Valero Energy Corporation (VLO), the largest independent refiner and marketer of petroleum products in the U.S., announced an expansion plan for its crude unit capacity of McKee refinery. The company intends to increase its McKee refinery capacity in Sunray, Texas by 25,000 barrels per day (bpd) to 195,000 bpd over the next three years.
With a comprehensive network of crude oil pipelines, the McKee refinery covers crude oil of northern Texas, Oklahoma, southwestern Kansas and eastern Colorado, making it the most well-connected unit within Valero’s portfolio.
Although the company did not specify about the start-up period of McKee project construction, but expects it to be completed in 2012. Valero also declined to disclose the estimated cost of the project, but stated that it comprises equipment development rather than addition of new units.
The present expansion plans follow the previously announced Panhandle crude gathering system expansion project that supplies to the McKee plant. This project will be completed soon and comprises looping an existing pipeline from Valero’s storage facility in Perryton, Texas, with additional pump stations and storage facilities.
We appreciate Valero’s endeavor to consistently review its refining portfolio, and upgrade its asset base by selling or acquiring refinery properties within its portfolio. Recently, Valero acquired Chevron Corp.’s (CVX) U.K. subsidiary Chevron Limited, comprising Welsh refinery Pembroke and marketing and logistics assets. The deal ensures Valero’s foothold on the European soil for the first time. The company remains optimistic about this addition to its refinery portfolio and expects the purchase to enhance growth opportunities and be accretive to 2011 earnings per share.
However, we remain apprehensive about the company’s recent statement that it expects earnings to fall to the range of 15–30 cents per share for the first quarter of 2011, compared with the adjusted fourth quarter 2010 profit of 40 cents. This decline primarily reflects an after-tax loss of $348 million, or 61 cents per share, related to hedging activities, to be included in the current quarter.
Again, being the largest independent refiner, Valero remains particularly exposed to the unfavorable macro backdrop, along with other refiners like Sunoco Inc. (SUN) and Tesoro Corporation (TSO).
The company holds a Zacks #2 Rank, which translates to a short-term Buy rating. We maintain our long-term Neutral recommendation for Valero.
CHEVRON CORP (CVX): Free Stock Analysis Report
SUNOCO INC (SUN): Free Stock Analysis Report
TESORO CORP (TSO): Free Stock Analysis Report
VALERO ENERGY (VLO): Free Stock Analysis Report
Zacks Investment Research
