MAY 31, 1985 - VOLUME 6 - NUMBER 6
Amerada Hess Takes the Money and Runs
by William Steif
ST. CROIX, Virgin Islands - When Hess Oil Virgin Islands Co. (HOVIC), a subsidiary of the New Jersey--based multinational, Amerada Hess, came to St. Croix in the U.S. Virgin Islands twenty years ago, it promised the tiny island the world.
The company guaranteed jobs and an oil refinery--the largest in the world - that would put St. Croix on the map, in return Amerada Hess got a 16 year tax-free stay.
In 1981 when the tax holiday was over, the company promised still more in order to retain its privileges. This time Amerada Hess said it would build a $3 million vocational school and a fluid catalytic converter "costing no less than $200 million." The company agreed to pay the territorial government $10 million a year until the "cat cracker" was built, after which time the company would pay in $12 million a year. In this agreement, signed in 1981 by Amerada Hess' Leon Hess and Virgin Islands Gov. Juan Luis the company also declared "its intention" to build a second cat cracker augmenting the territory's revenues further.
In return, Hess continued to enjoy exemptions from all property, franchise, excise and gross receipts taxes and exemptions from all annual or specific license fees and all import duties.
Four years after the 1981 agreement was signed, however, construction has not yet started on the first catalytic converter and no vocational school has been built.
At a territorial legislature's hearing last December HOVIC lawyer Everett Birch said the reason Hess never built a "cat cracker" was that the gasoline business started to go sour soon after the 1981 agreement was signed. Birch claimed the profit margin on heavy oil, such as heating oil, became greater than that on gasoline so "HOVIC has tried to maximize heavy oil products and minimize gasoline products."
However, Steelworkers International President Lynn R. Williams contends Amerada Hess is building a "cat cracker" near its Woodbridge, N.J., headquarters "and intends to ship feedstock from the Virgin Islands to New Jersey, with the end-product closer to Hess markets. That, he says, is why Hess is ignoring its 1981 agreement.
There's been no explanation for failure to build the vocational school.
Late in 1984, under legislative pressure, the territorial attorney general, J'ada Finch-Sheen, said she'd meet with Leon Hess, now in his mid-70s and owner of 15 percent of Amerada Hess stock worth more than $12 million. The purpose of the meeting was to "discuss" the 1981 agreement. She has met Hess three times and nothing apparently has been settled.
Even Amerada Hess' guarantee of employment for St. Croix workers is no longer certain. Jobs already are drying up - low priced refined oil on the spot market and a lack of investment in new refining equipment have taken their toll.
In April 1984, HOVIC locked out 377 members of United Steelworkers Local 8526. The lockout was over job security clauses in a proposed new HOVIC refinery contract. In March of this year, a settlement was finally reached. But for more than half of the striking workers the settlement failed to include employment.
At the end of January, 1985, Amerada Hess said it was eliminating 900 refining and marketing jobs, 300 of them at HOVIC's St. Croix refinery. Of the 300 St. Croix jobs eliminated, 190 once were held by locked-out members of the steelworkers local.
Amerada Hess blamed the layoffs on "difficult marketing conditions."
The corporation said it would supply its customers, and presumably its own retail outlets, by buying additional refined oil products from both domestic and foreign sources on the open or "spot" market so long as such purchases were more economical than refining crude itself. Amerada Hess said it was cutting output at its St. Croix refinery to 195,00 barrels a day.
The 20-year-old refinery has a capacity of more than 600.000 barrels a day on average, but by last November it was handling only 200,000 barrels daily, according to HOVIC lawyer Everett Birch. Sixty supervisors and employees from the small Amerada Hess refinery at Purvis. Miss., and other company divisions kept the St. Croix refinery going during the lockout, but most already had been phased out by the time of the settlement.
About 850 persons were employed at the refinery before the lockout, says Alexander Moorhead, HOVIC's personnel director. That made the refinery the largest employer in the U.S. Virgin Islands, which has a population of about 100,000 and a workforce of around 39,000. The St. Croix jobless rate is running around 1 1 percent, while on the other major island, St. Thomas, unemployment is under seven percent.
The HOVIC layoff is not the only factor contributing to the St. Croix jobless rate. Martin Marietta last fall announced it was abandoning the unprofitable aluminum business. That means the aerospace company will close its St. Croix alumina processing plant, the island's second largest private employer, in the spring- unless it can find a buyer. Given aluminum's dour prospects, that's unlikely.
But the HOVIC cutback is an especially severe blow because it makes it even less likely that Amerada Hess will honor the agreement between Leon Hess and Gov. Luis.
HOVIC and Amerada Hess are trying to justify the failure to fulfill the 1981 agreement and the job cuts by blaming unfortunate economic conditions. The American Petroleum Institute says U.S. crude oil demand has fallen from 20 million barrels a day in 1981 to 15.7 million barrels daily in 1984, mainly due to increased conservation and greater fuel efficiency. API also notes that 119 U.S. oil refineries have closed since 1981, 18 in 1984 alone, and that petrol-nations such as Saudi Arabia, Indonesia, and Libya now have new refineries on line, enabling companies like Amerada Hess to buy refined supply more cheaply than they can make it themselves.
Older, outdated refineries in the Caribbean have been hard hit, too: Exxon's 290,000-barrel-capacity refinery on Aruba is shutting; Trinidad's government, after several years of negotiations, is purchasing Texaco's refinery just to keep it open; talks are continuing in an effort to keep a Shell refinery on Curacao open; the Chevron refinery in the Bahamas is facing problems because Chevron's joint owner, Charter Oil, went into bankruptcy; Puerto Rico's Commonwealth Oil refinery is on the market, unpurchased, while the company goes through bankruptcy.
In line with its tightened operations, Amerada Hess at the end of January said it would cut capital spending from 1984's $900 million to $650 million in 1985.
But Amerada Hess is far from broke.
The company's gross was right around $8.4 billion in both 1983 and 1984, and net profit after taxes was $185 million in 1984 compared with $205.3 million in 1983. The company says heavy exploration in both Norwegian and United Kingdom sectors of the North Sea is "starting to pay off."
But that is not likely to do St. Croix or the Caribbean much good.
William Steif is a freelance writer currently based in the Virgin Islands.