By Lauren Baccus and Stephanie Hanlon-Nugent
Hovensa announced Monday a new agreement to sell its St. Croix terminal just hours after Gov. Kenneth Mapp announced a $1.5 billion lawsuit filed by the Virgin Islands government against the company.
The V.I. government is alleging that Hess Corp, partial owner of Hovensa, violated the territory’s Criminally Influenced and Corrupt Organizations Act when it closed in 2012 prior to the completion of its contract in 2022. The 71-page lawsuit alleges that Hovensa siphoned off assets prior to closing, then claimed that it were operating at a loss (view lawsuit here).
“This is not about a business disagreement; it is about Hess breaking the law,” Mapp said in a press release.
During a press conference at Government House on Monday, Mapp also discussed the plan to sell a portion of the refinery to Lime Tree Holdings, an affiliate of Boston-based ArcLight Holdings LLC, in addition to the pending lawsuit.
Hovensa, in its statement, said the sale would include all terminal assets for $184 million. According to Hovensa, Lime Tree Holdings is a private equity firm focused on energy infrastructure investments. (View Hovensa’s statement).
Under the proposed sales agreement, Lime Tree Holdings would purchase a portion of the property to operate as a storage facility with about 70 employees. In 2012, negotiations between Hess and the government included the employment of 100 people for a similar use.
Hovensa also announced that “shortly” it would be voluntarily filing Chapter 11 bankruptcy. It expects the bankruptcy case to result in a sale of Hovensa’s terminal assets through a court-supervised process to maximize profits. That process, Hovensa says, will determine what happens to the remaining assets and how liabilities are settled.
Proceeds from any sale will go to repay Hovensa’s creditors, and the V.I. government will be the first creditor paid, according to Hovensa. It maintains the utility owes $40 million to V.I. government.
Mapp, however, maintains that the government is owed a total of $92 million and that Hovensa is only willing to pay $40 million.
The sale of the terminal hinges on the approval of an operating agreement with the V.I. government, and then approval of that agreement by the V.I. Senate and bankruptcy court approval.
Mapp said that, through the lawsuit, he hopes to get $1.5 billion in damages for the territory in addition to the sale of the terminal.
The suit claims that Hess violated a 1998 agreement that committed Hess to operate as a refinery in the Virgin Islands through 2022. The refinery closed in 2012, and the company remained obligated to pay $150 million per year expected over the 10-year period from 2012 to 2022, according to the lawsuit.
“In courts across America, governments have been prevailing in their suits for return of their incentives to companies who have failed to live up to their obligation,” Mapp said during the press conference.
As recently as 2013, Hess was given additional concessions to allow it time to sell the refinery, but Mapp said it failed to honor its commitments. The government was on the verge of filing suit in August when Mapp said he was advised of the potential sale.
After initial talks with Hess Oil, however, the parties failed to “come to a common ground to begin the process of settling these issues,” Mapp said.
“I remain open but my limits are limited,” Mapp said. “I will not be a party to waiving the interests, the rights and the assets of the people of this territory. I think we have bent over far enough.”
Hovensa maintains that when it announced the refinery closing in 2012, it had already experienced three years of losses totaling $1.3 billion. The refinery says it had explored all available options to avoid closure “but severe financial losses left no other choice.”
Hovensa attempted to continue operating as an oil storage terminal; however, then-Gov. John deJongh Jr. required the owners to enter into a sales process so Hovensa could continue as a refinery.
Out of 142 potential buyers, Atlantic Basin Refining was the only one to make it to the final round in a bid for Hovensa in 2014. The V.I. Legislature, however, did not approve the agreement and Hovensa began shutdown procedures. The terminal ceased operating in February 2015 and the truck rack remains open until remaining fuel is exhausted.
As a result of the shutdown of operations at the plant in 2012, thousands of jobs were lost as well as income and other benefits for government and people of the Virgin Islands, Mapp noted. In addition to the economic hardship, there were significant environmental consequences related to the plant shutdown, he added.
“Hovensa and its owners firmly believe that a sale conducted through the Chapter 11 Section 363 sale process is the best way to maximize the value of Hovensa’s assets to satisfy its obligations to the USVI while enabling the terminal to operate and again be an employer to Virgin Islanders and an economic contributor to the territory,” Hovensa stated in its news release.
The lawsuit filed against Hess Corp. in Superior Court on Sept. 13 includes the following allegations:
– Hess Corp violated the territory’s Criminally Influenced and Corrupt Organizations Act and various other torts over decades;
– made deceptive representations about the financial situation of the refinery;
– knowingly used mail and telecommunications to advance, conceal and further its scheme to defraud the government;
– rendered the refinery inoperable by siphoning off more than $1 billion in assets;
– between 2009 and 2011, Hovensa reduced its oil inventory by nearly $400 million and deferred routine maintenance at the refinery for the purpose of ceasing operation, reducing the value of the refinery, and rendering Hovensa unable to satisfy its legal and contractual obligations to the government in 2012 causing Hovensa to use $356 million to buy back bonds that no payments were due on to protect Hess Corp’s credit rating, while telling the V.I. government the refinery had no money to operate;
– placing 2,000 people out of work, causing severe environmental damage and economic hardship on St. Croix while drawing millions in profits;
– closing the Hovensa refinery and another refinery in New Jersey was part of Hess’s larger plan to restructure its operations and focus exclusively on exploration and oil production rather than refining. Hess Corp planned to sell Hess gas stations, which at one point received about 50 percent of its gas from St. Croix;
– the plan to abruptly close the refinery was meant to cause the V.I. government to panic and accept the conversion of the facility into an oil storage terminal.
– in 2009 Hess ceased conducting routine maintenance, which led to a series of environmental events in 2010, including the release of benzene into residential neighborhoods, a large fire that covered neighborhoods in soot, and a chemical release that caused the hospitalization of 15 students and forced the closure of a local high school;
– a subsequent consent decree with the U.S. Environmental Protection Agency was strategically made with Hovensa’s name, leaving Hess Corp in the clear.
– the provision in the EPA consent decree requiring $700 in improvements as long as the refinery was operational was orchestrated by Hess to facilitate the refinery closure;
– the refinery shutdown was in the works for several years;
– Hess Corp attempted to force the V.I. government into signing an interim agreement by threatening to cut off the territory’s fuel supply;
– as a direct result of Hess Corp’s breach of contract, WAPA and the government lost access to the bargained-for fuel oil subsidy that provided the territory’s citizens with less costly electricity and drinking water;
– and that the resulting increase in fuel costs has resulted in higher utility prices and higher retail fuel prices to the economic detriment of the island.
The government is seeking three times the damages caused by Hess Corp’s “fraudulent enterprise, disgorgement of Hess Corp’s unlawful profits, civil penalties and injunctive relief to prevent Hess Corp from continuing its violations of law.”