Valero Reports Record Revenues in 2012 with Throughput Margins Through the Roof

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Researched by Industrial Info Resources (Sugar Land, Texas)--Valero Energy Corporation (NYSE:VLO) (San Antonio, Texas), a leading international manufacturer and marketer of transportation fuels and other petrochemical products, reported record full-year earnings and its highest fourth-quarter earnings in seven years. The biggest boost for the company was an increase in refining throughput margins, which was found in each of Valero's geographic regions, and a drop in refining operating expenses. Valero reported net income of $1.01 billion for the quarter, compared with $45 million in fourth-quarter 2011, and $2.08 billion for the year, basically unchanged from 2011.

Total operating revenues stood at $34.7 billion for the quarter, basically unchanged from the same period in the previous year, and $139.29 billion for the year, a 10.53% increase from 2011. Despite narrowly lower throughput volumes in the fourth quarter, Refining segment margins led the company's gains for the year, fueled by discounts for heavy sour, medium sour and domestic light crude oils. Valero's Retail segment reported higher fuel margins in the U.S., but lower fuel margins in Canada. Lower ethanol and gasoline demand resulted in higher industry ethanol inventories, which, along with higher corn prices, depleted earnings in the Ethanol segment. Three of Valero's ethanol plants were temporarily idled during the fourth quarter.

Capital expenditures in the fourth quarter were reported to be $942 million, including $142 million on turnarounds and catalysts. For the full year, capital expenditures totaled $3.4 billion. The company also incurred $983 million in after-tax, non-cash asset impairment losses in 2012.

Industrial Info is tracking $3.98 billion in active projects involving Valero, the largest of which is the $1 billion addition of a vacuum gas oil (VGO) hydrocracker unit at the Saint Charles Refinery in Norco, Louisiana. The project, which kicked off in August 2011, involves the Construct ion of a high-pressure, 50,000-barrel-per-day (BBL/d) hydrocracker to process sour VGO and increase distillate production. According to Bill Klesse, the chairman and chief executive officer of Valero, the hydrocracker is scheduled for start-up in the second quarter of 2013.

"We had a smooth and successful startup in December of our new hydrocracker at Port Arthur, which was our largest project in company history," said Ashley Smith, the vice president of Investor Relations for Valero, in a conference call. "Since mid-December, the unit has been operating at approximately 50,000 BBL/d and has performed well. Last week, we conducted performance tests with the technology provider, and we have begun rate tests that should enable us to operate the unit at or near the permitted maximum rate of approximately 57,000 BBL/d."

Valero's Refining and U.S. Retail businesses posted impressive gains, but the Ethanol segment took a very visible in fourth-quarter and full-year 2012:

• The Refining segment reported operating income of $1.68 billion for the quarter, compared with $40 million in fourth-quarter 2011. For the year, the segment reported $4.45 billion in operating income, a 26.56% increase from 2011:
• The Gulf Coast region reported operating income of $914 million for the quarter, compared with an operating loss of $231 million in fourth-quarter 2011. For the year, the region reported $2.54 billion in operating income, a 15.24% increase from 2011.
• The Mid-Continent region reported operating income of $638 million for the quarter, compared with $267 million in the same period in the previous year. For the year, the region reported $2.04 billion in operating income, a 33.16% increase from 2011.
• The North Atlantic region reported operating income of $135 million for the quarter, compared with $67 million in fourth-quarter 2011. For the year, the region reported $752 million in operating income, compared with $171 million in 2011.
• The West Coast region reported operating income of $39 million for the quarter, compared with an operating income loss of $63 million in the same period in the previous year. For the year, the region reported $147 million in operating income, basically unchanged from 2011.
• The Retail segment reported operating income of $95 million for the quarter, a 14.46% increase from fourth-quarter 2011. For the year, the segment reported $348 million in operating income, an 8.66% decrease from 2011:
• The U.S. Retail business reported operating income of $78 million for the quarter, a 62.5% increase from the same period in the previous year. For the year, the region reported $240 million in operating income, a 12.68% increase from 2011.
• The Canadian Retail business reported operating income of $17 million for the quarter, a 51.43% decrease from fourth-quarter 2011. For the year, the region reported $108 million in operating income, a 35.71% decrease from 2011.
• The Ethanol segment reported operating income of $12 million for the quarter, compared with $181 million in the same period in the previous year. For the year, the segment reported an operating loss of $47 million, compared with income of $396 million in 2011.

Capital expenditures are expected to total about $2.5 billion in 2013. Valero executives expect to see throughput volumes of 1.4 million to 1.45 million BBL/d in the Gulf Coast; 390,000 to 400,000 BBL/d in the Mid-Continent; 245,000 to 255,000 BBL/d in the West Coast; and 450,000 to 470,000 BBL/d in the North Atlantic. Executives also were enthusiastic about the progress made in the ongoing separation of the company's retail business, which is to be a new company called CST Brands Incorporated.

"We believe the separated retail business will perform well and unlock value for shareholders for several reasons," Smith said in the conference call. "First, CST Brands will be the second-largest publicly traded independent retailer of fuel and convenience merchandise in North America, with nearly 1,900 sites. Second, these sites are located in geographically diverse regions: the Southwestern United States and Eastern Canada. Third, many of the 1,032 retail sites are in Texas and surrounding states, which have strong economic growth."

Smith added that CST Brands has substantial ownership of the sites a long history of strong financial performance and brand recognition.

For more information, visit Industrial Info's North American Petroleum Refining Database.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, and eight offices outside of North America, 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.