UPDATE 2-US judge clears way for more Venezuela creditors to join Citgo auction

(Adds in lead that creditors want to share in sale proceeds, adds in paragraph 7 credit bids are routine in bankruptcy cases)

By Marianna Parraga and Gary McWilliams

HOUSTON, Jan 8 (Reuters) - A U.S. judge on Monday granted a large group of Venezuela-linked creditors rights to participate and receive proceeds from a coming auction of shares in the parent of Houston-based refiner Citgo Petroleum.

A precedent-setting lawsuit by Canadian miner Crystallex Corp formally tied Venezuela-owned Citgo to the South American country's debts and opened the door to some $24 billion in claims being applied to the refining firm through an auction of shares in a Citgo parent whose only asset is the oil refiner.

The decision still requires the group, formed by 10 companies, to comply with a Jan. 12 dateline to have writs of attachments issued against shares in Citgo's parent, PDV Holding. No extra time was granted, and a new auction schedule issued on Monday is not planned to be modified, the court in Delaware said. The U.S. Treasury also has reserved the right to rule on any winning bid.

O-I Glass, Huntington Ingalls, ACL1 Investments, Rusoro Mining, Koch Industries and Gold Reserve can have claims considered as additional judgments. Another group of four creditors including Siemens Energy that had filed a similar motion to be designated additional creditors was also green-lit, U.S. Judge Leonard Stark ruled.

The companies had sought to participate "with full force and effect" in the event two of the largest creditors in the long-running case - Crystallex and oil firm ConocoPhillips - reach settlements with Venezuela that could end the lawsuit.

Talks have been on and off for months with holders of billions of dollars due for asset expropriations and defaulted Venezuelan bonds seeking to settle their claims.

The additional creditors had argued they needed to have equal status to protect their interests in event of a deal and to organize credit bids, using their claims against Venezuela as currency in any court sale. Credit bids are routine in bankruptcy sales.

LAST-MINUTE SETTLEMENTS

Settlement talks between Venezuela, Crystallex and Conoco appear to have sparked a flurry of court filings by companies hoping to improve their chances of receiving proceeds from asset sales involving Citgo.

Citgo declined to comment on settlement talks. A representative for Crystallex and a board supervising Citgo did not reply to requests.

"We remain committed to pursuing all available legal avenues to protect our rights and obtain a full and fair recovery," a Conoco spokesperson said in response to questions about the talks.

The U.S. Supreme Court separately on Monday rejected Venezuela's move to limit the number of companies that could participate in the auction.

Both Monday decisions open a window for any additional creditors to get a slice of the auction's proceeds, especially if the largest creditors settle with Venezuela, leaving room for others.

"In the event that any of the sale process parties proposes to settle its differences with any of the Venezuela parties, the six creditors, the four more creditors and any other interested entity will have an opportunity to be heard on whether the court should approve such a settlement and, if it does, on how the potential resolution or settlement might affect the sale process," Stark wrote in his order.

Last week, the court official designated for the case, Robert Pincus, said claims should not be expedited or given additional priority ahead of the deadline.

To do so "would disrupt a process carefully considered ... and months-ago approved by order of the court," Pincus wrote. The rush to win approvals would allow claims to be considered in first-round bids for the shares due ten days later.

Companies could use their higher status to organize credit bids for the Citgo parent's shares and "approach the market with proposals that commercial parties are comfortable with," wrote hedge fund Pharo Management, which seeks $1.78 billion in claims.

Judge Stark has given priority to Crystallex's $970 million and Conoco's nearly $10 billion in claims. If they are fully paid, it could leave little for others. Citgo has been valued at between $11 billion and $13 billion in the past.

Bondholders seeking about $1.9 billion are pursuing Venezuela in a case separate from the Delaware court and have protested they could be shut out of proceeds.

(Reporting by Marianna Parraga and Gary McWilliams; Editing by David Gregorio and Rosalba O'Brien)