Valero Reports Fourth Quarter, Annual Results

Valero Energy Corporation has reported a fourth quarter loss from continuing operations of $182 million, or $0.32 per share, excluding special items, of $155 million, or $0.28 per share.

This compared to a fourth quarter 2008 loss from continuing operations of $3.2 billion, or $6.22 per share, excluding special items, of $795 million, or $1.53 per share.

For the year ended Dec. 31, 2009, the company reported a loss from continuing operations, excluding special items, of $55 million, or $0.10 per share. This compares to full-year 2008 income from continuing operations, excluding special items, of $2.8 billion, or $5.35 per share. The company reported on a GAAP basis a loss from continuing operations of $352 million, or $0.65 per share, for the full-year 2009, compared to a loss from continuing operations of $1.0 billion, or $1.93 per share, for the full-year 2008. For all periods shown, discontinued operations relate to the Delaware City, Delaware refinery, which the company shut down in the fourth quarter of 2009.

The fourth quarter 2009 operating loss, excluding special items, was $179 million, compared to fourth quarter 2008 operating income, excluding special items, of $1.3 billion. The decline in operating income, excluding special items, was primarily due to a significant decline in discounts on sour crude oil and other feedstocks coupled with lower margins on diesel and jet fuel. Also contributing to the decrease in operating income was the unfavorable effect from a year-end 2009 LIFO decrement of $66 million before taxes, versus the favorable effect of a year-end 2008 LIFO increment of $327 million before taxes. On a GAAP basis, the fourth quarter 2009 operating loss was $221 million, compared to a fourth quarter 2008 operating loss of $2.8 billion.

Regarding cash flows in the fourth quarter of 2009, the company’s capital spending was $600 million, of which $114 million was for turnaround and catalyst expenditures. The company paid $85 million in dividends on its common stock in the fourth quarter of 2009 and ended the year with $825 million in cash and temporary cash investments.

“Weak demand, narrow margins, and low discounts in the fourth quarter exemplified how difficult refining conditions were in 2009,” said Bill Klesse, Valero’s chairman of the board and CEO. “While 2009 may have been the bottom for refining profitability, there’s too much inventory and spare refining capacity in the industry right now for margins to rebound quickly. Economic growth will help demand recover in 2010, but we also expect new refining capacity to come online in the U.S. and around the world. Therefore, 2010 is expected to be another challenging year for the industry while refiners close marginal capacity and wait for demand growth to work down spare capacity.”

 “However, assuming another year of low margins like in 2009, Valero should be profitable in 2010 because of the strategic actions we have taken to improve our competitive position,” continued Klesse. “In our refining system, we have shut down unprofitable capacity and continue to reduce costs. For example, refinery operating expenses in 2009 excluding depreciation and amortization fell $900 million versus 2008. Approximately $215 million of the savings was due to our aggressive cost-reduction efforts, and most of the remainder was a result of lower energy and natural gas prices.

“We also reduced capital spending plus turnaround and catalyst expenditures to $2.7 billion in 2009, which is down $580 million from 2008. We expect the savings to continue into 2010 with a full year budget planned at $2 billion.

“Looking back on our investment in the ethanol business in 2009, our timing could not have been better. We bought high-quality ethanol plants at a fraction of replacement cost, just before ethanol margins turned higher. With $94 million of operating income in the fourth quarter and a total of $165 million operating income in less than three full quarters of operations, our returns have been excellent. In 2010, we look forward to integrating the two additional plants we recently acquired.

“Consistent with our strategy to upgrade our portfolio, we announced last week that we are in advanced negotiations to sell our assets in Delaware City. In Aruba, we have agreed with the government on a framework for a new tax structure that has the potential to enhance Valero’s strategic alternatives for the refinery. We will continue to review our portfolio and focus our capital spending on our best plants.

“To maintain our financial strength, we have cut our quarterly dividend to five cents per share, and we remain focused on reducing overhead costs,” Klesse said. “For 2010, we have targeted another $100 million of pre-tax cost reductions throughout our system, and we will continue to seek additional ways to improve our competitiveness.”

Valero Energy Corporation owns or operates 15 refineries with a combined throughput capacity of approximately 2.8 million barrels per day. Valero is also an ethanol producer with nine ethanol plants in the Midwest with a combined capacity of 1 billion gallons per year, and is one of the nation’s largest retail operators with about 5,800 retail and branded wholesale outlets in the U.S., Canada and the Caribbean under the Valero, Diamond Shamrock, Shamrock, Ultramar, and Beacon brands. 




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