Two days before the general election, Limetree Bay Refining has issued a statement whose headline seems to say a deal to restart St. Croix’s refinery is not signed but is ready “in principle.” The content of the news release refers to an as-yet-unsigned contract with an as-yet unnamed oil supplier and purchaser, with details promised after the election.
The release is unclear on whether this not-yet-completed contract is the final piece to restart the refinery or a step toward the final piece needed to restart.
Aside from the restart itself, at stake is $40 million in short term loans and $30 million from a land purchase that are due the V.I. government on closing an operating agreement for the refinery.
Limetree Bay’s headline, “Limetree Bay Refining Reaches Agreement in Principle on Restart of St. Croix Refinery,” seems to indicate a final deal to actually begin restarting is not done but almost done. The statement says the company “has reached agreement in principle with the supply and trading arm of a major international oil company on the restart of the idled refinery” (emphasis added).
“Under the contemplated terms, the oil company would enter into a tolling agreement and serve as the Refinery’s supply and offtake counterparty. Details about the agreement will be made available in the next week to 10 days,” (emphasis added) Limetree Bay’s statement says.
A supply counterparty is an entity that enters an agreement to supply a product under contractual terms. An offtake counterparty agrees to buy a product. Limetree Bay’s statement indicates an oil company is nearing agreement on a contract to sell to and buy from the refinery once it restarts.
In August, administration officials testified to the Legislature that the deal and the $70 million were awaiting a final contract to actually operate the refinery.
“The money was always contingent on ArcLight securing the deal with an operator, which they have not done yet. When that happens then it will be immediate,” Finance Commissioner Valdamier Collens told the Finance Committee on Aug 29.
“They are waiting to finish up the negotiations with the actual franchisee that is going to be running the operations,” Budget Director Julio Rhymer said at the same hearing.
Operating the refinery is not the same as buying from and supplying the refinery. Sunday’s statement is silent on whether this as-yet-unsigned supply contract will trigger closing of the deal and makes no mention of the release of the $70 million the government is eagerly awaiting.
Sunday’s ambiguous release follows on the heels of Gov. Kenneth Mapp calling, then canceling a press conference Friday to “discuss the next phase of the refinery’s restart.”
Mapp and Limetree Bay officials held a press conference in July announcing a deal to restart the refinery and proposed legislation to ratify changes to the government’s 2015 agreement with Limetree Bay to use the former Hovensa refinery for an oil storage business. Since coming to the territory, Limetree Bay has hired several hundred employees and contributed in excess of $11 million per year to the territory’s treasury. It’s parent company, ArcLight Capital, also purchased Hovensa assets from the government, paying $220 million.
Limetree Bay officials say they hope to have the partial restart complete by late 2019. Getting it running very quickly is key to making a restart practical. The market conditions that made the refinery unprofitable to begin with are still in effect. Hopes for profit hinge on a worldwide marine fuel sulfur caps in 2020 temporarily boosting profits for sulfur-reducing refineries.
“We, and many others, believe there will be a window of opportunity for this type of refinery starting in 2020 that could last for three to four years before the markets stabilize to a new normal,” Bill Cline of Gaffney, Cline & Associates, the government’s hired oil and gas industry consultant, told senators during hearings on the proposal.
In contrast to the short time frame and need for fast action cited by the developers and consultants, the new agreement actually gives Limetree Bay several more years to decide whether to restart or take down the refinery. Under the older agreement, it could restart the refinery and negotiate new terms with the government. But it had to decide whether to restart by sometime in early 2019. The new agreement explicitly gives ArcLight and Limetree Bay up to five more years to evaluate whether or not to restart.
If it does restart, as the company says it hopes, it will mean more jobs and more government revenue. The deal calls for a baseline of $22.5 million in annual revenue for the government, with a formula that can reduce that as low as zero dollars or increase it above $22.5 million, depending on production and sale levels and on market prices.