Valero Energy Corporation Reports Record Third Quarter Earnings
SAN ANTONIO--(BUSINESS WIRE)--Oct. 31, 2006--Valero Energy Corporation (NYSE:VLO) today reported record third quarter net income of $1.6 billion, or $2.55 per share, which compares to $862 million, or $1.47 per share, in the third quarter of 2005. The third quarter 2006 results include a $132 million pre-tax gain, or $0.13 per share, on the sale of 41 percent of the company's ownership interest in Valero GP Holdings, LLC on July 19, 2006. The third quarter 2005 results include a $621 million pre-tax LIFO charge to cost of goods sold related to the difference between the fair market value recorded for the inventories acquired from Premcor Inc. on September 1, 2005 under purchase accounting and the amounts required to be recorded under the company's LIFO accounting policy. Excluding these special items, the company's third quarter 2006 net income was $1.5 billion, or $2.42 per share, compared to $1.3 billion, or $2.19 per share, in the third quarter of 2005.
For the nine months ended September 30, 2006, the company's reported net income was $4.3 billion, or $6.83 per share, which compares to $2.2 billion, or $3.96 per share, for the nine months ended September 30, 2005. Excluding the special items noted above, the company's net income for the nine months ended September 30, 2006 was $4.3 billion, or $6.70 per share, compared to $2.7 billion, or $4.71 per share, for the same period in 2005.
Third quarter 2006 operating income was $2.3 billion, compared to $1.9 billion achieved in the same period last year excluding the LIFO charge. The increase in operating income was primarily due to higher throughput volumes from the acquisition of Premcor Inc. in September 2005 and significantly higher wholesale and retail marketing margins.
"We had the highest third quarter earnings in the company's history despite the drop in gasoline margins that began in early August," said Bill Klesse, Valero's Chief Executive Officer. "Throughout the third quarter, though, distillate margins and sour crude oil discounts were very favorable. The strong sour crude oil discounts, coupled with more reliable plant operations and outstanding U.S. marketing margins, allowed us to capture more of the margin as compared to last quarter.
"Gasoline margins in the third quarter were volatile, while distillate margins and feedstock discounts were much more stable. Gulf Coast conventional gasoline margins averaged $12 per barrel for the quarter and Gulf Coast off-road diesel margins averaged around $9 per barrel throughout the quarter. More importantly, Gulf Coast on-road diesel margins averaged almost $17 per barrel. Keep in mind that almost 75 percent of our distillate production is sold at premiums to off-road diesel or heating oil. We also benefited from favorable discounts for medium and heavy sour crude oil. Heavy sours, such as Maya, averaged nearly $15 per barrel throughout the third quarter," said Klesse.
Regarding the company's cash flow, capital spending for the first three quarters of 2006 was approximately $2.8 billion, of which $464 million was for turnaround expenditures. For the year, the company anticipates capital spending of approximately $3.7 billion. The company also purchased approximately 10 million shares of its common stock during the third quarter of 2006 and another 2 million shares in October. Through October, the company has returned $1.9 billion to shareholders by purchasing 33 million shares, or five percent of its outstanding shares, as was announced earlier in the year.
"So far in the fourth quarter, gasoline margins have recovered appreciably from September, while distillate margins and sour crude oil discounts have remained very good. In October, Gulf Coast gasoline margins have averaged $4.45 per barrel and on-road diesel margins have averaged $13.10 per barrel. These are great margins for this time of year and are the result of two key factors. On the supply side, we believe that refinery maintenance in both the U.S. and Europe has substantially reduced utilization rates and led to lower domestic production and lower imports. Even more notable is that demand has continued to be very strong for gasoline and distillates, as consumers have benefited from falling retail pump prices and a growing economy," said Klesse.
"With Valero's outlook for continued strong profits and cash flows, we are pleased that the board of directors approved a $2 billion stock purchase program so that we can continue to execute our balanced approach of investing our cash flow to improve returns and enhance shareholder value.
"We continue to believe that the combination of slower than anticipated growth in global refining capacity, cleaner fuel specifications, and continued demand growth should keep the supply and demand balance for refined products tight. Our large, complex, and geographically diverse refining system positions us ideally to benefit from this environment, and we expect Valero to continue generating strong earnings and significant free cash flow," said Klesse.
