Valero Energy 3Q profit soars

AP News
Posted: Nov 01, 2011 3:53 PM
Valero Energy 3Q profit soars

Valero Energy Corp. said Tuesday its profit soared in the third quarter as it cut raw material costs while the price of gasoline and other fuels increased. Valero also boosted production.

America's largest oil refiner reported net income of $1.2 billion, or $2.11 per share, for the three-month period ended Sept. 30. That compares with $292 million, or 51 cents per share, a year earlier.

Revenue increased 60.4 percent to $33.7 billion from $21 billion a year ago.

The results were Valero's best in four years. They also beat Wall Street expectations of $1.80 per share on revenue of $31.4 billion, according to FactSet.

Valero's surging profit can be explained by looking at the kind of oil it uses to make gasoline, diesel, and other fuels. It's one of a handful with access to West Texas Intermediate crude, a U.S.-based oil that has been unusually cheap this year when compared with other varieties.

As prices for WTI fell in the quarter, Valero hit a sweet spot. It was able to keep the cost of crude relatively low at a time when retail prices for gasoline, diesel and other fuels were climbing.

That's not always the case. In fact, price swings have already made the refining business less profitable. WTI is rising again _ it's up 15 percent since the end of the third quarter _ and that will hurt profits in the final three months of the year, the company said.

Shares fell 21 cents to $24.39 in afternoon trading Tuesday.

Oppenheimer & Co. analyst Fadel Gheit said investors are doubtful that Valero will be able to repeat its third-quarter performance. "People are saying `What can you do for an encore?' This likely cannot be repeated."

CEO Bill Klesse said this year's rise in oil prices is still "supportive of global demand growth." Western Europe may continue to suffer as it works through a credit crisis, but Klesse said the company sees "continued product demand from international markets."

From July to September, the San Antonio company focused on using light-sweet oil varieties that were cheaper than others. WTI, for example, is tough to transport internationally, so it hasn't risen with other types of crude that are in high demand in Europe and Asia. Brent crude, which is used to price many foreign oils, has at times traded at $20 to $30 per barrel higher than WTI this year.

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Valero took advantage of that price difference, expanding its pipeline network to run more WTI. Meanwhile it sold fuel at higher prices as the national average for gasoline prices rose 33.1 percent, diesel prices rose 31.8 percent and jet fuel prices rose 46.1 percent.

Valero cranked up fuel production as well, thanks to the addition of two refineries _ one that was acquired in August, and another that wasn't in operation last year. Its refineries churned out an average increase of 389,000 barrels per day.

The company also reported that its ethanol business more than doubled profits in the quarter and set a company earnings record at $107 million in the quarter. Its retail business, which includes Valero gasoline stations, saw profits drop 8 percent to $97 million.