Hovensa enters deal after filing for bankruptcy
The oil storage facility in the US Virgin Islands, a sought after site in the oil storage trade, could be back up and running soon after agreeing deal with Limetree Bay Holdings
The plant's owners Hess and Venezuela's PdV have agreed to sell Hovensa to Limetree Bay Holdings, backed by private equity firm ArcLight capital, for $190m, according to bankruptcy court documents.
Limetree, in turn, has agreed to lease 10m of the plant's 13m barrels of operational oil storage capacity to China's Sinopec, and a further 2m barrels of storage to commodity trader Freepoint for 10 years.
The deal, which still needs to be approved by the US Virgin Islands legislature, brings an end in sight to a long-running and bitter dispute between Hess and the local government over the future of the facility. As part of the agreement, Hess, PdV and the government have agreed to drop all outstanding lawsuits, including Hess and PdV's claims of more than $300m in tax rebates.
"The people of the Virgin Islands had reached the end of the line with Hess. We were in divorce proceedings, we had won the house and we wanted to know when Hess would leave," the territory's governor Kenneth Mapp said in a press conference announcing the agreement.
The deal will eventually bring a total of $800m in to the cash-strapped US Virgin Islands government, including $220m upfront, and includes a series of investments and upgrades at the facility, Mapp said.
After the initial 13m barrels of oil storage is up and running, Arclight says that it plans to refurbish the rest of the facility's tanks and bring capacity up to 32m barrels by the end of 2016, restoring the US Virgin Islands' role as a major Caribbean oil logistics hub.
The fate of Hovensa's 500,000 barrels a day refinery, once one of the largest in the world, remains in doubt. ArcLight will spend the next two years assessing whether to re-open the refinery, which lost more than $1bn from 2009 until it was closed in early 2012, or sell it for scrap.
Mapp credited ArcLight Capital with bringing deep-pocketed players Sinopec and Freepoint into the deal and said that it had helped win him over. A deal with little known Atlantic Basin Refining (ABR) was vetoed last year over concerns that ABR did not have the financial resources to carry out its plans for Hovensa, which is central to the local economy.
Surging demand for oil storage capacity as global stocks continue to rise helped push the deal along. The International Energy Agency (IEA) said global oil inventories topped 3bn barrels in September, a record. And some analysts have pointed to the outside risk of many storage facilities reaching their capacity. It has been a boom time for storage operators, and the Caribbean has been an especially important transport hub this year, ideally situated near the US and Latin America in the Atlantic Basin.
For Sinopec, it provides an important transshipment point for its Latin American crude and bolsters its global trading business. Sinopec buys Venezuelan oil through a series of oil-for-loan deals, and is a major producer in Colombia and Brazil, both of which are increasing exports to China.