Valero's senior management will hold a conference call at 11 a.m. ET (10 a.m. CT) today to discuss this earnings release and provide an update on company operations. A live broadcast of the conference call will be available on the company's website at www.valero.com.
Valero Energy Corporation is a Fortune 500 company based in San Antonio, with approximately 22,000 employees and annual revenues of more than $90 billion. The company owns and operates 18 refineries throughout the United States, Canada and the Caribbean with a combined throughput capacity of approximately 3.3 million barrels per day, making it the largest refiner in North America. Valero is also one of the nation's largest retail operators with more than 5,500 retail and branded wholesale outlets in the United States, Canada and the Caribbean under various brand names including Valero, Diamond Shamrock, Shamrock, Ultramar, and Beacon. Please visit www.valero.com for more information.
Statements contained in this release that state the company's or management's expectations or predictions of the future are forward-looking statements intended to be covered by the safe harbor provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934. The words "believe," "expect," "should," "estimates," and other similar expressions identify forward-looking statements. It is important to note that actual results could differ materially from those projected in such forward-looking statements. For more information concerning factors that could cause actual results to differ from those expressed or forecasted, see Valero's annual reports on Form 10-K and quarterly reports on Form 10-Q, filed with the Securities and Exchange Commission and on Valero's website at www.valero.com.
VALERO ENERGY CORPORATION AND SUBSIDIARIES
EARNINGS RELEASE
(Millions of Dollars, Except per Share, per Barrel and per Gallon
Amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
2006 (1) 2005 (1) (2) 2006 (1) 2005 (1) (2)
--------- ------------ --------- ------------
STATEMENT OF INCOME
DATA:
Operating Revenues
(including $0, $2,263,
$0 and $5,083,
respectively, related
to buy/sell
arrangements) (3) (4) $24,319 $23,283 $72,041 $56,268
--------- ------------ --------- ------------
Costs and Expenses:
Cost of Sales (3) 20,419 20,638 60,801 49,389
Refining Operating
Expenses 929 759 2,804 1,903
Retail Selling
Expenses 208 197 601 551
General and
Administrative
Expenses 136 159 458 375
Depreciation and
Amortization Expense 294 219 847 588
--------- ------------ --------- ------------
Total Costs and
Expenses 21,986 21,972 65,511 52,806
--------- ------------ --------- ------------
Operating Income 2,333 1,311 6,530 3,462
Equity in Earnings of
Valero L.P. 13 13 35 32
Other Income (Expense),
Net (5) 143 11 138 (4)
Interest and Debt
Expense:
Incurred (91) (85) (280) (230)
Capitalized 45 18 129 39
Minority Interest in
Net Income of Valero
GP Holdings, LLC (5) (4) -- (4) --
--------- ------------ --------- ------------
Income Before Income
Tax Expense 2,439 1,268 6,548 3,299
Income Tax Expense 836 406 2,199 1,056
--------- ------------ --------- ------------
Net Income 1,603 862 4,349 2,243
Preferred Stock
Dividends -- 4 2 12
--------- ------------ --------- ------------
Net Income Applicable
to Common Stock $1,603 $858 $4,347 $2,231
========= ============ ========= ============
Earnings per Common
Share (6) $2.63 $1.56 $7.08 $4.25
Weighted Average
Common Shares
Outstanding (in
millions) (6) 609 551 613 526
Earnings per Common
Share - Assuming
Dilution (6) $2.55 $1.47 $6.83 $3.96
Weighted Average
Common Equivalent
Shares Outstanding
(in millions) (6) 628 587 636 566
Sept. 30, Dec. 31,
2006 2005
----------------------
BALANCE SHEET DATA:
Cash $1,029 $436
Total Debt $5,136 $5,378
VALERO ENERGY CORPORATION AND SUBSIDIARIES
EARNINGS RELEASE
