In Historic Vote, Senators Ratify ArcLight/GVI Agreement

ST. THOMAS — After being shuttered for nearly four years, the HOVENSA facility will reopen come early 2016, after senators of the 31st Legislature ratified a landmark agreement late Tuesday signed between the Government of the Virgin Islands and Limetree Bay Terminals, LLC, a subsidiary of ArcLight Capital Partners, LLC.

But the facility’s heyday — when it employed around 2,000 people and was deemed one of the largest oil refineries in the Western hemisphere — will not return. ArcLight has promised to build a worldclass oil storage facility that’s able to accommodate very large crude carriers (VLCCs), and also to construct an asphalt storage facility dedicated to the GVI, among other projects. But the oil storage business does not demand the level of employment of an oil refinery, and ArcLight has agreed to employ no less than 80 employees, with a spike of an additional 120 temporary workers early next year for restart purposes. The firm said as it brings the facility to its storage maximum of 32 million barrels, it expects to hire around 200 permanent people, and more when  it expands capacity to the desired 82 million barrels.

The short Committee of the Whole hearing at the Earl B. Ottley Legislative Hall here saw numerous senators asking questions as they relate to job opportunities and taxes, while others, including Senators Janette Millin Young and Terrence Nelson, sought more time to review the landmark agreement. A motion by Mrs. Millin Young to hold the measure in committee failed after only garnering support from Senators Roach, Harrigan, Nelson, Millin Young herself and Jackson.

Another motion to move the body from Committee of the Whole to a session that would determine the operating agreement’s fate, with a debating time of 3 minutes, succeeded.

Roll Call:

1. Sen. Kurt Vialet ⇒ Yes
2. Sen. Marvin Blyden ⇒ Yes
3. Sen. Novelle Francis ⇒ Yes
4. Sen. Kenneth Gittens ⇒ Yes
5. Sen. Neville James ⇒ Yes
6. Sen. Tregenza A. Roach ⇒ No
7. Sen. Janette Millin Young ⇒ No
8. Sen. Clifford Graham ⇒ Yes
9. Sen. Terrence Nelson ⇒ No
10. Sen. Jean Forde ⇒ Yes
11. Sen. Justin Harrigan ⇒ No
12. Sen. Almando Liburd ⇒ Yes
13. Sen. Nereida Rivera-O’Reilly ⇒ Yes
14. Myron D. Jackson ⇒ No
15. Sammuel Sanes ⇒ Yes

The agreement brings to an end a protracted process to reopen HOVENSA, first beginning with an operating agreement signed between the GVI and Atlantic Basin Refining (ABR) during the Governor John P. de Jongh administration. However, after that agreement was rejected by the Senate late last year, the owners of HOVENSA commenced another lengthy process to find a buyer.

Meanwhile, a new administration had taken office, and it employed a more aggressive approach in dealing with the owners of the shuttered facility than Mr. de Jongh’s. The Mapp administration on September 14 filed a $1.5 billion suit against Hess Oil, a figure that included at least $150 million annually in tax and other financial benefits to the territory over the ten-year period from 2012 to 2022 that Hess was obligated, under the law, to continue operating the refinery. Hess then moved immediately to file for bankruptcy on September 15, a decision that opened the door for all interested parties to join a bidding process that demanded a $19 million deposit to participate.

Only ArcLight and Buckeye made the required deposit, while Monarch Energy Partners, a group that had showed interest since the ABR deliberations, failed to meet the prerequisite.

As pressure mounted on all sides, a deal was in the making, and on December 1, Governor Mapp, flanked by principles of ArcLight, announced a landmark agreement that he said would commence the reviving of the St. Croix economy, battered severely when HOVENSA shuttered.

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.

The company will provide up to $30 million of funding and $15 million of free power to manage the final environmental remediation and wind-down of the St. Croix site. Together with $36 million of existing Resource Conservation and Recovery Act (RCRA) trusts, this will bring total resources available for the aforementioned purposes to $81 million.

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.