LyondellBasell swiftly switched its naphthenic base oil and white oil marketing contracts to Calumet last week when a U.S. Bankruptcy Court in New York Nov. 4 gave LyondellBasell permission to dump existing contracts with Nynas Naphthenics and Schumann Steier.
As part of its ongoing Chapter 11 bankruptcy reorganization, LyondellBasell had solicited bids to replace one contract to supply white mineral oil to Florida-based Schumann Steier Inc. and another contract covering base oils sold to Swedens Nynas AB, replacing both with Calumet Specialty Product Partners. The agreement with LyondellBasell was both a logistics and volume deal, Calumet previously said, giving it additional production and another distribution point for products it already makes.
The contested products are made by LyondellBasell subsidiary Houston Refining Co., which has capacity to produce 3,600 barrels per day of pale oil and 800 b/d of white oils. The existing contracts were rejected and terminated immediately, LyondellBasell public affairs director David Harpole told Lube Report last week. As soon as the court confirmed our right to reject those contracts, we began moving forward with the transition to Calumet.
The rejection of the Nynas contract included a stipulation to protect confidential information. What we acknowledged in the court was that no confidential information will be given to any third party regarding our refining processes, Harpole stated.
Jay Flint, president and general manager of Nynas USA in Houston, told Lube Report that while the company was disappointed with the courts decision, it would respect the ruling. He noted a court order concerning confidentiality had gone back to the judge for final wording. This issue is about the process to protect Nynas confidential information, he continued. It will be resolved and will not affect the fact the judge has ruled to reject our contract. Net effect is the business transferred to Calumet on Thursday last week.
In its Oct. 16 objection filing, Nynas had asked the court to either turn down LyondellBasells effort to end its current marketing contract with Nynas, or adjourn for 90 days so Nynas could investigate further and prepare its case for why the contract should not go to Calumet, which is headquartered in Indianapolis.
Nynas and LyondellBasell had been sales partners since August 2007, with Nynas handling all of Houston Refinings output of naphthenic base oils. In addition, Nynas said it provided Houston Refining with technical advice and proprietary business information. Nynas told the court its confidential advice and technical assistance enabled Houston Refining to create and improve Tufflo 60T, which Nynas then purchased and used in its transformer oils.
Nynas had emphasized that the sales agreement contained strict confidentiality provisions prohibiting Houston Refining from unlawfully disclosing the confidential information to third parties or otherwise misusing it. The filing noted that the confidentiality provisions survive for five years following termination of the sales agreement.
When the deal between Calumet and LyondellBasell was first announced in early October, Nynas said it planned to increase supplies from its own refinery and other sources to offer alternatives to its customers. As a result of LyondellBasells switch to Calumet, Nynas global naphthenics supply shrank by approximately 20 percent, but the company said it has been making contingency plans ever since LyondellBasell entered Chapter 11 in February.
In addition to its own 7,800 barrels-per-day naphthenic base oil plant in Nynashamn, Sweden, Nynas also markets the pale oil output from Petroleos de Venezuela S.A.s Rafineria Isla in the Netherlands Antilles (3,700 b/d) and Valeros Three Rivers, Texas, refinery (2,400 b/d). Nynas Group is owned equally by PdVSA and Finlands Neste Oil.
On the white oils side, LyondellBasell agreed in February 2008 to sell its Duprime, Duopac, Crystex, Aquamarine and Ideal brand white oil specialties to petroleum products marketer Schumann Steier, which markets and sells them throughout the United States. That agreements initial term was to expire Jan. 31, 2011. SSI had noted it had the option to unilaterally renew the agreement for an additional two-year period.
In its filing, SSI had asked the court to either deny LyondellBasells motion to reject its existing contract, or to at least provide SSI an opportunity to look further into the new agreement with Calumet.
SSI, based in Coral Gables, Fla., said that it purchased about 8 million gallons of white oils from LyondellBasell over the last calendar year, but in a normal economy it would have lifted at least 25 to 50 percent more. Schumann Steier had calculated that its damages over the remaining two years of the agreement would be at least $2.4 million.
Were certainly disappointed at the outcome, but well respect the courts decision, SSI President Arthur Steier told Lube Report.