Valero Unit Buys Ethanol Plant - Analyst Blog

Valero Renewable Fuels Company, LLC, a wholly owned subsidiary of Valero Energy Corp. VLO, has purchased a corn ethanol plant in Mount Vernon, Indiana from Aventine Renewable Energy-Mt. Vernon, LLC, a wholly owned subsidiary of Aventine Renewable Energy Holdings, Inc. (AVRW).

The plant has an annual production capacity of 110 million gallons and uses Delta-T technology, similar to the process already in use at Valero Renewables' ethanol plant in Jefferson, WI.

The Mount Vernon plant is the 11th corn ethanol plant in Valero Renewables' system and its second in Indiana. The addition will give Valero more than 1.3 billion gallons per year in ethanol production. The plant was shut down for about two years, but Valero Renewables plans a restart program to resume production in the near future.

Among all the independent refiners, Valero offers the most diversified refinery base with a capacity of 3.0 million barrels per day in its 16 refineries throughout the U.S., Canada and the Caribbean. More importantly, Valero is best positioned to profit from increased refining margins mainly on account of its strategic refinery structure that enables it to use cheaper oil for over one-half of its needs.

Valero spun off 80% stake from its retail arm – CST Brands Inc. CST – through a tax-advantaged distribution to shareholders, to unlock value on May 1, 2013. The spin-off of the company's retail arm generated an immediate net cash benefit of $500 million, after shelling out $220 million in taxes. The remaining 20% was divested by the company on Nov 14. The move helped the company to concentrate on its industry-specific strategies.

Further in Dec 2013, the company came out with an initial public offering for its logistics master limited partnership MLP – Valero Energy Partners LP VLP. The MLP enabled Valero to monetize its existing infrastructure, but would also offer a favorable financing option for future logistics projects.

Valero remains optimistic on the ongoing economic growth projects. These are expected to drive significant improvement in earnings in the future. The company also replaced all imported light sweet crude oil used at its Gulf Coast and Memphis, Tennessee, refineries with cheaper North American crude oil recently.

Valero currently carries a short-term Zacks Rank #1 (Strong Buy).