Valero Energy Corp., San Antonio, carrying out its mission to expand its core downstream business, has agreed to acquire Gulf Coast refiner Basis Petroleum Inc. from its parent Salomon Inc., New York.
Houston-based Basis has three refineries in the Gulf Coast region, with combined capacity of 260,000 b/d. The acquisition would more than double Valero's refining cpacity to about 431,500 b/d, bringing it close to No. 3 Ultramar-Diamond Shamrock Corp., San Antonio, which has capacity of 475,000 b/d.
Tosco Corp., Stamford, Conn., with capacity of about 950,000 b/d, is the largest U.S. independent refiner. Sun Refining & Marketing, Philadelphia, is second, with capacity of about 692,000 b/d.
Valero's strategy
Valero now owns a 170,000 b/d refinery and 22,000 b/d methyl butyl tertiary ether (MTBE) plant at Corpus Christi.
It recently sold its natural gas assets to Pacific Gas & Electric Corp. for $1.5 billion in one of the most recent in a flurry of gas company-electric utility mergers (OGJ, Feb. 10, 1997, p. 24).
The Basis acquisition would give Valero refineries at Houston, Texas City, Tex., and Krotz Springs, La., which expands Valero's ability to serve large U.S. markets requiring reformulated gasoline (RFG) in Texas, California, and elsewhere.
"We'll have the opportunity to increase RFG production by taking MTBE from Corpus Christi to the new refineries," said Keith Booke, vice-president of investor relations for Valero.
He said the acquisition provides a number of other synergies as well, including the ability to take residual oil feedstock from the other refineries to Corpus Christi. Valero is known as a low-cost refiner for its ability to convert high-sulfur residual fuel oil into premium, low-emission products, including RFG.
Booke said the acquisition is particularly attractive for Valero because parent firm Salomon late last year invested about $300 million upgrading the Texas City refinery with a residual hydrodesulfurization (HDS) unit and a solvent deasphalter. The units give Valero further flexibility to make less-polluting products, a "must" in a climate where a refiner's ability to survive hinges on the ability to make cleaner products as federal regulators plan further crackdowns on pollution control rules (OGJ, Jan. 6, 1996, p. 18).
The Salomon-Valero deal is expected to close in May and will result in an after-tax loss of about $290 million for the New York investment brokerage firm. Valero expects to see positive cash flow and a boost in earnings in the first year after the acquisition.
Valero will pay $285 million for Basis stock and about $200 million for inventories and other working capital and will finance acquisition of the new downstream assets with a combination of cash, common stock, and participation payments.
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