It's official: VeraSun now Valero Renewable Fuels

The Sioux Falls-based ethanol company that made a bright, but brief, splash in northwest Iowa was officially purchased by San Antonio refiner Valero Energy.

VeraSun, the country's second largest ethanol producer, filed for Chapter 11 bankruptcy protection in October and on Wednesday, a Delaware bankruptcy court approved the sale of an Indiana development site and five VeraSun ethanol plants, including the Hartley location.

Valero will also buy VeraSun plants in Albion, Neb. and Albert City to round out a $477 million acquisition, the largest biofuel buyout in terms of production capacity.

Valero won an auction for the assets in March. Also involved in the bidding was agribusiness giant Archer Daniels Midland Co.

"We specifically bought the plants that we did because we felt they were the best of what was available," said Bill Day, a spokesman for Valero. "First of all, VeraSun, we felt, had the best ethanol plants and the seven that we purchased from VeraSun were the best that they had in their system. We specifically chose those plants."

Valero is grouping the plants under a subsidiary, Valero Renewable Fuels. The company will operate plants in: Aurora, S.D.; Charles City, Fort Dodge, and Hartley as well as Welcome, Minn. and a development site in Reynolds, Ind.

The company plans to run the plants at capacity, according to Day -- any plants that were shut down will be restarted. Others operating at a lower production rate will be brought back up to intended levels.

The ethanol plant in Hartley employs 57 workers and operates 24 hours a day, seven days a week. The production capacity, at 110 million gallons of ethanol per year, will remain the same. The company's Hartley facility relies on 350,000 tons of distillers grains to meet those production levels.

"We look forward to building a good, working business relationship with the suppliers in the areas of those plants," Day said.

Valero plans on retaining about 435 former VeraSun employees company-wide, according to Day.

"We plan to operate the plants with the existing workforce and staff up in the areas where the plants were either shut down or had let people go," he said. "Because we plan to run those plants, we're going to be bringing people aboard, so the only changes in staff would be additions, I would imagine."

Employees at some of the VeraSun locations have already swapped in the Valero logo to reflect the new ownership.

"Other than that, we expect it to be business as usual at the plants," Day said. "There probably won't be a lot of other outside notice that things are changing because we plan to operate the plants and carry forward."

The seven plants have an annual production capacity of 780 million gallons per year.

"We look forward to working with the suppliers in the area and since this is a new market for Valero, it's a part of the country that we're not operating in previously, we look forward to introducing people in the area to Valero and letting them know about the company and some of the things we do," Day said.

VeraSun Energy was founded in 2001 and went public in June 2006 amid perfect market conditions. Corn was cheap, gas cost a bundle and refiners were clamoring for more ethanol to use as a cleaner-burning alternative to the additive MTBE.

The company acquired options to buy three potential northwest Iowa sites, each larger than 300 acres, near Hartley and Everly in the spring of 2006. VeraSun ultimately selected a site near Hartley for a plant capable of processing 39 million bushels of corn per year.

But skyrocketing corn costs began cutting into profits, and many tried to use hedging to control expenses. After VeraSun locked into prices for its feedstock for the third quarter of 2008, corn went into a sharp decline from almost $8 per bushel to a low of less than $5 per bushel in mid-August.

With tighter national renewable fuel standards on the way, industry analysts believed it was just a matter if time before traditional refiners like Valero stepped into ethanol production.

The nation's renewable fuel standard ensures demand for ethanol by calling for 11.1 billion gallons of renewable fuel to be blended into gasoline this year, with that number climbing to 36 billion gallons by 2022.

The current financial state of the ethanol industry allowed Valero to pick up VeraSun's assets on the cheap.

"These are high-quality, relatively new assets in good locations for buying feedstocks," Bill Klesse, Valero's chairman and chief executive, said in a statement. "We expect increases in the Renewable Fuels Standard to continue."

Secured lenders submitted successful credit bids for the remaining VeraSun facilities.

A group of lenders led by AgStar Financial Services submitted a credit bid of $324 million for VeraSun plants that were part of its buyout of US BioEnergy Corp. They include biorefineries in Central City, Neb.; Ord, Neb.; Dyersville, Iowa; Hankinson, N.D.; Janesville, Minn.; and Woodbury, Mich.

Dougherty Funding LLC submitted a credit bid of $93 million for a plant in Marion, S.D., and a group of lenders led by West LB AG successfully bid $99 million for plants in Bloomingburg, Ohio and Linden, Ind., obtained in its purchase of Dallas-based ASAlliances Biofuels.

AP Energy Writer Dirk Lammers supplied background information, which was included in this coverage.