Valero L.P. Reports Higher Fourth Quarter and Full Year 2006 Earnings and Announces Quarterly Distribution

Valero L.P. (NYSE:VLI) today announced income applicable to limited partners from continuing operations of $33.0 million, or $0.70 per unit, for the fourth quarter of 2006 compared to $25.1 million, or $0.54 per unit, for the fourth quarter of 2005. For the year ended December 31, 2006, income applicable to limited partners from continuing operations was $133.0 million, or $2.84 per unit, compared to $97.0 million or $2.76 per unit. Distributable cash flow available to limited partners from continuing operations for the fourth quarter of 2006 was $45.3 million, or $0.97 per unit, compared to $42.9 million, or $0.92 per unit, for the fourth quarter of 2005. For the year ended December 31, 2006, distributable cash flow available to limited partners from continuing operations was $195.7 million, or $4.18 per unit, compared to $142.6 million, or $4.09 per unit. As of December 31, 2006, the partnership’s debt-to-capitalization ratio was 41.9 percent compared to 38.1 percent as of December 31, 2005. With respect to the quarterly distribution to unitholders payable for the fourth quarter of 2006, Valero L.P. also announced that it has declared a distribution of $0.915 per unit, or $3.66 per unit on an annual basis, which will be paid on February 14, 2007, to holders of record as of February 7, 2007. This distribution represents an increase of $0.06 per unit, or 7 percent, over the distribution for the fourth quarter of 2005. In total, Valero L.P. declared cash distributions for 2006 of $3.60 per unit, up 7 percent from $3.365 per unit in distributions for 2005 and on target with its previously stated goal. Distributable cash flow available to limited partners from continuing operations covers the distribution to the limited partners by 1.06 times for the fourth quarter of 2006 and 1.16 times for the full year of 2006. "We are pleased to end the year with solid fourth quarter results as earnings came in at the top of our guidance range of $0.60 to $0.70 per unit,” said Curt Anastasio, Valero L.P.’s Chief Executive Officer. "We are also pleased with our full year results, as net income applicable to limited partners from continuing operations and distributable cash flow available to limited partners from continuing operations increased by approximately 37 percent each compared to last year. "During 2006, we had several notable achievements that will position Valero L.P. for further growth. We completed around $92 million of expansion projects, started many construction projects as part of our $300 million capital expenditure program and acquired the St. James crude oil terminal in Louisiana for $140 million. We also completed the financial separation of Valero L.P. from Valero Energy with the recent follow-on offering by Valero GP Holdings, LLC this past December, which will free each company to pursue its strategic objectives independently. "We are making significant progress on the expansion projects already started at our terminals in Amsterdam, St. Eustatius, Linden (New York Harbor), Texas City, Portland, Stockton and Savannah. We expect the majority of these projects will start contributing to the partnership’s earnings starting in mid to late 2007. Construction on our Vancouver terminal in Washington is scheduled to start in March. Additionally, at our Baltimore terminal, we have recently constructed a new dock line and completed tank repairs, which has returned to service around 230,000 barrels of storage capacity for one of our customers. "With respect to new expansion projects, I am pleased to announce that we plan to start construction on expanding our St. James crude oil terminal later this quarter. In total, we will spend around $54 million on four additional crude oil tanks with a total storage capacity of approximately 1.45 million barrels. These tanks should be in service by mid-2008. We have also identified an additional $30 million of expansion projects at our Amsterdam terminal on top of the $68 million of projects that are currently underway. These projects will contribute an additional one million barrels of storage to this facility and are expected to be complete in early to mid-2008. Last, we have identified an additional $21 million of expansion projects at our Texas City terminal on top of the $8.5 million of projects that are currently underway, which should add another 430 thousand