HOVENSA Sale: Government Reaches $1 Billion Operating Agreement With Atlantic Basin Refining

The Virgin Islands Government and HOVENSA have reached an agreement with Atlantic Basin Refining, Inc. (ABR VI) to purchase the shuttered oil refinery on St. Croix. ABR VI was organized with the sole purpose of purchasing HOVENSA.

Governor John P. de Jongh, Jr. met with members of the 30th Legislature Monday on St. Croix, along with the new HOVENSA buyers, in a lengthy meeting that took the group from Christiansted to Frederiksted to reveal details of the deal.

Five people represented the company–two were local and three had experience with refineries, according to Sen. Samuel Sanes. While a full Operating Agreement was not made available to the senators during the meeting, highlights of the deal were disclosed, Sen. “Nellie” O’Reilly told the VI Consortium.

According to a Government House press release issued about the sale, the Governor pointed out that under the Operating Agreement, “the new owners are required to rebuild and restart the refinery, employ hundreds of Virgin Islanders and make substantial payments to the government, totaling over $1.6 billion in fixed payments over the life of the agreement and additional variable payments, depending on the refinery’s profitability.”

De Jongh said the deal marks the first time ever that the refinery’s owners will be required to take the facility down and clean up the site if the refinery is not restarted or if it is again shut down at any time in the future. 

In addition, the Operating Agreement requires the new owners to “pay into a site restoration fund that will pay for the ultimate deconstruction and take-down of the refinery and remediation of the site,” the press release said.

“This will ensure that, whatever the circumstances, if there is not to be an operating refinery, we will not be left with an eyesore and a wasting asset,” de Jongh explained.

The Governor went on to say that 700 jobs will be created as a result of the sale.

“After the restart, the refinery is expected to employ over 700 workers, with over 500 full-time employees and over 200 contractors,” he said. “Once restarted, the refinery will provide a tremendous boost to the St. Croix economy and generate hundreds of additional jobs to support the refinery’s operations and employees.”

Sanes added that ABR VI desires “to hire 75 percent local,” including former HOVENSA employees.

Other terms of the Operating Agreement, which was negotiated in recent weeks by a government team headed by Attorney General Vincent Frazer, ABR VI is required to retain a refinery engineering firm–designated to be Samsung–“with experience reconfiguring and rehabilitating world-scale oil refineries to develop a comprehensive rehabilitation and restart plan for the refinery on St. Croix.”

The engineering analysis and restart plan is expected to take 9-12 months. The Operating Agreement requires ABR VI to obtain, within 20 months after the closing date, “financing to fund the rehabilitation and restart plan for the refinery, and provide the working capital to fund the company’s operations until the restart date.  Actual construction and rehabilitation of the refinery is expected to take as long as two years and to cost more than $1 billion, including the retraining of refinery workers,” the Government House press release said.

The Operating Agreement’s base term is for 22 years, but it may be extended for two additional terms of 10 years each, if the new owner is not in breach of its obligations under the agreement.

De Jongh described the negotiations as difficult.

“Our efforts have been driven by my strong belief that restarting the refinery was the quickest and best way to generate jobs and economic recovery on St. Croix,” he said. “It’s been a long process, but I believe there is finally light at the end of the proverbial tunnel that has the potential to bring some long-awaited and much-needed economic activity to the island of St. Croix.”

However, Sen. O’Reilly said she was not impressed with what she heard of the deal so far.

“It turned out to be not as accurate in what was originally presented,” she said, adding that, to be fair, they had not received the full Operating Agreement, something both she and Sanes say the Senate expects to receive within the next week where it will be reviewed as a Committee of the Whole.

“It is truly my hope that this administration, buyers and sellers take the role of the Legislature seriously,” O’Reilly said. “Our role is to review the document and ask questions.”

She continued: “It needs to be vetted and have public hearings. If the Governor expects to have a vote on this within a week, I think it’s disrespectful. I’m really hoping that does not happen.”

Sanes went on to say that while it “won’t be HOVENSA of the past, it will be good,” pointing out that there is a possibility the V.I. government will receive $85 million in gross receipt taxes each year once the company is fully operational.

He also stressed that cat cracker and coker units will not be used at the refinery this time around, a move that will significantly lessen the environmental impact of its operation. Rather, the new refinery will produce “350, 000 barrels of light, sweet crude oil per day,” Sanes said.