Valero Energy Corporation (NYSE: VLO) today reported a net loss of $254 million, or $0.48 per share, for the second quarter of 2009, compared to second quarter 2008 net income of $734 million, or $1.37 per share. For the six months ended June 30, 2009, net income was $55 million, or $0.11 per share, compared to net income of $995 million, or $1.85 per share for the six months ended June 30, 2008.
The second quarter 2009 operating loss was $317 million, versus $1.2 billion of operating income in the second quarter of 2008. The decline in operating income was primarily due to lower diesel and jet fuel margins and lower sour crude oil differentials versus the same quarter last year. For example, benchmark Gulf Coast ultra-low-sulfur diesel margins versus West Texas Intermediate (WTI) crude oil decreased 79 percent from $28.85 per barrel in the second quarter of 2008 to $6.16 per barrel in the second quarter of 2009. The Maya heavy sour crude oil differential to WTI decreased 78 percent from $20.99 per barrel in the second quarter of 2008 to $4.57 per barrel in the second quarter of 2009.
“This is a very challenging environment for sour crude oil refiners,” said Bill Klesse, Valero’s Chairman of the Board and Chief Executive Officer. “The downturn in the global economy has sharply reduced demand for refined products at a time when new refining capacity is coming online around the world. Also, sour crude oil differentials have narrowed mainly because key supplies of lower quality crude oils have come off the market. As a result, global product inventories are high and refining margins are depressed. When the global economy improves, we expect that product demand, sour crude oil production, and refining margins will also improve.
“The previously announced shutdown of our Aruba refinery was completed in mid-July mainly because of very poor margins. Our plan is to review the margin outlook in September to decide whether to restart the plant or keep it down. Also, by that time, we should have a decision from the arbitration panel on the turnover tax arbitration. We will continue to monitor our other refineries for situations in which it makes economic sense to slow or shut down specific units or the entire plant. Obviously, coking economics are very weak.
“In our other lines of business, we are achieving solid results. Operating income in our retail operations increased an impressive 33 percent from $49 million in the second quarter of 2008 to $65 million in the second quarter of 2009. Our ethanol business, which we acquired at an outstanding value in the second quarter, is off to a great start. Despite only partial operations and start-up costs in the second quarter, our ethanol business earned $22 million of operating income. We now have all seven of the ethanol plants operating. The recent decrease in corn prices has been positive on ethanol margins and the profitability of our plants,” Klesse said.
Regarding cash flows in the second quarter of 2009, the company spent $556 million for the acquisition of the ethanol plants and working capital from VeraSun Energy Corporation and $698 million for capital expenditures, of which $82 million was for turnaround and catalyst expenditures. The company paid $78 million in dividends on its common stock and received net proceeds of $799 million from the issuance of 46 million shares of common stock. The company paid off $209 million of maturing debt and ended the second quarter with $1.6 billion in cash and temporary cash investments.
“Due in part to our recent equity offering, we have a healthy cash balance that we plan to safeguard,” Klesse said. “Although this is a market in which buying refining capacity is cheaper than building it, we will patiently wait for the right opportunity at an attractive price.”
Commenting on carbon legislation, Klesse said, “A very important issue that every consumer, taxpayer, and investor should examine is the deceptively titled ‘American Clean Energy and Security Act of 2009,’ which the United States House of Representatives narrowly passed in June. This legislation, in some form, will be before the Senate early this fall. We recognize the concerns about climate change and increasing carbon dioxide levels. However, a hidden tax imposed by this legislation in the form of a cap-and-trade system on hydrocarbons will significantly raise the consumer price of gasoline and other fuels, and more than a million high-paying jobs will disappear from our already weakened economy – with no measurable improvement in global climate change. I urge all Valero investors to contact their Congressmen, Senators, and the President to express opposition to any potential bill. To assist you with this effort, Valero has created a resource at www.voicesforenergy.com.”
“In times like this, our focus is on managing costs and optimizing our assets. We previously cut our 2009 capital expenditures budget to $2.5 billion. We have also achieved more than $250 million of expense reductions from various cost-saving initiatives since 2007 as we improve Valero’s competitive position,” said Klesse.
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.
Valero Energy Corporation is a Fortune 500 company based in San Antonio with approximately 22,000 employees and 2008 revenues of $119 billion. The company owns and operates 16 refineries throughout the United States, Canada and the Caribbean with a combined throughput capacity of approximately three million barrels per day, making it the largest refiner in North America. Valero is also a leading ethanol producer with seven ethanol plants in the Midwest with a combined capacity of 780 million gallons per year, and is 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 the Valero, Diamond Shamrock, Shamrock, Ultramar, and Beacon brands.
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,” “could,” “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.
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