Is This the Next Can’t-Miss MLP IPO?

Page 1 of 2

Valero Energy Corporation (NYSE:VLO) is following in the footsteps of just about every other energy company lately and filing with the SEC to spin off some of its assets into a master limited partnership. MLPs are hot right now, so let’s take a closer look at what the new entity, Valero Energy Partners, will offer investors.

Valero Energy Corporation (NYSE:VLO)

Assets
Valero is the world’s largest independent refiner, and it operates a plethora of logistics assets. The long-term success of an MLP is predicated on growth, however, so Valero Energy Partners is going to start small. Here’s what we get from the filing:

Our initial assets consist of crude oil and refined petroleum products pipeline and terminal systems in the Gulf Coast and Mid-Continent regions of the United States (“U.S.”) that are integral to the operations of Valero’s refinery located in Port Arthur, Texas, its McKee refinery located in Sunray, Texas, and its refinery located in Memphis, Tennessee.

Investors should note that all of Valero Energy Partners agreements with Valero will be fee-based, keeping the MLP free from commodity risk.

Financially, on a pro forma basis the unit generated revenue of $46.4 million, net income of $22.7 million, and EBITDA of $31.3 million through the first six months of this year. As expected, information regarding a minimum distribution and initial share price remains incomplete.

What Else Can Investors Expect?
First and foremost, the recent onslaught of MLPs hitting the market means that it’s taking the SEC perhaps a little longer to shuffle paper than in the past . We’re looking at about three months until this MLP hits the market, and I’d venture as far as to say the first week or two in 2014 is more likely.

The big question on everyone’s mind is whether or not Valero Energy Partners will pop on IPO day like Phillips 66 Partners LP (NYSE:PSXP) did. PSXP posted the third-biggest jump for an MLP on its first day of trading ever, climbing 29 %. It was unusual for MLPs, which don’t typically pop or drop at an IPO. Shares are only up 6% year-to-date, which means investors might want to start treating MLP IPOs like every other IPO and wait until the hoopla dies down before picking up shares.

The other downside to a massive price spike is the subsequent yield drop. Most of the refining logistic MLPs we know and love post relatively low yields. Phillips 66 Partners debuted with about the lowest MLP yield in history, and its unprecedented pop meant it only went down from there.

Here are the current yields for some of the more established refining spinoffs:

MLP Yield
MPLX LP (NYSE:MPLX) 3.10%
Tesoro Logistics 3.50%
Holly Energy Partners, L.P. (NYSE:HEP) 5.78%
Sunoco Logistics Partners L.P. (NYSE:SXL) 3.63%

Source: Google Finance

Page 1 of 2
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

Cheapest Cities to Visit in the US

Most Expensive Summer Camps

Most Expensive Animals in the World

Most Expensive Specialty Crops in the World

Movies That Took Ages to Make

The Longest Hollywood Films Ever Made

Most Expensive Concert Stages

The Richest Bands of all Time

10 Most Corrupt Countries 2013 List

10 Countries with the Highest Quality of Life Index

Most Expensive Mattresses in the World

5 Smallest Countries by Land Area

The Ultimate Heartbreak Songs

Richest Teenagers in the World

10 Most Haunted Places in America

10 Best Places to Retire in Florida East Coast

Top 10 Places to See Before You Die

Top 8 Countries in the World Where Justice Prevails

10 Richest States in America

15 Wealthiest Countries in the World

Richest Singers in the World

Most Expensive Tasting Menu in New York City

Most Expensive Baby Items in the World

Most Expensive Hotel Suites in Vegas

Most Expensive Brunch in New York City

Most Expensive Beef Cuts in the World

25 Best Colleges to Get a Job

Top 10 US Supermarkets

The 25 Most Dangerous Cities in the World to Visit

Most Expensive Xbox Games

Top 11 Cities Where Billionaires Live

Top 10 Most Charitable Companies in America

Most Expensive Seafood in the World

The 10 Wildest Conspiracy Theories

The 10 Best Job Markets in the US

Top 10 Accounting Scandals of All Time

The 25 Biggest Cities in the World

Top 10 Best Paying Virtual Jobs

Most Expensive Leather Shoes in the World

Top 6 Things to Buy in March

The 10 Most Stressful Jobs in America – 2014 List

Top 10 Jobs for Introverted People

Top 10 Honeymoon Destinations in the World

Top 10 Highest Paying Jobs in the World

Most Expensive Day-Care in New York City

The 10 Cheapest Places to Retire Abroad

Top 10 Most Expensive Luxury Cars in the World – 2014

Killer Small Business Ideas

The 50 Best Personal Finance Blogs

Most Expensive Apartments in New York City

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!