HOUSTON, Aug 21 (Reuters) - A U.S. court auction of

Venezuelan-owned U.S. refiner Citgo is heating up after delays

as bidders raise their offers, good news for creditors seeking

compensation from the South American nation for debt defaults

and a wave of nationalizations under late Venezuelan President

Hugo Chavez.

Citgo is the crown jewel of Venezuela's foreign assets.

Last-minute bids have spiced up the competition in the bidding

round due to end this month, in contrast to an underwhelming

round last year.

Units of commodities house Vitol and hedge fund Elliott

Investment Management have recently submitted improved bids to

challenge the front-runner, a subsidiary of miner Gold Reserve ( GDRZF )

.

The intensity of the competition led Judge Leonard Stark to

extend the bidding period through Friday and reschedule the

final hearing on the auction to mid-September.

The case should help repay up to 15 creditors for debt

defaults and expropriations by Venezuela. But many involved and

observing are unclear about the metrics the court officer

overseeing the auction will use to determine the best offer.

Which factors will be considered?

The most difficult challenge for bidders and the team of

court officer Robert Pincus has been to evaluate the offers'

price versus "certainty of closure," a term defining a

proposal's chances of becoming a real takeover.

The auction's winner will need to navigate a complex process

to take over assets amid objections, challenges and other

creditors' attempts to seize them in parallel legal cases.

Some bidders are willing to close a deal for Citgo's parent

and then face parallel lawsuits that could lead to side payments

to creditors later. Other bidders want to secure settlement

agreements beforehand to reduce the risk of any future lawsuit.

Following the resolution of some legal cases since last

year, the most important payment consideration now is to holders

of a Venezuelan defaulted bond collateralized with Citgo equity,

even though the holders have not won their case against

Venezuela in New York. A key decision on that is expected next

month.

Offers submitted in the bidding round include cash, non-cash

considerations and credit bids. This makes their evaluation and

comparison complex, since creditors have the right to approve or

reject some components of the offers.

What has the judge prioritized before?

The court has changed its evaluation criteria since last

year, when most creditors rejected a $7.3 billion conditional

offer by Elliott's affiliate Amber Energy due to a proposed

payment prioritization scheme that would have prevented many

from cashing proceeds any time soon.

In a competition earlier this year to choose a stalking

horse bid, the court selected a $3.7 billion offer by Contrarian

Funds' affiliate Red Tree Investments to kick off the round.

That bid was selected mainly because it included a separate $3

billion payment to the bondholders.

However, Judge Stark later instructed evaluators to

prioritize price over certainty of closure for choosing the

final winner so the payment to bondholders would not eat up

proceeds intended for the creditors that have lined up in

Delaware since 2017.

Will the criteria change to choose the final winner?

It remains unclear, even after a procedural hearing to

discuss the topic this week.

In July, Pincus recommended the Gold Reserve ( GDRZF ) group's $7.4

billion offer as the winning bid. That offer does not include an

agreement to pay the bondholders.

But the bid was later challenged by other offers, including

one by Amber Energy that included a $2.86 billion payment

agreement with the holders.

What will happen after?

Many creditors including ConocoPhillips ( COP ), which holds

the largest claims of almost $12 billion, and Gold Reserve ( GDRZF ), have

pursued legal actions outside of the U.S. to seize

Venezuela-owned assets, such as bank accounts, tankers and

facilities controlled by Venezuelan state energy giant PDVSA.

Creditors can submit objections if they are dissatisfied

with the auction's results. They and other creditors outside

Delaware can also continue parallel cases in other U.S. courts.

But it is unlikely that all 15 creditors, who are

collectively trying to recover some $19 billion, will receive

proceeds from the auction. Citgo was valued at up to $13 billion

in an independent valuation ordered by the court. Bids, however,

have not topped $11 billion.

Citgo, the U.S. seventh-largest refiner, saw its profit

plummet to $305 million last year from nearly $2 billion in

2023, and registered losses between the fourth quarter 2024 and

the first quarter this year. The company returned to profit in

the second quarter.