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Valero's Quarterly Earnings Soar

SAN ANTONIO -- Valero Energy Corp. more than doubled its earnings in the third quarter, fueled by relatively low prices on a type of crude oil the San Antonio-based refiner specializes in, as well as improved profits for distilled fuels such as diesel and heating oil, reported the San Antonio Express News.

Valero on Tuesday announced net income of $434.5 million for the three months that ended Sept. 30, compared with $191.1 million for the same period last year. Revenue rose to $14.34 billion from $9.92 billion in the year-ago quarter.

Valero CEO Bill Greehey described the profit margins on refined products as outstanding, but the real story was in discounts in sour crude, which is a cheaper alternative to sweet crude. Both are transformed into gasoline, diesel fuel and heating oil, but because sour crude contains more metals and sulfur, it is more difficult to refine.

Several of Valero's 15 refineries are designed to process sour crude, giving the company an advantage when oil prices are high, as they have been in recent months.

Operating income for refining was up 94 percent for the quarter to $760.5 million. About $480 million of that was due to the increase in sour crude discounts.

"That's the biggest advantage they have," said Fadel Gheit, an energy analyst with Oppenheimer & Co. "Other refiners don't have the inherent advantage that Valero does. The heavy sour crude discount is at a record level. Usually it averages $3 or $4. Now it's over $10."

Greehey expects that advantage to continue. "Most of the growth in crude oil demand is for sweet crudes, while the vast majority of the world's incremental reserves are sour and heavy," he said.

Operating income for Valero's retail segment, which includes 4,500 gas stations across North America, declined 23 percent during the quarter to $36.6 million as retailers' profits narrowed with the overall rising price of oil.

Greehey said he expects this year's record earnings to continue into the new year. He forecasts that sour crude discounts should be even higher next year. Additionally, he said Valero will have 100,000 barrels per day of increased capacity next year, due to the acquisition in February of a refinery in Aruba, as well as other strategic improvements.
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