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Separation of our Retail Businesses in the U.S. and Canada from Valero / Second Quarter Business Update 
 
7/31/2012 
San Antonio, Texas 

Valero Energy Corporation (“Valero,” NYSE: VLO) today reported net income attributable to Valero stockholders from continuing operations of $831 million, or $1.50 per share, for the second quarter of 2012, compared to net income attributable to Valero stockholders from continuing operations of $745 million, or $1.30 per share, for the second quarter of 2011. 

Valero also reported today that its Board of Directors authorized company management to pursue a separation of Valero’s retail business from the remainder of Valero.  The company is currently reviewing several potential separation transactions, including a tax-efficient distribution of the retail business to Valero shareholders.  Credit Suisse Securities (USA) LLC is advising Valero in connection with this process.

“After careful consideration, we believe a separation of our retail business from the remainder of Valero by way of a tax-efficient distribution will create operational flexibility within the businesses and unlock value for our shareholders,” said Valero Chairman and CEO Bill Klesse. “As independent companies, both retail and the remaining business will be better-positioned to focus on their industry-specific strategies.

“In addition, last week our Board of Directors increased our quarterly dividend from $0.15 per share to $0.175 per share, the highest level per split-adjusted share in company history.  These actions clearly demonstrate our focus on increasing long-term shareholder value.”

Second quarter 2012 operating income was $1.4 billion versus $1.3 billion of operating income in the second quarter of 2011.  The increase in operating income was primarily due to higher throughput margins in the U.S. Mid-Continent, U.S. West Coast, and North Atlantic refining regions combined with a 342,000 barrel-per-day increase in refinery throughput volume, mainly from the addition of the Pembroke and Meraux refineries.  Partially offsetting the increase in operating income were lower U.S. Gulf Coast gasoline margins and smaller discounts for medium and heavy sour crudes.

During the second quarter, Valero completed major turnaround maintenance at its St. Charles and McKee refineries.  Regarding the large growth projects, the Port Arthur hydrocracker is on track for mechanical completion in the third quarter and should achieve full operation during the fourth quarter of 2012.  The St. Charles project should be mechanically complete at the end of 2012 with full operation in the second quarter of 2013. 

“Our team has a rigorous plan to ensure an orderly and safe startup of these very large, complex, and high-pressure hydrocrackers,” Klesse said.

Valero’s retail segment reported record-high quarterly operating income of $172 million in the second quarter of 2012 versus $135 million of operating income in the second quarter of 2011.  The increase in operating income was mainly due to higher fuel margins and volumes in U.S. retail.

Valero’s ethanol segment reported $5 million of operating income in the second quarter of 2012 versus $64 million in the second quarter of 2011.  The decrease in ethanol operating income was mainly due to lower gross margins as excess industry ethanol inventories held margins at low levels.  In July, Valero significantly reduced ethanol production rates as margins were negative due to rapidly rising corn prices and continued high inventories of ethanol.

Regarding cash flows in the second quarter of 2012, capital spending was $800 million, of which $106 million was for turnaround and catalyst expenditures.  Valero returned $124 million of cash to shareholders in the second quarter with payments of $83 million in dividends on its common stock and $41 million to purchase 1.8 million shares.  Valero also used $862 million to pay down debt and received $300 million from the reissuance of tax-exempt bonds, resulting in a net reduction of debt.  Valero ended the second quarter with $1.3 billion in cash and temporary cash investments.

For the full-year 2012, Valero’s estimate for total capital spending, including turnaround and catalyst expenditures, is approximately $3.6 billion versus prior guidance of $3.5 billion.  The increase in capital spending is mainly due to the acceleration of certain projects originally scheduled for completion in 2013.  Valero expects total capital spending for 2013 to fall into a range of $2.0 billion to $2.5 billion, reflecting a significant decrease of $1.1 billion to $1.6 billion versus the 2012 estimate.

“After the hydrocrackers start up, the estimated contributions from these growth projects, combined with the expected decline in capital spending, should increase free cash flow,” concluded Klesse.  “Our goal continues to be the creation of long-term shareholder value combined with maintaining our investment-grade credit rating.”

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.

Click here to view Financial Tables.

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 22,000 people, and assets include 16 petroleum refineries with a combined throughput capacity of approximately 3 million barrels per day, 10 ethanol plants with a combined production capacity of 1.2 billion gallons per year, and a 50-megawatt wind farm. Approximately 6,800 retail and branded wholesale 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.

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,” 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.

 

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