Valero Delays Projects for Major Maintenance Turnarounds and Reduces Capital Spending by Nearly $2 Billion Through 2009

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Researched by Industrial Info Resources (Sugar Land, Texas)--After posting a 9% drop in third-quarter 2008 profit, Valero Energy Corporation (NYSE:VLO) (San Antonio, Texas) announced that it is cutting back capital spending through 2009 through project delays and through significant maintenance turnarounds. Year over year, net income fell to $1.15 billion from $1.27 billion during the quarter. Two major projects have been canceled: a delayed coker addition at the Port Arthur, Texas, refinery and a part of a petrochemical project at the St. Charles refinery in Norco, Louisiana, Chief Operating Officer Richard Marcogliese said. Delayed projects include a hydrocracker upgrade at the Port Arthur refinery and upgrades to a sulfur plant and asphalting unit in Quebec, Canada. Overall spending for 2008 has been cut $1.5 billion to approximately $3 billion, and spending will total about $3.5 billion in 2009, down from an initial $4 billion.

"Looking at market fundamentals, a key item in the third quarter was the sharp drop in the price of crude oil, and this decline has obviously continued so far in the fourth quarter," Chairman and CEO Klesse said. "Regarding third-quarter product margins, conditions were very volatile. Low gasoline margins in July were followed by higher margins in August as production adjusted to demand." He said hurricanes Gustav and Ike caused four Valero refineries to shut down, although none of them suffered major damage.

Industrial Info is tracking 201 active Valero projects worth approximately $8.5 billion. The projects include the canceled delayed coker unit addition at the Port Arthur refinery that was estimated to cost $625 million, as well as a diesel hydrotreater upgrade, which has been delayed, at the same refinery. Also included are 56 scheduled maintenance turnarounds, which make up $341 million of the total investment value.

"Uncertainty in the financial markets and a pessimistic economic outlook have noticeably added to the inherent volatility in the refining industry," the company stated in its earnings release. "You can expect us to maintain our balanced approach by investing in growth projects, paying off debt, buying back stock and increasing dividends, but clearly we intend to hold much more cash than in the past."

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