WILLEMSTAD--Curaçao is scrambling to persuade “Petroleos de Venezuela” PDVSA to settle a US $2 billion arbitration dispute with US-based ConocoPhillips to restart the local Isla refinery that has been halted for over a month.
The South American country’s state-run oil company leases the 330,000 barrel-per-day (bpd) refinery and nearby Bullenbaai terminal under a long-term contract that expires at the end of 2019. But PDVSA’s financial problems kept the refinery operations unstable for months even before ConocoPhillips imposed liens on Dutch Caribbean assets in a sweeping legal manoeuvre to force the government in Caracas to pay court-ordered compensation for the 2007 expropriation of Venezuelan assets.
“No processing units in the refinery have operated since April 7,” a senior executive with knowledge of the facility and the dispute indicated. Isla’s throughput under normal circumstances is around 220,000 bpd.
Since late 2017 Isla had been processing 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’s operations, PDVSA halted production altogether early last month.
Just as ConocoPhillips was getting the legal attachments processed in a local court, PDVSA switched the title on its Merey crude stored at the Bullenbaai from its own name to Isla, skirting the lien. But it still needs light crude to blend with it to restart the refinery.
Holding company Isla “Refineria di Kòrsou,” which collects the lease payments for Isla, had been in discussions with third parties in recent months to help save and upgrade the refinery that – directly and indirectly – provides for 2,000 jobs on the island. There is interest from among others British Petroleum (BP), but so far nothing had been signed.
Management had also been working with PDVSA to restart operations in June, when it was informed on May 7 by a local bailiff of the pre-judgment attachments imposed by ConocoPhillips. The latter target payments by the holding and Isla to PDVSA, as well as PDVSA-titled oil at Bullenbaai. The refinery itself and the products stored there are so far unaffected but that could change, the executive added.
Curaçao fuel distributor Curoil is supplying the local market and buys some of its fuel abroad, but ideally would resume Isla purchases to replenish PDVSA’s coffers, enabling it to buy crude, the executive said. In theory, the holding could purchase own crude to restart the refinery, but it lacks the cash flow to make this a sustained solution.
“PDVSA 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, PDVSA 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, PDVSA has notified its clients that effective immediately it is designating all its oil exports as FOB (free on board) cargoes as a legal safeguard.
The challenge for the company is that any settlement will open the door for its other creditors to follow in ConocoPhillips’ footsteps. “That is going to happen,” the executive predicted.
Elsewhere in the Dutch Caribbean, ConocoPhillips imposed liens on PDVSA’s 10- million-barrel 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 generators running.
Oil stored in Aruba is also under embargo.
Venezuelan energy ministry and PDVSA representatives said they are prepared to settle the dispute with ConocoPhillips. But the issue appears to have divided officials on the eve of controversial May 20 elections that sitting president Nicolas Maduro is all but certain to win.
