Hess Oil Sells South Shore Port Terminal For $184 Million
CHRISTIANSTED — HOVENSA LLC, a joint venture between Hess and Venezuela’s PDVSA, said on Monday that it has reached an agreement to sell its terminal assets for $184 million to Limetree Bay Holdings LLC.
The buyer is an affiliate of ArcLight Capital Partners LLC, a Boston-based private equity firm focused on energy infrastructure investments, affiliates of which currently own companies operating in the terminaling arena.
In this deal, there was no talk about restarting the 500,000-billion-dollar-per day HOVENSA oil refinery at St. Croix.
The sale would enable the restart of Hovensa’s storage terminal operations, providing jobs and tax revenue in the U.S. Virgin Islands.
To complete an orderly sales process, Hovensa will shortly commence a voluntary Chapter 11 case in the U.S. Bankruptcy Court for the District of the Virgin Islands.
The Chapter 11 case is expected to result in a sale of HOVENSA’s terminal assets through a court-supervised process as well as a Chapter 11 plan that specifies what will happen to the remaining assets and how liabilities will be settled.
The process, which is unavoidable given HOVENSA’s financial condition, is designed to maximize the value of HOVENSA’s terminal assets through a sale and expedite creditor recoveries, including the $40 million owed to the U.S. Virgin Islands as part of the settlement of the claim brought against HOVENSA by the Virgin Islands for damage to the natural resources.
Proceeds from the sale will be used to repay Hovensa’s creditors, and the Virgin Islands government, as the senior secured lender, will be the first creditor paid.
Other parties will have the opportunity to submit competing offers for Hovensa’s assets as part of the Chapter 11 Section 363 sale process, and a federal judge will ensure that the “highest and best” offer is approved.
The agreement with Limetree Bay is what is called a “stalking horse bid,” and any competing buyer would have to improve upon the current sale agreement using court-approved bid procedures in order to be selected.
A bidder will be permitted to propose a purchase of the terminal business or a purchase of the entire HOVENSA business.
HOVENSA said it has met and is committed to continuing to meet all its environmental obligations under applicable law.
The successful sale will also require the negotiation of an operating agreement with Gov. Kenneth Mapp, approval of the operating agreement by the Virgin Islands Legislature and bankruptcy court approval.
HOVENSA hopes that an operating agreement will be reached and approved on a timely basis that allows this sale to be completed. Today’s announcement follows a comprehensive sale process undertaken by HOVENSA and its owners.
In January 2012, HOVENSA’s owners announced that, following three years of losses totaling about $1.3 billion, it would no longer operate as a refinery.
HOVENSA said it explored all available options to avoid this outcome, but said severe financial losses left no other choice.
The owners recommended that Hovensa continue as an oil storage terminal; however, former Virgin Islands Gov. John P. de Jongh Jr. required the owners to conduct a sale process that would allow Hovensa to continue as a working refinery.
After lengthy negotiations with de Jongh, Hovensa’s owners retained Lazard in December 2013 for this purpose. The government approved retention of Lazard and was kept fully informed throughout the sale process. Following an extensive effort targeting 142 potential buyers, Atlantic Basin Refining (ABR) was the only entity to submit a final round bid for Hovensa in 2014.
In December 2014, the Virgin Islands Legislature did not approve an operating agreement that was negotiated by the former governor with ABR, which was a requirement to complete the transaction, so the sale could not proceed.
Consequently, Hovensa and its owners planned and executed shutdown activities, and the terminal ceased providing customer storage in February 2015. The truck rack remains open until the remaining fuel is exhausted. Hovensa’s owners said they met with then newly-elected Mapp in January 2015 to brief him on Hovensa’s prior attempts to sell the facility as a refinery and current financial position and to understand his expectations.
Mapp indicated that decisions regarding the sale process would be left to HOVENSA’s owners.
On that basis, HOVENSA’s owners re-engaged Lazard to conduct a second sale process, this time to market Hovensa’s assets for use as a terminal. Approximately 34 potential buyers were contacted, and Limetree Bay’s bid was deemed to be the best offer at the close of this process.
HOVENSA and its owners are hopeful that the sale can be successfully and efficiently completed in the court process that follows. The search has taken longer than expected, and Hovensa does not have sufficient liquidity to complete the sale except through a Chapter 11 Section 363 process.
HOVENSA and its owners said they firmly believe that a sale conducted through the Chapter 11 Section 363 sale process is the best way to maximize the value of HOVENSA’s assets to satisfy its obligations to the Virgin Islands while enabling the terminal to operate and again be an employer to Virgin Islanders and an economic contributor to the territory.
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