SPS denies breach of Curacao oil storage contract

SPS Drilling E&P is denying any breach of contract with Curacao for oil storage at the Bullen Bay terminal, which has been vacant since Venezuela's state-owned PdV departed nearly a year ago.

State-owned Curacao Refinery Utilities (CRU), representing Curacao's refinery owner RdK, signed the one-year contract for 5.8mn bl of storage with SPS on 15 September, and terminated it six weeks later. In an internal employee memo, CRU blamed SPS for failing to comply with the contract in the context of market conditions that were altered by the Covid-19 pandemic.

"SPS never failed to comply with the contract with RdK," SPS told Argus. "RdK decided to unilaterally rescind it a month and a half after it was signed."

The company said the main impediment was the terminal's deficient infrastructure to import fuel oil, driving away its clients such as Trafigura,Vitol and PetroChina, among others.

Trafigura and Vitol declined to comment, while PetroChina could not be immediately reached.

SPS specified that Bullen Bay's pipelines required maintenance and lacked segregation for fuel oil. The terminal also lacked capacity to carry out fuel oil blending, "generating an opportunity loss" and preventing SPS from closing storage deals, the company said.

SPS said it proposed a contract renegotiation with RdK in mid-October, but received no reply.

The pandemic "has put us in an extremely disadvantageous position" in the effort to bring in storage clients, on top of "the technical problems at the terminal," SPS said.

The terminal is not economically viable under current oil supply conditions, SPS added. "The only big crude supplier in the region is a country from which we cannot receive product without incurring sanctions."

Venezuelan shadow

The reference is to nearby Venezuela, whose national oil company PdV operated Curacao's 335,000 b/d Isla refinery and the deepwater terminal since the mid-1980s. As PdV's crude production capacity at home tanked in recent years, the company had scarce supply to process in Curacao, and little cash for asset upkeep. The Venezuelan company's lease expired in December 2019, and Curacao declined to renew it.

The US imposed financial sanctions on Venezuela in August 2017, followed by oil sanctions in January 2019.

The collapse of the SPS deal followed the departure earlier this year of another post-PdV potential operator, Germany's Klesch.

Curacao has a new tender in progress to find another company to operate the terminal as well as the refinery.

A similar process is underway in Aruba, a fellow Dutch-controlled Caribbean island that used to form part of PdV's nearshore logistical network.

SPS Drilling E&P is active in Mexico and Argentina and has assets in Jordan. The firm has commercial offices in London, Houston, Miami, Mexico and Buenos Aires. Among its investors are Middle East funds, chief executive Manuel Chinchilla told Argus in a September interview. The company's main operations had been in Venezuela until it withdrew in 2018.

By Patricia Garip