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Valero Energy Reports Second Quarter 2014 Results

July 30, 2014

SAN ANTONIO, July 30, 2014 /PRNewswire/ — Valero Energy Corporation (NYSE: VLO, “Valero”) today reported net income from continuing operations attributable to Valero stockholders of $651 million, or $1.22 per share, for the second quarter of 2014 compared to $463 million, or $0.84 per share, for the second quarter of 2013. For all periods shown in the accompanying tables, the results of operations reflect the Aruba refinery as discontinued operations. Valero recognized $63 million in charges in the second quarter of 2014 associated with recording asset retirement and other obligations related to our Aruba refinery.

Operating income in the second quarter of 2014 was approximately $1.1 billion versus $805 million in the second quarter of 2013. The $280 million increase in operating income was due primarily to higher refining throughput volumes and wider discounts relative to Brent crude oil for sour and certain North American light crude oils. These positive drivers were partially offset by weaker gasoline and distillate margins relative to Brent crude oil in most regions and higher natural gas costs in the second quarter of 2014 versus the second quarter of 2013.

Second quarter 2014 refining throughput volumes averaged 2.7 million barrels per day, an increase of 115,000 barrels per day from the second quarter of 2013. The increase in volumes was due primarily to less turnaround activity and higher utilization rates spurred by the availability of discounted North American light crude oil on the U.S. Gulf Coast.

“Valero delivered solid financial results for the quarter despite generally weaker product margins relative to Brent crude oil,” said Valero CEO and President Joe Gorder. “We continued to execute our strategy to reduce feedstock costs by processing additional volumes of cost-advantaged North American crude oil and investing in logistics assets to deliver those feedstocks to our refineries.”

Gorder continued, “We increased North American crude oil consumption at our Quebec City refinery to 83 percent in the second quarter of 2014 from 8 percent in the second quarter of 2013, so we are progressing well toward our previously stated goal of reaching 100 percent by year-end. We also began processing Canadian bitumen through our new crude-by-rail unloading facility at our St. Charles refinery.”

Ethanol operating income in the second quarter of 2014 was $187 million compared to $95 million in the second quarter of 2013. The $92 million increase in operating income was mainly due to higher gross margin per gallon driven by lower corn costs as a result of an abundant corn crop and lower industry ethanol inventories at the start of the quarter. Partially offsetting the increase in operating income was lower production volume resulting from rail congestion in the U.S. Mid-Continent.

“Our ethanol investments have continued to be strong performers, delivering a total of $430 million in operating income for the first half of 2014,” Gorder said. “We expect our eleventh ethanol plant, the Mount Vernon facility acquired in March of this year, to begin operating and contributing to the segment’s earnings in the third quarter.”

Regarding cash flows in the second quarter of 2014, capital expenditures were $806 million, of which $240 million was for turnarounds and catalyst. Valero paid $133 million in dividends on its common stock and $228 million to purchase 4.0 million shares of its common stock. The company repaid $200 million of debt that matured in April and ended the quarter with $6.4 billion in total debt and $3.5 billion of cash and temporary cash investments, of which $382 million was held by Valero Energy Partners LP, Valero’s majority-owned midstream master limited partnership. Subsequent to the second quarter of 2014, Valero continued to return cash to stockholders by purchasing 2.0 million shares of its common stock for $104 million and by increasing the regular quarterly cash dividend from $0.25 per share to $0.275 per share for the third quarter of 2014.

Also in the second quarter of 2014, Valero announced the sale of certain logistics assets to Valero Energy Partners LP for $154 million. This transaction closed on July 1 and represents the execution of Valero’s strategy to create stockholder value via Valero Energy Partners LP.

Valero expects 2014 capital expenditures, including turnarounds and catalyst, to be $3 billion, including approximately $870 million allocated to logistics investments – most of which are expected to be eligible for drop-down into Valero Energy Partners LP in the future.

