News Column

Valero Is Planning on Limited Partnership

July 24, 2013

Valero Energy Corp. is moving forward with its plan to form a master limited partnership composed of logistics assets, a company official said Tuesday.

The partnership could be launched in the first quarter of next year, subject to the board of directors' approval, Chief Financial Officer Mike Ciskowski told analysts in a conference call.

Earlier this year, Valero said it was eyeing the formation of a master limited partnership that would include its rail facilities, pipeline, terminals and docks.

San Antonio-based Valero, the nation's largest independent refiner, also said it's considering projects that would boost its production of petrochemicals, as the market for them is growing.

"If we have projects that add greater value, we're going to add them," Valero CEO Bill Klesse said. "Valero has the wherewithal (and) the expertise to construct and operate these kinds of plants."

Earlier this month, the company said it will spend $700 million adding a methanol plant by early 2016 at its St. Charles refinery near New Orleans, a move that Klesse defended Tuesday in the face of some skepticism from analysts.

Valero is "uniquely positioned" to build a methanol unit at the plant as an add-on for about half the cost of building a methanol plant from scratch, he said. The move will add significantly to shareholder value, he added.

The methanol plant will use low-cost natural gas from existing hydrogen units at the plant to produce methanol, which is used to make plastics, textiles, solvents and paint.

Valero officials gave an update of plans for the master limited partnership during a conference call after the company's second-quarter earnings announcement Tuesday.

Profit in the quarter ended June 30 fell 44 percent as margins narrowed because the company paid more for crude oil for its plants. Also, net income was affected by higher prices for natural gas and for ethanol credits under a federal biofuels mandate, the company said.

Valero said its net income fell to $466 million, or 85 cents a share, compared with net income of $831 million, or $1.50 a share, for the year-earlier period.

On Friday, analysts polled by Bloomberg expected Valero to earn $1.04 a share in the quarter, although the company warned July 11 that its second-quarter net income would fall to between 80 cents and 90 cents a share.

Valero said its second-quarter operating income fell to $808 million, versus operating income of $1.4 billion in the second quarter of 2012.

Company officials said Tuesday that the cost to comply with the federal renewable fuel standard will be in the range of $600 million to $800 million for 2013.

Last week, Klesse pleaded with Congress to undo an 8-year-old mandate that requires gasoline makers to blend ethanol into fuel, saying the renewable fuel standard is "out of control."

"The whole thing is screwed up," Klesse said Tuesday. "It needs to be redone."

Sam Margolin, a director at Cowan & Co., said Valero faced in the quarter "some headwinds on the demand side, and RINs (renewable energy numbers, or credits) are still an issue, but the company has been able to move through a pretty difficult environment and have a nice financial performance, even if not up to expectations at the beginning of the year."

Valero's stock rose $1.32 to close at $35.86 Tuesday in New York Stock Exchange trading.

Included in Valero's quarterly results were after-tax charges to general and administrative expenses of $20 million, or 4 cents a share, as well as an income tax expense of $9 million, or 1 cent a share, related to its May 1 spinoff of its retail stores, now CST Brands, to Valero stockholders.



Source: (c)2013 the San Antonio Express-News. Distributed by MCT Information Services.


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