Legislative vote due on new plan for St. Croix refining complex

Robert Brelsford
Downstream Technology Editor

Senators of the 31st Legislature of the US Virgin Islands will vote by the end of December on a proposed operating agreement between the government and Limetree Bay Terminals LLC (LBT), subsidiary of ArcLight Capital Partners LLC, Boston, that could lead to the restart of terminal assets connected to Hovensa LLC's idled refinery at Limetree Bay, on the island of St. Croix (OGJ Online, Jan. 18, 2012).

In addition to restarting Hovensa's storage terminal operations, which shut down in February 2015 following a December 2014 vote by the 30th Legislature of the USVI to quash the company's proposed sale of the refinery to Atlantic Basin Refining Inc. (ABR) (OGJ Online, Nov. 14, 2014), the agreement also provides for the possibility of resuming crude processing at the shuttered 500,000-b/d refinery, according to documents and testimony posted to the legislature's website.

Called by USVI Gov. Kenneth Mapp to a special session that began on Dec. 17 following the Dec. 16 end of regular session, legislators heard additional testimony from officials representing local government agencies, ArcLight, LBT, consultants, and area residents on Bill No. 31-0283, which provides for adoption of the proposed operating agreement.

The most recurrent hurdle facing the operating agreement during testimony, which lasted through the early hours of Dec. 22, came down to issues of employment for USVI residents, more than 2,000 of whom became jobless following Hovena's 2012 closure of the refinery.

"The weakness in this agreement and in the conversations we've had really is the jobs…we've lost 2,000 jobs and we're talking about creating 200 jobs," said Sen. Nereida Rivera O'Reilly, who voted against ABR's 2014 proposal to take over the Hovensa complex (OGJ Online, Oct. 29, 2014).

"Outside of that [however], we're looking at an agreement that's probably the best drafted, crafted legal document involving the government of the Virgin Islands in its history," O'Reilly said, adding her intention to vote in support of adopting the agreement.

With a commitment from ArcLight that it would revise language in the proposal to address concerns expressed by government officials during testimony regarding future economic opportunities and jobs for USVI, the Senate plans to vote on the final, updated agreement during a session to be held in St.

Thomas before Dec. 31, according to Sen. Kurt A. Vialet.

A specific date of the planned session, however, was not disclosed.

Operating agreement

The latest operating agreement follows Hovensa's deal to sell the St. Croix terminal assets to LBT as part of the Chapter 11 Section 363 process under Hovensa's voluntary Chapter 11 bankruptcy proceedings in the US Bankruptcy Court for the District of the Virgin Islands, which Hovensa filed due to insufficient liquidity to complete any asset sales on its own (OGJ Online, Sept. 21, 2015).

Designed to ensure ongoing operations and economic activity at the St. Croix complex, the agreement outline's LBT's plan to refurbish, restart, operate, and expand the oil storage terminal, as well as to explore options for resuming crude processing at the refinery.

The agreement, which was signed by USVI's government and ArcLight on Nov. 30 following the bankruptcy court's approval of Hovensa's deal with ArcLight, provides specifically for the following:

• $220 million in an upfront payment to the USVI government and up to $15 million in other payments as part of a total deal of $360 million.

• A commitment to operate the oil storage and terminal for at least 25 years and up to 40 years.

• A minimum of 80 full-time workers, at least 80% of whom must be long-term USVI residents. Arclight also will invest at least $125 million over the first 2 years of the agreement to create additional job opportunities.

• Ongoing revenue to be paid to the USVI government, including an annual payment of 9% of revenue, increasing to 10% if financial targets are met.

• A commission of 10% to the government if the operation is sold, with a guaranteed commission of $25.5 million.

• A commitment to restart the refinery, or at the government's option, dismantle any part of the refinery that is not being used after undertaking an 18-month period to evaluate potential profitability associated with resuming processing operations at the site.

• Donating 330 acres of land, 130 units of housing, a vocational school, and a community center to the government.

• An annual payment of $150,000 as rent for submerged lands.

Along with other benefits, including investments in environmental remediation, the proposed operating agreement represents a total value of more than $800 million for USVI, Gov. Mapp said in a letter presenting the deal to legislators.

ArcLight already has entered into a binding 10-year contract with China Petroleum and Chemical Corp. (Sinopec) under which the Chinese state-run firm would utilize 10 million bbl of crude oil storage at the St. Croix complex to store, blend, and trade supplies from Latin America, North America, Europe, and Africa, according to testimony presented during the recent special session.

Freepoint Commodities LLC, Stamford, Conn., also has entered into binding commitments to lease 3 million bbl of storage capacity at St. Croix, Sheldon Pang, vice chairman of Freepoint Commodities, said in prepared testimony to the Senate.