Aruba Disposition

12 Months Ended

Dec. 31, 2016

Discontinued Operations and Disposal Groups [Abstract]

ARUBA DISPOSITION

2. ARUBA DISPOSITION

Effective October 1, 2016, we (i) transferred ownership of all of our assets in Aruba, other than certain hydrocarbon inventories and working capital, to Refineria di Aruba N.V., an entity wholly-owned by the Government of Aruba (GOA), (ii) settled our obligations under various agreements with the GOA, including agreements that required us to dismantle our leasehold improvements under certain conditions, and (iii) sold the working capital of our Aruba operations, including hydrocarbon inventories, to the GOA, CITGO Aruba Refining N.V. (CAR), and CITGO Petroleum Corporation (together with CAR and certain other affiliates, collectively, CITGO). We refer to this transaction as the “Aruba Disposition.” The agreements associated with the Aruba Disposition were finalized in September 2016, including approval of such agreements by the Aruba Parliament. We no longer own any assets or have any operations in Aruba.

The following narrative describes the events that occurred prior to or in connection with the Aruba Disposition.

• In May 2014, we abandoned our Aruba Refinery, except for the associated crude oil and refined petroleum products terminal assets that we continued to operate. As a result, the refinery’s results of operations have been presented in this report as discontinued operations for the year ended December 31, 2014.

The Aruba Refinery resided on land leased from the GOA and our agreements with the GOA required us to dismantle our leasehold improvements under certain conditions. Because of our May 2014 decision to abandon the refining assets, we believed the GOA would require us to dismantle those assets. As a result, we recognized an asset retirement obligation of $59 million, which was charged to expense during the second quarter of 2014 and was reflected in discontinued operations. We had not recognized an asset retirement obligation previously due to our belief that we would not be required to dismantle the assets as long as we intended to operate them. During the second quarter of 2014, we also recognized liabilities of $4 million relating to obligations under certain contracts, including a liability for the remaining lease payments for the land on which the refining assets reside. The Aruba Refinery had no operating revenues and a $64 million loss before income taxes for the year ended December 31, 2014. There was no tax benefit recognized for the loss from discontinued operations for the year ended December 31, 2014 as we did not expect to realize this tax benefit.

• In June 2016, we recognized an asset impairment loss of $56 million representing all of the remaining carrying value of our long-lived assets in Aruba. These assets were primarily related to our crude oil and refined petroleum products terminal and transshipment facility in Aruba (collectively, the Aruba Terminal), which were included in our refining segment. We recognized the impairment loss at that time because we concluded that it was more likely than not that we would ultimately transfer ownership of these assets to the GOA as a result of agreements entered into in June 2016 between the GOA and CITGO providing for, among other things, the GOA’s lease of those assets to CITGO. (See Note 18 for disclosure related to the method to determine fair value.) We had previously written off all of the carrying value of the long-lived assets of the refining operations (the Aruba Refinery)and recognized an asset retirement obligation upon the suspension of operations of those assets in 2012. Therefore, there was no other significant effect to our results of operations from the Aruba Disposition during the year ended December 31, 2016, except with respect to income taxes, which are discussed below. In addition, the net cash impact to us upon effectiveness of the Aruba Disposition on October 1, 2016, was not significant.

• In September 2016 and in connection with the Aruba Disposition, our U.S. subsidiaries were unable to collect outstanding debt obligations owed to them by our Aruba subsidiaries, which resulted in the recognition by us of an income tax benefit in the U.S. of $42 million during the year ended December 31, 2016. We had no income tax effect in Aruba from the cancellation of debt or other effects of the Aruba Disposition because of net operating loss carryforwards associated with our operations in Aruba against which we had previously recorded a full valuation allowance.