In the first quarter of 2010, Valero Energy Corp. reported a loss of $101 million from continuing operations (or $0.18 per share) compared to the first quarter of 2009 gain from continuing operations of $364 million ($0.70 per share).
The first quarter 2010 operating loss was $32 million, versus first quarter 2009 operating gain of $593 million. The decline in operating income was mainly due to lower margins for most of the company’s refined products. Additionally, throughput volumes decreased from the first quarter of 2009 to the first quarter of 2010 by 254,000 barrels per day in large part due to the extended shutdown of the Aruba refinery.
“Industry refining margins and sour crude discounts expanded in the first quarter from the low levels experienced in the fourth quarter,” said Valero Chairman and CEO Bill Klesse. “Valero captured some of the margin expansion, but our performance was limited due to heavy maintenance at key refineries, including Port Arthur, Corpus Christi, St. Charles, Quebec and Memphis. As a result of downtime, lost income in the first quarter is estimated at just over $200 million, or approximately $0.24 per share.”
Klesse noted that the second quarter looks much better for Valero, considering those refineries are back online, Memphis is completing a major turnaround, and the refining system is running well. This April, Valero has seen favorable sour crude discounts and very good margins in several of its markets for gasoline, diesel, and other products, such as petrochemical feedstocks and asphalt. Also, West Coast margins are beginning to show improvement.
“At this rate, we expect to be profitable in April as well as the entire second quarter,” Klesse said. “Looking at the rest of the year, we are cautiously optimistic about our business.”
U.S. and global economic indicators continue to trend higher, which should lead to improved demand for Valero’s products, he said. However, refining margins are likely to be constrained due to the ongoing abundance of spare refining capacity in the U.S., Western Europe and Japan.
The company’s other business units reported strong results in the first quarter. Retail had its best first quarter in Valero’s history with $71 million of operating income. Both the U.S. and Canadian retail operations continued to perform well. Ethanol earned $57 million of operating income in the first quarter, which was the company’s second-highest quarter for ethanol since Valero entered the business last year. Also in the first quarter, Valero acquired three ethanol plants at values below replacement cost, and it was able to quickly restart the two plants that had not been operating. All 10 of the company’s ethanol plants are now operating.
Regarding cash flows in the first quarter of 2010, capital spending was $611 million, of which $229 million was for turnaround and catalyst expenditures. The company invested $260 million to acquire three ethanol plants, which includes acquired working capital and is in addition to a $21 million deposit paid in the fourth quarter of 2009. Also in the first quarter, the company received a federal income tax refund of $923 million. The company completed a $1.25 billion debt offering in February, and then paid $294 million to redeem debt. The company paid $28 million in dividends on its common stock in the first quarter of 2010 and ended the quarter with $1.9 billion in cash and temporary cash investments.
“We made progress on our portfolio upgrading effort with the recent agreement to sell the terminal and shutdown refinery assets in Delaware City to PBF Energy Partners for $220 million. This transaction represents incremental cash flow and an appropriate value for those assets,” Klesse said. “We continue to look for options for our Aruba and Paulsboro refineries.”
“For 2010, we remain committed to our goal to achieve $100 million in pre-tax cost savings in addition to the savings generated last year, and we are on pace to beat that goal,” Klesse said. “All our employees are engaged to improve our performance and our efficiency to capture margins. Our capital spending target for 2010 remains at $2 billion, which is down $700 million versus last year. We continue to believe that the strategic actions we have taken should make Valero profitable in 2010, even if we experience a low-margin environment similar to 2009.”