Valero priced out of new refinery buys -exec

Looking at bids earlier this year for the 268,000 barrel per day (bpd) Lyondell Chemical Co. (LYO.N: Quote, Profile, Research) refinery in Houston that were about $20,000 per barrel, Valero's Gene Edwards said it was more profitable for Valero to upgrade its existing North American refineries.

Valero can reap returns of 20 percent when it upgrades its existing refineries, but paying $20,000 per barrel for a refinery will only yield profits in the range of 8 percent.

"It's very difficult for a refiner to compete right now with all the financial groups in the market," he said.

Many of Valero's refinery purchases were made for pennies per dollar of a refinery's replacement cost, but by the time Valero bought rival Premcor Inc. in 2005, it was paying nearly $14,000 per barrel of refining capacity.

Share values for independent refiners like Valero are closer to $10,000 per barrel.

"With the replacement value for refineries at $20,000 per barrel and shares trading at $10,000 per barrel, the refiners may be involved in some strategic actions," Terreson said in a speech. "Management buyouts may not be out of the question."

While mergers are possible, most refiners will likely continue share buyback programs to boost stock values, he said.