Valero Energy Corporation (VLO)

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Valero Energy (VLO)

Q3 2011 Earnings Call

November 01, 2011 11:00 am ET

Executives

William R. Klesse - Executive Chairman, Chief Executive Officer, President and Chairman of Executive Committee

Michael S. Ciskowski - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

Unknown Executive -

Ashley M. Smith - Vice President of Investor Relations

Lane Riggs - Senior Vice President of Refining Operations

S. Eugene Edwards - Chief Development Officer and Executive Vice President of Corporate Development & Strategic Planning

Analysts

Evan Calio - Morgan Stanley, Research Division

Sam Margolin - Global Hunter Securities, LLC, Research Division

Paul Y. Cheng - Barclays Capital, Research Division

Mark Gilman - The Benchmark Company, LLC, Research Division

Blake Fernandez - Howard Weil Incorporated, Research Division

Paul Sankey - Deutsche Bank AG, Research Division

Jeffrey A. Dietert - Simmons & Company International, Research Division

Doug Terreson - ISI Group Inc., Research Division

Allen Good - Morningstar Inc., Research Division

Rakesh Advani - Crédit Suisse AG, Research Division

Chi Chow - Macquarie Research

Jacques H. Rousseau - RBC Capital Markets, LLC, Research Division

Douglas George Blyth Leggate - BofA Merrill Lynch, Research Division

Faisel Khan - Citigroup Inc, Research Division

Presentation

Operator

Welcome to the Valero Energy Corporation Reports Third Quarter 2011 Earnings Conference Call. My name is John, and I'll be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded. I will now turn the call over to Mr. Ashley Smith, Vice President, Investor Relations. Mr. Smith, you may begin.

Ashley M. Smith

Okay, thank you, John. Good morning, and welcome to Valero Energy Corporation Third Quarter 2011 Earnings Conference Call.

With me today are Bill Klesse, our Chairman and CEO; Mike Ciskowski, our CFO; Gene Edwards, our Chief Development Officer; Kim Bowers, Executive Vice President and General Counsel; and Jean Bernier, Executive Vice President.

If you have not received the earnings call -- 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 me after the call.

Before we get started, 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 described in our filings with the SEC.

Now I'll turn the call over to Mike.

Michael S. Ciskowski

Thanks, Ashley, and thank you for joining us today. As noted in the release, we reported that third quarter 2011 net income from continuing operations of $1.2 billion or $2.11 per share, compared to $0.53 per share in the third quarter of 2010.

Our third quarter 2011 operating income was $2 billion versus operating income of $590 million in the third quarter of 2010. The third quarter refining throughput margins was $13.24 per barrel, which is a 63% increase over the third quarter of 2010. The increase in throughput margins over the third quarter of 2010 was due to higher margins for diesel, jet fuel and gasoline, plus wider discounts for heavy-sour crude oil, residual feedstocks and light-sweet crude oils in the Mid-Continent and in South Texas.

In the third quarter of 2011, the Gulf Coast gasoline margins per barrel versus LLS increased 89% to $8.20 from $4.30 in the third quarter of '10. The Gulf Coast ULSD versus LLS margins per barrel increased 56% from $9.12 in the third quarter of '10 to $14.19 per barrel in the third quarter of 2011.

So far, in the fourth quarter, Gulf Coast margins have moved lower, averaging around $1 per barrel for gasoline at nearly $13 per barrel for ULSD.

The Maya heavy-sour crude oil discounts versus LLS increased to 22% from $11 in the third quarter of '10 to $13.48 per barrel in the third quarter of '11. The Maya discount has narrowed some in the fourth quarter with the average down to around $12 per barrel. These discounts are important in our Gulf Coast region where we have significant capacity to process heavy-sour crude oils.

Another benefit for Valero came from Mid-Continent in Eagle Ford crudes pricing at a substantial discount to LLS.

Over the last year, the WTI discount to LLS has increased by merely $20 per barrel from $2.58 in the third quarter of '10 to $22.47 in the third quarter of '11. The WTI discount significantly enhanced the profitability of our McKee and Ardmore refineries, both of which process WTI or cheaper crude oils.

The fourth quarter WTI discount to LLS has averaged around $25 per barrel, but recently, the spread has narrow in yesterday closed at less than $19 per barrel. We also continued to increase the use of the discounted Eagle Ford crude in our system.

During the third quarter, we processed an average of 46,000 barrels per day of Eagle Ford, primarily at Three Rivers, but also some at Corpus Christi. That is an increase of 9,000 barrels per day over the second quarter and an increase of more than 40,000 barrels per day since 2010.

This local crude replaced more expensive imported sweet crudes saving Three Rivers and Corpus around $15 per barrel in the third quarter.

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