Petro China in talks to buy Valero's Aruba refinery, according to industry-sources

* Valero received non-binding interest for plant

* PetroChina could offer $350 million for Aruba -sources

* PetroChina in talks with Venezuela to supply plant-sources 

By Janet McGurty

 Editing by John Wallace, Tim Dobbyn and; Leslie Gevirtz

Reuters

NEW YORK (Reuters) - PetroChina Co Ltd is in talks to buy Valero Energy's shuttered 235,000 barrel-per-day refinery in Aruba, according to sources familiar with the negotiations, potentially bringing back another refinery to the troubled Atlantic market.

In a filing with the U.S. Securities and Exchange Commission, Valero said it had received a non-binding indication of interest to buy the Aruba plant for $350 million plus working capital but did not identify the interested party.

PetroChina signed a memorandum of understanding with the government of Aruba on April 30, 2012, but details of the deal have not been made public yet due to the sensitive nature of the negotiations, according to local media website, Amigoe.

The Aruba refinery has been idled at least twice in the past few years, most recently earlier this year, due to poor profit margins that have plagued refiners in Europe, the Caribbean and on the U.S East Coast.

This is the second time two years that PetroChina has discussed the purchase of the plant. The first was in January 2010.

PetroChina plans to restart and run the plant as a refinery, sources said, rather than converting it to a storage facility, which can happen when refineries are retired.

Earlier this year, over 2 million barrels of refining capacity were threatened with closure across the Atlantic Basin, driving up gasoline prices on the U.S. East Coast as supplies to the region looked short ahead of the U.S. summer driving season.

But in recent weeks buyers have begun to emerge to snap up plants at low prices, with Delta Air Lines buying Conoco's Pennsylvania refinery and oil trading companies Vitol Group and Gunvor Group purchasing two European refineries.

Refineries have seen a combination of weak demand as well as rising fuel costs -- especially for plants that receive crude from Europe and West Africa -- hit profits in recent years.

Aruba also faces costs relative to U.S. plants on the Gulf Coast because it uses fuel oil to power its units. U.S. refiners have benefited from a growing supply of cheap natural gas that reduces operating costs.

VENEZUELAN CRUDE?

Sources familiar with the negotiations say that PetroChina has reached a deal with Petroleos de Venezuela to supply the plant with heavy crude.Venezuela is currently supplying 460,000 barrels of oil per day to China, and is set to increase its shipments to 1 million barrels per day by 2015, according to government officials.

China has become a major partner of President Hugo Chavez's government, supplying billions of dollars in credits, some of which are being canceled with crude shipments from the South American OPEC member.

"The Aruba deal is not really related to other refinery sales," said John Auers, a refinery specialist with Houston-based Turner Mason, referring to Delta's recent deal to purchase of ConocoPhillips' Trainer refinery and Sunoco's talks with the Carlyle Group for a joint venture at its 335,000 bpd Philadelphia refinery.

"PetroChina has a presence in the Venezuelan upstream. This is related to them looking for an upgrader for that heavy crude. They are long-term and strategic thinkers. They don't have to answer to shareholders like a Western company does."

The Aruba refinery was built many years ago to process heavy crude by Exxon's Venezuelan unit, Lagoven, prior to its nationalization in 1976.

The plant has two fairly new coker units to handle the heavy Venezuelan crude grades as well as recently upgraded hydrotreating capability, sources familiar with the refinery said.

This would allow them to semi-process the heavy crude and then ship the product to China for finishing in the mainland refineries there, which can only run lighter grades.

In 2010, PetroChina took over a lease for 5 million barrels of Caribbean oil storage in the nearby island of St. Eustatius, which could provide flexibility in storing and shipping the crude back to China.