Valero Energy Reports Third Quarter 2017 Results

• Reported net income attributable to Valero stockholders of $841 million, or $1.91 per share.
• Invested $565 million of growth and sustaining capital in the third quarter.
• Returned $600 million in cash to stockholders through dividends and stock buybacks.
• Previously announced expansion of Valero’s product supply chain into Mexico and in Texas.
• Expect Diamond Pipeline and Wilmington cogeneration projects to start up in December.

SAN ANTONIO, Oct. 26, 2017 (GLOBE NEWSWIRE) -- Valero Energy Corp. (NYSE:VLO) (“Valero”) today reported net income attributable to Valero stockholders of $841 million, or $1.91 per share, for the third quarter of 2017 compared to $613 million, or $1.33 per share, for the third quarter of 2016. Third quarter 2016 adjusted net income attributable to Valero stockholders of $571 million, or $1.24 per share, excludes a $42 million income tax benefit from the disposition of Aruba assets.

“Hurricane Harvey disrupted operations at five of our refineries during the quarter,” said Joe Gorder, Valero Chairman, President and Chief Executive Officer. “I’m proud of our team’s response and commitment to the safety of our workers, their families, and surrounding communities during the recovery efforts.”

Valero worked closely with local, state, and federal government entities to address storm impacts. The company also provided millions of dollars of financial and other assistance to employees, affected communities, and charitable organizations.

“Despite the extent of the storm’s impact, we are pleased with our financial performance for the quarter and remain optimistic for the fourth quarter,” continued Gorder. “We are encouraged by domestic and global economic growth, and we expect low oil prices and solid product demand to continue into 2018.”

Refining
The refining segment reported $1.4 billion of operating income for the third quarter of 2017 compared to $934 million for the third quarter of 2016, which has been retrospectively revised to reflect the operating results of Valero Energy Partners LP (NYSE:VLP) as a separate segment consistent with Valero’s current segment presentation. The increase in operating income was driven primarily by higher gasoline and distillate margins and wider discounts for domestic sweet crude oils relative to Brent crude oil, partly offset by higher premiums for residual feedstocks and narrower discounts for medium and heavy sour crude oils versus Brent.

Refinery throughput capacity utilization was 92 percent, and throughput volumes averaged 2.9 million barrels per day in the third quarter of 2017, which was 33,000 barrels per day higher than the third quarter of 2016.

The company exported a total of 339,000 barrels per day of gasoline and diesel during the third quarter of 2017.

Biofuel blending costs of $230 million for the third quarter of 2017 were $32 million higher than the third quarter of 2016, mainly due to higher Renewable Identification Number (RIN) expenses.

Ethanol
The ethanol segment reported $82 million of operating income for the third quarter of 2017 compared to $106 million for the third quarter of 2016. The decrease in operating income is attributed primarily to higher corn prices and lower distillers grain prices that pressured margins. Ethanol production volumes averaged 4.0 million gallons per day in the third quarter of 2017, which was 217,000 gallons per day higher than the third quarter of 2016.

VLP
The VLP segment reported $69 million of operating income for the third quarter of 2017 compared to $56 million for the third quarter of 2016. The increase in operating income was driven primarily by contributions from the Meraux and Three Rivers terminals, which were acquired in September of last year, and the Red River pipeline segment, which was acquired in January 2017.

Earlier today, VLP announced the acquisition of the Port Arthur terminal assets and Parkway Pipeline LLC from Valero for $508 million. The transaction is expected to close on November 1.

Corporate and Other
General and administrative expenses were $229 million, and the effective tax rate was 30 percent for the third quarter of 2017.

Investing and Financing Activities
Capital investments totaled $565 million for the third quarter of 2017, of which $73 million was for turnarounds and catalyst.

Valero returned $600 million to stockholders in the third quarter, of which $309 million was paid as dividends and the balance was used to purchase 4.2 million shares of its common stock, resulting in a total payout ratio of 58 percent for the first nine months of 2017. The company continues to target a total payout ratio between 40 and 50 percent of adjusted net cash provided by operating activities for 2017. 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.

The company generated approximately $1 billion of net cash from operating activities in the third quarter of 2017. Included in this amount is the negative impact from a $315 million increase in working capital. Excluding the change in working capital, net cash generated was approximately $1.4 billion.

Liquidity and Financial Position
Valero ended the third quarter of 2017 with $8.5 billion of total debt and $5.2 billion of cash and temporary cash investments. The debt to capital ratio, net of $2.0 billion in cash, was 24 percent.

Strategic Update
Valero continues to target $2.7 billion of total capital investments this year, consisting of $1.1 billion for growth projects and $1.6 billion for sustaining the business.

“We are making excellent progress on our growth investments, with the Wilmington cogeneration plant and Diamond Pipeline expected to be online in December,” said Gorder. “We are also pleased with the progress of our investments in Texas and expansion into Mexico, which will extend our product supply chain, internalize secondary costs, and provide opportunities for third-party revenue growth.”

