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Valero, TGS to Build Marine Port

Zacks Equity Research

Texas-based Valero Energy Corporation’s (VLO) subsidiary Valero Terminaling and Distribution Co. (“VTDC”) and private Houston industrial developer TGS Development have started on a new project involving construction of a new marine terminal near Port Arthur, Texas.

The 50-50 joint venture between the two companies, known as PI Dock Facilities LLC, is building a terminal on the lower Sabine-Neches Waterway with capability of receiving crude oil tankers up to Suezmax class. The upcoming Marine terminal does not fall in the ambit of the other terminals in the area that have daylight restrictions.

The site, earlier used as a dry dock facility with a protected inlet off the channel, will now have accessibility at any time and with vessels up to Suezmax class that will reduce crude delivery costs for Valero. The facility is likely to be commissioned in the fourth quarter of 2013.

The dock will supply crude oil via a new 36-inch pipeline to Valero`s Port Arthur Refinery and will have the ease to connect with other local refineries. The marine terminal site covers an area exceeding 100 acres, with room for two extra berths appropriate for LPG and refined product exports or additional crude receipts.

The development of the site will be carried out by TGS Development LP, while Valero will act as its operator. Total SA’s (TOT) 225,000 barrels per day (bpd) plant and Motiva Enterprises’ 600,000 bpd plant are some other refineries in Port Arthur.

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 located 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 holds 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.

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