(New throughout, adds Valero comment, background)
By Sailu Urribarri and Marianna Parraga
ORANJESTAD/HOUSTON, Sept 25 (Reuters) - Aruba's Energy Ministry said on Friday it has signed a memorandum of understanding with PDVSA's U.S. unit Citgo Petroleum to explore reopening and operating the island's refinery, idled since 2012 because of low margins.
The 235,000-barrel-per-day refinery had been operated by U.S. firm Valero Energy Corp.. Attempts to reopen some processing units or sell it to firms including Venezuela's PDVSA and PetroChina have been unsuccessful.
"Citgo will send a group to evaluate the refinery technically and financially," Aruba's government said in a statement.
The facility is currently used as an oil storage terminal, with state-run oil company PDVSA among its main clients.
Valero's CEO said last year that the company was not interested in reopening it. But PDVSA and Citgo could use the nearby refinery to run different types of crude and produce much needed heavy naphtha, used by Venezuela as diluent to make oil more marketable.
Lack of enough deep conversion capacity to transform heavy crudes into light products has been one of the main obstacles to any sale.
Valero, which purchased the refinery equipment in 2004 for $465 million, declined to comment on the specific agreement, but its spokesman said that the company "has been working with the government to explore options, including a sale, for several years."
PDVSA and Citgo did not reply to requests for comments.
Negotiations with Aruba would involve Valero and the Netherland's government in a later feasibility stage, the memorandum signed in Houston said.
"Citgo would guarantee crude supply (for the refinery) and experience," the statement said, adding that the contract could cover at least 20 years of operations.
Cash-strapped PDVSA offered Citgo for sale in 2014. It received bids, but ultimately decided not to sell, and terminated the process. The company in June sold the Chalmette refinery in Louisiana jointly owned with ExxonMobil and is also trying to sell the 500,000-barrel per-day Hovensa refinery in the U.S. Virgin Islands.
While selling refining assets in the United States, PDVSA is trying to expand its operations along the Caribbean. It currently owns, operate or use refineries and terminals in eight islands. (Reporting by Sailu Urribarri in Oranjestad and Marianna Parraga in Houston. With additional reporting by Alexandra Ulmer in Caracas; Editing by David Gregorio)