Valero Energy reports strong second quarter

By Holly Jessen | July 15, 2010
Posted July 28, 2010

For Valero Energy Corp., the 2010 second quarter results are the best it's had since the third quarter of 2008. The company reported continuing operations of $530 million, or 93 cents per share, compared to a loss for the same time period last year. In the second quarter of 2009 continuing operations were $191 million or 36 cents per share. "It's great to be profitable again," said Valero Chairman and CEO Bill Klesse. Highlights for the company's refineries included higher margins on products and discounts on sour crude oils plus falling expenses.

Valero's retail operations brought in $109 million in operating income—the second best second quarter in the company's history. The retail operations in Canada contributed $33 million in operating income, while U.S. operations brought in $76 million.

Valero's ethanol business alone brought in $35 million in operating income, despite difficult conditions for the overall industry. The company owns 10 U.S. ethanol plants with a combined capacity of 1.1 billion gallons per year. "Acquiring these plants at large discounts to new-build prices and leveraging our overhead structure has helped us to earn good returns on investment, even when margins were low," Klesse said.

During a conference call held July 27, Gene Edwards, Valero's executive vice president of corporate development and strategic planning, weighed in on the current debate about the blender's credit. In answer to a question, Edwards said he didn't think that ethanol blending would decrease at all, should the blenders credit, or the Volumetric Ethanol Excise Tax Credit, not be extended at the end of the year. In fact, he said, the credit doesn't factor into Valero ethanol plant economics at all. "The ethanol plants really aren't even capturing the credit," he said. "The credit is being captured by those that blend the ethanol, so from an ethanol manufacturing standpoint, it's almost irrelevant today." However, he did add that if margins changed the blender's credit could become more important.