Difficult Conditions'

Valero loses $155 million; Hess brings in $358 million

Published in CSP Daily News

SAN ANTONIO & NEW YORK -- Valero Energy Corp. saw a loss of $155 million in its fourth quarter, while Hess Corp. income was up to a healthy $358 million compared with a loss of $74 million in the fourth quarter 2008. Both companies reported their fourth-quarter earnings this week.

Valero's loss compares to fourth quarter 2008 income from continuing operations, excluding special items, of $795 million, or $1.53 per share. On a GAAP basis, the company reported a fourth quarter 2009 loss from continuing operations of $182 million, or $0.32 per share, compared to a fourth [image-nocss] quarter 2008 loss from continuing operations of $3.2 billion, or $6.22 per share.

For the year ended Dec. 31, 2009, Valero reported a loss from continuing operations, excluding special items, of $55 million, or $0.10 per share. This compares to full-year 2008 income from continuing operations, excluding special items, of $2.8 billion, or $5.35 per share. The company reported on a GAAP basis a loss from continuing operations of $352 million, or $0.65 per share, for the full-year 2009, compared to a loss from continuing operations of $1.0 billion, or $1.93 per share, for the full-year 2008.

The fourth quarter 2009 operating loss, excluding special items, was $179 million, compared to fourth quarter 2008 operating income, excluding special items, of $1.3 billion. The decline in operating income, excluding special items, was primarily due to a significant decline in discounts on sour crude oil and other feedstocks coupled with lower margins on diesel and jet fuel.

"Weak demand, narrow margins and low discounts in the fourth quarter exemplified how difficult refining conditions were in 2009," said Bill Klesse, Valero's chairman of the board and chief executive officer. "While 2009 may have been the bottom for refining profitability, there's too much inventory and spare refining capacity in the industry right now for margins to rebound quickly. Economic growth will help demand recover in 2010, but we also expect new refining capacity to come online in the U.S. and around the world. Therefore, 2010 is expected to be another challenging year for the industry while refiners close marginal capacity and wait for demand growth to work down spare capacity.

"However, assuming another year of low margins like in 2009, Valero should be profitable in 2010 because of the strategic actions we have taken to improve our competitive position," continued Klesse. "In our refining system, we have shut down unprofitable capacity and continue to reduce costs. For example, refinery operating expenses in 2009 excluding depreciation and amortization fell $900 million vs. 2008. Approximately $215 million of the savings was due to our aggressive cost-reduction efforts, and most of the remainder was a result of lower energy and natural gas prices.

"We also reduced capital spending plus turnaround and catalyst expenditures to $2.7 billion in 2009, which is down $580 million from 2008. We expect the savings to continue into 2010 with a full year budget planned at $2 billion.

Valero Energy Corp. is a Fortune 500 company based in San Antonio. The company owns or operates 15 refineries with a combined throughput capacity of approximately 2.8 million barrels per day. Valero is also a leading ethanol producer with nine ethanol plants in the Midwest with a combined capacity of 1 billion gallons per year, and is one of the nation's largest retail operators with approximately 5,800 retail and branded wholesale outlets in the United States, Canada and the Caribbean under the Valero, Diamond Shamrock, Shamrock, Ultramar, and Beacon brands.

Meanwhile, Hess Corp. reported net income of $358 million for the fourth quarter of 2009 compared with a net loss of $74 million for the fourth quarter of 2008.

Exploration and production earnings were $494 million in the fourth quarter of 2009 compared with a loss of $125 million in the fourth quarter of 2008. The corporation's oil and gas production was 415,000 barrels of oil equivalent per day in the fourth quarter of 2009, an increase of 9.5% from the fourth quarter of 2008. The corporation's average worldwide crude oil selling price, including the effect of hedging, was $63.74 per barrel in the fourth quarter of 2009 compared with $45.00 per barrel in the fourth quarter of 2008.

Oil and gas proved reserves were 1,437 million barrels of oil equivalent at the end of 2009, compared to 1,432 million barrels at the end of 2008. During 2009, the corporation added 157 million barrels of oil equivalent to proved reserves. These additions, which are subject to final review, replaced approximately 103% of the corporation's 2009 production, resulting in a reserve life of 9.5 years.

Marketing and refining earnings were $17 million in the fourth quarter of 2009 compared with $152 million in the fourth quarter of 2008. Refining operations generated a loss of $40 million in the fourth quarter of 2009 compared with income of $27 million in the fourth quarter of 2008, as a result of lower refining margins.

Marketing earnings were $45 million in the fourth quarter of 2009 compared with $138 million in the fourth quarter of 2008, primarily due to lower margins.

Hess Corp., New York, is a global independent energy company engaged in the exploration for and production of crude oil and natural gas, as well as in refining and marketing refined petroleum products, natural gas and electricity. There also are about 950 Hess-branded fueling stations.