

purchase agreement with the miner and sign a new one with Amber

to move the process forward, Gold Reserve ( GDRZF ) said in a release.

The move had been requested this week by court officer

Robert Pincus and some creditors in favor of Amber's bid, which

includes a $2.1 billion pact to pay the bondholders.

Other parties had proposed that Judge Stark keep both offers

on the table.

Gold Reserve ( GDRZF ) said it was expecting a written opinion and

order from the court shortly. Amber did not reply to a request

for comment. Representatives of the 2020 bondholders declined to

comment.

The Delaware sale hearing finished on Thursday after more

than 30 hours of testimony and questioning.