(Millions of Dollars, Except per Share, per Barrel and per Gallon
Amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
2006 (1) 2005 (1) (2) 2006 (1) 2005 (1) (2)
--------- ------------ --------- ------------
Operating Income (Loss)
by Business Segment:
Refining $2,385 $1,457 $6,856 $3,776
--------- ------------ --------- ------------
Retail:
U.S. 80 7 104 28
Canada 16 17 59 60
--------- ------------ --------- ------------
Total Retail 96 24 163 88
--------- ------------ --------- ------------
Total Before Corporate 2,481 1,481 7,019 3,864
Corporate (148) (170) (489) (402)
--------- ------------ --------- ------------
Total $2,333 $1,311 $6,530 $3,462
========= ============ ========= ============
Depreciation and
Amortization by
Business Segment:
Refining $261 $186 $754 $502
--------- ------------ --------- ------------
Retail:
U.S. 15 16 43 42
Canada 6 6 19 17
--------- ------------ --------- ------------
Total Retail 21 22 62 59
--------- ------------ --------- ------------
Total Before Corporate 282 208 816 561
Corporate 12 11 31 27
--------- ------------ --------- ------------
Total $294 $219 $847 $588
========= ============ ========= ============
Operating Highlights:
Refining:
Throughput Margin per
Barrel $12.98 $13.43 $12.88 $10.80
Operating Costs per
Barrel:
Refining Operating
Expenses $3.37 $3.37 $3.47 $3.02
Depreciation and
Amortization 0.95 0.83 0.93 0.80
--------- ------------ --------- ------------
Total Operating
Costs per Barrel $4.32 $4.20 $4.40 $3.82
========= ============ ========= ============
Throughput Volumes
(Mbbls per Day):
Feedstocks:
Heavy Sour Crude 619 484 685 495
Medium/Light Sour
Crude 637 579 611 582
Acidic Sweet Crude 83 125 67 112
Sweet Crude 916 668 891 591
Residuals 308 248 247 183
Other Feedstocks 134 114 156 124
--------- ------------ --------- ------------
Total Feedstocks 2,697 2,218 2,657 2,087
Blendstocks and Other 297 227 304 220
--------- ------------ --------- ------------
Total Throughput
Volumes 2,994 2,445 2,961 2,307
========= ============ ========= ============
Yields (Mbbls per
Day):
Gasolines and
Blendstocks 1,448 1,165 1,432 1,086
Distillates 952 741 929 697
Petrochemicals 86 66 86 67
Other Products (7) 503 464 513 459
--------- ------------ --------- ------------
Total Yields 2,989 2,436 2,960 2,309
========= ============ ========= ============
VALERO ENERGY CORPORATION AND SUBSIDIARIES
EARNINGS RELEASE
(Millions of Dollars, Except per Share, per Barrel and per Gallon
Amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
2006 (1) 2005 (1) (2) 2006 (1) 2005 (1) (2)
--------- ------------ --------- ------------
Refining Operating
Highlights by Region:
(8)
Gulf Coast:
Operating Income $1,377 $1,171 $4,095 $2,637
Throughput Volumes
(Mbbls per Day) (9) 1,530 1,328 1,543 1,289
Throughput Margin per
Barrel $13.92 $13.82 $13.79 $11.17
Operating Costs per
Barrel:
Refining Operating
Expenses $3.27 $3.46 $3.24 $2.95
Depreciation and
Amortization 0.86 0.77 0.83 0.72
--------- ------------ --------- ------------
Total Operating
Costs per Barrel $4.13 $4.23 $4.07 $3.67
========= ============ ========= ============
Mid-Continent: (10)
Operating Income $436 $347 $1,119 $496
Throughput Volumes
(Mbbls per Day) (9) 568 352 552 302
Throughput Margin per
Barrel $12.43 $14.85 $11.54 $9.93
Operating Costs per
Barrel:
Refining Operating
Expenses $3.22 $3.35 $3.23 $3.23
Depreciation and
Amortization 0.89 0.80 0.89 0.70
--------- ------------ --------- ------------
Total Operating
Costs per Barrel $4.11 $4.15 $4.12 $3.93
========= ============ ========= ============
Northeast:
Operating Income $311 $281 $781 $506
Throughput Volumes
(Mbbls per Day) (9) 583 451 560 406
Throughput Margin per
Barrel $10.61 $10.27 $10.24 $7.88
Operating Costs per
Barrel:
Refining Operating
Expenses $3.72 $2.74 $4.04 $2.54