During the quarter, the company announced the signing of long-term agreements with IEnova to use terminals to be constructed at the Port of Veracruz and near the cities of Puebla and Mexico City to import refined products into central Mexico beginning in late 2018. Additionally, Valero announced investments in pipelines and terminals in central Texas and a marine terminal in Pasadena, Texas, which are expected to be completed in 2019.

Conference Call
Valero’s senior management will hold a conference call at 10 a.m. ET today to discuss this earnings release and to provide an update on operations and strategy.

About Valero
Valero Energy Corp., through its subsidiaries, is an international manufacturer and marketer of transportation fuels and other petrochemical products. Valero, a Fortune 50 company based in San Antonio, Texas, with approximately 10,000 employees, is an independent petroleum refiner and ethanol producer, and its assets include 15 petroleum refineries with a combined throughput capacity of approximately 3.1 million barrels per day and 11 ethanol plants with a combined production capacity of 1.4 billion gallons per year. The petroleum refineries are located in the United States (U.S.), Canada and the United Kingdom (U.K.), and the ethanol plants are located in the Mid-Continent region of the U.S. In addition, Valero owns the 2 percent general partner interest and a majority limited partner interest in Valero Energy Partners LP, a midstream master limited partnership. Valero sells its products in both the wholesale rack and bulk markets, and approximately 7,400 outlets carry Valero’s brand names in the U.S., Canada, the U.K. and Ireland. Please visit www.valero.com for more information.

Valero Contacts
Investors:
John Locke, Vice President – Investor Relations, 210-345-3077
Karen Ngo, Senior Manager – Investor Relations, 210-345-4574
Tom Mahrer, Manager – Investor Relations, 210-345-1953

Media:
Lillian Riojas, Director – Media Relations and Communications, 210-345-5002

Safe-Harbor Statement
Statements contained in this release 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 of the Securities Act of 1933 and the Securities Exchange Act of 1934. The words “believe,” “expect,” “should,” “estimates,” “intend,” “targeting,” and other similar expressions identify forward-looking statements. It is important to note that actual results could differ materially from those projected in such forward-looking statements based on numerous factors, including those outside of the company’s control, such as delays in construction timing and other factors. For more information concerning factors that could cause actual results to differ from those expressed or forecasted, see Valero’s annual reports on Form 10-K, quarterly reports on Form 10-Q and our other reports filed with the SEC and on Valero’s website at www.valero.com, and VLP’s annual reports on Form 10-K and quarterly reports on Form 10-Q filed with the SEC and on VLP’s website at www.valeroenergypartners.com.

Use of Non-GAAP Financial Information
This earnings release and the accompanying earnings release tables include references to financial measures that are not defined under U.S. generally accepted accounting principles (“GAAP”). These non-GAAP measures include adjusted net income attributable to Valero stockholders, adjusted earnings per common share – assuming dilution, adjusted operating income, refining margin, and ethanol margin. We have included these non-GAAP financial measures to help facilitate the comparison of operating results between periods. See the accompanying earnings release tables for a reconciliation of these non-GAAP measures to their most directly comparable U.S. GAAP measures. In note (e) to the earnings release tables, we disclose the reasons why we believe our use of these non-GAAP financial measures provides useful information.

Valero Energy Corp. AND SUBSIDIARIES
NOTES TO EARNINGS RELEASE TABLES

(a) During the nine months ended September 30, 2016, we recorded a change in our lower of cost or market inventory valuation reserve that was established on December 31, 2015, resulting in a noncash benefit of $747 million ($697 million and $50 million attributable to our refining and ethanol segments, respectively).

(b) Other operating expenses reflect expenses that are not associated with our cost of sales, which for the third quarter of 2017, includes costs incurred at certain of our United States (U.S.) Gulf Coast refineries and certain VLP assets due to damage associated with Hurricane Harvey.

(c) Effective October 1, 2016, we (i) transferred ownership of all of our assets in Aruba, other than certain hydrocarbon inventories and working capital, to Refineria di Aruba N.V., an entity wholly-owned by the Government of Aruba (GOA), (ii) settled our obligations under various agreements with the GOA, including agreements that required us to dismantle our leasehold improvements under certain conditions, and (iii) sold the working capital of our Aruba operations, including hydrocarbon inventories, to the GOA, CITGO Aruba Refining N.V., and CITGO Petroleum Corporation. We refer to this transaction as the “Aruba Disposition.”

In June 2016, we recognized an asset impairment loss of $56 million representing all of the remaining carrying value of the long-lived assets of our crude oil and refined product terminal and transshipment facility in Aruba.

In September 2016 and in connection with the Aruba Disposition, our U.S. subsidiaries cancelled all outstanding debt obligations owed to them by our Aruba subsidiaries, which resulted in the recognition by us of an income tax benefit in the U.S. of $42 million during the three and nine months ended September 30, 2016.

