Valero Narrows Field

By Bart Mills, The Lima News, Ohio

Mar. 20–LIMA — Sale to another refiner is the most likely option for Lima’s Valero refinery. And the company’s CEO said the list of potential buyers was narrowing.

Valero Energy Corp. Chief Executive Officer Bill Klesse told Dow Jones Newswire Saturday the company has narrowed the potential bidders for the refinery from 30 to about 10. Those bidders now include “mostly refiners or people knowledgeable about refining,” and no straight financial players, he said.

On Feb. 1, Valero’s executives announced that Deutsche Bank was hired to help explore “strategic alternatives” for the Lima Refinery. Those alternatives could include sale, alliances or joint ventures with other oil producers.

Company officials did not return a call Monday. But in his Dow Jones interview, Klesse said a sale is the most likely step.

Klesse did not name the companies topping the list. There had been speculation in the industry that Canadian crude oil companies would be among the most likely buyers of the Lima Refinery. Companies including Husky, Western Oil Sands, Suncor and EnCana could emerge as potential suitors to buy the Valero refinery outright or partner up with Wall Street money managers to do so, said Tom Kloza, news publisher at New Jersey-based Oil Price Information Service. Valero officials said a joint venture with EnCana that didn’t happen in 2005 could happen with someone else. That was touted as one of the reasons Lima would be for sale.

But Klesse pointed out that the Lima Refinery would require significant upgrades to run the heavier grades of oil available from Canada. That could require heavy investments beyond the potential sale price of $1 billion or more.

Even with the cost, there will be a buyer, Kloza said.

“My hunch is, they’re going to get a deal done and it is going to be an impressive number and it will make sense for both the buyer and the seller,” Kloza said. “I think there will be some healthy bidding on it.”

Industry experts say there is a good environment in 2007 for many refinery deals across the country. Sellers realize they can get many more times the money they could have gotten five years ago for the same refineries. Buyers have the sense they can gobble up assets ignored by the major producers.

Valero was part of the land grab of 2001 to 2006. It paid $8 billion to get Premcor’s refineries in 2005, including Lima. That put the Texas-based company at 18 refineries.

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