Valero's retail operating income was $66 million in first-quarter 2011 versus $71 million in first-quarter 2010. The slight decline in operating income was mainly due to the narrowing of [image-nocss] U.S. retail fuel margins as pump prices failed to keep pace with rising crude oil prices, while Canadian retail fuel margins increased on local demand strength.
Valero's ethanol operating income was $44 million in first-quarter 2011 versus $57 million in the first-quarter 2010. The decrease in operating income was mainly due to corn costs rising faster than ethanol prices, squeezing gross margins from 63 cents per gallon in first-quarter 2010 to 50 cents per gallon in first-quarter 2011.
"Clearly, the first quarter was a much better start to the year than last year," said Valero chairman and CEO Bill Klesse. "Our refining system experienced strong margins and turned in solid results despite a heavy maintenance schedule and associated restart delays. We also announced the acquisition of Chevron's Pembroke refinery, marketing and logistics assets in the United Kingdom and Ireland. These attractively priced assets will improve the competitiveness of our asset portfolio and should be immediately accretive to earnings upon closing in the third quarter."
He added, "Refining industry margins and feedstock discounts in our markets were very strong in the first quarter because of global demand strength and production issues in foreign refineries. In particular, our inland refineries benefited from processing WTI-type crude oils, which have been pricing at a significant discount to waterborne light-sweet crude oils such as LLS and Brent. Combined with our heavy and sour crude oil processing capabilities, more than 80% of Valero's refining capacity can process feedstocks that price below waterborne light-sweet crude oils."
Commenting on the industry outlook, Klesse said, "Although crude oil prices have been over $100 per barrel, demand outside the U.S. and Western Europe is resilient and growing. The rapid economic growth in developing economies has been fueling the strength in refining margins the past year, and we continue to see attractive opportunities to export products from our Gulf Coast refineries. Benchmark margins and feedstock discounts in the second quarter have increased from first quarter levels, and prices in the forward markets over the past couple of months have consistently implied very strong refining margins throughout 2011."
"We expect a strong second quarter for Valero," Klesse continued. "With our refineries coming back online from maintenance and operating at higher rates, we expect to capture more of these outstanding margins and wide discounts. In addition, we successfully completed key projects that should enhance profitability, including replacement of the coke drums at our Port Arthur refinery, and we are nearly complete with the revamp of our cat-cracking unit at the St. Charles refinery."
Klesse concluded, "We are very excited about Valero's growth prospects. In addition to favorable industry conditions, we expect to add significant earnings power via the Pembroke acquisition later this year and our major growth projects that are on track for completion in 2012. Those projects, particularly the hydrocrackers and hydrogen plants, are ideal for this environment of high crude oil and low natural gas prices, as well as growing global demand for diesel and gasoline. Besides the successful execution of our growth plans, we remain focused on cost savings, and, of course, safe, reliable, and regulatory-compliant operations."
San Antonio, Texas-based Valero is an international manufacturer and marketer of transportation fuels, other petrochemical products and power. Its assets include 14 petroleum refineries with a combined throughput capacity of approximately 2.6 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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