Oil-Spewing Refiner Seeks Bankruptcy After EPA Orders Shutdown

·3 min read

(Bloomberg) -- An oil refinery that was once one of the largest in North America filed for bankruptcy after a series of environmental breaches and a government-ordered shut down, highlighting pressures faced by the oil industry to curb its environmental impact.

Limetree Bay Refining LLC sought creditor protection on Monday after the U.S. Environmental Protection Agency halted its operations earlier this year. The St. Croix, U.S. Virgin Islands-based refinery, which filed for bankruptcy in 2015 under previous ownership, said in a statement that it plans to use the court protection process in Houston to negotiate with creditors and equity holders and weigh options including asset sales.

The refinery sought bankruptcy “due to severe regulatory and financial constraints” that forced it to suspend its refinery operations indefinitely, and has lined up as much as $25 million of so-called debtor-in-possession financing that will help it maintain the refinery through the Chapter 11 process, according to the statement.

Arena Investors is providing the DIP loan through an affiliated entity, according to people with knowledge of the situation who asked not to be named discussing a private matter. A representative for Arena didn’t immediately respond to a request for comment.

The refinery, which had restarted operations in February after years of inactivity, was well positioned to process sour crude oil supplies from South America and meet fuel demand in regions such as the U.S. East Coast.

Halted Operations

The 200,000-barrel-a-day refinery in May was forced to halt operations following emissions incidents that included contamination of drinking water. On June 21, the company said it was suspending plans to restart the business and cutting more than 270 workers after efforts to raise capital foundered. In the years prior to the troubles, Limetree spent more than $4 billion to refurbish the refinery, according to court papers.

Limetree’s woes have prompted investigations by the EPA and the Virgin Islands Department of Planning and National Resources, according to court papers. The Office of the U.S. Attorney in the Virgin Islands also requested to visit the refinery, and the company faces multiple class-action lawsuits related to the alleged pollution problems, the company’s chief restructuring officer, Mark Shapiro, said in court documents.

The company is in talks with regulators about the conditions for reopening, Shapiro said. Affiliates of BP Plc and Baker Hughes Co. are among its largest creditors, according to court papers.

Limetree is controlled by EIG Global Energy Partners, which said in an emailed statement that it became the “reluctant” owner of the troubled refining operation in April as part of a restructuring. EIG had previously led a group of Limetree’s so-called mezzanine lenders and has been involved in efforts to revive the refinery since 2018. EIG, based in Washington D.C., specializes in private investments in energy infrastructure.

Terminal Business

Limetree was formed in 2016 after an affiliate of ArcLight Capital Partners and Freepoint Commodities LLC bought the St. Croix refining units and terminal assets from Hovensa LLC, a venture owned by Hess Corp. and Venezuela’s state-owned Petroleos de Venezuela SA that had filed for bankruptcy months earlier. In 2018, Limetree announced an approximately $1.3 billion funding plan to restart the idled refinery, which started running earlier this year.

The refinery’s parent will continue to operate its related oil storage terminal business. That unit is working with financial and legal advisers to navigate financial strains associated with the shuttered refinery, Bloomberg reported on Monday.

The bankruptcy comes at a time when the industry is struggling with shrinking profitability, excess production capacity and rising competition from mega-refineries in Asia amid a push by the Biden Administration to move the U.S away from fossil fuels.

The case is Limetree Bay Services LLC, 21-32351, U.S. Bankruptcy Court for the Southern District of Texas (Houston).

(Updates with details about creditors starting in 8th paragraph)

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