Venezuela’s PDVSA Secures Temporary Lease Extension for Curacao Refinery

Despite the extension, refinery owners are looking to end the 34-year cooperation under pressure from US sanctions.

Curacao’s Isla Refinery sits a mere 140 kilometres off Venezuela’s northern coast. (PDVSA)
Curacao’s Isla Refinery sits a mere 140 kilometres off Venezuela’s northern coast. (PDVSA)

Mérida, December 2, 2019 ( – Venezuela’s state-run oil company PDVSA has managed to temporarily extend its lease on Curacao’s Isla Refinery.

The agreement will allow PDVSA to continue to use the refinery for a maximum of one additional year as part of a “transition” to a new operator, according to a statement from the state-run refinery owner Refineria di Koursou (RdK) on Sunday.

The deal was reached during a meeting between PDVSA President Manuel Quevedo and RdK representative Marcelino de Lannoy in Caracas Saturday, and reportedly includes a commitment by PDVSA to invest in maintenance during 2020.

Sitting a mere 140 kilometres of Venezuela’s northern coast, the Isla Refinery has a capacity to process 335,000 barrels per day (bpd) of crude oil into conventional fuels, polymers, petrochemicals, asphalt and raw waxes, as well as lubricating oils. It also provides storage facilities for Venezuelan oil-based products.

PDVSA has leased the premises continuously since 1985, but RdK is considering switching operators to avoid coercive measures from Washington. The firm began talks with European industrial conglomerate Klesch Group in September, but no further details have yet been disclosed.

Despite a modest rise in output in October, Venezuela’s oil production continues to be less than half that of 2018, with bottlenecks reported in processing, distribution, and sales in recent months as US sanctions continue to bite.

The Trump administration first imposed crippling financial sanctions on the industry in 2017, going on to decree an oil embargo last January, prohibiting US entities from dealing with PDVSA.

Sanctions were further expanded to a blanket ban on dealings with the Venezuelan state in August, which threatened secondary sanctions against third party actors.

Since, the US Treasury Department has directly targeted non-US, Caribbean-based shipping firms working with PDVSA, in a bid to further hamper Venezuelan crude exports

In May, RdK was granted a sanctions exemption from the US Treasury’s Office of Foreign Assets Control (OFAC), which allowed the firm to continue working with PDVSA until January 2020. According to RdK spokespersons, the Washington permit allows for an additional one-year grace period during which the refinery may generate income for maintenance and salaries but not return a profit. Neither PDVSA nor the OFAC have commented on the lease renewal.

ConocoPhillips pushes to seize CITGO

PDVSA is also facing further trouble over its foreign assets in the United States, after US oil company ConocoPhillips filed a lawsuit to seize shares in its CITGO subsidiary last week.

ConocoPhillips was awarded US $2 billion in settlement by the International Chamber of Commerce last year over the 2007 seizure of its Venezuelan-based assets. This figure was increased to US $8.5 billion by the World Bank’s International Centre for Settlement of Investment Disputes (ICSID) in April 2019, a ruling which the Venezuelan government does not recognise.

ConocoPhillips spokesperson Daren Beaudo told press that PDVSA has paid the firm $754 million so far, but he also claimed that Caracas fell US $12 million short of the third quarter amount due and has not paid any of the fourth quarter instalment.

The US firm was unsuccessful in its efforts to seize PDVSA tankers entering the Isla refinery and a PDVSA storage facility in neighbouring Bonnaire in May this year, declaring at the time that it “will pursue all available legal avenues to obtain full and fair compensation for our expropriated investments in Venezuela.”

CITGO, which is currently under the administration of an ad-hoc board named by Venezuelan opposition leader Juan Guaido, is estimated to be worth US $8 million. 49.9 percent of the firm’s assets are tied up as collateral in 2016 loan deals between PDVSA and Russian oil giant Rosneft, while the remaining 50.1 percent is collateral to holders of PDVSA’s 2020 bond.

Last month, theTreasury Department moved to temporarily block the seizure of Venezuelan state assets in the US. Commenting on the measure, Beaudo said that ConocoPhillips is “working closely with the US government to determine the best course of action.”

The oil company adds its name to a list of firms looking to seize CITGO shares over payment disputes, including Canadian mining giant Crystallex and PDVSA’s 2020 bond holders.

In August, Crystallex was granted permission to seize CITGO’s assets as part of an unpaid US $1.2 billion settlement for the 2008 nationalisation of its Venezuelan operations, but is yet to take action.

ConocoPhillips lawyers have argued that the US firm should receive “the same treatment” as their Canadian counterparts.

Edited by Lucas Koerner from Caracas.