Valero Energy Corporation (NYSE: VLO) today reported a net loss of $219 million, or $0.39 per share, for the third quarter of 2009, excluding special items.  This compares to net income of $1.0 billion, or $1.91 per share, for the third quarter of 2008, excluding special items.  On a GAAP basis, the company reported a net loss of $489 million, or $0.87 per share, for the third quarter of 2009, compared to third quarter 2008 net income of $1.2 billion, or $2.18 per share.  Special items in the third quarter 2009 include an asset impairment loss of $417 million before taxes, or $0.48 per share after taxes, related primarily to the permanent shutdown of the gasifier complex at the company’s Delaware City refinery.  The third quarter 2008 special items include a gain of $305 million on the sale of the Krotz Springs, Louisiana refinery and $43 million of asset impairment losses before taxes, which together amount to $0.27 per share after taxes. 

The third quarter 2009 operating loss was $579 million versus $1.8 billon of operating income in the third quarter of 2008.  Excluding the special items discussed above, the third quarter 2009 operating loss was $162 million compared to $1.6 billion of operating income in the third quarter of 2008.  The decline in operating income, excluding special items, was primarily due to lower margins on diesel and jet fuel, and smaller discounts on sour crude oil and other feedstocks.

“Refining margins in the third quarter continued to suffer from a combination of weak demand for refined products and high inventories,” said Bill Klesse, Valero’s Chairman of the Board and Chief Executive Officer.  “Given the difficult refining conditions, we took further action in the third quarter to improve our profitability.  First, we extended the plantwide shutdown of the Aruba refinery.  At the Delaware City refinery, we streamlined operations by closing the gasifier complex and idling the coker.  In October, we began a focused effort to reduce costs at our Paulsboro refinery.  Across our refining system, we have been taking advantage of our operating flexibility by shifting feedstocks and operating rates to optimize throughput margins.

“As to operating expenses, our efforts to reduce costs are paying off.  Comparing the first nine months of 2008 versus 2009, our refinery operating expenses excluding depreciation and amortization were down more than $700 million.  Much of this was due to lower energy and natural gas prices, but over $200 million was due to our ongoing cost-reduction efforts.

“Similar to last quarter, our retail and ethanol segments had outstanding results.  Our retail business had the highest third-quarter and year-to-date operating income in company history on strong U.S. retail fuel margins and solid performance in Canada.  Our ethanol business earned $49 million of operating income in the third quarter, more than double the second quarter results, as we increased run rates at all seven ethanol plants and captured very good margins.  In October, ethanol margins have continued at strong levels.”

Regarding cash flows in the third quarter of 2009, the company’s capital spending was $521 million, of which $52 million was for turnaround and catalyst expenditures.  The company paid $84 million in dividends on its common stock and ended the third quarter with $1.6 billion in cash and temporary cash investments.

“Our liquidity and balance sheet remain in great shape, and we will continue to focus on improving profitability by lowering costs and optimizing our system,” Klesse said.  “As we strive to lower costs and become even more competitive, we expect the improving world economy will drive demand growth for our products and support a recovery in refining margins and sour crude discounts.  We view 2009 as a trough period for refined product demand, and we look forward to an upturn in fundamentals and demand in 2010.”

As described in Note 13 to the company’s Form 10-Q for the period ended June 30, 2009, the company is awaiting a decision from the Netherlands Arbitration Institute regarding the company’s dispute of a turnover tax on export sales that the Government of Aruba enacted in 2007.  If the decision is announced prior to filing the Form 10-Q for the period ended September 30, 2009 and if the decision has a material impact on the third quarter 2009 financial results, then the company will update its earnings release to conform with the Form 10-Q filing.

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.  Please visit www.valero.com for more information.

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.