(d) Effective January 1, 2017, we revised our reportable segments to align with certain changes in how our chief operating decision maker manages and allocates resources to our business. Accordingly, we created a new reportable segment — VLP. The results of the VLP segment, which include the results of our majority-owned master limited partnership referred to by the same name, were transferred from the refining segment. Comparable prior period information for our refining segment (as well as that segment’s U.S. Gulf Coast and U.S. Mid-Continent regions) and VLP segment has been retrospectively adjusted to reflect our current segment presentation.

(e) We use certain financial measures (as noted below) in the earnings release tables and accompanying earnings release that are not defined under U.S. generally accepted accounting principles (GAAP) and are considered to be non-GAAP measures.

We have defined these non-GAAP measures and believe they are useful to the external users of our financial statements, including industry analysts, investors, lenders, and rating agencies. We believe these measures are useful to assess our ongoing financial performance because, when reconciled to their most comparable U.S. GAAP measures, they provide improved comparability between periods through the exclusion of certain items that we believe are not indicative of our core operating performance and that may obscure our underlying business results and trends. These non-GAAP measures should not be considered as alternatives to their most comparable U.S. GAAP measures nor should they be considered in isolation or as a substitute for an analysis of our results of operations as reported under U.S. GAAP. In addition, these non-GAAP measures may not be comparable to similarly titled measures used by other companies because we may define them differently, which diminishes their utility.

Non-GAAP measures are as follows:

• Adjusted net income attributable to Valero Energy Corp. stockholders is defined as net income attributable to Valero Energy Corp. stockholders excluding the lower of cost or market inventory valuation adjustment, its related income tax effect, the asset impairment loss, and the income tax benefit on the Aruba Disposition. We believe that these items are not indicative of our core operating performance and that their exclusion results in an important measure for our ongoing financial performance to better assess our underlying business results and trends.
• Adjusted earnings per common share – assuming dilution is defined as adjusted net income attributable to Valero Energy Corp. stockholders divided by the number of weighted-average shares outstanding in the applicable period, assuming dilution.
• Refining margin is defined as refining segment operating income excluding the lower of cost or market inventory valuation adjustment, operating expenses (excluding depreciation and amortization expense), other operating expenses, depreciation and amortization expense, and the asset impairment loss. We believe refining margin is an important measure of our refining segment’s operating and financial performance as it is the most comparable measure to the industry’s market reference product margins, which are used by industry analysts, investors, and others to evaluate our performance.
• Ethanol margin is defined as ethanol segment operating income excluding the lower of cost or market inventory valuation adjustment, operating expenses (excluding depreciation and amortization expense), and depreciation and amortization expense. We believe ethanol margin is an important measure of our ethanol segment’s operating and financial performance as it is the most comparable measure to the industry’s market reference product margins, which are used by industry analysts, investors, and others to evaluate our performance.
• Adjusted refining segment operating income is defined as refining segment operating income excluding other operating expenses, the lower of cost or market inventory valuation adjustment, and the asset impairment loss. We believe adjusted refining segment operating income is an important measure of our refining segment’s operating and financial performance because it excludes items that are not indicative of that segment’s core operating performance.
• Adjusted ethanol segment operating income is defined as ethanol segment operating income excluding the lower of cost or market inventory valuation adjustment. We believe this is an important measure of our ethanol segment’s operating and financial performance because it excludes items that are not indicative of that segment’s core operating performance.
• Adjusted VLP segment operating income is defined as VLP segment operating income excluding other operating expenses. We believe this is an important measure of our VLP segment’s operating and financial performance because it excludes items that are not indicative of that segment’s core operating performance.

(f) The refining segment regions reflected herein contain the following refineries: U.S. Gulf Coast- Corpus Christi East, Corpus Christi West, Houston, Meraux, Port Arthur, St. Charles, Texas City, and Three Rivers Refineries; U.S. Mid-Continent- Ardmore, McKee, and Memphis Refineries; North Atlantic- Pembroke and Quebec City Refineries; and U.S. West Coast- Benicia and Wilmington Refineries.

(g) Primarily includes petrochemicals, gas oils, No. 6 fuel oil, petroleum coke, sulfur, and asphalt.

(h) Valero uses certain operating statistics (as noted below) in the earnings release tables and the accompanying earnings release to evaluate performance between comparable periods. Different companies may calculate them in different ways.

All per barrel and per gallon of production amounts are calculated by dividing the associated dollar amount by the throughout volumes, production volumes, pipeline transportation throughput volumes, or terminaling throughput volumes for the period, as applicable.

Throughput volumes, production volumes, pipeline transportation throughput volumes, and terminaling throughput volumes are calculated by multiplying throughput volumes per day, production volumes per day, pipeline transportation throughput volumes per day, and terminaling throughput volumes per day (as provided in the accompanying tables), respectively, by the number of days in the applicable period.