US refiner Citgo has reached an agreement with Aruba to transfer control of the San Nicolas refinery to the island’s government.
The agreement was reached last weekend after the two parties last year suspended a contract to overhaul the facility. Citgo, a unit of Venezuelan state oil company Petroleos de Venezuela [PDVSA.UL] has been under the control of the South American country’s opposition for more than a year after Washington slapped sanctions on PDVSA in a bid to oust socialist President, Nicolas Maduro.
That transition left the future of the 209,000 barrel-per-day refinery uncertain. Citgo and Aruba in 2016 reached a 25-year US$685 million deal to refurbish and reopen the facility, which had been idle since 2012, but little progress had been made.
Citgo, in a statement on the weekend, said the transfer agreement was the first step in a process that would result in the Aruba government taking full control of the refinery by March 16, following approval by the island’s parliament. The island’s parliament is now preparing to pass legislation to enable the termination and finalize outstanding tax payments.
Under a long-term lease signed by late PdVSA chief executive and former Citgo Petroleum chief executive, Nelson Martinez with the Aruban government in 2016, PdVSA had planned to refurbish the refinery to upgrade Venezuela’s extra-heavy Orinoco crude into lighter synthetic oil. The US$1.1billion project, which was managed by Houston-based Citgo Petroleum under a service agreement would have helped to process Venezuelan crude production that exceeds the functioning capacity of upgraders and blending facilities at PdVSA’s Jose complex in Venezuela.
Citgo Aruba Holding, has been negotiating with Aruba’s government to relinquish the project since April 2019, which was shortly after Venezuela’s US-backed political opposition took administrative control of PdVSA Holding and Citgo Petroleum. The termination agreement does not impact Citgo Petroleum’s fuel supply contracts with Aruba.
The Aruba refurbishment project never gained meaningful traction. Amid repeated project delays, Aruba’s authorities lacked confidence in Venezuela’s ability to execute it. In September 2018, Aruba Prime Minister Evelyn Wever-Croes told Argus that the odds of project execution were “slim”.
The project was unpopular with Citgo Petroleum’s US management, and it never obtained approval by Venezuela’s opposition-controlled National Assembly. PdVSA blamed the delays on US financial sanctions imposed on Venezuela in August 2017, followed by oil sanctions in January 2019.
Aruba is part of a Dutch Caribbean logistical network that PdVSA traditionally relied on to get its oil to market. The island remains a frequented transhipment site for cargoes en route to Venezuela on behalf of PdVSA.
Another Dutch Caribbean island, Curacao, recently ended a lease with PdVSA to operate its own refinery and terminal.