Citgo, Aruba to Restart Refinery

Venezuelan PDVSA's unit in the United States, Citgo Petroleum, is working to restart some processing units at the Aruba refinery under a 25-year lease contract with the government of the Caribbean island, sources at the facility and firms involved told Reuters on Saturday.

The Aruba refinery's former operator, Valero Energy Corp , has not been involved in the negotiations, but the island has guaranteed the U.S. company that it can walk away from the refinery with zero environmental liability and without obligation to dismantle it.

A source from the refinery, with capacity to run 235,000 barrels per day of crude, said a technical team has been working since September on the facility's new configuration, including equipment replacement. Other sources added the process of hiring staff and contractors is about to begin.

A spokesman for Aruba's government told Reuters a group of representatives is currently in Houston discussing terms of a possible deal.

Valero told Reuters its policy is not to comment on business negotiations. PDVSA and Citgo were not immediately available.

Even though PDVSA's financial condition is weak amid low crude prices, its subsidiary Citgo enjoyed some relief in 2015 due to higher refining margins, which would allow it to direct a portion of its profit to Aruba.

Last month, the catalysts used at Aruba's hydrodesulfurization unit (HDS) were removed and new ones are planned for purchase, one of the sources said.

But the restart date has yet to be defined. Operational units could take more than two years to get ready, another source said, because of the long time the facility has been idled.

U.S. Valero Energy halted Aruba refining operations in 2012 due to low profit. In 2014 it reclassified the facility as "abandoned," except for terminals currently used by it and PDVSA.

Aruba would offer a good way for PDVSA to produce heavy naphtha that it currently imports as diluent for its extra heavy oil output, and it would also produce refining feedstock for Citgo, according to the sources.

It is still unclear if the lease agreement will also include the terminal, but one of the sources said Valero has been reluctant to let it go.

The island's energy ministry in September confirmed a memorandum of understanding had been signed to explore reopening the facility. Valero paid $465 million for Aruba in 2004.

(Additional reporting by Alexandra Ulmer in Caracas and Sailu Urribarri in Oranjestad; Editing by Terry Wade and Matthew Lewis)