Pdvsa sustains growth with refinery purchase

• Venezuela in U.S., Carribbean Refining [103,299 bytes]

Pdvsa Petroleo y Gas, a subsidiary of Petroleos de Venezuela SA (Pdvsa), signed a letter of intent with Amerada Hess Corp. last month to purchase a 50% interest in Hess Oil Virgin Islands Corp.'s 545,000 b/d refinery on St. Croix (OGJ, Feb. 16, 1998, Newsletter). The move will increase Pdvsa's net global refining capacity by 272,500 b/d to more than 2.76 million b/d.

As part of the deal, a supply agreement will ensure that Venezuelan oil constitutes half of the refinery's crude intake.

The combine

The Hess refinery is the world's sixth largest. It is a complex, modern plant, with a 130,000 b/d fluid catalytic cracking (FCC) unit-one of the world's largest.

The FCC process is an important conversion technology that produces gasoline from heavier feedstocks. The St. Croix FCC unit has the capacity to produce about 175,000 b/d of "high-quality gasolines that comply with the highest environmental and quality norms," according to Pdvsa.

Once the definitive contracts are signed, the agreement requires that "the new association be committed to making new investments for the development of a deep-conversion coking project, with a capacity of about 45,000 b/d, that will substantially increase the refinery's ability to process Venezuelan heavy crudes," added Pdvsa.

"In that way, Pdvsa ensures the placement of important volumes of crude and refined products, with which it will strengthen its position in international markets, particularly in the Caribbean, the Gulf of Mexico area, the U.S., and South America."

Other non-Venezuelan holdings

Venezuela's U.S. transportation, distribution, and refining holdings, managed almost entirely through Citgo Petroleum Corp., are considerable. Currently, it owns outright or holds a major equity interest in seven U.S. oil and asphalt refineries and is negotiating or planning investments in at least three more (see table).

With almost 900,000 b/d of refining capacity in the 50 U.S. states, Venezuela ranks as the country's sixth largest refiner. When U.S. territories are included in the totals, the Amerada acquisition makes Pdvsa the top-ranking U.S. refiner, in terms of net distillation capacity.

In addition to its domestic and U.S. refining interests, Venezuela has substantial downstream holdings in Europe and the Caribbean.

The firm owns a 320,000 b/d refinery at Emmastad, Curacao, operated under the name Refineria Isla Curacao SA. This latest acquisition gives Pdvsa 592,500 b/d of net refining capacity in the Caribbean-nearly 32% of the region's capacity.

Citgo also owns about 24% of the Colonial Pipeline, the largest refined-product pipeline system in the U.S. And the company is the U.S.'s largest owner/operator of bulk storage terminal facilities for petroleum products, with a total of 67 terminals.

And Citgo owns or operates light oil terminals in 26 states, with a total storage capacity of more than 24 million bbl. It added 12 terminals to its system in 1997, after PDV America gained a 100% interest in Uno-Ven Co. by buying out Unocal Corp.'s 50% interest in the Midwest refining and marketing joint venture, which included the remaining 50% stake in Uno-Ven's Lemont, Ill., refinery.

Pdvsa crude supplies

Venezuela is, of course, a major crude supplier to Citgo and other U.S. refineries. Citgo has entered long-term crude supply agreements with Pdvsa that expire in 2006 and 2013. These agreements are designed to provide a relatively stable gross margin on crude.

Venezuela plans to increase domestic crude production from the current level of about 3.3 million b/d to 5.7 million b/d in 2005. Pdvsa hopes to sell much of this new oil, in the form of refined products, in the U.S.

The agreement with Amerada Hess furthers its progress toward this goal.

Copyright 1998 Oil & Gas Journal. All Rights Reserved.