Valero Energy Corporation (VLO - Free Report) recently announced that its UK-based subsidiary, Valero Logistics UK Ltd, has agreed to acquire the SemLogistics Milford Haven fuel storage facility from SemGroup Corp. (SEMG - Free Report) , which is located on Wales' west coast. Valero struck the deal with SemGroup Corporation's subsidiary, SemGroup Europe Holding L.L.C.
With a storage capacity of 8.5 million barrels, the Milford Haven facility is one of the largest in the United Kingdom. It stores crudes, diesel, gasoline, gasoline blendstocks, gas oil, jet fuel and naphtha. The company expects the deal to close in the July-September quarter of 2018.
Valero wants to retain the present employees in the facility, who can bring further expertise in their operations. Although the financial details of the deal are yet to be disclosed, Valero will make earn-out payments to SemGroup if it can reach certain revenue goals in the four years following the deal closure.
How Will Valero Benefit?
The storage facility is located near Valero's Pembroke refinery and expected to complement its operations in the U.K. and Ireland. Additionally, more than 67% of the storage volume is multiproduct that can provide the acquirer flexibility to meet clients' demands in the European region. Moreover, Valero announced that SemLogistics Milford Haven will keep serving as a third-party storage facility, benefiting third-party clients in Europe.
Valero’s Chairman, President and Chief Executive Officer, Joe Gorder said, “This purchase demonstrates Valero’s commitment to Wales and the UK, and it aligns with our strategy to grow the logistics business and reduce secondary costs.”
The deal is also expected to provide Valero with stable and predictable cash flows in the long term. Of the total 2017 revenues of the company, only 1% came from the Storage & Other category.
The deal is also in line with SemGroup Corporation’s strategy to divest its non-core assets. The company is expected to use the proceeds from the deal to fund its capital growth projects.
San Antonio, TX-based Valero is one of the largest independent refiner and marketer of petroleum products in the United States. It has a refining capacity of 3.1 million barrels per day across 15 refineries located throughout the United States, Canada and the Caribbean. Valero is also a leading ethanol producer with 11 ethanol plants in the Midwest that have a combined capacity of 1.45 billion gallons per year.
Majority of the company’s refining plants are located in the Gulf coast area from where there is an easy access to the export facilities. This Gulf coast presence has helped Valero to increase its export volumes over the last few years.
We are concerned about the company’s escalating debt level over the past two years. From no debt as of December 2015, Valero’s long-term debt is now $8.9 billion.
Valerohas gained 37.5% in the last year compared with 14.8% growth for its industry.
Zacks Rank and Stocks to Consider
Valerocarries a Zacks Rank #3 (Hold).
A few better-ranked stocks in the oil and energy sector are Cabot Oil & Gas Corp. (COG - Free Report) and Pioneer Natural Resources Co. (PXD - Free Report) . Both these companies sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Houston, TX-based Cabot is an independent energy company. Its sales for the first quarter of 2018 are expected to increase 2.3% year over year. For 2018, the bottom line is expected to be up 103.8%.
Irving, TX-based Pioneer Natural Resources is an independent oil and gas exploration and production company. Its revenues for first-quarter 2018 are expected to improve 22.8% from the year-ago quarter. For 2018, the bottom line is anticipated to be up 166.2%.
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