History doesn’t repeat itself – Fools repeat history, what RdA has to keep in mind

This article was written with the help of an project insider: At the time Valero bought the refinery from El Paso around 2003/2004, the refinery business was good and Valero easily recouped its hundreds of million dollar investment within several months.  However by 2007 the refinery economics changed and Valero began losing hundreds of millions of dollars. I understand that one must have deep pockets, full of money, to decide to boil oil for a living.

The initial investment of Coastal Corporation was estimated at $121million in 1990, that was thought to be enough to refurbish the refinery. In reality it took nearly $250 million in 1991 after management learned, through testing and inspection, that the condition of the refinery was much worse than expected.  Remember, Exxon-Lago shutdown in 1985, and Coastal began the refurbishment project 5 years later in 1990.

By comparison, Valero shutdown in 2012 and now 5 years later CITGO will embark upon a similar refurbishment project.  Although Valero has maintained the internal components of the refinery in better condition than Lago, over the last 5 years, the refinery has been idle all that time, and it is just speculation that this time the refurbishment will be different and less extensive in scope.

What was budgeted at $121millions, in 1990, ended up costing $250millions because Coastal Corporation was ill-advised by the hurried inspection performed, and consequently the company was ill-prepared.

If you recall, the company quickly jumped into the refinery refurbishment project, importing 1,000 plus Turkish TCNs, Third County Nationals. Coastal recruited the workforce from Foster Wheeler, General Contractors, and basically the TCNs were standing around twiddling their thumbs, while inspectors and engineers worked extensively this time, to determine the actual scope of work.

So they were rushed at first, and screwed up the scope of work, which determined the original cost estimate prepared somewhere in Houston, in an air-conditioned office.

The project was begun with an incomplete overview. And finally engineering needed additional work, additional materials, additional tools, and additional equipment, to support the actual work.  The project management was also totally unprepared to deal with to the TCN workforce, in the Aruban Labor Law environment resulting in several months of labor unrest and its associated impact on productivity. Remember??

“History doesn’t repeat itself – Fools repeat history,” CITGO Aruba must take its time to safely and properly inspect the refinery, develop the proper scope of work, understand Aruban Labor Law and prepare an accurate, realistic cost estimate for this project over the next several months.  This becomes a risk-based process, but using historical records from the refinery, and employing experienced risk-based inspection techniques, will eventually develop a good plan for a safe and reliable crude upgrading facility.  Fortunately, CITGO USA has been recognized over the years, within the American Fuel & Petrochemical Manufacturers (AFPM), as being a leader in safe, reliable refinery project management, operations and maintenance.

My source says that Aruba can be proud of the fact that Refineria di Aruba N.V. (RdA), currently consists of a small, efficient, well-educated group of professionals, who enjoy a well-experienced partner in CITGO Aruba. They are both about to embark on the refurbishment project, but RdA must be vigilant to monitor the overall senior management, refinery economics, project management, and financing requirements to insure it leads with its best foot forward with properly educated community oversight so that the refinery continues to be a “win-win” project for all.

 

 

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January 12, 2017
Rona Coster