“Given the strong North American crude oil production growth, we continue to focus the majority of our strategic capital on light crude oil processing capability and logistics,” Gorder said. “We expect our refineries to benefit from access to lower cost crude oil and higher netback product export markets. Also, our commitment to stockholders is clearly shown by our continued stock purchases and yesterday’s dividend increase announcement.”

Valero’s senior management will hold a conference call at 10 a.m. ET today to discuss this earnings release and provide an update on company operations. A live broadcast of the conference call will be available on the company’s web site at www.valero.com.

About Valero

Valero Energy Corporation, through its subsidiaries, is an international manufacturer and marketer of transportation fuels, other petrochemical products and power. Valero subsidiaries employ approximately 10,000 people, and assets include 15 petroleum refineries with a combined throughput capacity of approximately 2.9 million barrels per day, 11 ethanol plants with a combined production capacity of 1.3 billion gallons per year, a 50-megawatt wind farm, and renewable diesel production from a joint venture. Through subsidiaries, Valero owns the general partner of Valero Energy Partners LP (NYSE: VLP), a midstream master limited partnership. Approximately 7,400 outlets carry the Valero, Diamond Shamrock, Shamrock and Beacon brands in the United States and the Caribbean; Ultramar in Canada; and Texaco in the United Kingdom and Ireland. Valero is a Fortune 500 company based in San Antonio. Please visit www.valero.com for more information.

Valero Contacts
Investors:
John Locke, Executive Director – Investor Relations, 210-345-3077
Karen Ngo, Manager – Investor Relations, 210-345-4574
Media:
Bill Day, Vice President – Media and Community Relations, 210-345-2928

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Safe-Harbor Statement

Statements contained in this release that state the company’s or management’s expectations or predictions of the future are forward-looking statements intended to be covered by the safe harbor provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934. The words “believe,” “expect,” “should,” “estimates,” “intend,” and other similar expressions identify forward-looking statements. It is important to note that actual results could differ materially from those projected in such forward-looking statements. For more information concerning factors that could cause actual results to differ from those expressed or forecasted, see Valero’s annual reports on Form 10-K and quarterly reports on Form 10-Q, filed with the Securities and Exchange Commission and on Valero’s website at www.valero.com.

                                                                                            VALERO ENERGY CORPORATION AND SUBSIDIARIES

                                                                                                         EARNINGS RELEASE

                                                                            (Millions of Dollars, Except per Share, per Barrel, and per Gallon Amounts)

                                                                                                            (Unaudited)

                                                                                                                                Three Months Ended      Six Months Ended

                                                                                                                                     June 30,               June 30,

                                                                                                                                                 2014                    2013    2014     2013

    Statement of Income Data (a):

    Operating revenues                                                                                                                        $34,914                 $34,034 $68,577  $67,508

    Costs and expenses:

       Cost of sales                                                                                                                           32,167                  31,523  62,797   62,208

       Operating expenses:

       Refining                                                                                                                                   967                     909   1,939    1,788

       Retail                                                                                                                                       -                     57       -     226

       Ethanol                                                                                                                                    111                     102     240      179

       General and administrative expenses (b)                                                                                                    170                     233     330      409

       Depreciation and amortization expense                                                                                                      414                     405     835      835

       Total costs and expenses                                                                                                                33,829                  33,229  66,141   65,645

       Operating income                                                                                                                         1,085                     805   2,436    1,863

    Other income, net                                                                                                                              12                      11      27       25

    Interest and debt expense, net of capitalized interest                                                                                       (98)                   (78)  (198)   (161)

    Income from continuing operations before income tax expense                                                                                   999                     738   2,265    1,727

    Income tax expense                                                                                                                            343                     276     772      616

    Income from continuing operations                                                                                                             656                     462   1,493    1,111

    Income (loss) from discontinued operations (a)                                                                                               (63)                      3    (64)       6

    Net income                                                                                                                                    593                     465   1,429    1,117

       Less: Net income (loss) attributable to noncontrolling interests (c)                                                                         5                     (1)     13      (3)

