Valero buys Chevron's UK downstream assets for $1.73 bil
London (Platts)--11Mar2011/955 am EST/1455 GMT
The US' Valero Energy has agreed to buy Chevron's Pembroke refinery and
downstream assets in the UK for an estimated $1.73 billion, marking the first
European foothold for the US' biggest independent refiner.
Under the deal, Valero will pay $730 million for the 220,000 b/d Pembroke
refinery in Wales which Chevron put up for sale a year ago in addition to
marketing and logistics assets throughout the UK and Ireland.
The price includes Chevron's network of more than 1,000 Texaco-branded
retail fuel sites, ownership interests in four major product pipelines and 11
fuel terminals, a 14,000 b/d aviation fuels business.
Chevron's working capital included in the deal has an estimated value of
$1 billion, based on current market prices, although the final value for
working capital will be determined at closing, Valero said.
"This acquisition of quality assets enhances our portfolio and gives us
opportunities for profitable growth," Valero CEO Bill Klesse said in a
statement. "After exiting refining in the US East Coast last year, this
acquisition provides an opportunity for our company to supply that market more
competitively, when it's economic to do so."
The acquisition will also make Valero the UK's third biggest retail fuel
seller in terms of branded forecourts, behind BP and ExxonMobil, with a
distributed volume of over 150,000 b/d.
The company said it expects to fund the transaction from cash, and close
the deal in the third quarter of 2011.
Valero has been actively looking to buy refining assets in Europe for
some years, planning to take advantage of cross-Atlantic product arbitrage
opportunities with its US plants and supply its US extensive marketing
The refiner suffered a major setback in 2009, when Russia's Lukoil
scuppered a deal to buy Total's stake in the Netherland's Vlissingen refinery.
Lukoil exercised a pre-emptive right to take a 45% stake in the refinery
from chemical giant Dow after Valero had looked to tie-up a deal.
Chevron announced plans to sell its Pembroke refinery in Wales a year-ago
and Valero soon expressed interest in bidding for the asset.
In line with other oil major reducing their exposure to volatile refining
margins, Chevron blamed its decision on expectation of weak downstream market
condition "in the next several years."
But Valero said Pembroke had been profitable and cash flow positive in
2009 when recession-hit fuel demand forced many plants to slash crude runs and
Last month, Chevron reached a sales agreement for most of its downstream
assets in Spain to Spanish refiner Cepsa.
Since 2010, the company has agreed to sell downstream assets in more than
20 other countries, mostly fuels marketing businesses in the Caribbean and
"We're concentrating our downstream portfolio primarily in North America
and the Asia-Pacific region, markets where we enjoy our greatest competitive
strength and opportunities for growth," Chevron's executive vice president for
downstream and chemicals Mike Wirth said in a statement.
Built in 1964 as a hydroskimming refinery, former Texaco added catalytic
cracking capacity to Pembroke in 1982, and the site includes 10.5 million
barrels of storage, half of which is used for feedstock.
Valero said the refinery has an estimated cash operating cost 25%, or
nearly $1/barrel, below its existing average and the assets will be
immediately accretive to earnings per share.
With a Nelson complexity index of 11.8, Pembroke can process a "large and
flexible" slate of crudes, in additional to some 50,000 b/d of non-crude
feedstocks such as residual fuel oil and mixed butanes, according to slides
accompanying the announcement.
Valero said the plant has access to discounted crude with its feedstock
slate priced at an average of $1/b below Brent crude over the past 5 years.
Up to 20% of the crudes are high-mercaptan crudes like CPC blend and up
to 30% high-acid crudes that typically price $0.50-1.00/b below Brent, Valero
The plant's product slate comprises 44% gasoline, 40% distillates, 11%
fuel oil and 5% other products, with about half of gasoline exported to the
New York and Florida markets, Valero said.
"[Pembroke is] capable of exporting larger-than-standard cargoes at
advantaged freight costs relative to other European refineries," Valero said
in the slides.
--Robert Perkins, firstname.lastname@example.org
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