Valero Energy Reports Third Quarter 2021 Results

Source: www.gulfoilandgas.com 10/21/2021, Location: North America

- Reported net income attributable to Valero stockholders of $463 million, or $1.13 per share.
- Reported adjusted net income attributable to Valero stockholders of $500 million, or $1.22 per share.
- Returned $400 million in cash to stockholders through dividends.
- Redeemed the total outstanding balance of $575 million Floating Rate Senior Notes due in 2023.
- Completed the Diamond Green Diesel expansion project (DGD 2).
- Completed and started up the new Pembroke Cogeneration Unit.

Valero Energy Corporation (VLO, “Valero”) reported net income attributable to Valero stockholders of $463 million, or $1.13 per share, for the third quarter of 2021, compared to a net loss of $464 million, or $1.14 per share, for the third quarter of 2020. Excluding the adjustments shown in the accompanying earnings release tables, third quarter 2021 adjusted net income attributable to Valero stockholders was $500 million, or $1.22 per share, compared to an adjusted net loss attributable to Valero stockholders of $472 million, or $1.16 per share, for the third quarter of 2020.

Refining

The refining segment reported $835 million of operating income for the third quarter of 2021, compared to a $629 million operating loss for the third quarter of 2020. Third quarter 2021 adjusted operating income was $853 million, compared to an adjusted operating loss of $575 million for the third quarter of 2020. Refinery throughput volumes averaged 2.9 million barrels per day in the third quarter of 2021, which was 338 thousand barrels per day higher than the third quarter of 2020.

“We saw significant improvement in refining margins in the third quarter as economic activity and mobility continued to recover in key markets,” said Joe Gorder, Valero Chairman and Chief Executive Officer. “The continued improvement in earnings of our refining business, coupled with the ongoing expansion of our renewables businesses, should strengthen our competitive advantage and drive long-term shareholder returns.”

Renewable Diesel

The renewable diesel segment, which consists of the Diamond Green Diesel (DGD) joint venture, reported $108 million of operating income for the third quarter of 2021, compared to $184 million for the third quarter of 2020. Renewable diesel sales volumes averaged 671 thousand gallons per day in the third quarter of 2021, which was 199 thousand gallons per day lower than the third quarter of 2020. The lower operating income and sales volumes in the third quarter of 2021 are primarily attributed to plant downtime due to Hurricane Ida.

Ethanol

The ethanol segment reported a $44 million operating loss for the third quarter of 2021, compared to $22 million of operating income for the third quarter of 2020. Excluding the adjustments shown in the accompanying earnings release tables, third quarter 2021 adjusted operating income was $4 million, compared to $36 million for the third quarter of 2020. Ethanol production volumes averaged 3.6 million gallons per day in the third quarter of 2021, which was 175 thousand gallons per day lower than the third quarter of 2020.

Corporate and Other

General and administrative expenses were $195 million in the third quarter of 2021, compared to $186 million in the third quarter of 2020. The effective tax rate for the third quarter of 2021 was 11 percent, which reflects the benefit from the portion of DGD’s net income that is not taxable to Valero.

Investing and Financing Activities

Net cash provided by operating activities was $1.4 billion in the third quarter of 2021. Included in this amount was a $379 million favorable impact from working capital and $59 million associated with our joint venture partner’s share of DGD’s net cash provided by operating activities, excluding changes in DGD’s working capital. Excluding these items, adjusted net cash provided by operating activities was $1.0 billion.

Capital investments totaled $585 million in the third quarter of 2021, of which $191 million was for sustaining the business, including costs for turnarounds, catalysts and regulatory compliance. Excluding capital investments attributable to our partner’s 50 percent share of DGD and those related to other variable interest entities, capital investments attributable to Valero were $392 million.

Valero returned $400 million to stockholders through dividends for a payout ratio of 40 percent of adjusted net cash provided by operating activities in the third quarter of 2021.

Valero continues to target a long-term total payout ratio between 40 and 50 percent of adjusted net cash provided by operating activities. Valero defines total payout ratio as the sum of dividends and stock buybacks divided by net cash provided by operating activities adjusted for changes in working capital and DGD’s net cash provided by operating activities, excluding changes in its working capital, attributable to our joint venture partner’s ownership interest in DGD.

Valero redeemed the entire outstanding principal amount of its $575 million Floating Rate Senior Notes due in 2023 at par value, plus accrued and unpaid interest on September 27, 2021.

Liquidity and Financial Position

Valero ended the third quarter of 2021 with $14.2 billion of total debt and finance lease obligations and $3.5 billion of cash and cash equivalents. The debt to capitalization ratio, net of cash and cash equivalents, was 37 percent as of September 30, 2021.

Strategic Update

The Diamond Green Diesel expansion project at Valero’s St. Charles refinery (DGD 2), which increases renewable diesel production capacity by 400 million gallons per year, was completed in the third quarter and is in the process of starting up.

“We are excited to report that the Diamond Green Diesel expansion project at Valero’s St. Charles refinery was successfully completed on-budget and ahead of schedule,” said Gorder. “This is a testament to the strength of our engineering and operations teams, who got this accomplished despite Hurricane Ida related challenges.”

The new DGD plant at Valero’s Port Arthur refinery (DGD 3), which is expected to have a renewable diesel production capacity of 470 million gallons per year, is progressing well and is still expected to commence operations in the first half of 2023, increasing DGD’s total annual production capacity to approximately 1.2 billion gallons of renewable diesel and 50 million gallons of renewable naphtha.

The large-scale carbon sequestration project with BlackRock and Navigator is also progressing on schedule. Navigator has received the necessary board approvals to proceed with the carbon capture pipeline system as a result of a successful binding open season. Valero is expected to be the anchor shipper with eight of Valero’s ethanol plants connected to this system, producing a lower carbon intensity ethanol product to be marketed in low-carbon fuel markets that is expected to result in a higher product margin.

Refinery optimization projects that are expected to reduce cost and improve margin capture are progressing on schedule. The Pembroke Cogeneration Unit, which is expected to provide an efficient and reliable source of electricity and steam, was completed and commissioned in the third quarter of 2021. The Port Arthur Coker project, which is expected to increase the refinery’s utilization rate and improve turnaround efficiency, is still expected to be completed in 2023.

Capital investments attributable to Valero are forecasted to be $2.0 billion in 2021, of which approximately 60 percent is for sustaining the business and approximately 40 percent is for growth projects. Over 60 percent of Valero’s 2021 growth capital is allocated to expanding the renewable diesel business.


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