OUCH: Refiner Valero Pares Capex on $1.9 Billion First-Quarter Loss, But Sees Signs of Rising Gasoline Demand

Researched by Industrial Info Resources (Sugar Land, Texas)--Valero Energy Corporation (NYSE:VLO) (San Antonio, Texas) on Wednesday reported a $1.9 billion loss for first-quarter 2020, a massive slide from net income of $141 million a year earlier, as the petroleum refiner's financial results were rocked by COVID-19. Consequently, Valero now expects to invest $2.1 billion of capital in 2020, a reduction of $400 million from its prior guidance.

The reduced capital expenditures will result in some project timelines being extended. Industrial Info is tracking more than $3 billion in U.S. project activity by Valero.

Click on the image at right for a graph showing Valero project activity in the top 10 states.

The company said its Port Arthur, Texas, refinery coker project has been slowed, pushing out mechanical completion by 6 to 9 months. Part of a $975 million refinery expansion, the 55,000-barrel-per-day (BBL/d), four-drum delayed coker will produce additional vacuum gas oil to supply the refinery's hydrocrackers. Completion is now planned for third-quarter 2022. For more information, see Industrial Info's project report.

Valero said a 49.9-megawatt combined heat and power cogeneration unit addition at its 220,000-BBL/d Pembroke Refinery in the U.K. also has been slowed. For more information, see Industrial Info's project report.

The St. Charles Alkylation Unit in Louisiana remains on track to be completed in 2020, the company said. The 17,000-BBL/d sulfuric acid alkylation unit will increase octane blending in the gasoline pool. The $400 million project kicked off early last year and is expected to wrap up this summer. Burns & McDonnell Incorporated (Kansas City, Missouri) is providing engineering, procurement and construction. For more information, see Industrial Info's project report.

Also, expansion of the Diamond Green renewable diesel plant in Norco, Louisiana, should be completed in 2021, but potentially is subject to COVID-19-related delays, the company said. The project entails expanding the existing 275 million-gallon-per-year plant by an additional 400 million gallons per year. For more information, see Industrial Info's project report.

Valero's Pasadena, Texas, terminal project, which was built with Magellan Midstream Partners LP (NYSE:MMP) (Tulsa, Oklahoma), was completed in the first quarter. The terminal increases Valero's capacity for biofuels blending. For more information, see Industrial Info's project report.

During the first quarter, Valero's Refining Segment reported a $2.1 billion operating loss, compared with $479 million of operating income for first-quarter 2019. Refinery throughput volumes averaged 2.8 million BBL/d in the first quarter, which is in line with the first quarter of 2019, the company said.

The pandemic "has significantly reduced global economic activity and resulted in airlines dramatically cutting back on flights and a decrease in motor vehicle use at a time when seasonal driving patterns typically result in an increase of consumer demand for gasoline," Valero said in its earnings press release. "As a result, there has also been a decline in the demand for, and thus also the market prices of, crude oil and certain of our products, particularly our refined petroleum products and most notably gasoline and jet fuel."

Still, there were some signs of market improvement, as auto traffic appeared to be on the upswing, Valero executives said during the company's earnings conference call with industry analysts. In Texas, some businesses will be allowed to reopen on Friday. Several other states also plan to ease their coronavirus restrictions in the coming weeks.

Chief Executive Joe Gorder said auto traffic in the company's hometown of San Antonio has increased 14% in the past couple of weeks. Gasoline demand fell sharply at the start of March, but has subsequently increased and will continue to grow as more stay-at-home orders and lifted, company executives said.

Chief Commercial Officer Gary Simmons said the refining industry has done a good job in balancing gasoline supply to demand. The industry has reduced its crude oil runs, but diesel production outpaced demand, resulting in an inventory build, he added. The industry is now pushing to reduce diesel production.

However, jet fuel demand likely will remain low until more people feel comfortable again taking to the skies, company executives said.

On the plus side, Valero's Renewable Diesel Segment reported $198 million of operating income for the first quarter, compared with $49 million for the first quarter of 2019. Valero touts itself as the largest renewables fuels producer in North America.

The Ethanol Segment, on the other hand, reported a $197 million operating loss for the first quarter, compared with $3 million of operating income a year earlier. Valero attributed the loss to lower ethanol prices and higher corn prices.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com.