HOUSTON, June 16 (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.