(Updates July 2 story with bidding round results, details in

paragraphs 1-2, 4, 7, 9-10 and 20)

By Marianna Parraga

HOUSTON, July 3 (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.