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Valero Is Building an Integrated Downstream Growth Model

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Valero’s growth plans

Valero Energy (VLO) is steadily progressing on its path toward creating an integrated downstream value chain.

Valero plans to incur capex of ~$1 billion annually until 2021 for achieving incremental annual EBITDA of ~$1.2 billion–$1.4 billion. The company plans to spend equally between its Refining and Logistics segments. In 2018, Valero’s capex is expected to stand at ~$2.7 billion, of which $1.0 billion will be for growth projects and the rest will be for sustenance projects.

In the second quarter, Valero spent $718 million on capex. Comparatively, Marathon Petroleum (MPC), Andeavor (ANDV), and Phillips 66 (PSX) incurred capex of $918 million, $382 million, and $538 million, respectively, in the second quarter.

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Valero’s EBITDA target

Valero has series of ongoing projects that are likely to contribute $300 million–$400 million to its incremental annual EBITDA target. The projects are aimed at increasing feedstock flexibility, yielding higher-value products, sustaining growth, and improving logistics capabilities.

Valero is expanding its logistics base to support its refining operations and create a steady earnings stream for itself. This strategy could create a diversified earnings model for VLO, which would be helpful in partially shielding the company from refining earnings volatility—a favorable opportunity for a downstream company such as VLO, which has significant refining earnings.

Further, projects that could generate ~$600 million–$700 million of incremental EBITDA are under development in the company’s Refining segment. Other projects that could generate ~$200 million worth of EBITDA are under development in the Logistics segment.

In short…

With numerous projects under execution and development, Valero is all set to capture synergies at each point in its downstream value chain. Furthermore, Valero’s acquisition activities are enhancing its capabilities and market reach.

Overall, it seems like VLO is set to achieve its targeted incremental EBITDA in the years to come.

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