Valero Energy Partners’ First Acquisition

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?

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?

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

The assets

• Located in the Eagle Ford

• 11 oil truck unloading sites

• 1 mile pipe: 110,000 bpd

Three Rivers Crude System

Credit: Valero

The assets

• 30-mile pipe: 90,000 bpd

• 180,000 barrels storage

• Connects Ardmore refinery to Magellan products system

Wynnewood Products System

Credit: Valero

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

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.)

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.

Industry context

Let’s compare this deal to Phillips 66 Partners’ first deal to

give the acquisition some context.

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.

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.

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.

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