20 January 2015

New U.S. Virgin Islands Government seeks resolution to closed petroleum refinery

V.I. to foreclose on HOVENSA, sue for breach of contract

ST. CROIX - Gov. Kenneth Mapp has directed the V.I. government's legal counsel to proceed with foreclosing on the HOVENSA property and to reopen a natural resources damages case against HOVENSA stemming from groundwater contamination.

During a press conference Thursday, he also announced plans to pursue claims against Hess Corp., HOVENSA and its owners for breach of contract stemming from their concession agreements with the government.

"The people of the Virgin Islands expect a full compliance with the obligations under our contracts and a complete cleanup of the South Shore of St. Croix as mandated - and we will pursue those claims to the fullest extent of the law," Mapp said.

However, he noted that the government remains open to a peaceful resolution to the issues.

"We are willing for a peaceful parting of the ways," he said. "But the obligations and the environmental damages to this territory cannot go unabated and will not go unresolved by the Mapp-Potter administration."

Thursday's press conference stemmed from a Wednesday meeting that Mapp had with representatives from Hess Corp., PDVSA and PDVSA V.I., HOVENSA LLC, and Lazard Freres & Co. They had requested the meeting, according to Mapp.

HOVENSA is a joint venture between HOVIC, a wholly owned subsidiary of Hess Corporation, and PDVSA VI, a wholly owned subsidiary of the national oil company of Venezuela, Petroleos de Venezuela.

Attorney George Dudley, local counsel for HOVENSA and its owners, said Thursday afternoon that he will discuss the governor's announcement with his clients "and we will figure it out from there."

He declined comment on the Wednesday meeting with Mapp, instead deferring to the governor's comments.

HOVENSA and its owners typically do not comment on meetings with the governor, instead deferring to Government House to release information.

Holding $40 million hostage

Mapp described the meeting as "very cordial," but he said that at one point, Timothy Goodell, senior vice president of Hess Corp., indicated that if they are unable to get a buyer for the refinery, or if the government is unable to enter into an agreement with a potential buyer, the company would use the $40 million it owes the V.I. government as a settlement in a natural resources damages claim "to bring the plant to a mothball close and then seek to file bankruptcy."

"I was a bit dismayed at the comment and asked for some clarification. And it was restated," Mapp said.

The governor also said that he made it clear that the V.I. government views the obligations of HOVENSA and its owners as separate and apart from the potential sale of the refinery.

The owners can sell the refinery to whom they wish, he said, and the government will try to work out an operating arrangement with the prospective buyers.
"But we view that arrangement separate and apart from the outstanding claims, obligations, the environmental issues and the issues that are contained in all the concession agreements," Mapp said.

Alex Moorhead, a spokesman for HOVENSA, also declined comment on the government's plan take legal action.

The natural resources case

The $40 million HOVENSA and its owners owe the government is the amount still owed on a settlement that was reached in connection with one of the natural resources damages cases the V.I. Government brought several years ago against a number of companies that operated plants on St. Croix's South Shore.

The case against HOVENSA was over its contamination of groundwater.

As a settlement in that case, HOVENSA and its owners earlier this year agreed to pay the V.I. Government $43.5 million in damages, with $3.5 million paid up front and the $40 million balance to be paid by Dec. 31.

The owners put up a mortgage lien on the refinery and the property on it as security on the $40 million.

They did not pay the money by Dec. 31 - and still have not paid.

USVI legal actions

On Thursday morning, Mapp said that he directed Acting Attorney General Soraya Diase Coffelt to issue a notice of a breach of the settlement agreement immediately to Hess Oil and to PDVSA. He also said he directed her to advise the District Court of the matter, and file a motion to reopen the litigation on the groundwater contamination issues.

And he told her to proceed with the foreclosure action, he said.

"I am instructing the attorney general to foreclose on the note and to take every legal action to seize the assets and security instruments contained at Estate Hope," Mapp said.

Although Diase Coffelt resigned later in the day on Thursday over what was described as a "staffing conflict," Mapp said in a press release that there would be no break in the government's stance regarding litigation issues discussed in the press conference.

"I have also directed staff to identify a law firm on the U.S. mainland that is very experienced in dealing with these kinds of matters, particularly as it relates to oil, gas and refining, because we also have the issues of the breach under the concession agreement," Mapp said at Thursday's press conference.

The notification of breach advises HOVENSA and its owners that no fixture, properties or assets are to be removed without a written request and approval from the government.

Other issues

The government contends there have been multiple breaches by Hess and HOVENSA in the concession agreements the refinery owners have had with the government over the years.

"We will also take on the issues of the breaches in the original concession agreement and the four amendments thereto, that there are a number of obligations that the company has there," Mapp said. "And we will undertake to pursue our claims, rights and privileges under those concession agreements."
Mapp said Thursday that during Wednesday's meeting, he made it clear to Hess that "we got along, but we're really at a stage of a divorce.

"And while we are open and prepared for a peaceful and amicable divorce, a long protracted and expensive litigation does not daunt our resolve that the rights and obligations to the people of the Virgin Islands must be fulfilled," he said.

Unknown costs

Officials said they do not know what the price tag for the litigation might be - or how long it might take.

"I don't know how much it will cost," Mapp said. "The question is how much will it cost us if we just sit down and continue to be abused."

He said the government is not at the point of asking how much it will cost.
"We're at the point of saying there are responsibilities and obligations that any company doing business like that in any community must face," he said. "And this government is saying that we expect Hess Oil and its partners to fulfill those duties and responsibilities."

He contended that the territory delivered on its part of the bargain with HOVENSA and "it is now time for Hess Oil, HOVIC, HOVENSA, and PDVSA to deliver on its part of the promise."

The $40 million that was not paid, though, was money the cash-strapped V.I. Government was counting on.

The unpaid settlement money already is budgeted as revenue for the current fiscal year.