November 23, 2016 / 9:12 PM / 2 years ago

Canadian refiner signs new crude supply contract with Lukoil: source

A view shows a Lukoil company gas station in Chisinau, Moldova, October 9, 2016. REUTERS/Gleb Garanich

NEW YORK (Reuters) - NARL Refining has inked a new crude supply deal with Russian oil concern Lukoil(LKOH.MM) at its remote Eastern Canadian refinery, a source said, ending a tumultuous relationship with oil major BP PLC(BP.L) that landed the pair in U.S. federal court.

The new supply agreement gives private-equity backed NARL Refining, which is owned by a trio of former oil traders, more control over what crudes to run at the 115,000 barrel-per-day refinery in Come-By-Chance, Newfoundland on Canada’s east coast, and also more say on how to market the refined products, the source said.

Lukoil and NARL Refining could not be immediately reached for comment.

NARL Refining in embroiled in a bitter dispute with the existing supplier, BP PLC, over the selection of its crude slate and how to run the refinery.

The legal fight, first reported by Reuters in March, stems from allegations leveled by BP that NARL Refining ran the refinery at high rates when it was not economical in order to exploit a unique clause in their contract that allowed NARL to earn a higher profit on oil refined in excess of 90,000 barrels.

In a counterclaim, NARL alleged that BP made only lesser grades of crude available, resulting in “significant and long-term damage” to refinery equipment.

The two sides are still in arbitration over the contract, which expires at the end of the year.

In recent months, NARL refining has been building up a crude and product trading desk, anticipating more control. Earlier this month, it announced it was laying off up to 130 workers, mostly union staff, due to weak margins that have pummeled the industry.

The refinery’s operators are SilverPeak Financial Partners, a group of Wall Street veterans, including Neal Shear, who helped build Morgan Stanley’s oil trading division; Kaushik Amin, former chief executive officer of RBS Sempra Commodities and global head of liquid markets for Lehman Brothers; and Harsh Rameshwar from Merrill Lynch Commodities.

Reporting By Jarrett Renshaw; Editing by Chizu Nomiyama

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