barrels of storage capacity and will be in service by mid-2008. We continue to identify and evaluate other major expansion projects and look forward to the strong growth opportunities this will provide the partnership. "Looking ahead to the first quarter of 2007, we believe results will be in the range of $0.45 to $0.55 per unit, as we previously disclosed. Despite lower expectations for Valero L.P.’s first quarter of 2007, we believe earnings before interest, taxes, depreciation and amortization ("EBITDA”) will be higher in 2007 compared to 2006 driven primarily by the Burgos pipeline project completed in July 2006, the acquisition of our St. James crude oil terminal in December 2006 and the ramp-up of terminal expansion projects. Additionally, we are targeting a 7 percent increase in our distribution from the $3.60 per unit in distributions declared for 2006,” said Anastasio. A conference call with management is scheduled for 2:30 p.m. ET (1:30 p.m. CT) today to discuss the financial and operational results for the fourth quarter of 2006. Investors interested in listening to the presentation may call 800-622-7620, passcode 5994994. International callers may access the presentation by dialing 706-645-0327, passcode 5994994. The company intends to have a playback available following the presentation, which may be accessed by calling 800-642-1687, passcode 5994994. A live broadcast of the conference call will also be available on the partnership’s website at www.valerolp.com. Valero L.P. is a publicly traded, limited partnership based in San Antonio, with 9,303 miles of pipeline, 87 terminal facilities and four crude oil storage facilities. One of the largest independent terminal and petroleum liquids pipeline operators in the nation, the partnership has operations in the United States, the Netherlands Antilles, Canada, Mexico, the Netherlands and the United Kingdom. The partnership’s combined system has approximately 80 million barrels of storage capacity, and includes crude oil and refined product pipelines, refined product terminals, a petroleum and specialty liquids storage and terminaling business, as well as crude oil storage tank facilities. For more information, visit Valero L.P.'s website at www.valerolp.com. Cautionary Statement Regarding Forward-Looking Statements This press release includes forward-looking statements within the meaning of the Securities Litigation Reform Act of 1995 regarding future events and the future financial performance of Valero L.P. All forward-looking statements are based on the partnership's beliefs as well as assumptions made by and information currently available to the partnership. These statements reflect the partnership's current views with respect to future events and are subject to various risks, uncertainties and assumptions. These risks, uncertainties and assumptions are discussed in Valero L.P.'s 2005 annual report on Form 10-K and subsequent filings with the Securities and Exchange Commission. Valero L.P. Consolidated Financial Information December 31, 2006 and 2005 (unaudited, thousands of dollars, except unit data and per unit data)   Three Months Ended Year Ended December 31, December 31, 2006  2005  2006  2005  Statement of Income Data (Note 1): (Note 2) (Note 2) Revenues: Services revenues $ 162,790  $ 144,043  $ 624,701  $ 407,194  Product sales 127,889  142,188  510,973  252,363  Total revenues 290,679  286,231  1,135,674  659,557    Costs and expenses: Cost of product sales 116,016  128,589  466,276  229,806  Operating expenses 79,877  75,592  312,604  185,351  General and administrative expenses 14,893  9,489  45,216  26,553  Depreciation and amortization 26,244  24,640  100,266  64,895  Total costs and expenses 237,030  238,310  924,362  506,605  Operating income 53,649  47,921  211,312  152,952  Equity earnings from joint ventures 1,368  (21) 5,882  2,319  Interest and other expenses, net (13,797) (16,539) (61,427) (42,883) Income from continuing operations before income tax expense 41,220  31,361  155,767  112,388  Income tax expense 3,864  2,663  5,861  4,713  Income from continuing operations 37,356  28,698  149,906  107,675  Income (loss) from discontinued operations 1  (908) (376) 3,398  Net income applicable to general partner and limited partners' interest 37,357  27,790  149,530  111,073  Net income applicable to general partner (Note 3) (4,360) (3,543) (16,910) (10,758) Net income applicable to limited partners $ 32,997  $ 24,247  $ 132,620  $ 