Valero gas station
Source: Valero Energy Facebook

Valero Energy’s Prospects in 2021, Rebound in Energy and Gas

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Mar. 24 2021, Updated 3:07 p.m. ET

Valero Energy is the largest global independent petroleum refiner and the largest renewable fuels producer in North America. It's headquartered in San Antonio. Valero Energy was founded in 1980. 

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Valero is one of the top bets on refining with best-in-class assets. Since the cycle is turning up, Valero could be one of the beneficiaries in the energy sector. What is Valero’s exposure in gas stations? Who owns Valero gas stations?

valero refineries
Source: Valero Energy Facebook
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Valero Energy's history and expansion

Valero Energy was founded in 1980 as a corporate successor of Lo-Vaca Gathering Company—a natural gas pipeline subsidiary of Houston-based Coastal Corporation. In 1984, the company commissioned its first full-scale refinery. From 1997–1998, the company merged with its natural gas-related service business with PG&E Corporation and spin-off its refining assets into a new public corporation, Valero Energy Corporation. 

In 2000, Valero Energy purchased Exxon’s Benicia Refinery in Northern California to enter the West Coast refining market. This provided the company with much-needed geographic diversity. The transaction also marked Valero's entry into the retail market because it included nearly 350 gasoline stations.

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However, what really catapulted the company into retailing ranks was its acquisition of San Antonio-based Ultramar Diamond Shamrock in 2001. The deal also included Ultramar’s nearly 5,000 retail gasoline stations operating under names like Diamond Shamrock, Ultramar, and Beacon. Through this acquisition, Valero increased its revenues considerably. 

valero gas stations
Source: Valero Energy Facebook
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The company had another milestone year in 2005. Valero became North America’s largest and most geographically diverse refiner with the acquisition of Premcor Inc. in an $8 billion transaction. In 2011, the company expanded its geographical footprint by purchasing Pembroke Refinery in Wales, which marked its entry into Western Europe. 

Valero spun off its retail business as an independent public company, CST Brands Inc, which became the second-largest publicly traded fuel and convenience merchandise retailer in North America.  

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Currently, the company has 15 refineries in the U.S., Canada, and the U.K. with a throughput capacity of 3.2 million barrels per day. This makes it the largest global independent refiner. It's also the largest renewable fuels producer in the U.S. with Diamond Green Diesel producing 275 million gallons of renewable diesel annually. Valero supplies nearly 7,000 independently owned fuel outlets in the U.S., Canada, the U.K., Ireland, and Mexico.

Who owns Valero gas stations?

Valero spun-off its retail business in 2013 under the CST brands to focus on refining. Previously, Valero used to operate fuel stations and convenience stores through this business. In August 2016, Alimentation Couche-Tard, the parent company of Circle K, agreed to buy CST in an all-cash deal worth $4.4 billion. 

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vlo stock price performance
Source: Koyfin

Valero Energy in 2021

Valero’s fourth-quarter and 2020 results, which were released at the end of February, were quite disappointing as expected. The company's revenues declined by 40 percent YoY in 2020. Its net losses for the year were $1.1.1 billion, which resulted in an EPS of -$3.5. This was lower compared to an EPS of $5.84 in 2019. Due to the coronavirus pandemic and the resulting lockdowns, the operating weakness was expected. All of the refiners had a difficult year as the demand dropped amid steady supply. 

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One of the important metrics for refiners is the crack spread, which is the margin of the refiner due to the difference in the price of distillates and feedstock. This spread was trending lower for most of 2020. Over the last few months and particularly during 2021, the spread has been widening. The demand outlook is even brighter with COVID-19 vaccine rollouts and more people traveling. These positive developments have also led to rising stock prices for refiners, including Valero Energy.

So far in 2021, Valero stock has risen by nearly 38 percent. Since early November, the stock has more than doubled. VLO stock has already hit the pre-pandemic levels. This is due to the anticipation of higher margins as capacity utilization rises with rising demand. The market has already priced in a large part of the positive outlook in the stock.

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