February 15, 2008 at 7:10 pm #3788
Venezuelan Asset Freeze May Slash Crude Supply to Hess Refinery
2008-02-15 14:40 (New York)
By Joe Carroll
Feb. 15, 2008 (Bloomberg) — Hess Corp.’s Hovensa oil-refining
venture in the U.S. Virgin Islands is at risk of being cut off
from more than half its crude supply because of a British court
order freezing $12 billion in Venezuelan assets linked to the
The order means 270,000 barrels a day of Venezuelan crude
that helps supply Hovensa might be confiscated when it arrives in
port, Fitch said today in a report to clients. Hess and state-
owned Petroleos de Venezuela SA each has a half stake in the
refinery, the fourth-largest in the Western Hemisphere with a
processing capacity of 500,000 barrels of oil a day.
“The oil is potentially exposed to confiscation risk before
Hovensa takes title to the crude,” Fitch analysts led by Sam
Kamath in New York said in the report. “The recent court action
has increased the risk of sale of Venezuelan crude to the U.S.”
A British court order disclosed on Feb. 7 blocks Petroleos
de Venezuela, known as PDVSA, from liquidating or transferring
$12 billion in assets worldwide. Irving, Texas-based Exxon Mobil
Corp., the world’s biggest oil company, sought the freeze as part
of its effort to get compensation for the seizure of a Venezuelan
oil field by the government of President Hugo Chavez.
Lawyers for PDVSA yesterday filed a motion in the British
court saying the freeze was unjustified and should be struck
down. Exxon Mobil obtained similar orders in the Netherlands and
the Netherlands Antilles, as well as a $315 million freeze on a
New York bank account.
The Hovensa joint venture doesn’t take title to crude
shipments from PDVSA until the tankers arrive in St. Croix and
unload their cargoes into storage tanks. As a result, the oil
could be targeted for seizure by a court because it’s still PDVSA
property when it arrives, the Fitch analysts said.
“PDVSA is continuing to supply oil to our Hovensa
refinery,” said Lorrie Hecker, a spokeswoman for New York-based
Hess. “We expect no supply disruptions.”
If Hess and PDVSA amend the contract so that ownership of
the crude transfers to the joint venture before cargoes leave
Venezuela, the companies may need to tap a $400 million borrowing
facility to construct additional storage tanks, the Fitch
The Sweeny refinery in Old Ocean, Texas, co-owned by
ConocoPhillips and PDVSA is less at risk of a supply disruption
related to the assets freeze because ConocoPhillips takes
possession of the crude before it leaves the port in Venezuela,
Adam Miller, one of the Fitch analysts who contributed to the
report, said today in a telephone interview.
“Sweeny takes ownership in Venezuela so there’s no
potential exposure anywhere on U.S. soil,” said Miller, who’s
based in Chicago. PDVSA owns 50 percent of Merey Sweeny LP, a
section of the refinery that includes a delayed coker and other
equipment for handling low-quality oil.
The Sweeny refinery, 65 miles south of Houston, could run
into supply disruptions if Chavez’s government follows through on
threats made last week to halt all oil shipments to the U.S., the
Fitch analysts said.
Venezuela was the fourth-biggest foreign supplier of crude
and refined fuels to the U.S. in November, the most recent month
for which U.S. Energy Department figures are available. Canada is
largest, followed by Saudi Arabia and Mexico.
“Fitch continues to believe that U.S. refineries remain the
natural and economic home for this crude oil,” the analysts said
in today’s report.
PDVSA’s Paraguana refining complex can process 940,000
barrels of crude a day, making it the largest in the Western
Hemisphere. Exxon Mobil’s Baytown, Texas, and Baton Rouge,
Louisiana, plants are second- and third-largest with daily
refining capacities of 563,000 barrels and 501,000 barrels,
–With reporting by Dan Lonkevich in New York and Jim Kennett in
Houston. Editors: Jon Bixby, Theo Mullen.
To contact the reporter on this story:
Joe Carroll in Chicago at +1-312-443-5928 or
To contact the editor responsible for this story:
Tony Cox at +1-713-353-4873 or
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