Valero Posts Q4 Loss, Expects Profitable 2010
SAN ANTONIO -- Valero Energy Corp. reported for the fourth quarter 2009 a loss from continuing operations excluding special items of $155 million, compared to income of $795 million for the period in 2008.
For the year ended Dec. 31, 2009, the company reported a loss from continuing operations excluding special items of $55 million. This compares to full-year 2008 income from continuing operations excluding special items of $2.8 billion.
"Weak demand, narrow margins, and low discounts in the fourth quarter exemplified how difficult refining conditions were in 2009," said Bill Klesse, Valero's chairman and CEO. "While 2009 may have been the bottom for refining profitability, there's too much inventory and spare refining capacity in the industry right now for margins to rebound quickly. Economic growth will help demand recover in 2010, but we also expect new refining capacity to come online in the U.S. and around the world. Therefore, 2010 is expected to be another challenging year for the industry while refiners close marginal capacity and wait for demand growth to work down spare capacity."
The fourth quarter 2009 operating loss, excluding special items, was $179 million, compared to fourth quarter 2008 operating income, excluding special items, of $1.3 billion. The decline in operating income, excluding special items, was primarily due to a significant decline in discounts on sour crude oil and other feedstocks, coupled with lower margins on diesel and jet fuel. Also contributing to the decrease in operating income was the unfavorable effect from a year-end 2009 LIFO decrement of $66 million before taxes, vs. the favorable effect of a year-end 2008 LIFO increment of $327 million before taxes.
"Assuming another year of low margins, Valero should be profitable in 2010 because of the strategic actions we have taken to improve our competitive position," continued Klesse. "In our refining system, we have shut down unprofitable capacity and continue to reduce costs."
Valero reduced capital spending, plus turnaround and catalyst expenditures, to $2.7 billion in 2009, which is down $580 million from 2008. "We expect the savings to continue into 2010 with a full-year budget planned at $2 billion," Klesse said. "Looking back on our investment in the ethanol business in 2009, our timing could not have been better. We bought high-quality ethanol plants at a fraction of replacement cost, just before ethanol margins turned higher. With $94 million of operating income in the fourth quarter and a total of $165 million operating income in less than three full quarters of operations, our returns have been excellent. In 2010, we look forward to integrating the two additional plants we recently acquired."
The company is in advanced negotiations to sell assets in Delaware City.
"For 2010, we have targeted another $100 million of pre-tax cost reductions throughout our system, and we will continue to seek additional ways to improve our competitiveness," Klesse said.
Meanwhile, New York-based Hess Corp. reported net income of $358 million for the fourth quarter 2009, compared with a net loss of $74 million for the quarter in 2008.
Still, marketing and refining earnings were $17 million in fourth quarter, compared to $152 million in the fourth quarter of 2008. Refining operations generated a loss of $40 million, compared to income of $27 million in the fourth quarter of 2008, a result of lower refining margins, the company said.
Marketing earnings were $45 million in the period, compared to $138 million in the fourth quarter of 2008, primarily due to lower margins. Trading activities produced income of $12 million in the fourth quarter of 2009, compared to a loss of $13 million in the fourth quarter of 2008.
At ConocoPhillips Co., based in Houston, fourth-quarter adjusted earnings hit $1.7 billion, compared with adjusted earnings of $1.9 billion for the same period in 2008. For the quarter, cash from operations was $5.1 billion, which was used to fund capital of $3.1 billion and pay dividends of $0.7 billion. Debt was reduced to $28.7 billion, resulting in a year-end debt-to-capital ratio of 31 percent.
"Our upstream business performed well during this quarter and throughout 2009," said Jim Mulva, chairman and CEO. "In downstream, our utilization rates were significantly impacted by reduced run rates due to low worldwide refining margins."
For 2009, the company achieved cost reductions of $1.9 billion, or $1.7 billion adjusted for severance accruals. This is a decrease of approximately 12 percent for the year, exceeding the original target of $1.4 billion, or 10 percent. Market factors such as foreign currency and lower energy costs contributed about 60 percent of the reductions. In addition, savings were realized through the renegotiation of service and supply contracts, work force reductions and an ongoing focus on costs.
"In our downstream segment, we are responding to a difficult market by lowering utilization, reducing discretionary capital expenditures, managing costs and optimizing turnaround timing. In the fourth quarter our worldwide refining crude oil capacity utilization rate was 76 percent," Mulva added.
Fourth-quarter 2009 adjusted earnings decreased vs. fourth-quarter 2008 adjusted earnings, primarily due to lower refining and marketing margins, volumes and natural gas prices. The decrease was partially offset by higher earnings from improved crude oil prices, as well as lower costs across the company.
For the fourth quarter of 2009, ConocoPhillips reported earnings of $1.2 billion, reflecting impairments primarily related to certain mature natural gas properties in western Canada and the company's equity investment in Naryanmarneftegaz LLC. This compares with a loss of $31.8 billion from the same period in 2008.
ConocoPhillips' full-year 2009 adjusted earnings were $5.4 billion, compared with full-year 2008 adjusted earnings of $16.4 billion. The 2009 adjusted earnings were lower than 2008 because of lower commodity prices and margins, partially offset by higher volumes and lower costs. Full-year 2009 earnings were $4.9 billion, compared with a loss of $17.0 billion in 2008.
