Source: Valero Energy Corp.
Valero Energy Corporation (NYSE:VLO) reported income from continuing operations of $180 million, or $0.32 per share, for the fourth quarter of 2010, compared to a loss from continuing operations of $131 million, or $0.23 per share, for the fourth quarter of 2009. The fourth-quarter 2010 results included an after-tax gain of $36 million, or $0.06 per share, on the sale of the company’s interest in the Cameron Highway Oil Pipeline Company and an after-tax loss of $80 million, or $0.14 per share, from the mark-to-market impact of positions related to forward sales of refined products.
For the year ended December 31, 2010, the company reported income from continuing operations of $923 million, or $1.62 per share, compared to a full-year 2009 loss from continuing operations of $273 million, or $0.50 per share. The full-year 2009 loss from continuing operations included an after-tax asset impairment loss of $151 million, or $0.28 per share, for project cancellations. For all periods shown in the accompanying tables, discontinued operations relate to the Delaware City, Delaware refinery that was sold in the second quarter of 2010 and the Paulsboro, New Jersey refinery that was sold in the fourth quarter of 2010.
Operating income in the fourth quarter of 2010 was $378 million versus an operating loss of $135 million in the fourth quarter of 2009. The improvement in operating income was mainly due to an increase in refining throughput margins to $7.30 per barrel, a 49 percent increase over the fourth quarter of 2009. The increase in throughput margins was primarily due to higher margins for diesel and gasoline combined with better discounts for heavy-sour feedstocks. The increase in operating income was also due to a 10 percent increase in throughput volumes versus the fourth quarter of 2009, which also improved refinery operating expenses from $3.90 per barrel in the fourth quarter of 2009 to $3.64 per barrel in the fourth quarter of 2010.
“What a difference a year makes,” said Valero Chairman and CEO Bill Klesse. “The global economic recovery is under way with very strong growth in developing countries contributing to a surge in global demand for oil and refined products. Refining margins and crude oil discounts have improved substantially over the past year, and this market momentum has carried into 2011. Combined with additional capacity closures in Europe and elsewhere, global demand growth should continue to support refining margins and encourage exports from competitive refiners like Valero. We are seeing modest growth for fuels in the U.S., but unemployment rates will have to fall before demand really picks up.
“While the market has changed for the better in 2010, so did Valero,” continued Klesse. “We have improved our portfolio through the sale of underperforming and non-core assets, advanced key economic growth projects, built our financial strength, and made significant progress on our cost savings. In fact, we achieved $225 million in pre-tax cost savings during 2010, which was more than double our initial goal of $100 million. These actions position Valero with more earnings power for the future.”
Valero’s retail and ethanol segments reported another good quarter and an impressive year overall. The retail segment earned $61 million in operating income during the fourth quarter of 2010, and $346 million for the full-year 2010, nearly matching the record results in 2008. The ethanol segment also continued to perform well with $70 million in operating income generated during the fourth quarter of 2010, and set a record high with $209 million in operating income for the full-year 2010.
Regarding cash flows in the fourth quarter of 2010, capital spending was $629 million, of which $125 million was for turnaround and catalyst expenditures. Also in the fourth quarter, the company paid $28 million in common stock dividends and received $877 million in proceeds from the sale of the Paulsboro refinery and the company’s interest in the Cameron Highway Oil Pipeline Company. In addition, the company issued $300 million in tax-exempt bonds and ended the fourth quarter with $3.3 billion in cash and temporary cash investments.
For the full-year 2010, capital spending was $2.3 billion. Earlier this month, the company announced a preliminary capital spending estimate of $2.9 billion for 2011, an increase from prior estimates due to the acceleration of economic growth projects to install new hydrocrackers at the Port Arthur and St. Charles refineries. The 2011 capital spending estimate also incorporates several major turnarounds in the first quarter and the early part of the second quarter, including significant reliability investments for a revamp of the St. Charles Refinery cat cracker and replacement of the Port Arthur Refinery coke drums.
“In 2011, our focus continues on safety, improving reliability, achieving another $100 million in pre-tax cost savings, and executing on our growth projects,” said Klesse. “We have advanced the timing on the hydrocracker projects to realize the economic benefits sooner, which capitalize on our outlook for high crude oil and low natural gas prices plus growing global demand for diesel. We will also continue to evaluate opportunities to improve the competitiveness of our portfolio.”