Bogota, 11 May (Argus) — Curacao is scrambling to persuade Venezuela’s state-owned PdV to settle a $2bn arbitration dispute with US independent ConocoPhillips to restart the Isla refinery that has been halted for over a month.
PdV operates the 330,000 b/d refinery and nearby Bullen Bay terminal under a long-term lease that expires at the end of 2019. But the Venezuelan company’s financial problems kept the refinery operations unstable for months before ConocoPhillips imposed liens on its Dutch Caribbean assets in a sweeping legal maneuver to force Caracas to pay court-ordered compensation for the 2007 expropriation of Venezuelan assets.
“No processing units in the refinery have operated since 7 April,” a senior executive with knowledge of the facility and the dispute told Argus today. The refinery’s operational throughput under normal circumstances is around 220,000 b/d.
Since late 2017, PdV had been running a combination of Venezuelan heavy Merey grade and domestic light sweet (DSW) from the US. Unable to pay for the light crude cargoes or the steam and power it needs to sustain the refinery operations, PdV suspended the refinery operations altogether early last month.
Just as ConocoPhillips was getting the legal attachments processed in a local court, PdV switched the title on its Merey crude stored at the Bullen Bay from its own name to Isla, skirting the lien. But it still needs light crude to blend with it to restart the refinery.
Curacao’s state-owned RdK, which owns the refinery, had been in discussions with third parties in recent months to help maintain the refinery operations, which employ 2,000 workers on the island. There were “interested parties”, Argus has learned, but nothing had been signed. In parallel, RdK had been working with PdV to restart operations in June when it was informed on 7 May by a local bailiff of the pre-judgment attachments imposed by ConocoPhillips.
The attachments target payments by RdK and Isla to PdV, as well as PdV-titled oil at Bullen Bay. The Isla refinery itself, and the products stored there, are so far unaffected, but that could change, the executive said.
Curacao’s fuel distributor Curoil is supplying the local market and buys some of its fuel abroad, but ideally it would resume Isla purchases to replenish PdV’s coffers, enabling it to buy crude, the executive said. In theory, RdK could purchase its own crude to restart the refinery, but it lacks the cash flow to make this a sustained solution.
“PdV has to settle this, that is the only way out,” the executive said. “They won’t be able to pay ConocoPhillips the whole thing, but they need to pay part of it and give sufficient guarantees on the rest.”
Over the past week, PdV called its tankers back into Venezuelan waters to prevent further seizures, but with domestic storage limited and floating storage out of reach, the firm has little operational flexibility. Wells may need to be shut in, aggravating a steep decline in production.
In the meantime, PdV has notified its clients that effective immediately it is designating all its oil exports as fob cargoes as a legal safeguard.
The challenge for PdV is that any settlement will open the door for the company’s many other creditors to follow in ConocoPhillips’ footsteps. “That is going to happen,” the executive predicted.
Elsewhere in the Dutch Caribbean, ConocoPhillips imposed liens on PdV’s 10mn bl Bopec storage terminal in Bonaire. Talks between ConocoPhillips and the Dutch government freed up about two weeks’ worth of gasoil from the storage facility to keep the local power generator running.
Oil stored in Aruba is also under embargo.
Venezuelan energy ministry and PdV officials have told Argus they are prepared to settle the dispute with ConocoPhillips. But the issue appears to have divided Venezuelan officials on the eve of controversial 20 May elections which sitting president Nicolas Maduro is all but certain to win.
Bron: Argus