Depreciation and
Amortization 1.09 0.76 1.09 0.78
--------- ------------ --------- ------------
Total Operating
Costs per Barrel $4.81 $3.50 $5.13 $3.32
========= ============ ========= ============
West Coast:
Operating Income $261 $279 $861 $758
Throughput Volumes
(Mbbls per Day) 313 314 306 310
Throughput Margin per
Barrel $13.78 $14.78 $15.56 $13.94
Operating Costs per
Barrel:
Refining Operating
Expenses $3.49 $3.91 $3.98 $3.73
Depreciation and
Amortization 1.23 1.22 1.26 1.24
--------- ------------ --------- ------------
Total Operating
Costs per Barrel $4.72 $5.13 $5.24 $4.97
========= ============ ========= ============
Operating Income for
Regions Above $2,385 $2,078 $6,856 $4,397
LIFO Charge Resulting
from Premcor
Acquisition (1) -- (621) -- (621)
--------- ------------ --------- ------------
Total Refining
Operating Income $2,385 $1,457 $6,856 $3,776
========= ============ ========= ============
VALERO ENERGY CORPORATION AND SUBSIDIARIES
EARNINGS RELEASE
(Millions of Dollars, Except per Share, per Barrel and per Gallon
Amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
2006 2005 (2) 2006 2005 (2)
--------- -------- --------- --------
Retail - U.S.:
Company - Operated Fuel Sites
(Average) 976 1,026 987 1,029
Fuel Volumes (Gallons per Day
per Site) 5,012 4,967 4,937 4,863
Fuel Margin per Gallon $0.275 $0.121 $0.174 $0.118
Merchandise Sales $255 $250 $725 $710
Merchandise Margin (Percentage
of Sales) 29.3% 30.1% 29.8% 29.7%
Margin on Miscellaneous Sales $44 $33 $125 $91
Selling Expenses $149 $142 $427 $393
Retail - Canada:
Fuel Volumes (Thousand Gallons
per Day) 3,136 3,122 3,178 3,192
Fuel Margin per Gallon $0.209 $0.206 $0.224 $0.210
Merchandise Sales $46 $42 $125 $112
Merchandise Margin (Percentage
of Sales) 27.0% 25.0% 27.6% 25.4%
Margin on Miscellaneous Sales $9 $8 $24 $23
Selling Expenses $59 $55 $174 $158
Average Market Reference Prices
and Differentials
(Dollars per Barrel):
Feedstocks (at U.S. Gulf
Coast, except as Noted):
West Texas Intermediate (WTI)
Crude Oil $70.37 $63.05 $68.02 $55.26
WTI Less Sour Crude Oil (11) $6.14 $5.26 $7.12 $6.68
WTI Less Alaska North Slope
(ANS)
Crude Oil (U.S. West Coast) $1.43 $2.26 $1.82 $3.36
WTI Less Maya Crude Oil $14.87 $15.46 $15.39 $15.20
Products:
U.S. Gulf Coast:
Conventional 87 Gasoline
Less WTI $12.00 $19.38 $13.34 $11.63
No. 2 Fuel Oil Less WTI $8.99 $13.48 $9.87 $10.15
Propylene Less WTI $13.08 $(4.95) $10.25 $6.61
U.S. Mid-Continent:
Conventional 87 Gasoline
Less WTI $15.18 $17.41 $14.10 $11.70
Low-Sulfur Diesel Less WTI $22.89 $16.35 $18.96 $13.09
U.S. Northeast:
Conventional 87 Gasoline
Less WTI $11.83 $15.98 $11.84 $9.60
No. 2 Fuel Oil Less WTI $7.96 $12.47 $9.57 $10.80
Lube Oils Less WTI $57.85 $32.32 $51.53 $29.74
U.S. West Coast:
CARBOB 87 Gasoline Less ANS $20.15 $25.54 $22.82 $22.04
Low-Sulfur Diesel Less ANS $22.88 $24.56 $23.32 $20.94
VALERO ENERGY CORPORATION AND SUBSIDIARIES
EARNINGS RELEASE
(Millions of Dollars, Except per Share, per Barrel and per Gallon
Amounts)
(1) The information presented for the three months and nine months
ended September 30, 2006 and 2005 includes the operations related to
the acquisition of Premcor Inc. for periods subsequent to its
acquisition on September 1, 2005. For the three months and nine
months ended September 30, 2005, cost of sales includes a $621
million LIFO charge related to the difference between the fair market
value recorded for the inventories acquired in the Premcor
acquisition under purchase accounting and the amounts required to be
recorded under Valero Energy Corporation's LIFO accounting policy.
This LIFO charge is excluded from the consolidated and regional
throughput margins per barrel and the regional operating income
amounts presented herein in order to make the information presented
comparable between periods.