    Net income attributable to Valero Energy Corporation stockholders                                                                            $588                    $466  $1,416   $1,120

    Net income attributable to Valero Energy Corporation stockholders:

    Continuing operations                                                                                                                        $651                    $463  $1,480   $1,114

    Discontinued operations                                                                                                                      (63)                      3    (64)       6

    Total                                                                                                                                        $588                    $466  $1,416   $1,120

    Earnings per common share:

    Continuing operations                                                                                                                       $1.23                   $0.85   $2.78    $2.03

    Discontinued operations                                                                                                                    (0.12)                   0.01  (0.12)    0.01

    Total                                                                                                                                       $1.11                   $0.86   $2.66    $2.04

    Weighted-average common shares outstanding (in millions)                                                                                      529                     543     530      546

    Earnings per common share - assuming dilution:

    Continuing operations                                                                                                                       $1.22                   $0.84   $2.77    $2.02

    Discontinued operations                                                                                                                    (0.12)                   0.01  (0.12)    0.01

    Total                                                                                                                                       $1.10                   $0.85   $2.65    $2.03

    Weighted-average common shares outstanding -                                                                                                  534                     548     535      552
        assuming dilution (in millions)

    Dividends per common share                                                                                                                  $0.25                   $0.20   $0.50    $0.40

                           VALERO ENERGY CORPORATION AND SUBSIDIARIES

                                        EARNINGS RELEASE

           (Millions of Dollars, Except per Share, per Barrel, and per Gallon Amounts)

                                           (Unaudited)

                                                                   Three Months
                                                                     Ended          Six Months Ended

                                                                   June 30,             June 30,

                                                                   2014        2013         2014         2013

    Operating income by business segment:

    Refining (a)                                                 $1,079        $918       $2,359       $2,127

    Retail                                                            -         39            -          81

    Ethanol                                                         187          95          430          109

    Corporate (b)                                                 (181)      (247)       (353)       (454)

      Total                                                      $1,085        $805       $2,436       $1,863

    Depreciation and amortization expense
     by business segment:

    Refining                                                       $391        $369         $788         $727

    Retail                                                            -         11            -          41

    Ethanol                                                          12          11           24           22

    Corporate                                                        11          14           23           45

      Total                                                        $414        $405         $835         $835

    Operating highlights:

    Refining (a):

    Throughput margin per barrel                                  $9.84       $9.26       $10.36        $9.92

    Operating costs per barrel:

    Operating expenses                                             3.90        3.83         3.95         3.83

    Depreciation and amortization expense                          1.58        1.56         1.60         1.55

      Total operating costs per barrel                             5.48        5.39         5.55         5.38

    Operating income per barrel                                   $4.36       $3.87        $4.81        $4.54

    Throughput volumes (thousand barrels
     per day):

    Feedstocks:

    Heavy sour crude oil                                            428         488          453          491

    Medium/light sour crude oil                                     472         463          491          441

    Sweet crude oil                                               1,084         896        1,074          992

    Residuals                                                       235         315          219          270

    Other feedstocks                                                152         120          140          101

      Total feedstocks                                            2,371       2,282        2,377        2,295

    Blendstocks and other                                           350         324          334          291

      Total throughput volumes                                    2,721       2,606        2,711        2,586

    Yields (thousand barrels per day):

    Gasolines and blendstocks                                     1,318       1,281        1,307        1,239

    Distillates                                                   1,034         910        1,029          910

    Other products (d)                                              405         441          410          461

      Total yields                                                2,757       2,632        2,746        2,610

                          VALERO ENERGY CORPORATION AND SUBSIDIARIES

                                       EARNINGS RELEASE

          (Millions of Dollars, Except per Share, per Barrel, and per Gallon Amounts)

                                          (Unaudited)

                                                             Three Months Ended        Six Months Ended

                                                                June 30,              June 30,

                                                                2014         2013         2014         2013

    Refining
     operating
     highlights by
     region (e):

    U.S. Gulf Coast
     (a):

