Valero’s Earnings Are Poised to Rise with Its Growth Activities

Valero’s capex in the first quarter

Valero Energy’s (VLO) growth activities are focused on strengthening its integrated value chain. In the first quarter of 2019, Valero spent $726 million on capex. In comparison, Marathon Petroleum (MPC), HollyFrontier (HFC), and Phillips 66 (PSX) incurred capexes of $1.331 billion, $64 million, and $675 million, respectively, in the quarter.

In the first quarter, Valero also completed the acquisition of its midstream MLP, Valero Energy Partners, simplifying its structure. The company will continue to invest in its midstream asset base to achieve higher feedstock and product flexibility.

Valero’s Earnings Are Poised to Rise with Its Growth Activities

Valero’s growth path

Valero expects to incur capex of ~$1 billion annually on growth projects until 2021. Valero plans to spend equally between the Refining and Logistics segments. In 2019, Valero’s capex is expected to stand at ~$2.5 billion, $1.0 billion of which is for growth projects and the rest of which is for sustenance projects.

Valero aims for an incremental annual EBITDA of ~$1.2 billion–$1.5 billion by 2022. In 2018, VLO’s adjusted EBITDA stood at $5.8 billion.

Valero’s major ongoing projects are expected to contribute $900 million–$1.10 billion in incremental annual EBITDA. Valero also has a series of projects under development in the Refining and Logistics segments, and these projects are expected to contribute another $300 million–$400 million to its incremental annual EBITDA target. The projects are intended to yield higher-value products, increase feedstock flexibility, sustain growth, and enhance logistics capabilities.

Valero’s main projects include the Houston alkylation project (to be completed in the second quarter), the St. Charles alkylation unit project (2020), the Central Texas pipeline sand terminal project (the third quarter of 2019), the Pasadena terminal project (early 2020), the Pembroke cogeneration unit project (2020), the Diamond Green Diesel train 2 project (late 2021), and the Port Arthur Coker project (2022). The Houston alkylation project is expected to upgrade low-value isobutane to high-value alkylate. Valero’s Port Arthur Coker project will boost the processing of heavy sour crude in its refinery.

Overall, it seems that the company is ready to deliver targeted incremental EBITDA in the years to come. With its robust project pipeline, it’s also set to utilize its downstream value chain to create optimum synergies. The company’s acquisition activities are also improving its capabilities and market reach.