January 26, 2011 at 12:29 pm #2403
HESS, PDVSA to Cut HOVENSA Capacity after Losses
Houston, 26 January, 2011 (Argus) – US integrated energy producer Hess said its Hovensa refining venture with Venezuela’s state oil company, PdV, will cut processing capacity by 150,000 b/d to stem losses.
Processing units on the west side of Hovensa’s plant, located in the US Virgin Islands, will be shut down, reducing crude-distillation capacity to 350,000 b/d, Hess said today. The reconfiguration, scheduled for completion by the end of March, won’t affect the refinery’s coker or fluid catalytic cracking (FCC) unit. Turnaround work on the affected units has been cancelled, and Hovensa will freeze hiring for most positions as it determines how many workers it will need after the capacity reduction.
“Simplifying our operation by eliminating some older, smaller process units is expected to result in improved efficiency, reliability and competitiveness,” said John George, interim chief operating officer at Hovensa. “This is an important step toward improving our performance at a time when Hovensa and the refining industry are facing difficult economic conditions.
Hovensa has weighed on the profits of Hess. Today, the company reported an 84pc drop in fourth-quarter profit after a loss in its refining business outweighed gains from increasing oil prices and production.
Profit tumbled to $58mn from $358mn a year earlier on a $261mn downstream loss, Hess said. The company recorded $289mn in after-tax costs to reflect a drop in the value of Hovensa’s plant. The refinery generated a $52mn loss for Hess in the third quarter.
“We are disappointed with the operating performance of the facility as well as the financial performance, and we are working with our partners to find ways to improve both,” chief executive John Hess said after the third-quarter loss.
US integrated energy producers Marathon Oil and Murphy Oil are shedding their downstream businesses amid slumping profit margins on gasoline. Marathon announced plans this month to spin off its refining and marketing business as a separate company. Murphy plans to sell its refineries.
Fourth-quarter upstream profit at Hess fell by 15pc year on year to $420mn, even as production rose by 1.2pc to 420,000 barrels of oil equivalent (BOE) a day. Exploration expenses increased on $111mn in dry-hole costs for the Sabia and Azualao wells in the BM-S-22 block off the coast of Brazil, Hess said. The company was paid an average of $71.73 per barrel of oil, up 13pc year on year, and its average natural-gas price rose by 2.1pc.
Proved reserves increased to 1.54bn BOE at the end of 2010 from 1.44bn a year earlier. Hess added 76pc more oil and gas reserves than it pumped from the ground.
Tony Cox Reporter http://www.argusmedia.com
January 26, 2011 at 12:30 pm #5320
Besides Capacity cut (which is not expected impact coker) the article also mention PDVSA & HESS JV canceled its T/A scheduled work. Probably comes from PDVSA side where they also canceled T/A – Maintenance work on Petrozuata (now PetroAnzoategui) Upgrader (revenue shortfall and reduced production has them pushing production).
Bueraucrats and Financial types (&/or Upstream types as well) never seem to learn that Refineries have no control over downtimes – you either schedule it or it falls down and then cost twice as much and takes twice as long to fix than the shorter scheduled T/A would have.
January 26, 2011 at 1:36 pm #5318
Lot decisions on Hovensa (capacity cut, hiring freeze & cancel or postpone T/A) according to Exec John Hess is driven by downsteam (Refining & Marketing) losses.
A contact friend of mine at KBC Tech pointed out that dowstream actually made a profit in 4Q & for year if you exclude the -$289MM hit they had to take 4Q for the FMV (fair market value) write-down from carrying value for tax purposes.
Making knee jerk decisions for one time hit that ~ had little to do with actual refining operations and more for reducing future tax exposure doesnt seem make lot sense to anyone not focused on upsteam operations.
Course Hess will have plent company here with Oil Co’s like MAP making the stupid decision to split off its Upstream & Downstream segments (because they feel the crude isnt really integrated) ….. just wait till upsteam needs place to log the bad/missed crude hedges, or place crude they cannot sell market or MAP loses tax deductions pushed back from Downstream into E&P because they get credit for it (lose twice on this one if split is too deep.
January 26, 2011 at 3:50 pm #5316
I don’t see any knee jerk reactions here. Because of some past on-site consulting assignments, I know quite a lot about Hovensa — most of it not good — including a host of partner challenges and years of budget cutting on maintenance and upgrading. I’m more surprised that changes did not come sooner than that major changes are afoot.
January 26, 2011 at 10:53 pm #5315
Hovensa to pay $5.4M fine, invest in pollution controls at US Virgin Islands refinery
By Danica Coto, Associated Press Jan 26, 2011
SAN JUAN, Puerto Rico – The owner of a huge oil refinery in the U.S. Virgin Islands has agreed to spend more than $700 million on pollution controls, federal officials said Wednesday. Hovensa LLC also agreed to pay a $5.4 million penalty for violating the Clean Air Act, said Ignacia Moreno, an assistant attorney general with the U.S. Department of Justice.
“This important settlement with the second-largest refinery in the United States will result in significant improvements to human health and the environment of the U.S. Virgin Islands,” Moreno said in a statement.
Hovensa also will have to set aside $4.9 million for environmental projects in the U.S. Caribbean territory. The decree is subject to court approval and to a 30-day public comment period, officials said.
They accuse Hovensa of making modifications to its refinery that resulted in increased emissions without obtaining the necessary permits or installing the required equipment. Alex Moorhead, a Hovensa spokesman, said the agreement is part of a companywide refinery initiative.
“The projects and investments that will result from this agreement will further support Hovensa’s efforts to operate responsibly and protect the environment in St. Croix,” he said in a statement. Hovensa also announced Wednesday that an ongoing economic crisis is forcing it to shut down several units, reducing the company’s daily processing capacity from 525,000 barrels to 350,000 barrels.
The company also said it is reviewing its work force needs and that it has frozen most of its job openings. Virgin Islands Congressional Delegate Donna Christensen said she worried about impending layoffs. “While the large fine is a hard hit to the refinery which has already been losing money, it will be used in the best possible manner,” she said. “Hovensa has been a part of the St. Croix community since the ’60s and are an important part of our economy.”
The refinery is among the 10 largest in the world and is a joint venture of New York-based Hess Corp. and Petroleos de Venezuela SA. The company also is the largest private employer in the U.S. Caribbean territory, and its refinery is located on the island of St. Croix, where residents have been exposed to a series of environmental problems in recent months.
As a result, the local government has launched its own investigation into Hovensa.
In late September, authorities urged St. Croix residents to avoid drinking cistern water because of an industrial gas leak at the refinery. About a week later, officials warned that a problem that triggered a burnoff of heavy oil could lead to falling soot and oil spots.
In early December, at least 16 students and teachers from a high school near the refinery were exposed to hydrocarbon fumes and were taken to the hospital. Authorities later warned against drinking cistern water after finding droplets of oil on the ground.
Eugennie Gardine, a 90-year-old resident who lives near the refinery, told The Associated Press that she complained to officials last year about the heavy smell of smoke and other problems. “It really affected me,” she said in a phone interview. “I was sneezing and it made my eyes watery.”
Paul Chakroff, executive director of the nonprofit St. Croix Environmental Association, said neighborhoods in western St. Croix are most affected because they are downwind from the refinery. He said the association is starting to document health problems blamed on the refinery, including asthma, with help from government officials.
Chakroff said he was cautiously optimistic about the announcement that Hovensa had agreed to make a multimillion-dollar investment that officials say will cut emissions by 8,500 tons (7,700 metric tons) yearly.
“If this happens, it certainly would be tremendous news,” he said. “We’ll have to hope and see if that in fact works.”
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