Valero adds to ethanol portfolio

By Luke Geiver | February 09, 2010
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Already the third largest ethanol producer in the U.S., Valero Renewable Fuels Co. LLC, a subsidiary of oil refining giant Valero Energy Corp., continues to expand its ethanol holdings. In December the company purchased two 110 MMgy facilities from ASA Ethanol Holdings LLC. The plants, located in Linden, Ind., and Bloomingburg, Ohio, were initially acquired by ASA after VeraSun Energy Corp.'s bankruptcy in early 2009. In addition, Valero purchased a 110 MMgy Renew Energy LLC production plant in Jefferson, Wis., following a bankruptcy auction held Dec. 11.

Valero first entered the ethanol production business in 2009 with the purchase of seven other plants from VeraSun's bankruptcy auction. Bill Day, executive director of media relations said on the company's entrance into the industry, "It made sense for our company to get into the business. Since its beginnings in 1980, Valero has grown by buying assets at a fraction of their replacement cost, which is what we were able to do with the ethanol plants." According to Valero, the three plants were acquired for roughly 41 percent of their estimated replacement cost. While still a bargain, the price paid per plant for the three facilities is significantly higher than the amount Valero paid for the seven bankrupt VeraSun plants it purchased earlier. Valero acquired all seven of those facilities, with a total production capacity of 760 MMgy, for $477 million.

The recent plant purchases by Valero are expected to close in early 2010, giving Valero 10 ethanol plants with a combined capacity of 1.1 billion gallons per year. "All of the ethanol plants that we bought earlier this year are running at full capacity and doing very well for us," Day said. "We are very pleased with the reception Valero has received in the communities where we purchased ethanol plants."
Renew CEO Jeff White says Valero has purchased a gem. He notes, "Together, with our cutting edge technology, this plant is one of the most efficient in the nation. Our founding owners deserve a lot of credit for building their dream of the most competitive ethanol plant in the world, but unfortunately, they hit the perfect storm of a crashing credit market, soft ethanol pricing, and a construction overhang resulting from the use of that very technology. They simply didn't have the capital to weather the storm."

Valero's purchase of the Renew plant was challenged in bankruptcy court, but reports indicated the judge ruled in favor of Valero in mid-January. All Fuels & Energy announced Dec. 22 that its subsidiary, All Fuels-Jefferson LLC, filed a motion for the court to reconsider the proposed sale order in the Renew Chapter 11 bankruptcy proceeding. All Fuels-Jefferson LLC was one of four qualified bidders at the Dec. 11 auction of the Renew ethanol plant held in Madison, Wis., which was managed by William Blair & Co. and Bankers' Bank, the lead secured creditor in the bankruptcy proceeding. All Fuels-Jefferson LLC said important information regarding the auction and determination of the winning bid by Blair and Bankers Bank was not brought to the bankruptcy court's attention at the Dec. 14 sale confirmation hearing, including the fact that All Fuels-Jefferson LLC's bid, announced as a bid of $72.1 million, was in fact a bid of $77 million to which a discount was applied by Blair and Bankers Bank.

Valero Renewables will continue to be in the biofuels news as the new ethanol powerhouse also plans to invest in companies working on emerging biofuel technology, according to Day. Recently, Valero financed Georgia-based American Process Inc. through a subsidiary, Diamond Alternative Energy, to help develop a demonstration-scale cellulosic ethanol plant. "The investment with API on the cellulosic demonstration plant in Georgia, is one in a series of investments," Day said. Valero has entered into agreements on the biodiesel side as well.