100,315      Income per unit applicable to limited partners (Note 3):   Continuing operations $ 0.70  $ 0.54  $ 2.84  $ 2.76  Discontinued operations -  (0.02) (0.01) 0.10  Net income $ 0.70  $ 0.52  $ 2.83  $ 2.86    Weighted average number of basic and diluted units outstanding 46,809,749  46,809,749  46,809,749  35,023,250    EBITDA from continuing operations (Note 4) $ 84,824  $ 71,298  $ 322,299  $ 218,671    Distributable cash flow from continuing operations (Note 4) $ 50,213  $ 46,862  $ 214,203  $ 153,873    December 31, 2006  2005  Balance Sheet Data: Long-term debt, including current portion (a) $ 1,354,367  $ 1,170,705  Partners' equity (b) 1,875,681  1,900,779  Debt-to-capitalization ratio (a) / ((a)+(b)) 41.9% 38.1% Valero L.P. Consolidated Financial Information - Continued December 31, 2006 and 2005 (unaudited, thousands of dollars, except barrel information)   Three Months Ended Year Ended December 31, December 31, 2006  2005  2006  2005    Operating Data: Refined product terminals (Note 2): Throughput (barrels/day) (a) 265,352  221,798  262,560  245,084  Throughput revenues $ 12,563  $ 9,809  $ 49,252  $ 43,617  Storage lease revenues 64,573  58,941  247,524  115,352  Product sales (bunkering) 123,213  142,188  505,531  252,363  Total revenues 200,349  210,938  802,307  411,332  Cost of product sales 112,367  128,589  462,029  229,806  Operating expenses 48,731  44,935  192,357  94,607  Depreciation and amortization 12,289  9,353  45,485  25,008  Segment operating income $ 26,962  $ 28,061  $ 102,436  $ 61,911    Refined product pipelines: Throughput (barrels/day) 712,252  652,689  711,476  556,654  Throughput revenues $ 59,542  $ 51,244  $ 222,356  $ 149,853  Product sales 4,676  -  5,442  -  Total revenues 64,218  51,244  227,798  149,853  Cost of product sales 3,649  -  4,247  -  Operating expenses 23,804  23,309  93,314  64,671  Depreciation and amortization 10,788  12,245  42,084  27,778  Segment operating income $ 25,977  $ 15,690  $ 88,153  $ 57,404    Crude oil pipelines: Throughput (barrels/day) 408,424  348,260  421,666  358,965  Revenues $ 14,665  $ 11,828  $ 58,654  $ 51,429  Operating expenses 4,279  3,914  16,825  16,378  Depreciation and amortization 1,252  1,155  5,061  4,612  Segment operating income $ 9,134  $ 6,759  $ 36,768  $ 30,439    Crude oil storage tanks: Throughput (barrels/day) 499,483  532,425  502,689  517,409  Revenues $ 11,447  $ 12,221  $ 46,915  $ 46,943  Operating expenses 3,063  3,434  10,108  9,695  Depreciation and amortization 1,915  1,887  7,636  7,497  Segment operating income $ 6,469  $ 6,900  $ 29,171  $ 29,751    Consolidated Information: Revenues $ 290,679  $ 286,231  $ 1,135,674  $ 659,557  Cost of product sales 116,016  128,589  466,276  229,806  Operating expenses 79,877  75,592  312,604  185,351  Depreciation and amortization 26,244  24,640  100,266  64,895  Segment operating income 68,542  57,410  256,528  179,505  General and administrative expenses 14,893  9,489  45,216  26,553  Consolidated operating income $ 53,649  $ 47,921  $ 211,312  $ 152,952      (a) Excludes throughputs related to the storage lease and bunkering revenues. Notes: 1. The statement of income data for the years ended December 31, 2006 and 2005 includes $96.7 million and $55.5 million, respectively, of operating income related to the Kaneb Acquisition on July 1, 2005. Of the $96.7 million and $55.5 million for the years ended December 31, 2006 and 2005, respectively, $64.8 million and $42.3 million is attributed to the refined product terminals segment, respectively, and $31.9 million and $13.2 million is attributed to the refined product pipelines segment, respectively. 2. Certain previously reported amounts in the statement of income data for 2005 have been reclassified to conform to the 2006 presentation. 3. Income is allocated between limited partners and the general partner's interests based on provisions in the partnership agreement. The income applicable to limited partners is divided by the weighted average number of limited partnership units outstanding in computing the income per unit applicable to limited partners. On July 1, 2005, Valero L.P. issued 23,768,355 of common units in exchange for all of the outstanding common units of Kaneb Pipe Line Partners, L.P. During the year ended December 31, 2006 our general partner reimbursed us for certain charges we incurred related to services historically provided under our Services Agreement with Valero Energy