Independent refiner and marketer Valero Energy Corporation (VLO) is planning to spend up to $190 million to use Western Canadian crude for its Jean Gaulin refinery in Levis, Quebec.
Valero’s plan includes building a rail off-loading facility at the said refinery, which has a capacity of 265,000 bpd (barrel per day). Its terminal will also be expanded to the Montreal East facility. This expansion follows Enbridge Inc's (ENB) proposed reversal of Line 9 pipeline linking Ontario and Quebec.
Western Canadian crude will be economical for Valero than the costly cargoes from West Africa and the North Sea. The reversed Line 9 pipeline will also be beneficial for Valero as it will deliver oil from Alberta, Saskatchewan and Manitoba to the eastern markets.
Valero intends to transport crude by rail in both the U.S. and Canada, and expects to have its own fleet of more than 12,000 rail cars by 2015.
Earlier in April, Valero reported adjusted first quarter 2013 income of $1.18 per share, beating the Zacks Consensus Estimate of $1.01 by 16.8%. The quarterly earnings compare favorably with the year-ago adjusted earnings of $0.31 per share. This growth was bolstered by higher refining throughput margins in each of the company’s regions, except the U.S. West Coast, along with lower refining operating expenses.
However, refining operations may also face disturbances due to accidents, mechanical failure and labor issues that would hamper production and result in increased repair and maintenance expenses. Further, refining margins will be affected if the market is oversupplied.
As a result, Valero currently retains a Zacks Rank #3 (Hold). This implies that it is expected to perform in line with the broader U.S. equity market over the next one to three months.
However, there are other oil refiners in the energy sector that offer value and are worth buying now. These include Alon USA Energy Inc. (ALJ) and Ferrellgas Partners L.P. (FGP). Both these stocks sport a Zacks Rank #2 (Buy).
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