Valero Energy Corporation (NYSE: VLO) today reported second quarter 2007 net income of $2.2 billion, or $3.89 per share, which compares to $1.9 billion, or $2.98 per share, in the second quarter of 2006. The company’s second quarter 2007 results represent the highest quarterly net income in the company’s history. For the six months ended June 30, 2007, net income was $3.4 billion, or $5.68 per share, compared to the company’s net income of $2.7 billion, or $4.29 per share, for the six months ended June 30, 2006. These results include the operations of the recently divested Lima, Ohio refinery, which are classified as discontinued operations in the accompanying financial tables.
“We are enjoying another outstanding year in 2007, as the company posted its best ever quarterly profits,” said Bill Klesse, Valero’s Chairman of the Board and Chief Executive Officer. “The environment for refining margins was terrific in the second quarter, and we continued to benefit from our complex, geographically diverse refining system.
“Gasoline and diesel demand in the U.S. has been excellent, and growing worldwide demand has increased competition for refined products. On the supply side, the industry has suffered from higher than normal unplanned refinery downtime. Production also has been affected by more complicated refinery operations, which are partly due to more stringent product specifications, and by tightness in markets for skilled labor and equipment. These factors have contributed to the lowest inventory levels we’ve seen in years for gasoline and distillate on a days-of-supply basis.
“For the second quarter, the Gulf Coast gasoline margins averaged nearly $29 per barrel, which is 45 percent higher than in the second quarter of last year. Gulf Coast ultra-low-sulfur diesel margins were also robust, averaging over $22 per barrel, an increase of 15 percent from last year. Refined product margins were strong across all of Valero’s refining regions,” Klesse said.
Regarding feedstock differentials in the second quarter of 2007, the discount to WTI for Maya heavy sour crude oil averaged $9.60 per barrel, while the discount for Mars medium sour crude oil averaged $2.70 per barrel. Since the second quarter, discounts to WTI have widened as the July average for the Maya discount increased to nearly $10.40 per barrel, and the Mars discount expanded to more than $4.20 per barrel. Moreover, the discount to WTI for residual fuel oil, which can compete as a heavy sour feedstock in many of Valero’s complex refineries, has expanded from an average of $15.27 per barrel in the second quarter to an average of almost $18.40 per barrel in July.
As to uses of cash in the second quarter, capital spending was $592 million, of which $101 million was for turnaround expenditures. The company also paid off $230 million of maturing debt in April. Concerning stock buybacks, the company executed an accelerated stock repurchase (ASR) program in April for an upfront payment of $3 billion. The ASR was recently completed, requiring an additional cash payment of $94.5 million. The program was funded through the issuance of $2.25 billion of publicly traded notes plus cash on hand. The company purchased 42.1 million shares under the ASR, bringing the year-to-date total purchases to approximately 62 million shares.
“It’s a very exciting time to be in the refining business,” Klesse said. “Margins and earnings have been outstanding, and when you consider the underlying supply and demand trends, we see a great outlook for the industry. We are taking advantage of this strong earnings environment by allocating our cash across growth projects, dividends, and share buybacks, while maintaining our investment-grade credit rating. In fact, this year we intend to purchase another $2 billion of our stock. As we said we’d do, we are executing a disciplined and consistent plan to increase shareholder returns for the long term.”
Valero’s senior management will hold a conference call at 11 a.m. ET (10 a.m. CT) 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.
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About Valero
Valero Energy Corporation is a Fortune 500 company based in San Antonio, with approximately 21,000 employees and 2006 annual revenues of more than $90 billion. The company owns and operates 17 refineries throughout the United States, Canada and the Caribbean with a combined throughput capacity of approximately 3.1 million barrels per day, making it the largest refiner in North America. Valero is also one of the nation’s largest retail operators with approximately 5,800 retail and branded wholesale outlets in the United States, Canada and the Caribbean under various brand names including Valero, Diamond Shamrock, Shamrock, Ultramar, and Beacon. Please visit www.valero.com for more information.
Forward-Looking Statements
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,” 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.