Vertex Energy, Inc. (VTNR:NASDAQ) announced earlier this week that "it has entered into a definitive agreement to acquire the Mobile refinery located in Mobile, Alabama, from Equilon Enterprises LLC d/b/a Shell Oil Products US, Shell Oil Company and Shell Chemical LP, subsidiaries of Royal Dutch Shell Plc. (RDS/A:NYSE), for $75 million."
Vertex Energy stated that the transaction remains subject to regulatory and ordinary closing conditions but is expected to be completed in Q4/21.
This morning, according to a report from MT Newswires, H.C. Wainwright analyst Amit Dayal issued a research note stating that the firm is maintaining its Buy rating for the company, but reported that it is raising its price target on Vertex Energy to $25.00 per share, up from $4.00, after the company made the Mobile refinery acquisition announcement two days ago.
The company advised that when the purchase is completed it will become the sole owner and operator of the Mobile refinery and the facility's marine terminal. Vertex stated that upon closing, the Mobile refinery complex will become its flagship refining asset, which will, it believes, position it to become "a pure-play producer of renewable and conventional products."
The firm estimates that after the completion of an already planned $85 million conversion of the Mobile refinery's hydrocracking unit scheduled for completion by the end of 2022, starting in 2023 its renewable diesel fuel project and refinery will have the potential to generate at least $3 billion in annual sales and $400 million of gross profit.
The company noted that "by year-end 2022, the Mobile refinery is expected to produce approximately 10,000 barrels per day (bpd) of renewable diesel fuel and renewable byproducts" and added that by mid-year 2023, it expects that number to increase to 14,000 bpd.
Vertex Energy's President and CEO Benjamin P. Cowart commented, "The acquisition of the Mobile refinery will be the largest, most significant transaction ever completed by Vertex, one that positions us to become a leading regional supplier of both renewable and conventional products…We will acquire an exceptional refining and logistics asset of scale, one equipped with significant feedstock optionality, together with a high-value, distillate-weighted product slate. As part of this transaction, Vertex will assume ownership of more than 3 million barrels of crude oil and product storage, together with other valuable logistics assets."
The company's E.V.P. of Corporate Development Alvaro Ruiz remarked, "As part of this transaction, we plan to enter into a multi-year crude supply and product offtake agreements with several highly respected counterparties, including Shell, who has been an exceptional partner throughout the sale process…We believe these agreements will position us to reduce our working capital requirements, while mitigating spot market risk on product sales."
The firm noted that the Mobile refinery has the capacity to process 91,000 bpd. It is strategically located and is designed to economically source a flexible mix of both cost-advantaged light-sweet domestic and international feedstocks.
The company explained that renewable diesel is a sustainable replacement for petroleum-based diesel fuel that can be produced in large quantities from organic waste and vegetable oils. The firm commented that once its hydrocracking unit is put into commission "it will be capable of processing a wide range of organic, pre-treated feedstocks, including soybean and corn oil, meat tallow and waste vegetable oils, among others."
Vertex stated that it plans "to enter into a multi-year product off-take agreement with Shell, while continuing to supply Bunker Holding under an existing 10-year agreement, adding that under the agreements, Shell and Bunker One will purchase 100% of the Mobile refinery's conventional fuels production."
In addition, the company relayed that it has intentions to enter into a separate long-term contractual agreement with Idemitsu Kosan's California-based subsidiary to purchase 100% of the Mobile refinery's renewable diesel fuel production.
Vertex, headquartered in Houston, Tex., is a specialty refiner of alternative feedstocks and marketer of high-purity petroleum products. The company has processing capacity of over 115 million gallons annually with operations located in Texas, Louisiana and Ohio, and stated that it is one of the largest processors of used motor oil in the U.S. having established a successful self-collection and aggregation system. The firm indicated that "it also co-owns a facility, Myrtle Grove, located on a 41-acre industrial complex along the Gulf Coast in Belle Chasse, La., with existing hydro-processing and plant infrastructure assets, that include nine million gallons of storage." Vertex stated that it is a key North American supplier of Group II+ and Group III Base Oils for the lubricant manufacturing industry.
Vertex Energy started off the day with a market cap of around $206.5 million with approximately 51.74 million shares outstanding and a short interest of about 2.8%. VTNR shares opened more than 50% higher today at $6.08 (+$2.09, +52.38%) over yesterday's $3.99 closing price and reached a new 52-week high this afternoon of $8.38. The stock has traded today between $5.63 and $8.38 per share and closed at $7.81 (+$3.82, +95.74%).[NLINSERT]
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