Refinery (RdK) Curacao has chosen Klesch Petroleum as the possible new operator of its stalled Isla Refinery, replacing Venezuela's PDVSA.
"RdK took an important step to keep the refinery, the Bullenbay terminal and the industrial services plant running," it said late Wednesday.
Negotiations between RdK and Klesch, based in London and Geneva, are scheduled to continue for three months with the intention of reaching a final agreement in November, RdK said in a statement.
The Isla Refinery has been operated by Venezuelan state PDVSA since 1985 under a rental agreement with the Dutch Caribbean autonomous island government. The agreement has been renewed periodically and the current contract expires in 2019.
The Curacao refinery has a capacity to process 335,000 b/d but in practice this volume is not possible because of infrastructure limits. The maximum throughput is estimated at between 270,000 b/d and 290,000 b/d, depending on the type of crude. In 2017 and 2018, the refinery was impacted by failures in its industrial services functions, by a fire that occurred in the CD-3 distillation unit and by the lack of crude availability.
In the last 12 months, however, the processing level has been nearly zero because of the lack of crude supply due to US sanctions against PDVSA.
The failure of PDVSA to live up to its contractually obligated investments in the refinery has forced Curacao to look for a new operator.
PDVSA had planned to reactivate the Isla Refinery in July with imported crude from third parties, but the promise was not fulfilled.
RdK in July said it received several "non-binding offers" to replace PDVSA as operator but did not give details of how many or which had expressed interest.
RdK's financial situation remains delicate.
"There was enough money to pay August's payroll," said an RdK official, who spoke on condition of anonymity with S&P Global Platts.
"To pay workers until December there are two sources," the official said. "One, to collect outstanding debts from Curoil and Aqualectra, the two local companies covering the local fuel and electricity market. And two, use funds reserved for payments in areas that have not been impacted by the US sanctions against PDVSA.
"PDVSA remains out. The only option [for PDVSA] is that the negotiations between RdK and Klesh will not be successful," the source said.
Klesch, the owner of the Heide Refinery (formerly a Shell refinery) in northern Germany, did not immediately respond to the request for comments and further details.
RdK did not give details of the scope of the negotiations for the operation or sale of the Isla Refinery
"The current value is estimated between $750 million and $1.5 billon," said the RdK official.
Reaching a new agreement to operate the refinery faces additional challenges. Environmental groups want to close the facility, and in late August a Curacao court ruled that the refinery should reduce its SO2 emissions to 20 ppm by 2020 from from 80 ppm currently, according to local media.
"Reducing emissions is impossible without investing and burning gas," the RdK official said. "With this environmental pressure it will be difficult to sign a new contract in the short term."
According to the Curacao central bank, the refinery represents 14% of total economic output of the island. It is the second-largest employer after the government and its economic impact influences almost all sectors of the economy.
PDVSA was not immediately available for comment.
