Valero Trims Capital Spending to $2.9 Billion for 2014, $2.8 Billion for 2015

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Researched by Industrial Info Resources (Sugar Land, Texas)--Valero Energy Corporation (NYSE:VLO) (San Antonio, Texas) has trimmed its capital expenditure (capex) guidance for 2014 to $2.9 billion from $3 billion. Roughly one-fourth of that amount is being spent on logistics and improved crude oil-processing capability, according to company executives. The refining company expects capex for 2015 to be as much as $2.8 billion, depending on whether Valero decides to go forward with a methanol project.

Industrial Info is tracking 127 Valero projects worth $3.94 billion. This includes 73 projects, with a combined investment value of $1.3 billion, in the construction phases. Forty-one projects, valued at $2.3 billion, are in the planning phases, and 11 projects, valued at $244 million, are in engineering.

Speaking during the company's third-quarter earnings conference call, John Locke, Valero's executive director for investor relations, said the 2014 capex guidance includes $1.4 billion for "stay-in-business" capital and $1.5 billion for growth investments. More than 50% of the planned growth investments will be used to strengthen and expand the company's logistics system, as well as for improvements in the refiner's ability to process advantaged crudes, Locke told investment analysts. Valero has been working on its ability to move and process crude from U.S. shale resources.

Locke noted some of the company's third-quarter logistics highlights, such as securing the shipping rights and the option to purchase a 50% interest in Plains All American's Diamond Pipeline.

"When completed in late 2016, that 440-mile pipeline will connect our Memphis refinery to the crude oil hub at Cushing, Oklahoma," he said.

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He also pointed out the commissioning of a crude-by-rail unloading facility during the third quarter at Valero's Port Arthur refinery, as part of the company's program to improve the logistics network and take advantage of lower-cost shale crude.

"With its start-up in September, this is the third crude-by-rail facility we've completed in the past 13 months, with the other two completed facilities located at our St. Charles [Norco, Louisiana] and Quebec City [Quebec, Canada]," Locke said.

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Valero has also completed an investment for its Quebec City refinery to receive shale-advantaged crude via Enbridge Incorporated's (NYSE:ENB) (Calgary, Alberta) Line 9B pipeline reversal project, Locke said.

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"We also expect to complete hydrocracker revamp at our Meraux refinery later this quarter," Locke told investment analysts. The $75 million expansion in Louisiana will increase the facility's high-pressure VGO hydrocracker capacity to 55,000 barrels per day (BBL/d) from 35,000 BBL/d.

Burns & McDonnell (Kansas City, Missouri) is serving as the engineering, procurement and construction (EPC) contractor for the project, which is set for completion in late 2016.

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Also, development of two crude topping units at Valero's Corpus Christi Texas and Houston refineries are progressing as planned, Locke said. The toppers will help the refineries run crude from the Eagle Ford Shale.

The $400 million Houston refinery topper addition is part of a 95,000-BBL/d expansion at the 90,000-BBL/d facility, which is set for completion in first-quarter 2016. Completion of the $350 million topper crude project at the Corpus Christi facility is set for first-quarter 2016, and includes a 70,000-BBL/d crude unit. Burns & McDonnell is serving as the engineering and procurement contractor for both projects.

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For 2015, Valero expects capex to include $1.8 billion for "stay-in-business" expenditures, and $1.3 billion for growth investments, Locke said.

"The majority of growth investments are allocated to logistics and increasing our capability to process advantaged crudes," he said.

The 2015 capex may drop by $150 million if Valero chooses not to go ahead with a methanol project, according to executives.

"We're in the Phase II development of the project, and we'll have another review and sort of decide 'go or no go' somewhere in the second quarter of 2015," said Lane Riggs, senior vice president for refining operations.

The potential $700 million methanol addition at the company's Saint Charles Refinery at Norco, Louisiana, includes a 1.6 million-ton-per-year methanol plant. The project could kick off in fourth-quarter 2015, with completion in fourth-quarter 2016. Foster Wheeler AG (NASDAQ:FWLT) (Baar, Switzerland) has been working on the detailed design of the project, which could kick off in fourth-quarter 2015, with completion in fourth-quarter 2016.

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Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, three offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.