By OGJ editors
HOUSTON, May 14 -- Valero Energy Corp., San Antonio, Wednesday announced an agreement to acquire Orion Refining Corp.'s 155,000 b/d refinery in Louisiana for $400 million plus $100 million for working capital.
"The refinery will be a great strategic fit for Valero's refining network," said Bill Greehey, Valero's chairman and CEO. "If you just consider the $2 billion investment made in the plant since 1985, we're getting the refinery for only 20¢ on the dollar of replacement value."
The refinery, adjacent to the Mississippi River, is in the St. Charles Parish 15 miles west of New Orleans. About 74% of the refinery's product slate is gasoline, distillate, and other light products.
The refinery has access to the Louisiana Offshore Oil Port where it can receive crude oil via a 24-inch pipeline or over five marine docks along the Mississippi River. Finished products can be shipped over these docks or by pipeline into either the Plantation or Colonial pipeline networks for distribution to the US eastern seaboard.
Banc of America Securities analyst Tyler Dann said Valero was well positioned to buy the refinery.
"This is a complex refinery and would fit nicely with Valero's existing asset base. We estimate a fair purchase price of $300-400 million. This might not be the last refinery that Valero purchases in the next 12 months," Dann said.
Orion Refining Corp. in bankruptcy
Both the Valero and Orion boards had approved the transaction as did the US Federal Trade Commission. Orion filed for bankruptcy Tuesday so the sale requires court approval. The Norco, La.-based Orion petitioned the bankruptcy court for an expedited sale process. If granted, the transaction is expected to close by June 30.
Greehey emphasized that Valero is buying the Orion refinery rather than Orion Refining Corp. Valero's debt-to-capitalization ratio will remain virtually unchanged at less than 42% after the transaction, he said.
Deal financing
The sale will be financed with $250 million in cash and the issuance of $250 million of 3-year mandatory convertible preferred securities. The majority owners are Credit Suisse First Boston LLC, Trust Co. of the West, Jefferies & Company, Inc., and Oaktree Capital Management, LLC.
The purchase agreement also calls for a potential earn-out payment if refining margins reach a specified level during any of the next 7 years. Any such payment cannot exceed $50 million in a given year or $175 million total.
"As a part of Valero's much larger refining system, the refinery's overhead costs will be dramatically decreased, its purchasing leverage will be substantially enhanced and its on-stream reliability can be significantly improved," Greehey said.
Valero has identified more than $55 million in annual cost savings for the Orion refinery from reduced overhead, operational, and reliability improvements and synergies with Valero's Gulf Coast refineries.