Tuesday, November 1, 2011

Valero 3Q Net Quadruples On Higher Refining Throughput Margin


By Ben Lefebvre

Dow Jones Newswires

-Valero earnings quadruple amid higher refining margins

-Fourth quarter looks to slow amid higher U.S. oil price

-Refining profits look to remain at pre-recession levels

HOUSTON -(Dow Jones)- Valero Energy Corp.'s (VLO) third-quarter earnings quadrupled because of higher refining margins, but the good times may be slowing down, the company said Tuesday.

Valero and other refiners were able to take advantage of crude oil in the Midwest being at record discounts to that found on the coasts, allowing them to buy oil cheap and sell finished product at prices closer to their higher-cost competitors. Operating earnings at its refining business more than doubled as the profit margin per barrel rose to $13.24 from $8.13 a year earlier.

Valero reported a profit of $1.2 billion, or $2.11 a share, up from $292 million, or 51 cents, a year earlier on revenue of $33.7 billion. Earnings from continuing operations were 53 cents in the year-earlier quarter. Analysts polled by Thomson Reuters had most recently forecast earnings of $1.94 on revenue of $31.8 billion.

Although Valero's earnings are at their best since 2007, the outlook for the fourth quarter isn't as strong. Global fuel demand remains strong, but U.S. oil prices have risen closer to their European counterpart Brent, signaling that refining margins might recede from current record highs, said Valero Chief Executive Bill Klesse.

"While fourth-quarter refining margins have declined from the high levels of the second and third quarters and we are experiencing very high price volatility, crude oil prices are in a range that is supportive of global demand growth," Klesse said.

The quarter also saw Valero start production at the refinery in Milford Haven, Wales, that it bought from Chevron in a deal valued at $1.75 billion. Between that refinery addition and the restart of its refinery in Aruba, Valero added 389,000 barrels a day of production in the quarter.

Despite stagnant U.S. fuel demand, refiners have been able to parlay favorable oil pricing into profits at home and increase their export sales into Latin America, where refinery troubles have stalled production even as growing economies foster fuel demand.

Although the fourth quarter looks to be slower, Valero and other refiners maintain should see their profits remain at pre-recession levels, said Brian Youngberg, analyst at investment bank Raymond James.

"Relative to what we've seen in last two or three years, everything improved: refining margins, increased volumes and even ethanol had a record quarter," Youngberg said. "But no one should expect the fourth quarter to keep pace."

-Melodie Warner contributed reporting

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