Preliminary agreement made for St. Croix refinery restart

Limetree Bay Refining LLC (LBR), a subsidiary of ArcLight Capital Partners LLC, Boston, has reached an agreement in principle with the supply and trading arm of an unidentified major international oil company to restart the idled 500,000-b/d refinery at Limetree Bay on St. Croix in the US Virgin Islands (OGJ Online, July 10, 2018).

Under the contemplated terms, the unidentified IOC would enter into a tolling agreement and serve as the refinery’s supply and offtake counterparty, LBR said.

The company said further details about the latest agreement will be made available in the next week or so.

Announcement of the preliminary agreement with the unidentified party for the refinery’s restart follows the 32nd Legislature of the USVI’s July approval of a $1.4-billion operating agreement with ArcLight, whose subsidiary Limetree Bay Terminals LLC (LBT) has restarted since 2016 more than 25 million bbl of storage capacity and terminal assets connected to the former Hovensa LLC-owned refinery at Limetree Bay, which has a peak processing capacity of 650,00 b/d (OGJ Online, Aug. 2, 2018).

The refinery restart project, which will be completed by a team led by LBR Pres. Brian Lever, is slated to bring at least $1.5 billion of outside investment into the USVI over the next 14 months, according to USVI Gov. Kenneth Mapp.

Upon announcing the operating agreement in July, the USVI government said the project will lead to more than 1,300 local jobs during construction and as many as 700 permanent jobs on restarting the complex, operations of which are scheduled for commissioning by yearend 2019 with an initial crude processing capacity of about 200,000 b/d.

Refinery operating agreement

As part of the July-approved operating agreement, LBR would pay the government $70 million, and upon restart of the refinery, payments in lieu of taxes of $22.5 million/year, with an adjustment based on the refinery’s performance that could raise the payment to as much as $70 million/year but never below $14 million/year in normal circumstances.

If the refinery performs as the government’s industry experts previously projected, the government would receive more than $600 million during the first 10 years after restart vs. the $330 million Hovensa—a joint venture of Hess Corp. and Petroleos de Venezuela SA—paid the government in corporate income taxes in the more than 30 years it operated the refinery, Mapp said.

The $600 million in payments would be in addition to the income generated by LBT’s oil storage terminal, which will continue to make payments currently amounting to $11 million/year as promised under the original terminal operating agreement (OGJ Online, Jan. 8, 2016).

Alongside minor amendments to the existing terminal operating agreement, the new deal establishes a refinery operating agreement, under which LBT will transfer its ownership of the refinery to LBR, which in turn will enter into a separate operating agreement with the government as well as assume independent financial and other obligations, according to government documents.

Regarding employment for USVI residents—more than 2,000 of whom became jobless following Hovena’s 2012 refinery closure and a recurrent hurdle facing the original 2016 terminal operating agreement—the new refinery operating agreement requires LBR to aggressively advertise open positions, to give preference to qualified local residents over nonresidents, and to use commercially reasonable efforts to ensure that at least 80% of workers are USVI residents.

Contact Robert Brelsford at [email protected].