Valero earnings fall as crude oil prices rise

Rising crude prices and weak gas margins are continuing to drag down Valero Energy's earnings from its record highs of a year ago.

For the first quarter of 2008, Valero reported net income of $261 million, or 49 cents per share. That compares to first-quarter 2007 net income of $1.1 billion, or $1.82 per share.

The first quarter 2008 figures include a pre-tax benefit of $101 million, or 12 cents per share, from business interruption insurance recovery related to the fire at the company's McKee refinery in the first quarter of 2007.

Content Continues Below

Valero officials blame the decline in net income on lower margins for many of the company's products as the cost of crude oil increased more rapidly than the prices of gasoline and other refined products.

The average price of West Texas Intermediate crude oil rose nearly $40 per barrel since last year while the price of conventional gasoline that was produced from that same barrel increased by just $34.

Valero was also impacted by a $180 million jump in refinery operating expenses due to high energy costs and maintenance expenses while throughput volumes decreased by an average of 138,000 barrels per day. But Valero officials remain upbeat regardless.

"Despite a difficult environment for gasoline margins, we reported positive results for the first quarter," says Bill Klesse, Valero's chairman and CEO. "More recently, gasoline margins have shown moderate improvement as inventories have fallen and demand has increased as it normally does this time of year."

Klesse says Valero ended the quarter with a healthy balance sheet, noting that the debt-to-capitalization ratio "stood at a relatively low 22 percent when adjusted for our $1.4 billion cash balance."

Klesse predicts that average throughput rates for its Gulf Coast refineries should increase by 100,000 barrels per day as the company completes repairs at its Port Arthur and Aruba plants.

"The refining business has always been seasonal, volatile, and cyclical," Klesse says. "We will continue working toward excellence in safety, environmental regulatory compliance, and reliability, while also striving to lower expenses and improve our effectiveness.

San Antonio-based Valero (NYSE: VLO) owns and operates 17 refineries throughout the United States, Canada and the Caribbean with a combined throughput capacity of 3.1 million barrels of oil per day. The company also is one of the nation's largest gasoline operations, with 5,800 wholesale and retail outlets under the Valero, Diamond Shamrock, Shamrock, Ultramar and Beacon brands.