Wednesday, October 29, 2014

Hovensa Set To Sell St. Croix Refinery To Atlantic Basin Refining, Inc.

The Hovensa refinery owners have reached a tentative agreement to sell the plant to a new company called Atlantic Basin Refining Inc.(ABR).  ABR is headed by a group of individuals with experience in refining, energy finance, oil trading and environmental restoration, according to Government House.  Virgin Island Senators identified local connections, with Jack Thomas of St. Croix Renaissance Group being one of the principals, along with others from off-island. The other principals include Robert Moore, William Forrester and Steve Schmitz, according to senators. Local attorney Mark Eckard, who is chairman of the board of the St. Croix Chamber of Commerce, was also with the group, although it was unclear whether he is acting as its legal counsel or if he is participating in the venture.

The Virgin Islands government has negotiated an operating agreement with ABR, a company formed specifically to buy the shuttered Hovensa refinery.  Gov. John deJongh Jr. met on Monday with members of the Virgin Islands Legislature, who must approve the new operating agreement, to discuss the development.  The next step involves "delicate negotiations" with ABR and the government over the operating agreement.  The Legislature still has to approve the operating agreement for the sale to be finalized.

The government negotiated an operating agreement requiring ABR to rebuild and restart the refinery, to employ hundreds of Virgin Islanders and to make substantial payments to the government totaling more than $1.6 billion in fixed payments over the life of the agreement and additional variable payments depending on the refinery’s profitability.

For the first time ever, owners of the refinery will be required to take the facility down and clean up the site if they do not restart the refinery or if it is again shut down at any time in the future, according to the Government House.

The operating agreement also requires the new owners to pay into a site restoration fund that will pay for the ultimate deconstruction and take-down of the refinery and remediation of the site.

After the restart, the refinery is expected to employ over 700 workers, with over 500 full-time employees and over 200 contractors" according to the governor. Once restarted, the refinery will provide a tremendous boost to the St. Croix economy and generate hundreds of additional jobs to support the refinery’s operations and employees.

The base term of the operating agreement is for 22 years, but it may be extended for two additional terms of 10 years each if ABR is not in breach of its obligations under the agreement.

The agreement calls for the new owners to obtain financing within 20 months of buying the refinery. Revamping the plant is expected to take another two years and cost more than $1 billion. If the new owners don’t start the refinery, the company will have to dismantle the site and conduct environmental remediation.

Hovensa Refinery
The Hovensa refinery in St. Croix, a joint venture between Hess Corp. and Venezuela’s national oil company, was one of the largest in the U.S. before the companies shut it down.  The refinery processed heavy oil from Venezuela and sold much of the gasoline and diesel it produced in the U.S. But if the plant reopens it probably will process U.S. oil, getting crude that can’t find a home at stateside refineries working at full tilt.

It also would have some cost advantages over U.S. facilities. The so-called Jones Act requires all goods shipped between U.S. ports to move on vessels built in the U.S. and sailed by American crews. That makes the tankers more expensive to rent—and harder to find—than foreign tankers crewed with less-expensive sailors from other countries.But while St. Croix is a U.S. territory, it is exempt from the Jones Act.

The St. Croix refinery has some higher costs than U.S. rivals, such as for power.

Hess built the St. Croix plant in 1966 and by the 1970s had expanded it to become, at one point, the largest in the world, processing up to 650,000 barrels of oil a day.  The company sold a 50% stake to PetrĂ³leos de Venezuela in 1998 and adapted equipment to process the heavier crude that is pumped in Venezuela.
A global economic slowdown in 2008 cut into demand for fuel, and the St. Croix plant could no longer compete with newer, more efficient refineries. Hovensa recorded $1.3 billion in losses in the three years before it closed.  (WSJ, 10/28/2014, St. Croix Source, 10/27/2014)

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