Valero Energy Corp. (VLO) has reached an agreement with Murphy Oil Corp. (MUR) to acquire its final refinery in the U.S. Post acquisition, the U.S. independent refiner will widen its footprint in the U.S. Gulf region.
Per the agreement, Valero will pay $325 million for Murphy’s refinery in Meraux, Louisiana. The deal also includes the purchase of associated logistics and inventory for approximately $300 million, subject to the closing adjustments.
Apart from the refinery, the purchase price includes an adjacent product terminal, a 20% equity interest in the Collins Product Pipeline and T&M terminal, and a 3.2% interest in the Louisiana Offshore Oil Port.
The 135,000-barrels per day (bpd) Meraux refinery comprises of a 34,000 bpd hydrocracker and significant hydro processing capacity, which helps it to process medium sour crude and produce significant yields of premium products. The deal is expected to be accretive to Valero as it will add the sixth Gulf Coast refinery to its portfolio, thereby boosting the capability to serve markets in Latin America, South America and Europe.
Valero aims to finance the transaction with available cash and complete it in the fourth quarter, subject to customary closing conditions and regulatory approval. It also intends to integrate the Meraux refinery east of New Orleans with its 205,000 bpd St. Charles refinery in Norco, Louisiana, west of New Orleans.
San Antonio, Texas-based Valero Energy Corporation is the largest independent refiner and marketer of petroleum products in the U.S., with a refining capacity of 2.6 million barrels per day in its 14 refineries located throughout the U.S., Canada and the Caribbean. Valero is also a leading ethanol producer with 10 ethanol plants in the Midwest with a combined capacity of 1.1 billion gallons per year.
Following the completion on the purchase of Chevron Corp.’s (CVX) Pembroke refinery in Wales, U.K., the latest deal marks a significant step for Valero in diversifying its portfolio. The Pembroke refinery gives Valero greater flexibility in chasing margins by transporting products between the U.S. and U.K. We expect Valero’s 2011 earnings to benefit from improving U.S. and global economies, higher refining margins, wider crude discounts, increased operating rates and continued cost saving initiatives.
Valero holds a Zacks #2 Rank, which translates into a Buy rating for a period of one to three months. We are also maintaining our long-term Outperform recommendation on the stock.
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