ST. THOMAS — On the second floor of Government House here, joined by his cabinet members and officials representing ArcLight Partners, LLC, the government’s winning bidder to operate the oil storage terminal of the HOVENSA Refinery, and by officials from Sinopec and Freepoint Commodities, Governor Kenneth Mapp unveiled a landmark agreement that would immediately net the Government of the Virgin Islands $220 million in cash at closing, up to $9 million to settle a legal claim, and up to $6 million for asphalt storage — bringing to a close a protracted battle that began with the refinery’s closing in 2012, and a failed attempt at acquisition by Atlantic Basin Refining, Inc. in December of last year.
Mr. Mapp, after giving a history of the situation he encountered upon taking office this year, described his administration’s stubborn stance of staying the course to secure a deal that would be beneficial to the people of the territory. Mr. Mapp, speaking fluently and confidently, said the GVI and the owners of HOVENSA failed to arrive at an agreement twice before the current deal, because what the owners of the shuttered refinery were offering was not good enough.
However, after meeting with ArcLight officials in August and September, a company introduced to the Mapp administration by HOVENSA as the firm it had selected to purchase the refinery, the governor said the agreement that was presented started winning his approval.
The Deal
Arclight, through its newly-created subsidiary, Limetree Bay Holdings, has partnered with the China Petroleum and Chemical Corporation (Sinopec), a leading AA-rated Chinese state oil company traded in Hong Kong, Shanghai and New York, as a major tenant that has committed to a ten-year contract to purchase 75 percent of crude oil stored at the facility.
Aside from the $220 million in cash upon sale to the GVI, Limetreee Bay Holdings has committed to “hundreds of millions” more in taxes over the duration of the 25-year contract, which includes an option to extend by 15 years.
Limetree is expected to hire 80 employees initially, with 80 percent of the workforce being residents of St. Croix. According to Mr. Mapp, the requirements to be considered a resident of the territory have been altered from three months to 1 year, assuring that those who receive employment are actually from the islands, or have lived here long enough to be called residents. The firm also said employment would arrive to around 200 in two years, and expected growth as it continues to expand.
The company expects to operate the oil storage terminal at full capacity — 32 million barrels of storage — by late 2016. Currently, only 13 million barrels are stored there, with Sinopec and Freepoint Commodities, another ArcLight partner, purchasing most of what was available.
Limetree Bay has committed through contract to $125 million of capital spending, which will go toward tank, pump, duck and fuel rack inspections and restart; rebuilding of power generation units; construction of marine facility to accommodate very large crude carriers (VLCCs), and construction of an asphalt storage facility dedicated to the GVI.
Limetree Bay’s transaction results in conveyance of approximately 330 acres and 122 housing units to GVI (yellow parcels). The firm will acquire the above-ground refinery assets and will lead evaluation of restart potential. If not feasible, Limetree Bay will decommission the refinery at its own cost pursuant to environmental law, and after making profits of $5 million on the scrap metal, Limetree Bay will share all further profits of such material 50-50 with the GVI.
Total consideration to the GVI and bankruptcy estate: Up to $370 million, including the above $220 million to the GVI, plus $135 million to the estate in the form of $90 million in cash at closing.
Carried Interest for GVI: Ten percent of the total profit realized upon a change-of-control transaction, aligning the interests of Limetree Bay and the GVI to maximize the long-term value of the facility.
Ongoing payments to GVI: Tax payments of 9-10 percent of the terminal revenue; and minimum annual payment of $7 million.
Refinery: Limetree Bay will purchase substantially all of the above-ground refinery assets at closing. The firm will take 18 months to evaluate the potential restart of certain refinery units.
Additional investments include up to 15 mmbbls of additional crude tankage to meet future needs of Sinopec and other customers; tank heating and in-tank jet circulation (specialty services); expansion of power generation and transmission to serve St. Croix; cargo transloading and small-scale LNG import.
Atlantic Basin Refining (ABR) Lawsuit
ABR recently filed suit against its former partner, ArcLight, for allegedly “stealing” the HOVENSA sale from under its nose. According the lawsuit, seen in full here, ArcLight had no prior involvement with the HOVENSA refinery and was introduced to the deal by ABR, through an agreement that would see ArcLight becoming a financial partner and 50 percent stakeholder in the storage facility. ArcLight was chosen, then, the lawsuit says, because ABR needed a financial backer that would place it in a stronger position to purchase the facility. But following the deal’s rejection, Arc Light sought to break ties, according to the suit.
ArcLight Partner Jake F. Erhard bucked at the claim when asked by The Consortium about the lawsuit’s relevance, and said it would not stand in court.
All-Encompassing Agreement
The governor also revealed that the GVI would be dropping its over $1 billion lawsuit against the owners of HOVENSA, and that HESS had dropped its own $180 million tax lawsuit against the government. The last leg that would see the agreement being reached is PDVSA’s own refusal to continue its lawsuit against the GVI, which Mr. Mapp is confident will happen after the Venezuelan elections.
Ratification
Governor Mapp says he’s calling the Senate into session on December 17 to begin the process of ratification. Mr. Mapp told The Consortium that the deal is time-sensitive, however, and that the Senate must act before December 31, 2015. If approved, Mr. Mapp stressed that $220 million would immediately be given to the government, and the process of reviving St. Croix’s anemic economy would commence.
Feature Image: From left to right, Governor Kenneth Mapp, ArcLight Partner Jake F. Erhard, a Sinopec and Freepoint Commodities representative, Lieutenant Governor Osbert Potter and ArcLight Director Evan Schwartz.
Image Credit: VIC.
Tags: arclight partners, governor kenneth mapp, hovensa
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