Introduction
Valero Energy Corporation is a marketer and producer of fuels, which include different products of petrochemical origin and power. The corporation is a significant figure in the international oil and power market. Recently, Valero Energy announced that its partners, Valero Energy Partners LP, approved the acquisition of Louisiana and Houston Subsidiaries.
General overview of Valero Energy
Valero Energy Corporation occupies an important place in the international oil and gas market. The company was founded in 1980 in San Antonio, Texas. Since that time, it has developed and broadened the number of refineries and territories. Currently, sixteen refineries are operating in the United States of America, Canada, the United Kingdom, and the Caribbean. The average daily throughput capacity is about three million barrels a day. Eleven ethanol plants also belong to Valero Energy. The corporation specializes in producing a wide range of products: diesel fuel, gasoline, conventional gasoline, low-sulfur diesel fuel, premium gasoline, jet fuel, and lubricants.
Newspaper article summarizing and defining basic issue
The article under consideration entitled “Valero Energy Partners to Buy Houston, Louisiana Subsidiaries for $671 Million” was published in 2015, on February 27 in the online version of the newspaper The Wall Street Journal. The author of the article is Angela Chen. The author provides readers with general information concerning the transaction. A limited partnership of Valero Energy Corporation is to buy terminals of refined petroleum in Louisiana and Houston. The assets of Louisiana have ten million barrels of storage capacity. Three and a half million barrels belong to Houston. Both Houston LLC and Louisiana LLC control crude oil-producing, terminals with refined petroleum products, and intermediates. The financing of the transaction is conducted in different ways, namely: $211 million of cash, a five-year loan agreement for $160 million, $200 million of revolving credit, and $100 million in stock (Chen 1).
The economic principle applied to the event
The transaction is considered to be a successful one and it is necessary to point out that such economic principle as opportunity cost applies to the issue. Opportunity cost is something one must give or lose to achieve another value or profit. It is one of the basic principles of the economy, which implies that a producer or manufacturer has to make a trade-off between two possible solutions. Opportunity cost is obligatory when the choice takes place. It is also tightly connected with the notion of comparative advantage. Economists use this term when they describe opportunity cost. The comparative advantage of the opportunity cost is a force that drives specialization (Mankiw 54).
The transaction of buying Houston and Louisiana subsidiaries by Valero Energy Partners may be looked at from this perspective. There are two variants. The first one is that Valero Energy Corporation does not sell subsidiaries and keeps obtaining Louisiana and Houston terminals’ capacity storage. The capacity storage of each of them has been already described, and one can imagine the profit the corporation can gain. The other variant is to sell the following subsidiaries and get $671 million. One of two possibilities is to be chosen. The value of one transaction compares to the value of the other one. Then the company makes the final decision.
Personal opinion and conclusion
In my opinion, Valero Energy Corporation’s choice may lead to greater prosperity of the company. The broadening of partnership opportunities and capacities should be regarded as a successful way of implementing new goals and market penetration. If the company will move in the same direction and with the same intentions, it will become a flourishing international business.
Works Cited
Chen, Angela. “Valero Energy Partners to Buy Houston, Louisiana Subsidiaries for $671.
Million.” The Wall Street Journal, 2015. Web.
Mankiw, Nicholas. Principles of Economics. Boston: Cengage Learning, 2014. Print.