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Valero Takes A Stake In The ‘Diamond Pipeline’

News Article by Tex-Star Production


cushing-pipeline-jpg-750xx1200-677-73-60San Antonio-based refining company Valero Energy Corp. (NYSE: VLO) has acquired a 50 percent interest in a pipeline that runs from strategic storage terminals in Oklahoma to Memphis, Tennessee.

Last year, Plains All American Pipeline (NYSE: PAA) announced plans to build the 440-mile “Diamond Pipeline” from Cushing, Oklahoma to Memphis.

Cushing is a strategic delivery point and storage terminal for crude oil extracted from Oklahoma, Colorado, the Permian Basin of West Texas, the Bakken Shale in North Dakota and other areas of the Midwest.

According to plans from Plains All American subsidiary Diamond Pipeline LLC, the 20-inch and $900 million pipeline is capable of transporting up to 200,000 barrels per day of domestically produced light sweet crude oil.

Diamond Pipeline LLC officials reported that engineering plans have been finalized while all the required permits and right-of-way acquisitions were completed in late 2015. Construction is expected to be complete in early 2017.

In a presentation filed with the U.S. Securities & Exchange Commission, Valero Energy Corp. confirmed that it exercised an option in December to acquire 50 percent interest of the Diamond Pipeline.

Valero officials declined to comment but reported in their SEC filing that the company has already paid $140 million in December and has budgeted another $280 million for the project in 2016.

The San Antonio-based refining company expects to receive cash proceeds if 50 percent ownership interest is dropped down to its logistics arm Valero Energy Partners (NYSE: VLP) and it gets a 12 percent pre-tax internal rate of return.

Light sweet crude is a key ingredient for Valero’s Memphis Refinery, which is located off McKeller Lake where it has barge access to the Mississippi River.

Valero invested more than $245 million in the refinery since 2005 making it one of five refineries that process nothing but North American crude oil.

With a total throughput capacity of 195,000 barrels per day, the Memphis refinery produces regular and premium gasoline, diesel, jet fuel and petrochemicals.

Valero’s Memphis Refinery currently receives crude oil from the Capline Pipeline, which is co-owned by Plains All American, Marathon Oil Corp. and BP.

If all goes as planned, the Diamond Pipeline will allow the flow of the Capline Pipeline to be reversed in order to transport crude oil from the Bakken and Canada to refineries and storage terminals along the Gulf Coast in Louisiana