(2) Amounts previously reported in 2005 for refining operating
expenses, retail selling expenses, general and administrative
expenses, and depreciation and amortization expense have been
reclassified for comparability with amounts reported in 2006. The
reclassifications resulted from the following changes that took
effect on January 1, 2006: (i) information services costs that were
previously allocated to the operating units are now being reported as
general and administrative expenses to better reflect the area
responsible for such costs and (ii) Statement of Financial Accounting
Standards No. 123 (revised 2004), "Share-Based Payment," was
implemented, which resulted in amounts previously reported as
amortization expense now being reported as operating, selling or
general and administrative expenses.
(3) Valero Energy Corporation's buy/sell arrangements involve linked
purchases and sales related to crude oil contracts entered into to
address location, quality or grade requirements. Commencing January
1, 2006, Valero adopted Emerging Issues Task Force Issue No. 04-13,
"Accounting for Purchases and Sales of Inventory with the Same
Counterparty," which requires that such buy/sell arrangements be
accounted for as one transaction, thereby resulting in no recognition
of revenues and cost of sales for these transactions. For buy/sell
arrangements prior to 2006, cost of sales includes amounts which
approximate the revenues resulting from these transactions.
(4) Includes excise taxes on sales by Valero's U.S. retail system of
$197 million and $210 million for the three months ended September
30, 2006 and 2005, respectively, and $587 million and $611 million
for the nine months ended September 30, 2006 and 2005, respectively.
(5) On July 19, 2006, Valero Energy Corporation sold to the public
40.6% of its ownership interest, or 17.3 million units, in Valero GP
Holdings, LLC. Subsidiaries of Valero GP Holdings, LLC own the
general partner interest, the incentive distribution rights and a
21.4% limited partner interest in Valero L.P. The sale resulted in a
pre-tax gain of $132 million which is included in "Other Income
(Expense), Net" in the statement of income. The minority interest in
net income of Valero GP Holdings, LLC represents the public
unitholders' interest in the earnings of Valero GP Holdings, LLC
commencing on July 19, 2006.
(6) Weighted average common and common equivalent shares outstanding
and earnings per common share amounts for the three months and nine
months ended September 30, 2005 have been restated to reflect the
effect of a two-for-one split of Valero's common stock which was
effected in the form of a common stock dividend distributed on
December 15, 2005.
(7) Primarily includes gas oils, No. 6 fuel oil, petroleum coke and
asphalt.
(8) The regions reflected herein contain the following refineries
subsequent to the Premcor acquisition: Gulf Coast- Corpus Christi
East, Corpus Christi West, Texas City, Houston, Three Rivers, Krotz
Springs, St. Charles, Aruba and Port Arthur Refineries; Mid-
Continent- McKee, Ardmore, Memphis and Lima Refineries; Northeast-
Quebec, Paulsboro and Delaware City Refineries; and West Coast-
Benicia and Wilmington Refineries. The Mid-Continent region also
included the Denver Refinery prior to its disposition on May 31,
2005.
(9) Throughput volumes for the Gulf Coast, Mid-Continent and Northeast
regions for the three months ended September 30, 2006 include 277,
321 and 199 Mbbls per day, respectively, and for the nine months
ended September 30, 2006 include 291, 297 and 201 Mbbls per day,
respectively, related to the operations of the refineries acquired
from Premcor Inc. on September 1, 2005. Throughput volumes for the
Gulf Coast, Mid-Continent and Northeast regions for the three months
ended September 30, 2005 include 66, 100 and 66 Mbbls per day,
respectively, and for the nine months ended September 30, 2005
include 22, 34 and 22 Mbbls per day, respectively, related to those
acquired refineries subsequent to their acquisition date of September
1, 2005.
(10) The information presented for the Mid-Continent region for the
nine months ended September 30, 2005 includes the operations of the
Denver Refinery prior to its sale to Suncor Energy (U.S.A.) Inc. on
May 31, 2005. Throughput volumes include 21 Mbbls per day related to
the Denver Refinery for the nine months ended September 30, 2005.
(11) The market reference differential for sour crude oil is based on
50% Arab Medium and 50% Arab Light posted prices.
CONTACT: Valero Energy Corporation, San Antonio
Investors, Eric Fisher, Vice President,
Investor Relations: 210-345-2896
or
Media, Mary Rose Brown, Senior Vice President,
Corporate Communications: 210-345-2314
Website: valero.com
SOURCE: Valero Energy Corporation |
