By OGJ editors
HOUSTON, Feb. 5 -- Valero Energy Corp., San Antonio, has agreed to buy the 315,000 b/d Aruba refinery and related operations from El Paso Corp., Houston, for $465 million.
Valero said it is paying $365 million for the refinery and $100 million for related marine, bunkering, and marketing operations. In addition, Valero is paying $250 million in working capital. The boards of both companies have approved the transaction.
Bank of America Securities analyst Tyler Dann said the transaction terms "appear reasonable and slightly less than we would have expected before the announcement of this transaction."
Valero has expanded its refining holdings in recent years. Bill Greehey, Valero chairman and CEO, said the Aruba refinery has a replacement value of $2.4 billion, noting that more than $640 million has been invested in the last 5 years to improve safety and profitability.
"What's more, this refinery is a great fit for Valero because it processes heavy, sour crude oil, which typically sells at a big discount to sweet crude oil, and it produces a high yield of valuable intermediate feedstocks," Greehey said.
The acquisition is expected to "be highly accretive to our earnings in 2004," he said, adding that the transaction will be funded with cash and equity so Valero's existing debt-to-capitalization ratio of 40.3% will remain unchanged.
Greehey said the Aruban government has agreed to give Valero an existing income tax holiday on all earnings, except retail, through 2011. Greehey said Valero would work with the government to extend the agreement.
The deal is expected to close by Feb. 29. As part of the closing, El Paso will retire a $370 million lease financing associated with the refinery. The estimated $265 million of remaining net cash proceeds will be used for debt reduction.
"The sale of the Aruba refinery is another major step in the execution of our long-range plan," said Doug Foshee, El Paso president and CEO. "With the net proceeds from this transaction, we will have announced or sold approximately $636 million of petroleum assets since Dec. 31, 2003, exceeding the $500 million to $600 million target established in our plan."
This sale supports El Paso's recently announced long-range plan to reduce the company's total debt, net of cash, to approximately $15 billion by Dec. 31, 2005. So far, the company has announced or closed $2.5 billion of the $3.3-3.9 billion of targeted sales.
This is not the first time that El Paso has divested refining holding to Valero. Last year, Valero bought El Paso's Corpus Christi refinery and South Texas refined petroleum product pipeline system and terminal assets for $289 million. Valero's purchase option was part of a June 2001 lease agreement (OGJ Online, Mar. 4, 2003). El Paso acquired these assets through its merger with Coastal Corp. in 2001.