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For the year ended Dec. 31, 2009, the company reported a loss from continuing operations excluding special items of $55 million. This compares to full-year 2008 income from continuing operations excluding special items of $2.8 billion.
"Weak demand, narrow margins, and low discounts in the fourth quarter exemplified how difficult refining conditions were in 2009," said Bill Klesse, Valero's chairman and CEO. "While 2009 may have been the bottom for refining profitability, there's too much inventory and spare refining capacity in the industry right now for margins to rebound quickly. Economic growth will help demand recover in 2010, but we also expect new refining capacity to come online in the U.S. and around the world. Therefore, 2010 is expected to be another challenging year for the industry while refiners close marginal capacity and wait for demand growth to work down spare capacity."
The fourth quarter 2009 operating loss, excluding special items, was $179 million, compared to fourth quarter 2008 operating income, excluding special items, of $1.3 billion. The decline in operating income, excluding special items, was primarily due to a significant decline in discounts on sour crude oil and other feedstocks, coupled with lower margins on diesel and jet fuel. Also contributing to the decrease in operating income was the unfavorable effect from a year-end 2009 LIFO decrement of $66 million before taxes, vs. the favorable effect of a year-end 2008 LIFO increment of $327 million before taxes.
"Assuming another year of low margins, Valero should be profitable in 2010 because of the strategic actions we have taken to improve our competitive position," continued Klesse. "In our refining system, we have shut down unprofitable capacity and continue to reduce costs."
Valero reduced capital spending, plus turnaround and catalyst expenditures, to $2.7 billion in 2009, which is down $580 million from 2008. "We expect the savings to continue into 2010 with a full-year budget planned at $2 billion," Klesse said. "Looking back on our investment in the ethanol business in 2009, our timing could not have been better. We bought high-quality ethanol plants at a fraction of replacement cost, just before ethanol margins turned higher. With $94 million of operating income in the fourth quarter and a total of $165 million operating income in less than three full quarters of operations, our returns have been excellent. In 2010, we look forward to integrating the two additional plants we recently acquired."
The company is in advanced negotiations to sell assets in Delaware City.
"For 2010, we have targeted another $100 million of pre-tax cost reductions throughout our system, and we will continue to seek additional ways to improve our competitiveness," Klesse said.
Meanwhile, New York-based Hess Corp. reported net income of $358 million for the fourth quarter 2009, compared with a net loss of $74 million for the quarter in 2008.
Still, marketing and refining earnings were $17 million in fourth quarter, compared to $152 million in the fourth quarter of 2008. Refining operations generated a loss of $40 million, compared to income of $27 million in the fourth quarter of 2008, a result of lower refining margins, the company said.
Marketing earnings were $45 million in the period, compared to $138 million in the fourth quarter of 2008, primarily due to lower margins. Trading activities produced income of $12 million in the fourth quarter of 2009, compared to a loss of $13 million in the fourth quarter of 2008.
At ConocoPhillips Co., based in Houston, fourth-quarter adjusted earnings hit $1.7 billion, compared with adjusted earnings of $1.9 billion for the same period in 2008. For the quarter, cash from operations was $5.1 billion, which was used to fund capital of $3.1 billion and pay dividends of $0.7 billion. Debt was reduced to $28.7 billion, resulting in a year-end debt-to-capital ratio of 31 percent.
"Our upstream business performed well during this quarter and throughout 2009," said Jim Mulva, chairman and CEO. "In downstream, our utilization rates were significantly impacted by reduced run rates due to low worldwide refining margins."
For 2009, the company achieved cost reductions of $1.9 billion, or $1.7 billion adjusted for severance accruals. This is a decrease of approximately 12 percent for the year, exceeding the original target of $1.4 billion, or 10 percent. Market factors such as foreign currency and lower energy costs contributed about 60 percent of the reductions. In addition, savings were realized through the renegotiation of service and supply contracts, work force reductions and an ongoing focus on costs.
"In our downstream segment, we are responding to a difficult market by lowering utilization, reducing discretionary capital expenditures, managing costs and optimizing turnaround timing. In the fourth quarter our worldwide refining crude oil capacity utilization rate was 76 percent," Mulva added.
Fourth-quarter 2009 adjusted earnings decreased vs. fourth-quarter 2008 adjusted earnings, primarily due to lower refining and marketing margins, volumes and natural gas prices. The decrease was partially offset by higher earnings from improved crude oil prices, as well as lower costs across the company.
For the fourth quarter of 2009, ConocoPhillips reported earnings of $1.2 billion, reflecting impairments primarily related to certain mature natural gas properties in western Canada and the company's equity investment in Naryanmarneftegaz LLC. This compares with a loss of $31.8 billion from the same period in 2008.
ConocoPhillips' full-year 2009 adjusted earnings were $5.4 billion, compared with full-year 2008 adjusted earnings of $16.4 billion. The 2009 adjusted earnings were lower than 2008 because of lower commodity prices and margins, partially offset by higher volumes and lower costs. Full-year 2009 earnings were $4.9 billion, compared with a loss of $17.0 billion in 2008.
Related News:
Valero CEO: Improvement Ahead, Margins Remain Low
Low Gas Demand Sparks Uncertain Future for Refiners
Shell CEO Predicts 'Challenging' 2010