( BW)(NY-FITCH-RATINGS/HOVENSA) Fitch Removes HOVENSA's 'BBB-' Rtg From Neg Watch Status

BW5425 MAY 09,2003 14:14 PACIFIC 17:14 EASTERN     Business Editors

    CHICAGO--(<a href=www.businesswire.com>BUSINESS WIRE)--May 9, 2003--Fitch Ratings has affirmed the 'BBB-' senior secured debt rating of HOVENSA LLC (HOVENSA), and has removed the rating from Rating Watch Negative. The rating applies to HOVENSA's $272 million senior secured term loan due 2008, $150 million senior secured reducing bank revolver due 2007 and $126.8 million senior secured tax-exempt bonds due 2021. HOVENSA is a limited liability company which owns and operates a crude oil refinery in the U.S. Virgin Islands. The refinery, which has the capacity to process up to 495,000 barrels per day (bpd) of crude oil, is indirectly owned 50% by Amerada Hess Corporation (Hess) and 50% by Petroleos de Venezuela (PDVSA).

    As detailed in the Dec. 20, 2002 Fitch press release 'Fitch Places HOVENSA's Senior Secured Debt on Rating Watch Negative', the Rating Watch Negative status reflected the suspension of crude oil and feedstock supply from PDVSA and related entities as a result of the national strike in Venezuela, which lasted two months, from early December 2002 until early February 2003. PDVSA is contractually obligated to supply approximately 60% of HOVENSA's crude feedstock requirement under two crude oil supply agreements (155,000 bpd of Mesa and 115,000 bpd of Merey). While the ability of PDVSA to honor its crude supply obligations is a key determinant of HOVENSA's credit quality, the refinery does have the operating flexibility to process a wide variety of crude oils. Throughout the strike, HOVENSA was successful in acquiring substitute crude oils from a wide variety of sources at volumes sufficient to maintain relatively high operating rates. HOVENSA began receiving a portion of its contractual volumes from PDVSA in late January 2003 and has been receiving 100% of contractual volumes since the beginning of March 2003.

    HOVENSA's liquidity position has improved substantially over the past few months primarily as a result of the solid operating performance and favorable refining margins, resulting in record EBITDA of $132 million for the first quarter of 2003. In addition to the revolver being untapped, and a fully funded debt service reserve, HOVENSA currently has approximately $200 million of cash on hand. Last week, HOVENSA prepaid $78 million of its senior secured term loan, representing scheduled principal payments due in December 2003 and June 2004. Fitch believes the debt prepayment reflects conservative financial management, a credit positive given the cyclical nature of the oil refining industry.

    While HOVENSA's present liquidity position is strong, the refinery's planned capital expenditure program (Clean Fuels Program) needed to comply with recently enacted low sulfur gasoline and diesel regulations requires a significant financial commitment over the intermediate term. As such, Fitch is concerned with the significant estimated cost of the Clean Fuels Program (approximately $450 million planned to be spent over the next four years) and the potential strain on liquidity. While HOVENSA has some flexibility related to the timing of the program, Fitch is also concerned that a significant delay of the Clean Fuels Program could hinder the refinery's ability to sell into the U.S. market. The new Environmental Protection Agency (EPA) standards go fully into effect in January 2007.

    HOVENSA's debt is currently supported by completion guarantees from the sponsors, which will remain in place until financial completion of the delayed coker project is achieved, which is expected in the coming months. While HOVENSA is a joint venture, Fitch believes the refinery is a strategically important asset to Hess and as such, Fitch continues to view Hess's committed sponsorship as a key factor in HOVENSA's debt rating. Fitch currently rates the senior unsecured debt of Hess 'BBB-'.

--30--EB/sf*

CONTACT: Fitch Ratings
         John W. Kunkle, CFA +1-312-606-2329
         Caren Y. Chang, +1-312-368-3151
         Bryan Caviness, +1-312-368-2056, Chicago
         Alejandro Bertuol, +1-212-908-0393, New York
         James Jockle, +1-212-908-0547, New York, Media Relations

KEYWORD: NEW YORK
INDUSTRY KEYWORD: BANKING BOND/STOCK RATINGS
SOURCE: Fitch Ratings