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Financial Times: PDVSA and First Reserve agree deal for Borco

By Sarah Spikes in London and Benedict Mander in Caracas
Published: February 12 2008 02:00 | Last updated: February 12 2008 02:00

PDVSA, Venezuela’s state-owned oil company, has agreed to sell Borco, its Bahamian oil storage business, to First Reserve in a deal understood to be worth about $900m.

The deal for Borco comes at a critical time in an ongoing battle between PDVSA and ExxonMobil over the seizure of Exxon’s stake in a multibillion-dollar Venezuelan oil project as part of President Hugo Chávez’s nationalisation drive last year.

Last week, Exxon won court orders in the UK, the Netherlands and the Netherlands Antilles to freeze PDVSA’s assets.

First Reserve, the world’s largest energy-focused private equity firm, said it was confident that the dispute between PDVSA and Exxon would not affect the Borco transaction, which has already closed.

Exxon’s suit is seen as possibly slowing PDVSA’s plans to sell overseas refining assets. It divested some assets owned by its subsidiary Citgo in the US last year.

PDVSA still has stakes in 14 refineries in the US, Europe and the Caribbean worth about $15bn. The Exxon dispute involves the freezing of $12.3bn of PDVSA’s $90bn in total assets. It is unclear whether Exxon has any plans to ask, or has ever asked, that assets in the Caribbean be frozen.

First Reserve, which recently bought Abbot, the UK oil services company, for £906m ($1.76bn), examined Borco for more than a year. The buy-out firm saw off rival interest from Morgan Stanley, which has a large bunkering business in Florida, and NuStar Energy, a Texas-based pipeline and storage company.

“The fact is that oil majors are spending much of their available capital exploring for new oil, leaving them little left to invest in storage – that’s where we can come in,” said Tom Sikorski, managing director at First Reserve.

Bahamas-based Borco is just 80 miles away from Florida, making it the closest large oil storage facility available to importers into the US.

Shell has already signed an agreement with First Reserve to be its first tenant at Borco.

In June last year Borco was valued at about $400m, based largely on its storage capacity of 20m barrels.

First Reserve, which did not disclose the value of the transaction, said the availability of 300 acres of adjacent land for expansion as well as the possibility of restarting some deactivated parts of the facility gave Borco more value than some initially thought.

Copyright The Financial Times Limited 2008

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