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Monarch Energy Accused Of Obstructing HOVENSA Deal In Federal Bankruptcy Court

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Ernice Gilbert with Robert Shrader of Monarch Energy on YouTube

CHRISTIANSTED – St. Croix oil refinery HOVENSA LLC has asked a bankruptcy judge to block a bid by its rival Monarch Energy Partners to acquire the debtor’s shuttered refining facility in St. Croix for $40 million, saying Monarch is attempting to undermine an upcoming Chapter 11 auction for its assets, the Virgin Islands Free Press has learned.

In an objection, HOVENSA challenged Monarch’s request to lift the automatic bankruptcy stay. Monarch wants the court to lift the stay until after the U.S. Virgin Islands, a part owner of HOVENSA’s oil refinery, rules on the company’s proposal to purchase the local government’s stake in the property’s underlying mortgage.

The petroleum refinery located in Limetree Bay, St. Croix was closed in January 2012. HOVENSA, which was created through a joint partnership between Hess Corp. and Petroleos de Venezuela SA, (PDVSA) shuttered the facility after it said it sustained heavy losses — a decision that prompted the Virgin Islands government to launch a $1.5 billion lawsuit against the company, which had promised to keep the refinery open until 2022.

Monarch’s request could be a major problem for HOVENSA, which has been able to use the automatic bankruptcy stay to block the government from seizing its property, according to court documents. HOVENSA filed for bankruptcy in September — a day after the government’s lawsuit was filed — armed with a plan to sell off the refinery’s assets for $184 million to an affiliate of ArcLight Capital Partners LLC.

HOVENSA said that Monarch’s request to lift the stay is an “improper attempt to derail the debtor’s sales process.” The company said Monarch lacks standing to lift the stay because it’s not considered under the U.S. Bankruptcy Code to be a so-called “party of interest” in Hovensa’s estate.

“Monarch has failed to demonstrate any injury caused, or interest that could be affected, by this Chapter 11 proceeding,” Hovensa said. “At best, Monarch is a potential purchaser of the debtor’s assets.”

Monarch said in court papers filed last month that it wants to “step in the shoes of the USVIG and proceed with the seizure of the property.” According to Monarch, Hovensa and the USVIG are facing approximately $800 million in fines from the U.S. Environmental Protection Agency for widespread contamination that has occurred at the refinery.

Monarch said if the government accepts its deal, the company would assume the USVIG’s share of the liability and begin to remediate the contamination with the goal of reopening the refinery. The mortgage Monarch is seeking to acquire was issued as part of a settlement between HOVENSA and the USVIG over government litigation over environmental liabilities.

The mortgage secures the USVIG’s $40 million claim against Hovensa, according to court documents.

Hovensa officials have indicated the company’s downfall was caused by poor economic conditions and “intense competition.” Hovensa idled most of its refinery operations after suffering approximately $1.3 billion in losses between 2009 and 2011, according to a declaration by Chief Restructuring Officer Thomas Hill.

The company continued to operate as a storage facility until early this year.

The Chapter 11 filing came a day after U.S. Virgin Islands Gov. Kenneth Mapp announced the $1.5 billion lawsuit against Hess. The complaint represents the latest salvo in an ongoing legal battle between the territory and Hess, which has operated on the island since 1965 and has been responsible for a large chunk of the islands’ economy.

Attorneys representing HOVENSA and Monarch could not immediately be reached for comment.

Monarch Energy has been heavily promoted by Ernice Gilbert and the Virgin Islands Consortium in online videos and posts.

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The Author

John McCarthy

John McCarthy

John McCarthy is primarily known for his investigative reporting on the U.S. Virgin Islands. A series of reports beginning in the 1990's revealed that there was everything from coliform bacteria to Cryptosporidium in locally-bottled St. Croix drinking water, according to a then-unpublished University of the Virgin Islands sampling. Another report, following Hurricane Hugo in 1989, cited a Federal Emergency Management Agency (FEMA) confidential overview that said that over 40 percent of the U.S. Virgin Islands public lives below the poverty line. The Virgin Islands Free Press is the only Caribbean news source to regularly incorporate the findings of U.S. Freedom of Information Act requests. John's articles have appeared in the BVI Beacon, St. Croix Avis, San Juan Star and Virgin Islands Daily News. He is the former news director of WSVI-TV Channel 8 on St. Croix.

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