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PDVSA Asset Freeze puts Hovensa Crude @ Risk – Sweeny's OK

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    Charles Randall
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    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
    plant’s co-owner.
         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.

                            Continuing Supply

         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
    analysts said.
         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.

                              `No Exposure’

         “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,
    respectively.

    –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
    jcarroll8@bloomberg.net

    To contact the editor responsible for this story:
    Tony Cox at +1-713-353-4873 or
    acox3@bloomberg.net

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