Operating income in the second quarter of 2010 was $921 million, [image-nocss] versus an operating loss of $192 million in the second quarter of 2009. The $1.1 billion increase in operating income was mainly due to higher margins for diesel and many of the company's secondary products, such as petrochemicals, asphalt, and lube oils, as well as better discounts for low-quality feedstocks.
"It's great to be profitable again," said Valero chairman and CEO Bill Klesse. "Our second-quarter results really showed the earnings power of our assets. Our system of high-conversion refineries was able to take advantage of higher margins on products and wider discounts on sour crude oils. Another highlight is that our refining operating expenses for the second quarter fell to $3.55 per barrel, which was our lowest cost per barrel since the second quarter of 2009."
Commenting on the outlook for refining, Klesse said, "So far in the third quarter, product margins and feedstock discounts have continued at relatively good levels, although down from the second quarter in most of our regions. We remain cautiously optimistic that global economic expansion will drive growth in refined-products demand. Valero makes and sells fuels, so we need consumers to get back to work and the economy to grow faster."
The company's retail segment continued its record-setting performance with $109 million in operating income, which was the best second quarter in Valero's history. The Canadian retail operations continued to perform well with $33 million of operating income, while the U.S. operations had results of $76 million in operating income on strong fuel margins.
"Our ethanol business also continues to do well with $35 million of operating income in the second quarter despite difficult industry conditions," said Klesse. "We have established a strong position as one of the largest, most competitive producers in the ethanol industry by building a portfolio of world-scale, cost-advantaged plants. Acquiring these plants at large discounts to new-build prices and leveraging our overhead structure has helped us to earn good returns on investment, even when margins were low."
Regarding cash flows in the second quarter of 2010, capital spending was $517 million, of which $114 million was for turnaround and catalyst expenditures. Also in the second quarter, the company spent $223 million to pay down debt, paid $28 million in dividends on its common stock, and received $220 million in proceeds from the sale of the Delaware City assets. The company ended the second quarter with $2 billion in cash and temporary cash investments. For the full-year 2010, the company expects capital spending of approximately $2.3 billion.
"We continue to make progress on strengthening our portfolio of assets," Klesse said. "In June, we closed on the sale of the Delaware City assets, and we started turnaround maintenance at our Aruba refinery. When complete in September, this work will provide us the option to resume operations at the Aruba refinery if conditions are profitable and will enhance strategic alternatives for the refinery. Despite the fact that the Paulsboro refinery was profitable in the second quarter, we are continuing to evaluate its strategic alternatives."
Klesse concluded, "While we are pleased with the second-quarter results, our priorities are to reduce costs and maintain our strong financial position. Early in 2010, we announced a goal to achieve $100 million in pre-tax cost savings this year. At the end of June, we were ahead of schedule and had already captured $90 million of cost savings through numerous initiatives and hard work by our employees. We remain focused on improving the long-term quality of our assets and our competitiveness in the global marketplace."
San Antonio, Texas-based Valero Energy owns or operates 15 refineries with a combined throughput capacity of approximately 2.8 million barrels per day. Valero is also a leading ethanol producer with ten ethanol plants in the Midwest with a combined capacity of 1.1 billion 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.
Members help make our journalism possible. Become a CSP member today and unlock exclusive benefits, including unlimited access to all of our content. Sign up here.