EUR 850.00 For Business Accounts Only

Morningstar | Valero Energy Partners is an MLP operating logistics assets supporting its refining sponsor.

Valero Energy Partners is the smallest of the high-growth refinery master limited partnerships we cover, which holds both advantages and disadvantages. Like its peers, Valero Partners is a high-growth yet immature MLP that is tied entirely to the strengths and weaknesses of its sponsor, Valero Energy. About three fourths of the partnership’s revenue is tied to terminals and related assets. These assets are in general very well located, as they typically deliver hydrocarbons to or from a Valero refinery. Further, Valero has signed decadelong minimum volume commitment contracts, providing security of flows and ensuring these assets do not face competition. There are also challenges for Valero Partners relating to its immaturity as a MLP. Valero has not been as aggressive as peers in terms of drop-downs, despite a $1 billion in EBITDA portfolio of MLP-suitable assets. Valero Partners is about half the size of its two peers. Broadly, this dynamic introduces more capital markets risk, as Valero is not likely to drop down assets unless market conditions allow for a reasonable valuation and availability of debt. In comparison, Phillips 66 Partners and Andeavor Logistics are more than double the size of Valero Partners and still have $700 million-$900 million in EBITDA remaining in their drop-down portfolios. To some extent, the differences can be mitigated. In Andeavor Logistics’ case, the substantial QEP purchase has not worked out. Valero has indicated that it views the market as pricey at this point and prefers organic investments to develop assets for eventual drop-downs and has not provided guidance regarding the timing of future drop-downs. However, the longer it takes for Valero to drop down assets to its child, the longer it will take for Valero Partners to grow organically. If these investments could be made at the partnership level, then implied EBITDA multiples would be much lower than drop-down purchases from Valero, ultimately adding to unitholder value in a more material fashion.