(Adds details on deal, quote)
By Sailu Urribarri
ORANJESTAD, May 13 (Reuters) - The Citgo Petroleum refining unit of Venezuela's state oil company Petroleos de Venezuela SA has reached a deal to lease and restart an idled 235,000-barrel-per-day refinery in Aruba, the government of the Caribbean island said on Friday.
The agreement involves a 25-year lease that would allow Citgo to operate the refinery after investing in an overhaul that Aruba said could cost at least $1 billion.
The idled refinery, formerly operated by Valero Energy Corp , could be up and running again within 1-1/2 to two years.
"The agreement is completely formalized," said Aruba's Energy Minister Mike de Mesa, adding that details would be announced "shortly."
Valero halted refining operations in Aruba in 2012 due to low profit and classified the facility as "abandoned" in 2014, except for terminals currently used by the U.S. company and PDVSA, as the Venezuelan state oil company is known.
Caracas-based PDVSA did not immediately respond to a request for comment.
Aruba would offer a good way for PDVSA to produce heavy naphtha that it currently imports as diluent for its extra heavy oil output, and it would also produce refining feedstock for Citgo, sources told Reuters earlier this year.
Aruba's parliament now needs to approve the contract, a formality that is expected to take two weeks. Re-opening the refinery would be a big boost for the small island's economy.
Additional reporting by Alexandra Ulmer in Caracas and Marianna Parraga in Houston; Writing by Alexandra Ulmer; Editing by Tom Brown