Valero's Very, Very Good Period

Third-quarter 2011 results best in four years

SAN ANTONIO -- Valero Energy Corp. chairman and CEO Bill Klesse used the company's third-quarter 2011 earnings call to comment officially on the speculation surrounding an acquisition by  India's Reliance Industries Ltd. or some other global energy player.

"One of the benefits [of the rumor] has been to point out to the investment community the earnings power of our portfolio and our company," he said, speaking publicly on the subject for the first time. "We have lots of earnings power ... and we think our stock is terribly undervalued."

Other rumored suitors included Royal Dutch Shell and China National Offshore Oil Corp. (CNOOC).

(See Related Content below for previous CSP Daily News coverage.)

The results were Valero's best in four years, said the Associated Press. Valero's surging profit can be explained by looking at the kind of oil it uses to make gasoline, diesel and other fuels, said the report. It is one of a handful with access to West Texas Intermediate (WTI) crude, a U.S.-based oil that has been unusually cheap this year when compared with other varieties.

As prices for WTI fell in the quarter, Valero hit a sweet spot. It was able to keep the cost of crude relatively low at a time when retail prices for gasoline, diesel and other fuels were climbing.

For the period, Valero reported net income from continuing operations of $1.2 billion, or $2.11 per share, versus $303 million, or 53 cents per share, for third-quarter 2010. For the nine months ended September 30, 2011, net income attributable to Valero stockholders from continuing operations was $2.1 billion, or $3.59 per share, versus $743 million, or $1.31 per share for the nine months ended September 30, 2010.

Third-quarter 2011 operating income was $2 billion versus third-quarter 2010 operating income of $590 million.

"We achieved our best quarterly earnings per share since 2007," said Valero chairman and CEO Bill Klesse. "Our focus on improving operations and the competitiveness of our portfolio has produced solid financial results. We were able to capitalize on favorable refining margins and attain our highest refinery utilization since the third quarter of 2007."

Valero's retail segment continued to perform well, with $97 million in operating income during third-quarter 2011 versus third-quarter 2010 operating income of $105 million. The slight decrease in operating income was mainly due to lower fuel margins and volumes in U.S. retail operations, but was somewhat offset by higher margins in Canadian retail operations.

"While fourth-quarter refining margins have declined from the high levels of the second and third quarters and we are experiencing very high price volatility, crude oil prices are in a range that is supportive of global demand growth. We're also seeing continued product demand from international markets despite the economic uncertainty in Western Europe," Klesse added.

Valero's ethanol segment had a record-setting quarter with $107 million in operating income, which was the highest quarterly operating income since Valero entered the ethanol business, and compares to $47 million in third-quarter 2010.

San Antonio-based Valero Energy, through its subsidiaries, is an international manufacturer and marketer of transportation fuels, other petrochemical products and power. Valero subsidiaries employ approximately 22,000 people, and assets include 16 petroleum refineries with a combined throughput capacity of approximately 3 million barrels per day and 10 ethanol plants with a combined production capacity of 1.2 billion gallons per year. Approximately 6,800 retail and branded wholesale outlets carry the Valero, Diamond Shamrock, Shamrock and Beacon brands in the United States and the Caribbean; Ultramar in Canada; and Texaco in the United Kingdom and Ireland.