Valero Gets Cut Out of Dow Deal

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Forget the announcement you might have seen a month or so ago that San Antonio-based Valero (NYSE: VLO) would acquire a 45% interest in a refinery in Vlissingen, Netherlands. The other 55% is owned by France's Total (NYSE: TOT).

Instead, Total has opted to exercise its pre-emptive rights to scuttle the Valero deal, and instead sell the 45% share, which is currently owned by Dow Chemical (NYSE: DOW), to Russia's big oil company, Lukoil. But I suppose all is not lost for the world of U.S. energy: Lukoil is 20% owned by ConocoPhillips (NYSE: COP). The transaction involving the refinery, which has a throughput capacity of 153,000 barrels per day and uses primarily Russian oil, will apparently add about $725 million to Dow's coffers.

For its part, Dow is attempting to unload a number of assets to pay off a $9.2 billion bridge loan. The loan was taken down earlier this year when Dow acquired Rohm and Haas for about $16 billion.

While Valero has had its eye on expansion in Europe, the new deal will serve two other purposes: Total is desirous of cozying up to Russian energy companies, while the big Russian energy companies have been seeking opportunities to expand overseas. So, while Valero had announced an agreement to buy Dow's stake in Vlissingen, the U.S. refiner was ultimately squeezed by Total, which acquired and simultaneously sold Dow's portion of the unit to the Russian company.

But the Netherlands refinery deal is clearly only a part of an intensifying globalization movement. Indeed, it appears that PetroChina (NYSE: PTR) is in talks of one sort or another with several members of Big Oil, including Royal Dutch Shell and Chevron (NYSE: CVX), along with some government-owned oil companies. At the same time, there are reports that China National Chemical Corp. has retained JPMorgan Chase (NYSE: JPM) to help it evaluate a possible bid for Dow Chemical's profitable agrosciences unit, which generated $4.5 billion in 2008 revenues.

Of the companies mentioned above, my inclination is to look hard for investment purposes at Dow Chemical and Total. Dow has undertaken the cleanup of its balance sheet with impressive speed, and is involved in major projects around the world, including Saudi Arabia and China. Beyond that, each quarter I'm impressed by the variety of Total's accomplishments and its ability to communicate them effectively to the investing public.

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