SAN FRANCISCO (Dow Jones) -- Lyondell Chemical Co. said late Wednesday it bought out Citgo Petroleum Corp.' s stake in the Lyondell-Citgo refinery, a giant 268,000 barrel-per-day facility on the Houston Ship Channel, for $2.1 billion .

Citgo, a wholly-owned subsidiary of Venezuela' s national oil company Petroleos de Venezuela S.A. (PDVSA) since 1990, held a 41.25% stake in the joint refining venture.

Lyondell (LYO) said the move, made when refining margins are running high along the Gulf Coast, will add immediately to the company' s bottom line and help it to reduce its debt load.

At he same time, Lyondell said it secured a five-year contract to buy 230,000 barrels of crude a day from PDVSA to ensure a steady supply of oil to the refinery. Terms of the deal were not disclosed, but Lyondell said the heavy, high-sulfur crude that the plant is designed to process would be bought at market price.

Heavy crude typically brings a lower price in the oil market because it costs more to refine. Lyondell-Citgo was among the few U.S.-based refining operations that designed their plants to cash in on that discount, handing in some of the highest refining margins in the business. Those margins have improved dramatically over the past year amid tight refining capacity and continued strong demand for petroleum products.

Valero Energy Corp. (VLO) is another Texas -based company that has tooled its refining operations to take advantage of the price spread betwee n heavy and light crude oil.

Citgo' s exit from Lyondell-Citgo brings to a close an increasingly strained relationship between the partners, the result of Venezuelan President Hugo Chavez' s push to make foreign oil companies pay higher production taxes while insisting that Venezuela exert greater control over its strategic resources.

Before the announcement, Lyondell shares closed with a 78-cent gain, or 3.4%, at $24 . (END) Dow Jones Newswires 08-17-06 0156ET Copyright (c) 2006 Dow Jones & Company, Inc.