Valero Energy Partners' First Acquisition


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Valero Energy Partners recently announced its first dropdown acquisition from Valero Energy.

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Valero Energy Partners' First Acquisition

  1. 1. Valero Energy Partners’ First Acquisition
  2. 2. Growth MLPs like Valero Energy Partners will continue to see interest from investors as it gets harder and harder for mature MLPs to move the needle. The partnership recently announced its first acquisition from parent company Valero (NYSE: VLO). Let’s take a closer look. Why Valero Energy Partners?
  3. 3. Like any deal, investors need to know a few things: • Which assets? • How much did the deal cost? • How will the deal be funded? • How long will it take the acquisition to pay for itself? What are we looking for?
  4. 4. The assets • 72,000 bpd throughput • 200 miles of pipe • 20 oil truck unloading sites • 240,000 bbls of storage The McKee Crude System Credit: Valero
  5. 5. The assets • Located in the Eagle Ford • 11 oil truck unloading sites • 1 mile pipe: 110,000 bpd Three Rivers Crude System Credit: Valero
  6. 6. The assets • 30-mile pipe: 90,000 bpd • 180,000 barrels storage • Connects Ardmore refinery to Magellan products system Wynnewood Products System Credit: Valero
  7. 7. Price • Deal closes July 1 • Assets supported by 10-year transportation and terminaling agreements • Minimum throughput agreements account for 90% of expected volume. $154 million
  8. 8. Where’s the money coming from? The deal will be funded by cash on hand (which means it won’t dilute current unitholders, nor will VLP have to issue debt.)
  9. 9. EBITDA multiple The assets are expected to contribute EBITDA of $15.4 million in their first full year of operation. Given the $154 million price tag, this deal has an EBITDA multiple of 10x, meaning it will take 10 years for these assets to pay for themselves.
  10. 10. Industry context Let’s compare this deal to Phillips 66 Partners’ first deal to give the acquisition some context.
  11. 11. Industry context VLP PSXP Assets 272,000 bpd/ 180,000 bbls storage 132,000 bpd/ 4.3 million bbls storage Price $154 million $700 million EBITDA mult. 10x 10x – 10.7x* *PSXP gave a range of expected EBITDA for the first full year of operations for its acquisition.
  12. 12. Industry context A 10x EBITDA multiple seems to be the norm with these dropdowns. Tesoro Logistics paid something similar for one of its dropdowns last year as well. So far, Valero Energy Partners seems to be sticking to close to the MLP-spinoff pack.
  13. 13. Key takeaways Solid first acquisition for VLP: Filling out its asset footprint at a reasonable price What to watch: How much EBITDA does this system actually generate for VLP? Q3, Q4 earnings will be telling.
  14. 14. A few more dividend ideas – Free