Valero Energy Corporation performed very well in 2018.
Management is committed to rewarding shareholders via buybacks and dividend increases.
Covering the financial and operational performance of Valero Energy’s three main divisions.
Refining giant Valero Energy Corporation (NYSE:VLO) just reported its earnings for the fourth quarter of 2018 that won over some love from Wall Street. Both its earnings and revenue generation beat expectations, which is always a good sign. As of this writing, Valero yields 4.2%, as management boosted the firm’s quarterly payout by 13% in January 2019. This is on top of rewarding investors through $1.7 billion in share buybacks and $1.4 billion in dividend payments last year. Let’s dig in.
Strong refining margins carry the firm higher
Valero Energy’s operating income climbed up to $4.7 billion in 2018 from $3.7 billion in 2017. However, due to a $0.9 billion income tax benefit in 2017 versus a $0.9 billion income tax expense in 2018, it appears that the firm’s income generation materially weakened last year, which isn’t really the case. From 2017 to 2018, Valero Energy’s net income attributable to stockholders fell from $4.1 billion to $3.1 billion. A 4% reduction in its outstanding diluted share count helped offset some of the pain as its EPS dropped from $9.16 to $7.29 on a fully-diluted basis.
When comparing the performance of its refining division on a year-over-year basis, it is clear Valero Energy did quite well in 2018. Its average total throughput volumes for the year climbed by 2% to 2,986,000 bpd, which lifted its product yield by 2% to 3,025,000 bpd.
On top of higher throughput volumes, Valero’s refining margin grew by 10% year-over-year to $10.05 per barrel in 2018. Refining margin means the crack spread Valero received, the difference between its feedstock costs and the price received for its petroleum product production. Strong crack spreads ultimately enabled its refining division’s adjusted operating income per barrel of throughput (the amount of income generated per refined barrel after taking crack spreads and operating expenses into account) to grow by 22% year-over-year to $4.58 per barrel in 2018.
Crude-by-rail has rebounded across U.S. as production has outstripped pipeline capacity
2 Feb 2019, By Rebecca Elliott and Paul Ziobro, The Wall Street Journal
The use of trains to carry crude is surging after dropping in recent years amid concerns about safety, as drillers in parts of North America produce more oil than area pipelines can accommodate.
An average of 718,000 barrels of crude a day traversed America’s railways as of October, the latest data available, an 88% increase from a year earlier, according to the U.S. Energy Information Administration. That compares with a peak average of about 1.1 million barrels in October 2014.
Much of the recent oil train growth is due to record shipments from Canada, where pipeline expansion projects, including Keystone XL and Trans Mountain, have stalled amid environmental opposition and legal delays. Crude-by-rail shipments also have ticked up from North Dakota’s Bakken region and the Permian Basin of West Texas and New Mexico, according to energy-monitoring firm Genscape Inc.
The crude-by-rail comeback is expected to last through late this year in the Permian, and longer in North Dakota and Canada, as companies struggle to lay new pipe as quickly as drillers are getting oil out of the ground.
Shipping oil by train is more expensive than sending it through a pipeline, so producers often avoid making longterm commitments to rail companies. It costs about $20 a barrel to send oil by rail from Canada to the U.S. Gulf Coast, compared with about $12.50 by pipeline, according to energy investment bank Tudor Pickering Holt & Co.
But pipeline projects typically lag behind growth in oil and gas production, and the gap has lengthened in many parts of the country in recent years as local activism has made it increasingly difficult to complete projects. Meantime, North American oil production topped 15.6 million barrels daily in August, a 17% annual increase, according to the EIA.
Bottlenecks have grown particularly severe in Canada. Heavy crude there was selling locally for more than $50 a barrel below U.S. benchmark prices last fall, reflecting producers’ inability to get it to market due to pipeline problems. U.S. oil prices have since fallen about 24%, closing at $54.23 a barrel on Wednesday.
The congestion in Canada spurred companies including Houston-based ConocoPhillips and Calgary-based Cenovus Energy Inc. to ink rail deals.
“The intention is to bridge us over to the next major pipeline expansion, so a few years,” ConocoPhillips finance chief Don Wallette, Jr. said last fall.
Cenovus’s three-year agreements will allow it to transport about 100,000 barrels of oil daily to the U.S. Gulf Coast, where refiners mix it with lighter crudes to produce fuel.
In October, about half of the oil the U.S. imported by rail from its northern neighbor went to the Gulf Coast, EIA data show, helping to offset a 30% decline in crude purchases from Venezuela over the past two years. Roughly a quarter went to the Midwest, while smaller amounts went to the East and West coasts.
Derailments, notably one in Lac-Mégantic, Quebec, that killed 47 people in 2013, have raised concerns about the safety of transporting oil by trains on a large scale. That prompted federal regulators to impose tougher safety requirements for railcars, though opposition remains in some communities.