Corporation. Generally accepted accounting principles require us to record the charges as expenses and record the reimbursement as partner's capital contribution. Valero L.P. Consolidated Financial Information - Continued December 31, 2006 and 2005 (unaudited, thousands of dollars, except unit data and per unit data)     Notes: (continued)   The following table details the calculation of net income applicable to the general partner (in thousands):   Three Months Ended Year Ended December 31, December 31, 2006  2005  2006  2005      Net income applicable to general partner and limited partners' interest $ 37,357  $ 27,790  $ 149,530  $ 111,073  Charges reimbursed by general partner 223  -  575  -  Net income before charges reimbursed by general partner 37,580  27,790  150,105  111,073  General partner incentive distribution 3,909  3,049  14,778  8,711  Net income before charges reimbursed by general partner and after general partner incentive distribution 33,671  24,741  135,327  102,362  General partner interest 2% 2% 2% 2%     General partner allocation of net income before charges reimbursed by general partner and after general partner incentive distribution 674  494  2,707  2,047  Charges reimbursed by general partner (223) -  (575) -  General partner incentive distribution 3,909  3,049  14,778  8,711  Net income applicable to general partner $ 4,360  $ 3,543  $ 16,910  $ 10,758  4. Valero L.P. utilizes two financial measures, EBITDA from continuing operations and distributable cash flow from continuing operations, which are not defined in United States generally accepted accounting principles. Management uses these financial measures because they are widely accepted financial indicators used by investors to compare partnership performance. In addition, management believes that these measures provide investors an enhanced perspective of the operating performance of the partnership's assets and the cash that the business is generating. Neither EBITDA from continuing operations nor distributable cash flow from continuing operations are intended to represent cash flows for the period, nor are they presented as an alternative to income from continuing operations. They should not be considered in isolation or as substitutes for a measure of performance prepared in accordance with United States generally accepted accounting principles. Distributable cash flow from continuing operations per limited partner unit for the year and three months ended December 31, 2005 differs from previously reported amounts. The difference results from a change in methodology for calculating the amount of distributable cash flow applicable to the general partner, which Valero L.P. adopted in the fourth quarter of 2006. Under the new methodology, the amount of distributable cash flow applicable to the general partner equals the amount they will actually receive based upon the current distribution. The following is a reconciliation of income from continuing operations to EBITDA from continuing operations and distributable cash flow from continuing operations (in thousands): Three Months Ended Year Ended December 31, December 31, 2006  2005  2006  2005    Income from continuing operations $ 37,356  $ 28,698  $ 149,906  $ 107,675  Plus interest expense, net 17,360  15,297  66,266  41,388  Plus income tax expense (benefit) 3,864  2,663  5,861  4,713  Plus depreciation and amortization 26,244  24,640  100,266  64,895  EBITDA from continuing operations 84,824  71,298  322,299  218,671  Less equity earnings from joint ventures (1,368) 21  (5,882) (2,319) Less interest expense, net (17,360) (15,297) (66,266) (41,388) Less reliability capital expenditures (12,986) (11,338) (35,803) (23,707) Less income tax expense (3,864) (2,663) (5,861) (4,713) Plus general partner reimbursable charges 223  -  575  -  Plus distributions from joint ventures 744  2,169  5,141  4,657  Plus other non-cash items -  2,672  -  2,672  Distributable cash flow from continuing operations 50,213  46,862  214,203  153,873    General partner's interest in distributable cash flow from continuing operations (4,864) (3,928) (18,520) (11,300) Limited partners' interest in distributable cash flow from continuing operations $ 45,349  $ 42,934  $ 195,683  $ 142,573    Weighted average number of basic and diluted units outstanding 46,809,749  46,809,749  46,809,749  35,023,250    Distributable cash flow from continuing operations per limited partner unit $ 0.969  $ 0.917  $ 4.181  $ 4.094