Valero Refinery Expansions Pushed Forward by Eagle Ford Production Growth - $730 Million

Valero Refinery Map
Valero Refinery Map

Valero plans to build crude topping units at its Corpus Christi, TX refinery and its refinery in Houston.

The two expansions come with a price tag of $730 million, but will likely be needed if the growth of light-sweet crude oil from areas like the Bakken, Eagle Ford, and Permian Basin continue.

Read more: Valero Houston Refinery Expanding for Eagle Ford Crude

The company's plans include adding a 70,000 b/d unit at the Corpus Christi refinery at an estimated cost of $340 million and a 90,000 b/d topping unit in Houston at a cost of $390 million.

Valero announced plans to add the 90,000 b/d unit at its Houston facility at an estimated cost between $220 - $280 million early in 2013. According to Valero Spokesman, Bill Day, those costs are now projected at $390 million for the 90,000 b/d unit.

Eagle Ford Crude Oil Production Driving Refinery Expansions

Eagle Ford Crude has an API of 50 degrees, and Valero's refineries are accustomed to processing heavier crude from South America. As Valero's Eagle Ford production rates remain strong, the need for its refineries to process the light sweet domestic crude is the push behind both of these initiatives.

Additional production growth will likely lead to even more favorable pricing for domestic crude oil.

The new units at these refineries will allow the plants to purchase less intermediate feedstocks from outside suppliers.
— Valero Spokesman, Bill Day

Both refinery units are in the planning phase, so no construction has taken place, but the company intends for both units to be completed by the end of 2015.

Other Valero Downstream Projects in Texas

[ic-l]At the Valero's Three Rivers refinery, which sits atop the Eagle Ford shale, the company built a new pre-flash tower and added logistics in 2011-12 to process more light Eagle Ford crude.

Valero also plan expansions at the McKee Refinery in the Texas Panhandle. The project calls for spending $60 million to increase the crude unit from 170,000 bpd to 185,000 bpd, in order to process more Permian Basin crude.

Valero Investing to Handle More Eagle Ford Oil & Other Light Crude

Valero Corpus Christi and Houston Refinery Throughput
Valero Corpus Christi and Houston Refinery Throughput

Valero Energy plans to increase its light oil processing capacity at its Gulf Coast refineries by adding topping units at Houston and Corpus Christi locations.

The investments will allow the company to process more Eagle Ford oil than possible today.

Valero will add a 90,000 b/d topping unit at its Houston refinery and a 70,000 b/d topping unit at one of the company's Corpus Christi refineries. The company expects returns of greater than 30% (IRRs) for the two investments.

Valero has two plants with total refining capacity of 325,000 b/d in Corpus Christi and the company's Houston refinery has total capacity of 160,000 b/d.

Running lighter crude will help maximize the production of gasoline and diesel.

Valero is also expanding its McKee crude unit in North Texas by 25,000 b/d in 2015 and is evaluating projects at both its Port Arthur and Meraux refineries.

With continued growth in West Texas plays, the Bakken in North Dakota, and the Eagle Ford, refineries will continue making investments to ensure they are processing the maximum volume of lower priced domestic crude.

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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.


Valero's Quebec Refinery Processing Eagle Ford Barrels "Very Well"

Valero Refinery Map
Valero Refinery Map

It's no secret that Canada is importing more and more U.S. oil. Some of that is coming from the Eagle Ford.

In the first quarter of 2013, the U.S. sent almost 100,000 b/d to refineries in Canada. The reality is the U.S. is much close and can supply oil at more competitive rates than places like western Africa.

San Antonio based Valero has a 235,000 b/d refinery in Quebec and as of May had sent one shipment to test how well the refinery can process Eagle Ford barrels. Results were positive, so its likely more crude will be heading north.

The test proved the refinery could process Eagle Ford barrels.
— Day

It's really pretty amazing what has happened. Gulf Coast refineries have been preparing to take heavy crude, like those produced in Canada, and Canadian refineries are better suited for light crudes, like those produced in Texas.

Valero plans to start shipping Eagle Ford crude to its Quebec refinery on a more consistent basis in the second half of 2013.


Valero Houston Refinery Expanding for Eagle Ford Crude

Valero Houston Refinery
Valero Houston Refinery

Valero plans to boost Eagle Ford refining capability by adding a 90,000 b/d crude topper at its Houston refinery. The 160,000 b/d refinery is set up to refine the typical light, sweet crude, but the topper will allow the facility to process even greater volumes of lighter Eagle Ford Crude. As much as 40% of Eagle Ford crude production is consider condensate and has an API gravity of more than 50 degrees.

The topper will essentially separate components that are too light before they enter the crude unit.

William R. Klesse made the following comment just a few months prior: "So we have quite a study going on, for instance, at Corpus Christi and our Houston Refinery, where at the Houston Refinery we have a very large cat cracker and yet, we don't have a lot of crude capacity. So these are the things that tie to our whole strategy statement that I spoke about earlier where we look at things that continue to, in the essence, lower our overall cost to produce from the womb to the tomb."

The upgrade at the Houston Refinery will allow the company to refine greater volumes of domestic crude, which can be purchased at a lower cost than foreign crude. The upgrade will allow for greater production of gasoline and diesel from the refinery.

This announcement follows Flint Hills Resources' $250 million plan to upgrade its Corpus Christi Refinery. The Flint Hills plan was announced in August of 2012.

Gulf Coast refineries spent years readying for heavier crudes from South America, but the latest boom in domestic production has reversed the trend. Now, refineries like Valero and Flint Hills are preparing to refine more light crude.