Valero on the Double

Published in CSP Daily News

United Refining ups and downs

SAN ANTONIO -- Valero Energy Corp. has reported record net income of $534 million, or $1.92 per share, for first-quarter 2005, which is more than double last year's first quarter net income of $248 million, or 91 cents per share (split adjusted). The company's debt-to-capitalization ratio, net of cash, was 29.6% as of March 31, 2005, compared to 30.7% as of Dec. 31, 2004.

First-quarter operating income for the company's refining segment was $933 million, compared to $495 million for the same period last year. The significant increase in operating income [image-nocss] was primarily the result of record sour crude discounts and distillate margins, which were nearly double last year's levels. In addition, throughput volumes were higher largely due to a full-quarter contribution from the March 2004 acquisition of the Aruba refinery.

Bill Greehey, Valero's chairman and CEO, said, 2005 is off to a great start, and we are right on track to have another record year. Clearly, the refining industry has entered a new era. As a result, we believe that we will continue to see higher highs and higher lows for both product margins and sour crude discounts in the future. And, given our expectation that worldwide refined product demand will continue to outpace growth in refining capacity and the fact that sulfur specifications for gasoline and diesel will further tighten in 2006, we believe our trend of record-setting quarterly results will continue into 2006 and beyond.

San Antonio-based Valero owns and operates 15 refineries throughout the United States, Canada and the Caribbean and more than 4,700 retail and wholesale branded outlets in the United States, Canada and the Caribbean under various brand names including Diamond Shamrock, Shamrock, Ultramar, Valero, and Beacon.

Meanwhile, Warren, Pa.-based United Refining Co., has announced operating results for the second fiscal quarter and six-months ended Feb. 28, 2005.

Net sales for the three months ended Feb. 28, 200, and Feb. 29, 2004, were $384.8 million and $327 million, respectively. This was an increase of $57.8 million or 17.7% over the prior year period quarter. Net sales for the six months ended Feb. 28, 2005, and Feb. 29, 2004, were $810.8 million and $657.8 million, respectively, which was an increase of $153 million or 23.3% over the prior year period. Increases in net sales for both the quarter and six months ended February 28 were due primarily to increases in selling prices attributed to increased worldwide crude oil prices.

Operating income/loss for the three months ended February 28 was a loss of $19.6 million or a decrease of $24.5 million from operating income of $4.9 million for the quarter ended Feb. 29, 2004. Operating income for the six months ended February 28 was a loss of $3.4 million, a decrease of $20.2 million from the $16.8 million in operating income for the six months ended Feb. 29, 2004.

Earnings before interest, income taxes, depreciation and amortization (EBITDA) for the three months ended February 28 decreased $24.4 million to a negative $15.4 million from $9 million as of Feb. 29, 2004. EBITDA decreased $19.9 million for the six months ended Feb. 28, 2005, to $4.7 million from $24.6 million for the six months ended Feb. 29, 2004.

The company's earnings are very sensitive to changes in energy prices. Shifts in the cost of crude oil and the price of refined products can result in large changes in operating margins. These prices also determine the carrying value of the refinery's inventories.

Monthly average NYMEX crude price during the final month of the second quarter was $48.05 per barrel vs. versus $53.09 per barrel in the final month of the first quarter. This decrease in crude and related petroleum product prices was a major factor in the negative inventory valuation adjustment in the second quarter, which impacted earnings substantially.

Also, United Refining said it has completed an amendment to its secured revolving credit facility led by PNC Bank. The amendment increases the facility commitment from $75 million to $100 million effective April 19, 2005.

The facility expires on May 9, 2007, and is secured by certain cash accounts, accounts receivable and inventory.

This amendment provides the Company greater flexibility relative to its cash flow requirements in light of market fluctuations, particularly involving crude oil prices and seasonal business cycles. The improved liquidity resulting from the expansion of the facility will assist the company in meeting its working capital, ongoing capital expenditure needs and for general corporate purposes.

United owns and operates a 65,000-barrel-per-day (bpd) refinery in Warren. In addition to its wholesale markets, it also operates 373 Kwik Fill/Red Apple and Country Fair retail gasoline and convenience stores located primarily in western New York and western Pennsylvania.