Adds background throughout, challenges to restart.
The US Virgin Islands government has reached a long-term operating agreement with Atlantic Basin Refining to re-open the mothballed 350,000 b/d Hovensa refinery on St Croix, the government said last night.
Atlantic Basin Refining is required to "rebuild and restart the refinery," US Virgin Islands governor John deJongh said in announcing the agreement with the refinery´s new buyer.
ABR is "a company formed specifically to buy the refinery," the government said, without naming its principals or headquarters.
The company is "headed by a group of individuals with experience in refining, energy finance, oil trading and environmental restoration," the government said.
Hovensa is a 50:50 joint venture between Venezuelan state-owned PdV and US independent Hess. Neither firm nor Hovensa commented on the agreement. Contact details for Atlantic Basin Refining could not be found.
DeJongh told legislators last month that an agreement in principle for operating the refinery had been reached with the only company to make a bid for the facility in a sales process managed by financial advisor Lazard.
The lease-to-own deal is for 22 years, but it may be extended for two additional terms of 10 years each "if Atlantic Basin Refining is not in breach of its obligations under the agreement," the government said.
The purchaser will pay the government "more than $1.6bn" in fixed payments over the life of the agreement, and will also make "additional variable payments depending on the refinery's profitability."
The money-losing refinery was shut down in February 2012 and converted into a storage terminal. About two thirds of the facility´s 32mn bl of storage was taken out of service following the conversion.
The US territory's government has maintained that a new operator must restart the facility´s refining operations.
When it was operating, the refinery was the largest private-sector employer in the US Virgin Islands, generating 20pc of its GDP and tax revenues of around $100mn/yr.
The agreement has to be approved by the territory's legislature. The government did not indicate when it would be discussed by lawmakers.
According to the governor´s latest blog post, the refinery´s new owner, Atlantic Basin Refining, is "required to retain a reputable refinery engineering firm with experience reconfiguring and rehabilitating world-scale oil refineries to develop a comprehensive rehabilitation and restart plan…The engineering analysis and restart plan is expected to take 9-12 months."
The operating agreement gives ABR VI, the entity that will operate the facility, up to 20 months after the closing date to secure financing for the rehabilitation and restart plan, and to provide the working capital to fund operations until the restart date. Construction and rehabilitation of the refinery is expected to take up to 24 months and cost more than $1bn, including worker retraining.
Under its new operators, Hovensa, which was built to process heavy Venezuelan crude, could reconfigure to process light crude from the US Gulf Coast.
But it will still have to tackle energy costs that contributed to $1.3bn in losses before the shutdown. Hovensa fed diesel and fuel oil to generators to power the facility in the shadow of a roaring US Gulf coast refining complex powered by cheap natural gas. Units tilted toward gasoline production, for which demand has at best flattened in the US and which trails more favorable diesel margins.
Hovensa cut rates from 500,000 b/d to 350,000 b/d in 2011, a move operators said helped but did not staunch losses at the refinery as they began idling the facility in early 2012. Valero's 235,000 b/d Aruba refinery, under similar pressures, followed Hovensa into conversion to a terminal later the same year.
In the two years since the St Croix facility converted to a storage terminal, US Gulf coast refining advantages and capacity have only grown on the back of the shale boom. Refiners in the region have increased crude distillation capacity by 5pc, and boosted refined product exports by 14pc since 2012.
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