Growth activities in 2018
Valero Energy (VLO) is on a growth trajectory focused on an integrated value chain. In 2018, Valero Energy spent $2.7 billion towards its capex. Marathon Petroleum (MPC), HollyFrontier (HFC), and Phillips 66 (PSX) incurred a capex of $4.3 billion, $0.3 billion, and $2.6 billion, respectively, in 2018.
In 2018, Valero Energy completed projects like the Diamond Green Diesel expansion, the Diamond and Sunrise pipelines, and the Wilmington cogeneration unit. The projects added $340 million of incremental EBITDA to the company in 2018. Valero Energy’s adjusted EBITDA was $5.8 billion.
Future growth plans
Valero Energy expects to incur a capex of ~$1 billion annually on growth projects until 2021. The company aims for an incremental annual EBITDA of ~$1.2 billion–$1.5 billion by 2022. Valero Energy plans to spend equally between the refining and logistics segments. In 2019, Valero Energy’s capex is expected to be ~$2.5 billion—$1.0 billion is for growth projects, while the rest of the capex is for sustenance projects.
Valero Energy’s major ongoing projects are expected to contribute $900 million–$1.1 billion in incremental annual EBITDA. The projects include the Houston alkylation project to be completed in the second quarter, the St. Charles alkylation units in 2020, the Central Texas pipeline sand terminals in mid-2019, the Pasadena terminal in early 2020, the Pembroke co-generation units in 2020, the Diamond Green Diesel train 2 in late 2021, and the Port Arthur coker in 2022.
The projects are aimed at yielding higher value products, increased feedstock flexibility, sustained growth, and better logistics capabilities. The Houston alkylation project is expected to upgrade low-value isobutane to high-value alkylate. Valero Energy’s Port Arthur coker project will likely boost the processing of heavy sour crude in its refinery.
Valero Energy has a series of projects under development in the Refining and Logistics segment. The projects are expected to contribute another $300 million–$400 million to the incremental annual EBITDA target.
With a strong project pipeline, Valero Energy is set to utilize its downstream value chain to create optimum synergies. The company’s acquisition activities are improving its capabilities and market reach. Overall, Valero Energy is ready to deliver targeted incremental EBITDA in the coming years.
Valero Energy observed a cash flow shortfall in 2018. However, the shortfall was mainly due to acquisitions.
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