       Operating income                                         $660         $411       $1,543         $999

       Throughput
        volumes
        (thousand
        barrels per day)                                       1,567        1,530        1,576        1,476

       Throughput margin
        per barrel                                            $10.03        $8.12       $10.75        $9.02

       Operating costs
        per barrel:

       Operating
        expenses                                                3.82         3.66         3.72         3.72

       Depreciation and
        amortization
        expense                                                 1.58         1.51         1.62         1.56

        Total operating
         costs per barrel                                       5.40         5.17         5.34         5.28

       Operating income
        per barrel                                             $4.63        $2.95        $5.41        $3.74

    U.S. Mid-
     Continent:

       Operating income                                         $250         $343         $480         $820

       Throughput
        volumes
        (thousand
        barrels per day)                                         426          422          412          423

       Throughput margin
        per barrel                                            $12.07       $14.20       $12.33       $15.80

       Operating costs
        per barrel:

       Operating
        expenses                                                3.91         3.69         4.17         3.53

       Depreciation and
        amortization
        expense                                                 1.70         1.59         1.72         1.57

         Total operating
          costs per barrel                                      5.61         5.28         5.89         5.10

       Operating income
        per barrel                                             $6.46        $8.92        $6.44       $10.70

    North Atlantic:

       Operating income                                         $145          $70         $343         $256

       Throughput
        volumes
        (thousand
        barrels per day)                                         462          370          466          427

       Throughput margin
        per barrel                                             $7.78        $7.18        $8.63        $7.89

       Operating costs
        per barrel:

       Operating
        expenses                                                3.20         3.90         3.45         3.57

       Depreciation and
        amortization
        expense                                                 1.13         1.20         1.11         1.01

         Total operating
          costs per barrel                                      4.33         5.10         4.56         4.58

       Operating income
        per barrel                                             $3.45        $2.08        $4.07        $3.31

    U.S. West Coast:

       Operating income
        (loss)                                                   $24          $94         $(7)         $52

       Throughput
        volumes
        (thousand
        barrels per day)                                         266          284          257          260

       Throughput margin
        per barrel                                             $8.66       $10.81        $7.98        $8.76

       Operating costs
        per barrel:

       Operating
        expenses                                                5.59         4.93         5.95         5.27

       Depreciation and
        amortization
        expense                                                 2.08         2.22         2.18         2.38

         Total operating
          costs per barrel                                      7.67         7.15         8.13         7.65

       Operating income
        (loss) per
        barrel                                                 $0.99        $3.66      $(0.15)       $1.11

                           VALERO ENERGY CORPORATION AND SUBSIDIARIES

                                        EARNINGS RELEASE

           (Millions of Dollars, Except per Share, per Barrel, and per Gallon Amounts)

                                           (Unaudited)

                                                             Three Months Ended         Six Months Ended

                                                                June 30,               June 30,

                                                                2014          2013         2014          2013

    Average market reference prices and
     differentials:

    Feedstocks (dollars per barrel):

       Brent crude oil                                       $109.74       $103.36      $108.82       $108.00

       Brent less West Texas Intermediate
        (WTI) crude oil                                         6.68          9.17         7.93         13.75

       Brent less Alaska North Slope (ANS)
        crude oil                                               0.51        (0.91)        1.28          0.70

       Brent less Louisiana Light Sweet
        (LLS) crude oil                                         3.41        (1.78)        3.15        (2.13)

       Brent less Mars crude oil                                8.22          3.53         7.32          2.93

       Brent less Maya crude oil                               13.95          5.46        16.20          7.57

       LLS crude oil                                          106.33        105.14       105.67        110.13

       LLS less Mars crude oil                                  4.81          5.31         4.17          5.06

       LLS less Maya crude oil                                 10.54          7.24        13.05          9.70

       WTI crude oil                                          103.06         94.19       100.89         94.25

    Natural gas (dollars per million
     British Thermal Units)                                     4.56          4.00         4.90          3.72

    Products (dollars per barrel,
     unless otherwise noted):

