HOUSTON, Jan 27 (Reuters) - A U.S federal judge in

Delaware on Monday approved new terms to relaunch bidding in a

complex auction of shares in the parent of Venezuela-owned

refiner Citgo Petroleum, set to pay creditors for defaults and

expropriations in the South American country.

The changes seek to encourage higher offers and grant a fair

bidding process for all parties after a $7.3 billion conditional

bid by an affiliate of hedge fund Elliott Investment Management

last year was rejected by most of the 18 creditors participating

in the auction.

Judge Leonard Stark approved a termination fee equivalent to

3% of the value of attached judgments if a court officer

overseeing the process recommends a bid other than the stalking

horse bid.

A stalking horse bid, which could secure a higher value

for the shares, had not been used in previous rounds.

An up to $30 million reimbursement of termination expenses

was also approved, another protection for companies willing to

participate.

The judge clarified that leading creditors Crystallex and

ConocoPhillips ( COP ) are allowed to make any type of bid in

the rounds, including using their claims as credit bids. Parties

representing Venezuela can also separately submit bids.

At least two groups of creditors last year told the

court they could present offers in a new round.

In December, Stark ordered the reopening of a

data room

by Citgo to provide information to potential bidders.

A final schedule for the auction must yet be issued by

the court, but the final sale hearing is expected for the second

half this year.