New Boss Still Hopeful for Isla Refinery

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New Boss Still Hopeful for Isla Refinery
A view of Isla refinery in Willemstad, Curacao. © dbvirago

Following a handful of failures, Refineria di Kursou is once again starting another search of a new operator for the Isla Refinery. But RdK, the government agency that owns the refinery, is under new management and optimistic the five-year saga is finally coming to a close.

Patrick Newton, interim director of RdK, told Lube Report a number of market forces have so far stymied multiple attempts to find an operator for the Willemstad, Curacao, facility – but says the current situation shines more favorably on finding a partner soon.

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Isla Refinery is a 335,000-barrels-per-day fuel refinery that had been operated by Venezuelan state-owned PdVSA since 1985. The refinery includes a base oil plant with capacity to produce 5,000 b/d of API Group I paraffinic base oils and 3,700 b/d of naphthenic base stocks.

Newton became interim director last November after a messy resignation of the previous board in charge of finding an operator. Newly installed Prime Minister Gilmar Pisas and his government declared they no longer had confidence in RdK’s management, which was not given the chance to argue its case against the move.

RdK announced in January it was once again starting a new search for an operator, saying it had selected a number of potential groups out of more than 20 that showed interest. A government official stated beforehand it would employ the use of a headhunter. Newton said they were able to approach several companies while also being approached by others.

The previous preferred bidders over the past five years were local consortium CORC, German oil trader Klesch Group, U.S.-based Motiva and Chinese company Guangdong Zhenrong Energy. Negotiations with all groups fell through.

“I don’t think you can point directly to whether the board or the government was at fault for previous attempts,” Newton said in an online interview. “I think the market situation was pretty difficult when we first started. We have different circumstances now.”

He pointed to the fluctuating crude oil market as a big reason the process has been difficult. “The supply of oil products was much bigger than demand. The crude price also was dropping.”

Only the last two preferred bidders, CORC and Klesch Group, signed a lease agreement with RdK. CORC failed to secure financing, crude supply and the required permits. Klesch Group, Newton said, found it more difficult to finance a purchase of the refinery after crude prices went down. RdK and Klesch had agreed on a deal in December of 2019, just a few months before the pandemic became widespread, but eventually the deal was off the table.

The Isla Refinery hasn’t been the only one to face difficulties in the Caribbean, Newton noted, as other facilities struggled to find a financial footing. A San Nicolas, Aruba, facility was shut down in 2012 by U.S.-based Valero Energy Corp. due to low profits. Another oil refinery in St. Croix, U.S. Virgin Islands, shut down indefinitely last June, also due to financial problems. Trinidad and Tobago is looking for a new operator of an idled refinery previously run by state-owned Petrotrin after it was restructured.

But Newton says that means there can be opportunity for RdK. “Because of the shake out of refineries, we have less competition. So our refinery is in pretty good shape still.”

The Caribbean also has options for crude oil, a crucial advantage of the region. “We of course have Venezuela, which is in a difficult position at the moment, but still the country with the largest oil reserves in the world. But we also now have Guyana and Suriname coming onstream with light, very low sulfur crude of very high quality,” he continued.

Newton believes the price of oil looks to be stabilizing for the foreseeable future at around $100 per barrel and that demand is growing.

“So all those points, make me conclude that the dynamics have changed and that it is more interesting for oil and gas companies to do business in Curacao,” he said.

Newton said RdK is pushing back its timeline on finding a partner. It had previously stated it would receive all binding proposals by the end of the month, but now it has extended that deadline a few weeks into March.

“That has to do with [companies’] due diligence,” he said. “In the previous process, nobody actually visited the island because of the coronavirus. But now, we have technical teams from interested companies coming in the last couple weeks and will have more in the next couple weeks.”

He said they expect to select a preferred bidder in April, after which they will immediately begin negotiations.

RdK is aiming to conclude negotiations by the third quarter of this year, and wants to restart the refinery by the end of 2022.

Newton said despite the extended idle time of the facility, it can in fact be up and running this year, though not fully.

“Potential operators are telling us that the refinery is in much better shape than they thought,” he continued. “They are really getting into the nitty gritty, so that’s good news for us.” Certain units can be started up quickly, but there is still some maintenance to do.

Born and raised in Curacao, Newton worked for Shell in the late 1970s before being employed by Petroleos de Venezuela S.A. after Shell’s departure. He moved on to accounting organization KPMG, leaving in 2019.

“Yes, I’m optimistic,” Newton said about finding an operator. “As an inhabitant of the island, you want this sector to pick up again. But my view is based on facts. We see the interest of several companies in the binding proposal phase. We are in a better position now than we were a couple of years ago. Less competition, the advantages of the region and the price of crude. I’m optimistic, but we are also realistic.” The facility has run only intermittently in the past couple of years because of PdVSA’s financial problems and its inability to secure crude oil stemming from legal issues and U.S. sanctions. Concerns have been raised that the facility’s lack of activity could lead to permanent damage to its equipment. The refinery is also a vital part of the local economy.