The heightened demand for oil train transportation has benefited railroads including Union Pacific Corp., whose petroleum shipments rose 30% last year to 228,470 carloads as the company handled more crude oil. But Chief Executive Lance Fritz said the Omaha, Neb.-based railroad isn’t investing heavily to support crude-by-rail shipping because the demand could evaporate once major pipeline projects come online. “We’re careful to make these commitments because it’s a short-lived phenomenon,” Mr. Fritz said in a recent interview. “It’s just not going to be around for long-term returns.”
Since shipping oil by rail is generally more expensive, pipelines remain a more attractive option when available, analysts say. “People would love to have the optionality to move onto crude by rail whenever they want to, but nobody wants to be signing a check for it,” RBN Energy analyst John Zanner said.
Mr. Zanner said because of limited supply of railcars and other infrastructure he doesn’t expect oil train shipments from Canada to increase significantly as a result of U.S. sanctions on Venezuela’s state-owned oil company.
Oil companies often use trains on an ad hoc basis, and rail provides geographic and financial alternatives for producers wary of committing to new pipes. Pipeline companies typically won’t proceed with a project unless drillers sign multiyear contracts guaranteeing payment regardless of whether they have oil to ship.
Whiting Petroleum Corp. is weighing those trade-offs in North Dakota, where it is evaluating whether to support an additional pipeline or rely on costlier, but more flexible, crude-by-rail transportation. Crude production in the state, once the heart of oil-train transportation, has swelled about 38% since the Dakota Access Pipeline opened in 2017, federal data show, testing the limits of existing pipelines.
In November, oil sold in Minnesota fetched as much as $19 a barrel less than it would have at the main U.S. trading hub in Cushing, Okla., reflecting the bottleneck, according to price reporting agency S&P Global Platts. “You’re always balancing between getting the infrastructure in place versus flexibility,” said Peter Hagist, a senior vice president for Whiting.
Repost from The Motley Fool [Valero’s profits continue at massive levels, although not as high as in 2017 when the Republicans gave corporations unheard-of tax windfalls. I have highlighted the only reference to west coast production. Of special interest: search this long transcript for the 9 references to “exports” and the 18 references to “rail.” – R.S.]
Valero Energy Corp (VLO) Q4 2018 Earnings Conference Call Transcript
VLO earnings call for the period ending December 28, 2018.
By Motley Fool Transcribers, Jan 31, 2019 at 4:36PM
Valero Energy Corp (NYSE:VLO) Q4 2018 Earnings Conference Call Jan. 31, 2019, 10:00 a.m. ET
Good day, ladies and gentlemen, and welcome to the Valero Energy Corporation’s Fourth Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, there will be a question-and-answer session, and instructions will follow at that time. (Operator Instructions) As a reminder, this conference call is being recorded.
I would now like to turn the conference over to Homer Bhullar, Vice President of Investor Relations. Sir, you may begin.
Homer Bhullar — Vice President, Investor Relations
Good morning, and welcome to Valero Energy Corporation’s fourth quarter 2018 earnings conference call. With me today are Joe Gorder, our Chairman, President and Chief Executive Officer; Donna Titzman, our Executive Vice President and CFO; Lane Riggs, our Executive Vice President and COO; Jason Fraser, our Executive Vice President and General Counsel and several other members of Valero Senior Management team.
If you have not received the earnings release and would like a copy, you can find one on our website at valero.com. Also attached to the earnings release are tables that provide additional financial information on our business segments. If you have any questions after reviewing these tables, please feel free to contact our Investor Relations team after the call.
I would like to direct your attention to the forward-looking statement disclaimer contained in the press release. In summary, it says that statements in the press release and on this conference call that state the company’s or management’s expectations or predictions of the future are forward-looking statements intended to be covered by the Safe Harbor provisions under federal securities laws. There are many factors that could cause actual results to differ from our expectations, including those we’ve described in our filings with the SEC.
Now I’ll turn the call over to Joe for opening remarks.
Joseph W. Gorder — Chairman, President and Chief Executive Officer
Thanks, Homer, and good morning, everyone. We are pleased to report that we completed another good quarter where we ran our business well and delivered solid financial results. Throughout the quarter, we maintained our unrelenting focus on operations excellence, which enabled us to operate safely and reliably in an environmentally responsible manner.
We also delivered on our commitment to invest in growth projects and acquisitions that increase Valero’s earnings capability, while maintaining solid returns to our stockholders. In 2018, we matched our 2017 record for process safety performance, and we continued to outperform the industry on our personnel injury rates.
For logistics investments we made over the last several years are contributing significantly to earnings. Our investments in Line 9B, the Diamond Pipeline and the Sunrise Pipeline expansion increased our systems flexibility, allowing us to take advantage of the opportunities available in the fourth quarter of 2018. In fact, we set a record for total light crude runs at 1.5 million barrels per day and a record for North American light crudes process at over 1.3 million barrels per day.
