Just a day before Valero Energy Corp. was set to spin off its retail division, the company said Tuesday it may execute another separation by forming a master limited partnership.
“After we complete the spinoff of our retail business,” Valero CEO Bill Klesse said, “we will evaluate a master limited partnership for our growing portfolio of logistics assets.”
As much as $600 million in Valero’s midstream assets could be put into a master limited partnership, Chief Financial Officer Mike Ciskowski told analysts in a conference call.
That could generate $125 million to $150 million annually in EBITDA (earnings before taxes, interest, depreciation and amortization), Roger Read, senior analyst at Wells Fargo Securities, said in a note to clients.
Under current tax laws, Valero could drop pipelines, terminals, docks and rail facilities into a publicly traded master limited partnership, spokesman Bill Day said.
It’s also possible that Valero’s 10 ethanol plants could be rolled into an MLP, Day said.
Locally based Valero has been aggressively buying rail cars to ship cheaper crude oil to its plants. It expects to own 9,000 rail cars by the end of next year. It doesn’t own major pipelines, but has smaller gathering systems at some of its refineries, Day said.
A master limited partnership must pay out most of its profits to shareholders, helping it avoid most corporate income taxes and keeping its borrowing costs low.
On Wednesday, Valero will spin off its retail arm, giving its investors one share of new company CST Brands Inc. for every nine Valero shares they own. CST’s stock will begin trading on the New York Stock Exchange on Thursday.
Klesse mentioned the possibility of forming a master limited partnership on Tuesday as part of the company’s first-quarter earnings announcement.
The company said higher refining margins in all of its regions except the