Valero pays $1.73B for Chevron's Pembroke refinery

March 12, 2011 8:00:27 AM PST
Valero Energy Corp. is buying a large Welsh refinery and other assets from Chevron for $1.73 billion, adding 10 percent to Valero's daily refining capacity and creating its first major European outpost.

Valero, based in San Antonio, said Friday that the Pembroke refinery will add to its earnings per share immediately, and will reduce its average refining costs.

The deal includes marketing and logistics assets throughout the U.K. and Ireland, Valero said. Those include stakes in four pipelines, 11 fuel terminals, an aviation-fuels business and more than 1,000 Texaco-branded gas sellers. Texaco is the largest branded dealer network in the U.K. and the second-largest in Ireland, Valero said.

Valero Chairman and CEO Bill Klesse said the company has been looking to acquire well-priced assets to expand its business.

"After exiting refining in the U.S. 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," Klesse said in a statement. Valero said it expects to retain the workers in the U.K and Ireland currently employed at the businesses it's acquiring.

The Pembroke refinery is among Western Europe's largest and most complex, Valero said. Like Valero's other refineries, it can handle many kinds of raw material, and has processed more than 60 types of crude oil in the past decade, Valero said.

Pembroke has a total capacity to process 270,000 barrels a day, which will add to Valero's existing capacity of about 2.6 million barrels a day.

The refinery takes crude-oil deliveries at an eight-berth deepwater dock that can accommodate large ships, Valero said.

The sale price is $730 million in cash, with Valero paying another estimated $1 billion for inventory and other items, the companies said. They said the deal is expected to close in the second half of this year.

Mike Wirth, Chevron's executive vice president for Downstream & Chemicals, said the deal helps Chevron's focus on its best-performing markets.

"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," he said in a statement

Chevron said it recently sold off assets in Spain and more than 20 other countries -- mostly fuel-marketing businesses in the Caribbean and southern Africa. It is seeking bids for some remaining operations in the Caribbean and Central America, the company said.

Also Friday, Standard & Poor's revised its rating outlook on Valero Energy Corp. to "Stable" from "Negative" and affirmed the oil and gas company's corporate ratings. Valero should benefit from favorable market conditions over the next two years, S&P said.

S&P said it views the Pembroke acquisition as a neutral development from a credit perspective.

"Valero's financial performance is benefitting from favorable refining margins on distillate products as well as from increased discounts on heavy crude oil feedstocks, helping to offset continuing pressure on gasoline margins," said Standard & Poor's credit analyst Scott Sprinzen. "We expect that these factors will enable Valero to sustain relatively strong financial performance over the next two years, making a downgrade unlikely during this period."

Moody's Investors Service, meanwhile, called the deal "credit neutral," and left Valero's ratings unchanged.

Valero is an international refiner and transporter of fuels. It owns 14 refineries, 10 ethanol plants and gas stations under banners such as Valero, Diamond Shamrock, Shamrock and Ultramar.

Chevron is an integrated, multinational energy company based in San Ramon, Calif. It explores for and produces oil and gas, processes and transports liquefied natural gas, and operates mines.

Valero shares leaped $1.66, or 6 percent, to $27.98 Friday. They fell 5 percent Thursday after news reports said that Valero would pay as much as $2 billion for Pembroke.

Chevron shares rose 85 cents to $99.93 Friday.