Valero Doubles 3Q Profits on Crude Prices

By T.A. BADGER

SAN ANTONIO – Oil refiner Valero Energy Corp. on Monday reported that its third-quarter profit more than doubled due mostly to high crude prices and wide refining margins, and the company said it expects to post record earnings in the last three months of the year.

San Antonio-based Valero, the nation’s largest refiner, also announced that longtime chief executive Bill Greehey will step down at year-end but that he will remain the company’s chairman and active in its operations.

Net income for the three months ended Sept. 30 surged to $858 million, or $2.94 per share. That compares to $431 million, or $1.57 per share, in the same period in 2004.

Excluding a $621 million inventory charge related to its September acquisition of Premcor Inc., Valero’s earnings were $1.3 billion, or $4.37 per share. That surpassed the average estimate of $4.23 per share by analysts polled by Thomson Financial.

Greehey told analysts during Monday morning’s conference call that their per-share estimate of $3.67 for Valero in the fourth quarter was also too low.

“In October alone, we’ve already earned $2.30 a share,” said Greehey. Assuming no major disruptions in the next two months, he said, “we’re in good shape to have the best quarter in Valero’s history.”

Conditions are prime for Valero to perform well in the current quarter, Greehey said. Gasoline and heating oil margins are strong, as are discounts for the high-sulfur crude that makes up about half of the company’s feedstock.

Refining margins were $13.43 per barrel in the third quarter, nearly double what they were in the same period a year ago.

Valero shares rose $5.74, or 5.8 percent, to close at $105.24 Monday on the New York Stock Exchange. A year ago the stock was selling for about $43.

Revenue in the third quarter totaled $23.3 billion, up 62 percent from the $14.3 billion in sales in the third quarter of 2004 and well above analysts’ consensus target of $19 billion.

Company officials said hurricanes Katrina and Rita cost Valero about 75,000 barrels a day in refining throughput, mostly at its facility in Port Arthur, Texas, but Greehey said “we sure as heck made it up in volume at our other refineries. … The storms demonstrated the competitive advantage Valero has.”

Greehey said most of the effects of Rita will be felt in the fourth quarter, but that “we believe that the impact of these hurricanes on pump prices will soon be behind us. As more refineries come back online, pump prices should continue to fall and that is good for both refined product demand and the economy.”

Valero owns and operates 18 refineries in the United States, Canada and the Caribbean that refine roughly 3.3 million barrels of crude oil each day. The company also has about 4,700 gas station-convenience stores.

On Sept. 1, it closed on its $7.9 billion purchase of Old Greenwich, Conn.-based Premcor, whose four refineries added nearly 800,000 barrels to Valero’s refining capacity.

Greehey, the only chief executive in Valero’s 32-year history, said as chairman he plans to remain involved in the company’s strategic planning and that he would be a strong advocate for the refining industry.

He will be succeeded as chief executive by Bill Klesse, now Valero’s chief operating officer.