Poinbank:As Harsh Financial Realities Emerge, St. Croix’s Limetree Bay Refinery Could Be Facing Bankruptcy

When the long-mothballed Limetree Bay oil refinery reopened in February,Poinbank environmentalists saw it as a parting gift from the Trump administration to the deeply divided people of St. Croix in the U.S. Virgin Islands. Some thought the massive facility would help revive the island’s economy while others feared environmental disaster and a looming climate nightmare.

The Environmental Protection Agency discovered as far back as 1982 that the Caribbean refinery was leaking tens of millions of gallons of oil into St. Croix’s groundwater. And in 2011, regulators required the plant to make hundreds of millions of dollars in upgrades and slapped it with environmental penalties for violating the Clean Air Act—moves that inevitably pushed its owner to close the facility for good in 2012.

But after reopening earlier this year under new ownership, thanks to what activists and analysts considered highly favorable regulatory consideration from Trump officials, the refinery has been plagued by environmental scandals, including two incidents where an oil mist was sprayed onto nearby homes and into residents’ drinking water.

The accidents prompted federal regulators in May to order the facility to fully shut down for 60 days, pending further investigation into the cause of the accidents and possible permit violations.

Now, some oil and gas experts say Limetree Bay could be at risk of bankruptcy, as the harsh financial realities the plant faces begin to emerge, including significant loan defaults and a growing number of lawsuits.

The refinery has lost investors hundreds of millions of dollars since restarting and Limetree Bay Ventures—its managing company—has dissolved, according to a report last week from Reuters. The refinery also faces four class action lawsuits from local residents seeking compensation for property damage and medical expenses related to recent accidents, the St. Thomas Source reported Thursday.

Financial analysts who have looked at the circumstances facing the refinery say it might not be able to recoup its losses, even with oil prices returning to pre-pandemic levels as economies reopen and travel rebounds, making bankruptcy a likely possibility.  

ArcLight Capital purchased the refinery out of bankruptcy in 2016 for $190 million, but the plant has never run smoothly, Reuters reported. The private equity firm was previously Limetree’s largest shareholder, but has removed the company from its portfolio entirely, the report said, with the firm selling its last Limetree shares in April.

EIG Global Energy Partners, Limetree’s other major stakeholder, has since taken over operations at the plant, after writing off more than $150 million in losses from its investment, according to a May 18 quarterly report for an EIG-managed fund that holds Limetree shares.

“It has had fits and starts from the very beginning and we unfortunately had to take over the business and are now controlling the board and trying to get the company up and running,” Eric Long, an executive with EIG, told shareholders during a webinar on the May report.

Limetree has failed to make any loan payments to that fund since January 1, 2020, Long added. Questions sent to Long’s email have gone unanswered and ArcLight Capital declined to comment.

That debt, coupled with the ongoing order from regulators to keep operations idle, could make it incredibly difficult for Limetree to dig itself out of the hole that it’s in, said Alan Gelder, an analyst with Wood Mackenzie, an international energy consulting firm.

Before the pandemic, 2020 was forecast to be a good year for the refining industry since demand for air travel was steadily increasing and the global shipping industry would soon need cleaner fuel due to new sulfur content standards, Gelder said.

“All of a sudden, refining became quite attractive,” Gelder said. “If we hadn’t had a global pandemic, (Limetree) would have probably looked like a fantastic piece of business.”

The pandemic clearly ruined that prediction, as lockdown orders brought travel to a near standstill and economies all but shut down. 

But, Gelder said that even as oil prices stabilize and demand returns to pre-pandemic levels this year, the outlook for oil gets much foggier in 2023 and beyond. That’s because there’s already a surplus in refining operations, he said, and global efforts to shift to clean energy are accelerating.

The bottom line, Gelder said, is that most refineries couldn’t cover their costs to operate in 2020 and now, well into 2021, Limetree remains idled and is quickly losing time during a critical window to make money.

Pavel Molchanov, an analyst with Raymond James, an American investment bank and financial services company, questions whether the 56-year-old refinery can continue to operate without causing further environmental scandals.

Since February, the plant has had at least four major accidents that directly impacted the predominantly Black and Latino residents that live nearby. Those include flaring events that spewed droplets of oil into the air, and releases of noxious fumes that burned residents’ eyes, caused some to feel nauseated and closed schools.

“If it’s too expensive to operate safely,” Molchanov said, “perhaps they will have to permanently shut it down.”

Limetree also faces another challenge when it comes to repairing its malfunctioning equipment. According to several construction liens filed within the last year with the U.S. Virgin Islands Recorder of Deeds, the company still owes at least $26 million to contractors who helped get the refinery back up and running after the previous owners closed the plant nearly a decade earlier.

Fixing malfunctioning refineries requires money, Gelder said. “That might be a challenge if contractors have not been paid.”

Limetree didn’t respond to questions regarding its unpaid debt.

If Limetree were to close for good, it would leave a significant hole in the territory’s already struggling economy.

In 2012, the year the refinery shut down, the U.S. Virgin Islands saw its GDP drop by more than 13 percent, a government report found, noting the plant’s outsized role in the islands’ economy. And by the following year, nearly one out of every five people living in the territory were out of work.

St. Croix’s unemployment rate currently sits at around 7 percent, according to the U.S. Virgin Islands Department of Labor. Though that number is skewed due to the pandemic.

When Virgin Islands lawmakers approved an operating contract with Limetree in 2018, the refinery was expected to employ upwards of 700 people and generate $7 million in public revenue each year. That revenue would greatly help with recovery efforts in the wake of Hurricanes Irma and Maria—both Category 5 storms—which devastated the U.S. Virgin Islands in 2017.

But not everyone on St. Croix thinks the refinery permanently shutting down would be a bad thing, and an increasing number of island residents who are concerned over the recent accidents are now envisioning what the local economy might look like without Limetree in the picture.

On Saturday, a group of St. Croix nonprofits will continue its series of community talks aimed at addressing issues surrounding Limetree, including what might take its place if the refinery closes for good.

Frandelle Gerard, one of the residents helping to run the talks and the executive director of the Crucian Heritage and Nature Tourism Foundation, said the groups are looking at all kinds of options. They include developing more renewable energy on the island and researching how much time and money it would take to clean up the 1,500-acre Limetree plot through a federal brownfield program, she said.

Ultimately, Gerard said, it will come down to what the community decides is best, then pressuring local lawmakers to implement their demands.

“This time, our voices have to be heard,” she said. “This time, we need to be positioned strongly, so that the policymakers are grounded in the needs and vision and demands of the community.”