10-QPeriod: Q3 FY2011

VALERO ENERGY CORP/TX Quarterly Report for Q3 Ended Sep 30, 2011

Filed November 9, 2011For Securities:VLO

Summary

Valero Energy Corporation (VLO) reported a significant increase in net income attributable to stockholders for the nine months ended September 30, 2011, reaching $2.045 billion ($3.58 per share) compared to $762 million ($1.34 per share) in the same period of 2010. This substantial improvement was driven by a strong performance in the refining segment, which benefited from wider sour crude oil differentials and favorable pricing between different crude oil types, leading to significantly improved refining margins. The company also completed two major acquisitions during the period: the Pembroke Refinery in the UK and the Meraux Refinery in Louisiana, expanding its geographic reach and operational capacity. Despite the overall positive financial results, the company faces ongoing volatility in energy markets and potential impacts from environmental regulations. Management highlighted increased capital expenditures for improvements to refineries and environmental projects. Valero maintained a strong liquidity position, with significant cash from operations and available credit facilities, enabling these strategic investments and acquisitions.

Financial Highlights

47 data points
Beta

Net Income

$1.20B

EPS (Diluted)

$2.11

Total Assets

$41.68B

Cash & Equivalents

$2.83B

Free Cash Flow

$1.37B

Financial Statements
Beta
Operating Expenses$31.73B
Operating Income$1.98B
Interest Expense$88.00M
Net Income$1.20B
EPS (Basic)$2.12
EPS (Diluted)$2.11
Shares Outstanding (Basic)564.00M
Shares Outstanding (Diluted)569.00M

Key Highlights

  • 1Net income attributable to Valero stockholders increased significantly to $2.045 billion for the nine months ended September 30, 2011, up from $762 million in the prior year period.
  • 2Refining segment operating income more than doubled, driven by improved refining margins due to wider sour crude oil differentials and favorable pricing between crude oil types.
  • 3Acquired the Pembroke Refinery in the UK on August 1, 2011, for approximately $1.675 billion, expanding international operations and geographic diversity.
  • 4Acquired the Meraux Refinery in Louisiana on October 1, 2011, for approximately $586 million, further strengthening its refining network.
  • 5Total assets grew to $41.68 billion as of September 30, 2011, up from $37.62 billion at the end of 2010, reflecting the impact of acquisitions and capital expenditures.
  • 6Operating cash flow for the first nine months of 2011 was $4.3 billion, a substantial increase from $2.6 billion in the comparable 2010 period, indicating strong operational cash generation.
  • 7The company reported a $542 million loss on commodity derivative contracts related to forward sales of refined products in the first quarter of 2011, which impacted the nine-month results but was a one-time event.

Frequently Asked Questions

The significant improvement in Valero's financial performance was primarily driven by strong operating income from the refining segment. This was fueled by increased refining margins, which benefited from wider sour crude oil differentials (the price difference between sour and sweet crude oil) and favorable pricing dynamics between different crude oil types, particularly WTI versus LLS. Additionally, the restart of the Aruba refinery and the acquisition of the Pembroke refinery contributed to higher throughput volumes.

Valero completed two major strategic acquisitions: the Pembroke Refinery in the UK on August 1, 2011, and the Meraux Refinery in Louisiana on October 1, 2011. These acquisitions aimed to expand geographic diversity, enhance operational capacity, and complement the existing refining and marketing network. The acquisitions represent significant investments, funded by cash, and are expected to contribute to future growth.

Valero highlighted several risks and uncertainties, including volatility in energy markets, the impact of government regulations on greenhouse gas emissions (such as California's AB 32 and EPA regulations), potential disruptions from environmental enforcement matters, and overall economic conditions. The company noted that compliance with environmental regulations could lead to increased costs and operating restrictions, potentially impacting financial position, results of operations, and liquidity.

Valero maintained strong liquidity, with net cash provided by operating activities increasing substantially to $4.3 billion in the first nine months of 2011. This cash, along with available credit facilities, funded significant capital expenditures of $2.1 billion (including refinery improvements and environmental projects), the acquisitions of Pembroke and Meraux refineries, debt repayments, and share repurchases, demonstrating robust financial flexibility.