Valero to Transform Aruba Refinery

Valero Refining Company-Aruba N.V., a subsidiary of Valero Energy Corporation ( VLO - Analyst Report ) , announced its decision to cut down operations at its Valero Aruba Refinery and transform it into a refined products terminal.

Besides being on the look out for a prospective buyer for the refinery, Valero intends to keep the refinery fully equipped, just in case the company decides to resume operation at the site.

Equipped with both deepwater berths and smaller berths, the Aruba refinery has the resources to serve as a world-class crude and refined products terminal, with capabilities to load the largest crude ships. Further, the facility’s proximity to the booming markets and encouraging political scenario are added benefits and enhances feasibility for operations.

Valero and the government of Aruba have been in search of a buyer for months for the plant. Per the rumors, PetroChina Co. Ltd ( PTR - Analyst Report ) is believed to have bid for the plant earlier in 2012 as the Chinese giant tries to increase its holding in the American market.

The reason for the deal to be dropped remains uncertain but the plant’s reliance on more expensive fuel oil to power rather than cheaper availability of natural gas has been earmarked as a possible reason.

In the past few years, the Aruba refinery has been idled at least twice. The most recent occurrence was earlier this year, due to poor profit margins that have affected refiners in Europe, the Caribbean and on the U.S East Coast.

The conversion of the refinery into a terminal will also result in smaller workforce. The restructuring and reduction in personnel is projected to be completed before 2012 end. Valero will carry on providing jet fuel, gasoline, diesel and fuel oil to the island, as well as provide third-party terminal services. The company intends the site to return to profitability by using its strategic location and shipping facilities to its advantage.

Valero carries a Zacks #3 Rank, which is equivalent to a Hold rating for a period of one to three months. Longer term, we maintain our Neutral recommendation.