For all periods shown in the accompanying tables, discontinued operations relate to the Delaware City, Del., refinery that was shut down in 2009 and sold in the second quarter of 2010.
Operating income in the third quarter of 2010 was $571 million, versus an operating loss of $238 million in the third quarter of 2009. The $809 million improvement in operating income was primarily in the refining segment, where refining throughput margins improved to $7.87 per barrel, an increase of $2.79 per barrel. The increase was mainly due to higher margins for diesel and better discounts for low-quality feedstocks combined with higher throughput volumes compared to the third quarter of 2009.
"It's great to report back-to-back profitable quarters, which is a reflection of the improvement we have seen in our business over last year," said Valero chairman and CEO Bill Klesse. "For the most part, our plants ran well in the third quarter, allowing us to take advantage of solid product margins and better feedstock discounts. The fourth quarter is off to a good start as margins have been strong for this time of year, and discounts remain favorable. As winter approaches, distillate inventories both here and in Europe have been falling, which should also support margins. We're well-positioned to capture these attractive margins as we have very little maintenance-related downtime planned at our refineries during the fourth quarter."
He added, "Cost reductions continue to be a key priority. We have achieved $140 million in year-to-date cost savings, and we are on pace to reduce costs by a total of $185 million in 2010. In 2011, we expect to reduce costs throughout our ongoing businesses by another $100 million. When achieved, our 2009 through 2011 cumulative pre-tax costs savings are estimated at $500 million. These reductions allow Valero to offset increases in our noncontrollable costs, which are always part of our business."
The retail segment earned $105 million in operating income during the third quarter of 2010, nearly matching last year's record results. The company's ethanol segment also continued to perform well with $47 million in operating income generated during the third quarter of 2010.
Regarding cash flows in the third quarter of 2010, capital spending was $508 million, of which $67 million was for turnaround and catalyst expenditures. Also in the third quarter, the company paid $28 million in common stock dividends. The company ended the third quarter with $2.4 billion in cash and temporary cash investments. Capital spending is expected to be approximately $2.3 billion for the full-year 2010. The company has announced a preliminary capital spending estimate of $2.6 billion for 2011, which includes a decline in regulatory spending and an increase in spending for economic growth projects.
"We're excited about moving forward to unlock the earnings power of our economic growth projects," said Klesse. "These projects capitalize on our outlook for relatively high crude oil and low natural gas prices, plus growing global demand for diesel. Using reasonable price assumptions, we estimate that our projects will yield strong returns on investment and significant contributions to earnings over the next few years."
"We're also making progress on our strategic priorities. We have an agreement to sell the Paulsboro refinery, and we anticipate closing on that sale in the fourth quarter. We also expect to close on the sale of our investment in the Cameron Highway Oil Pipeline System in the fourth quarter. In addition, we are continuing maintenance at our Aruba refinery, which should be ready to restart in mid-December," he said.
Klesse concluded, "We will continue to look at additional refinery opportunities to change our geographic footprint.
San Antonio, Texas-based Valero Energy is an international manufacturer and marketer of transportation fuels, other petrochemical products and power. Its assets include 15 petroleum refineries with a combined throughput capacity of approximately 2.8 million barrels per day, 10 ethanol plants with a combined production capacity of 1.1 billion gallons per year and a 50-megawatt wind farm. Valero is also one of the 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.
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