We also continued to maximize product exports into higher netback markets in Latin America. Turning to capital allocation, we continued to execute according to our disciplined framework. Our projects in execution remain on track. Construction is scheduled to finish on the Houston alkylation unit in the second quarter and the Central Texas pipelines and terminals are expected to be completed in mid 2019. Continue reading Listening in: Valero on recent earnings, then Q&A with investors→
Repost from The New Republic [Editor: Benicia wasn’t alone in this last election, suffering from the intrusion of Big Oil’s Big Money. Oil companies ratcheted up their meddling in local politics all across the land. This article highlights only a few: oil interests apparently spent $20 million in WA and $40 million in CO defeating key measures (carbon fee & fracking safety rules respectively). – R.S.]
Fossil fuel companies spent record amounts to oppose pro-climate ballot initiatives, and it paid off.
By EMILY ATKIN, November 7, 2018
The last two years in American politics have spelled trouble for the global climate, thanks largely to the Trump administration. And the next two years probably won’t be much better, given the results of Tuesday’s midterm elections.
Democrats did not quite get the blue wave they wanted, but it was even worse for environmentalists. There was no green wave whatsoever. That’s partially because of record political spending by the fossil fuel industry to oppose pro-climate initiatives, but also because of the Democratic Party’s failure as a whole to draw much attention to the issue.
The midterm elections were always going to be consequential for climate change. The world’s governments only have about twelve years to implement policies that can limit global warming to 1.5 degrees Celsius. That’s the point at which catastrophic impacts begin, according to a recent report from an international consortium of scientists.
The U.S., as the largest historical emitter of greenhouse gases, is essential to achieving that target. But for the last two years, the U.S. government has been ignoring the need to reduce emissions—and in many cases, actively working against it. Along with withdrawing from the Paris climate agreement, President Donald Trump has been attempting to repeal and weaken existing climate regulation, with the support of the Republican-controlled Congress.
The midterms gave voters two opportunities to change America’s course on climate change. They could have elected a Congress that would no longer support Trump’s anti-climate agenda. And they could have approved strong statewide climate policies to counter the federal government’s inaction.
Voters took the first opportunity, but only slightly. Democrats won the House of Representatives, making it near-impossible for Trump to pass any anti-climate legislation.
But voters didn’t elect many candidates who ran on pro-climate agendas. Environmentalists had hoped that Florida, being on the front lines of climate change, would make history in that regard. But Democratic Senator Bill Nelson, a climate champion, was unseated by Governor Rick Scott, a Republican accused of banning the word climate from state government websites. And Democratic gubernatorial candidate Andrew Gillum, who pledged to act swiftly on climate, lost to a Republican who has dismissed the problem.
Voters rejected almost every opportunity to enact strong state-level climate policies.The biggest failure by far was in Washington. Initiative 1631 would have made the state the first in the country to charge polluters for their emissions. The proceeds from the carbon fee could have provided Washington with “as much as $1 billion annually by 2023 to fund government programs related to climate change,” Fortune reported, and “potentially kickstart a national movement to staunch greenhouse gases.” The measure lost by 12 percentage points.
The renewable energy ballot initiative in Arizona also presented a big opportunity to reduce emissions. Proposition 127 would have required electric companies in Arizona to get half of their power from renewable sources like solar and wind by 2030. (In a rare win for the environment on Tuesday, Nevada voters passed their own version of that initiative.) Proposition 112, Colorado’s ballot initiative to keep oil and gas drilling operations away from where people live, was far more about protecting public health than it was about limiting climate change. But the effect would have been to limit further fossil fuel extraction in the state.
The oil and gas industry spent quite a lot of money opposing all of these pro-climate ballot initiatives. The campaign against Washington’s carbon fee “raised $20 million, 99 percent of which has come from oil and gas,” according to Vox. The carbon fee was thus one of the most expensive ballot initiative fights in Washington state history. The renewable energy fight in Arizona was also the most expensive in state history because of oil industry spending. The same was true for Colorado’s anti-fracking measure, as the oil and gas industry clearly spent nearly $40 million opposing it.
While Tuesday’s results show the impact of massive political spending by the fossil fuel lobby, they also shine a light on Democrats’ failure to mobilize voters on the issue. The Democratic Party has failed to treat climate change with much, if any urgency this election season. According to The New York Times, the “vast majority” of the party’s candidates did not mention the problem “in digital or TV ads, in their campaign literature or on social media.” And the party’s leaders in Congress have given little indication that they intend to prioritize climate change in the future. Is it any wonder voters weren’t excited about solving the problem, either?
Correction: A previous version of this story stated that Nevada voters rejected Question 6, a ballot initiative on renewable energy. The measure won.
Emily Atkin is a staff writer at The New Republic.