       U.S. Gulf Coast:

       CBOB gasoline less Brent                                 7.33          7.51         4.56          6.11

       Ultra-low-sulfur diesel less
        Brent                                                  12.81         16.79        13.99         16.88

       Propylene less Brent                                   (5.00)       (6.76)      (1.19)       (0.14)

       CBOB gasoline less LLS                                  10.74          5.73         7.71          3.98

       Ultra-low-sulfur diesel less LLS                        16.22         15.01        17.14         14.75

       Propylene less LLS                                     (1.59)       (8.54)        1.96        (2.27)

       U.S. Mid-Continent:

       CBOB gasoline less WTI (f)                              16.00         26.11        14.55         24.97

       Ultra-low-sulfur diesel less WTI                        20.99         29.30        23.43         32.39

       North Atlantic:

       CBOB gasoline less Brent                                11.69         10.89         8.54         10.12

       Ultra-low-sulfur diesel less
        Brent                                                  14.19         18.17        18.40         18.44

       U.S. West Coast:

       CARBOB 87 gasoline less ANS                             19.72         21.18        14.96         17.64

       CARB diesel less ANS                                    17.16         17.09        17.30         19.23

       CARBOB 87 gasoline less WTI                             25.89         31.26        21.61         30.69

       CARB diesel less WTI                                    23.33         27.17        23.95         32.28

       New York Harbor corn crush (dollars
        per gallon)                                             0.68          0.28         0.94          0.10


                                                     VALERO ENERGY CORPORATION AND SUBSIDIARIES

                                                                  EARNINGS RELEASE

                                    (Millions of Dollars, Except per Share, per Barrel, and per Gallon Amounts)

                                                                    (Unaudited)

                                                                                                                        Three Months
                                                                                                                            Ended                Six Months Ended

                                                                                                                          June 30,                   June 30,

                                                                                                                 2014  2013        2014            2013

    Ethanol:

       Operating income                                                                                          $187   $95        $430            $109

       Production (thousand gallons per
        day)                                                                                                    3,276 3,508       3,186           3,112

       Gross margin per gallon of
        production                                                                                              $1.04 $0.65       $1.20           $0.55

       Operating costs per gallon of
        production:

         Operating expenses                                                                                      0.37  0.32        0.41            0.32

         Depreciation and amortization
          expense                                                                                                0.04  0.03        0.04            0.04

           Total operating costs per gallon
            of production                                                                                        0.41  0.35        0.45            0.36

       Operating income per gallon of
        production                                                                                              $0.63 $0.30       $0.75           $0.19

                                                                                                                             June 30,   December 31,

                                                                                                                                 2014            2013

    Balance Sheet Data:

       Current assets                                                                                                                    $18,450             $19,277

       Cash and temporary cash investments, including $382 and $375,
        respectively, held by Valero Energy Partners LP, reflected in current
        assets                                                                                                                             3,480               4,292

       Inventories included in current assets                                                                                              6,526               5,758

       Replacement cost (market value) of inventories in excess of LIFO
        carrying amounts                                                                                                                   7,222               6,851

       Current liabilities                                                                                                                12,523              13,123

       Current portion of debt and capital lease obligations included in
        current liabilities                                                                                                                  601                 303

       Debt and capital lease obligations, less current portion                                                                            5,784               6,261

       Total debt and capital lease obligations                                                                                            6,385               6,564

       Valero Energy Corporation stockholders' equity                                                                                     20,211              19,460
                 VALERO ENERGY CORPORATION AND SUBSIDIARIES

                         NOTES TO EARNINGS RELEASE

    (a)              In May 2014, we decided to abandon our Aruba
                     Refinery, except for the associated crude oil and
                     refined products terminal assets that we continue
                     to operate. As a result of our decision, the
                     results attributable to the Aruba Refinery
                     operations have been presented as discontinued
                     operations and the operating highlights for the
                     refining segment and the U.S. Gulf Coast region
                     exclude the Aruba Refinery for all periods
                     presented.  Even though we suspended refining
                     operations in 2012, we continued to maintain the
                     refining assets to allow them to be restarted and
                     did not abandon them until our recent decision to
                     no longer pursue options to restart refining
                     operations.

