Valero and El Paso Team Up for Cameron Highway Project
Valero Energy Corporation has executed a Letter of Intent with El Paso Energy Partners to become a 50 percent partner in the Cameron Highway Oil Pipeline Project. When completed, Cameron Highway will be a 390-mile pipeline that will deliver up to 500,000 barrels per day of crude oil from major deepwater Gulf of Mexico fields directly to the major refining facilities and pipeline interconnections in Port Arthur and Texas City, Texas. The pipeline will be one of the largest crude oil delivery systems in the Gulf of Mexico. The project would provide Valero Energy Corp. (Valero) with reliable and continuous access to deepwater Gulf of Mexico crude oils and reduce its dependence on more expensive longer-haul crudes. EPN will build and operate the pipeline, which is expected to be in service during the third quarter of 2004.
EPN and Valero plan to fund the project through permanent project debt financing, which would provide a significant portion of Cameron Highway's capital requirements on a non-recourse basis, meaning the Cameron Highway partnership will be solely responsible for the capital investment. Valero's equity investment over the next three years is estimated to be in the range of $125 million with most of the investment being made in late 2003 and in 2004. Completion of the transaction is subject to customary conditions to closing, and the negotiation, approval and execution of definitive agreements, which are expected to be completed by the end of 2002.
"This is a great opportunity for Valero to secure a stable source of high quality crude oils at a savings as compared to foreign sourced alternatives while enhancing our feedstock flexibility," said Bill Greehey, Valero's Chairman of the Board and Chief Executive Officer. "One of the key benefits of our participation in this venture is in securing a pipeline termination point at the Texas City refinery. This will significantly lower our overall feedstock costs by reducing our working capital requirements, tankage requirements and shipping costs at that facility. We see this as another major step in raising the Texas City refinery to flagship status.
"What's more, this pipeline will not only benefit our Texas City refinery, it will also enable us to deliver the crude to our Houston, McKee and Ardmore refineries through other pipeline interconnections, enhancing the feedstock flexibility of these refineries as well. In addition to these operational benefits, our equity participation in the Cameron Highway Oil Pipeline Project is expected to yield a steady flow of income to the company."