Valero Files To Create a Logistics MLP - Valero Energy Partners

Valero Logistics Growth Investments
Valero Logistics Growth Investments

Valero has filed a registration statement with the SEC for the initial public offering of Valero Energy Partners (VLP).

VLP will serve as a vehicle for dropping down (selling) logistics assets from Valero. Logistics assets include everything that helps Valero delivery quality crude to its refineries: pipelines, rail cars, rail unloading, barges, ships, docks, tanks, etc.

Logistics MLPs trade at 10-15 times EBITDA (earnings before interest, taxes, depreciation, and amortization), while refineries trade at just 3-5 times EBITDA. That alone provides for incentive to spin off the assets to create value. Add the fact that more than 40% of Valero's investments are in logistics assets and its easy to see why VLP could easily be a stand along company.

Eagle Ford assets will likely be included in the initial transaction:

Valero Energy Partners LP expects its initial assets to include crude oil and refined petroleum products pipeline and terminal systems in the Gulf Coast and Mid-Continent regions of the United States that are integral to the operations of Valero's refinery located in Port Arthur, Texas, its McKee refinery located in Sunray, Texas, and its refinery located in Memphis, Tennessee.

Before the company can go public, the Valero board will need to approve the spin off and a management team will need to be assembled.

 

Corrosion Control in the Eagle Ford Shale

Corrosion control is always a factor in oilfield work.  Above-ground tanks, pipelines, and all manners of equipment suffer from corrosion, both internal and external in nature.  The farther south and west one moves across the Eagle Ford play, the more two interesting physical facts come to dominate external corrosion control needs. Maverick, Dimmit, Zavala, Webb, La Salle, McMullen, Frio, Atascosa, Live Oak and Bee Counties have shallow soils which often contain large concentrations of chloride ion.  This comes from salt deposited when ancient ocean shorelines ranged across the region.  High chloride ion content causes aggressive corrosion rates on unprotected steel.  Just as importantly, the sodium and chloride ions, often found with other ions as well, cause the soil’s electrical resistivity to be very low.  The low electrical resistance means high corrosion current flows, which again accelerates attack on unprotected steel.  Pipelines are buried in this soil.  Tanks are set on it.

Even in the other counties in the play, external corrosion is a big factor.  Those soils are often clayey loams with varying amounts of gypsum and other water-soluble minerals.  So corrosion potential is high, no matter where you’re working.

Best Practices for Corrosion Control

Corrosion protection for these facilities should always include a combination of good coatings, good installation and inspection practices, and well-designed cathodic protection (CP) systems.  Here are some pointers for the southwesterly “half” of the Eagle Ford:

  • If constructing bulk above-ground storage tanks (ASTs), put a coating on the bottom plate before field welding begins.  This coating will give partial protection to the finished external bottom of tank.  This reduces the amount of protective electrical current needed.  It lowers capital costs for the CP system, AND can greatly reduce a monthly electric bill;
  • If high-voltage AC power lines are nearby, avoid setting up pipeline rights-of-way in “close parallel” to the AC lines!  With the low soil resistivities, high chloride levels, and good coatings, the AC-induced corrosion rates are EXTREMELY HIGH!  (An article about this risk will come soon.)
  • Holiday detection is even more important for coatings inspection on pipelines, tanks, and, really, on any paint job where the metal will be in soil or water contact.  Remember, too, that water gets everywhere, sooner or later;
  • Coat the bottom of every steel vessel before it is set – not just a paint, but a better-quality and thicker coating!  Dehydrator units, separators, bulk tanks all may be set on crushed rock or caliche, but the chloride ion will move to the metal – just by diffusion – and attack it over time.

These observations and recommendations are based on experience, not on “ivory tower” theorizing.

Basics of Corrosion Science

For those not so familiar with corrosion science, here are a few points to keep in mind:

  1. If we just talk about steel, it is not a “naturally occurring” material.  Iron ore is dug up, then combined in very hot furnaces with coke and other alloying metals.  The resulting steel is then cooled, shaped, and so on;
  2. A lot of new energy is added in the metal-making process.  As soon as this metal is put into the environment, Mother Nature’s electrochemical processes go to work.  Their goal is to turn steel back into iron ore – rust!  The reason?  All that energy put into the making of steel is now available to be removed.  One physical law is that everything, sooner or later, will be “taken back” to its lowest stable energy content;
  3. To prevent or slow down that rusting process, every piece of steel should be coated, maybe even inside as well as outside.  No water, either liquid or vapor, should be allowed to contact it.  Water is the major "rusting agent" around, even if just a vapor or a dewfall.  And there are plenty of other chemicals which may drive the corrosion process, chloride ion being one;
  4. Finally, in addition to the coatings, cathodic protection should be applied.  Coatings by themselves are not good enough, because there are always defects or holes in them.  And the cathodic protection should be sized to give protection for as many years as you want the structure to do its job.

Mr. Chapman is one of many professionals who will be contributing to EagleFordShale.com. If you have professional experience in the Eagle Ford and would like to be considered as a contributor, please Contact Us about guest blogging.