                    Because of our decision to abandon the refining
                     assets, we believe the Government of Aruba (GOA)
                     will enforce certain land lease provisions
                     requiring us to dismantle the refinery assets. As
                     a result, "Income (loss) from discontinued
                     operations" for the three and six months ended
                     June 30, 2014 include a charge of $59 million for
                     an asset retirement obligation and a charge of $4
                     million for other contractual obligations. We had
                     not recognized an asset retirement obligation
                     previously due to our belief that the GOA would
                     not enforce the lease provision as long as we
                     intended to operate the refining assets.

    (b)              The decrease in general and administrative expenses
                     for the three and six months ended June 30, 2014
                     compared to the three and six months ended June
                     30, 2013 is due primarily to administrative
                     expenses in 2013 associated with our former retail
                     business that did not recur due to the separation
                     of that business in May 2013, costs incurred in
                     the second quarter 2013 to effect that separation,
                     and costs related to various environmental and
                     legal matters in the second quarter 2013.

    (c)              We consolidate the financial statements of the
                     entities described below due to our controlling
                     interests. The earnings (losses) incurred by these
                     entities that are attributable to the owners of
                     the noncontrolling interests are subtracted from
                     (added back to) net income to arrive at net income
                     attributable to Valero stockholders.

                    Valero Energy Partners LP (VLP) - On December 16,
                      2013, VLP, a master limited partnership formed by
                      us, completed its initial public offering of
                      17,250,000 common units representing a 29.4
                      percent limited partner interest in VLP. We own a
                      2 percent general partner interest and a 68.6
                      percent limited partner interest.  For the periods
                      presented, VLP's assets include crude oil and
                      refined petroleum products pipeline and terminal
                      systems in the U.S Gulf Coast and U.S. Mid-
                      Continent regions that are integral to the
                      operations of our Port Arthur, McKee, and Memphis
                      Refineries.
    Diamond Green Diesel Holdings LLC
                      (DGD) - We own a 50 percent interest in DGD and
                      have lent DGD $221 million to finance
                      approximately 60 percent of the construction costs
                      of a plant built by DGD that processes animal
                      fats, used cooking oils, and other vegetable oils
                      into renewable green diesel. The plant began
                      operations at the end of June 2013 and is located
                      next to our St. Charles Refinery in Norco,
                      Louisiana.
    PI Dock Facilities LLC (PI Dock) - We
                      own a 50 percent interest in PI Dock and have
                      agreed to lend PI Dock up to $90 million to
                      finance construction costs of a crude dock and
                      certain shared facilities.  PI Dock has agreed to
                      construct and operate the crude dock and related
                      facilities to be located on Pleasure Island,
                      Texas, which is near our Port Arthur Refinery.

    (d)              Primarily includes petrochemicals, gas oils, No. 6
                     fuel oil, petroleum coke, sulfur, and asphalt.

    (e)              The regions reflected herein contain the following
                     refineries: U.S. Gulf Coast- Corpus Christi East,
                     Corpus Christi West, Houston, Meraux, Port Arthur,
                     St. Charles, Texas City, and Three Rivers
                     Refineries; U.S. Mid-Continent- Ardmore, McKee,
                     and Memphis Refineries; North Atlantic- Pembroke
                     and Quebec City Refineries; and U.S. West Coast-
                     Benicia and Wilmington Refineries.

    (f)              U.S. Mid-Continent product specifications for
                     gasoline changed on September 16, 2013 from
                     Conventional 87 gasoline to CBOB, or "conventional
                     blendstock for oxygenate blending," gasoline.  As
                     a result, we revised our U.S. Mid-Continent
                     reference gasoline to CBOB.

SOURCE Valero Energy Corporation


Source: PR Newswire



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