April 25, 2021 [Business Wire] – Valero Energy Corporation today reported a net loss attributable to Valero stockholders of $704 million, or $1.73 per share, for the first quarter of 2021, compared to a net loss of $1.9 billion, or $4.54 per share, for the first quarter of 2020.
The operating loss in the first quarter of 2021 includes estimated excess energy costs of $579 million, or $1.15 per share, related to impacts from Winter Storm Uri. Excluding the adjustments shown in the accompanying earnings release tables, adjusted net income attributable to Valero stockholders for the first quarter of 2020 was $140 million, or $0.34 per share. First quarter 2020 adjusted results exclude an after-tax lower of cost or market, or LCM, inventory valuation adjustment of approximately $2.0 billion.
“Winter Storm Uri impacted operations and operating costs of many facilities in the U.S. Gulf Coast and U.S. Mid-Continent regions, including our facilities,” said Joe Gorder, Valero Chairman and Chief Executive Officer. “I am very proud of our team for safely managing the utilities curtailments and the freeze by idling or shutting down the affected facilities and resuming operations without incident.”
The refining segment reported a $592 million operating loss for the first quarter of 2021, compared to an operating loss of $2.1 billion for the first quarter of 2020. The first quarter 2021 adjusted operating loss was $554 million, compared to adjusted operating income of $329 million in the first quarter of 2020, which excludes the LCM inventory valuation adjustment. The operating loss for the first quarter of 2021 includes estimated excess energy costs of $525 million related to impacts from Winter Storm Uri. Refinery throughput volumes averaged 2.4 million barrels per day in the first quarter of 2021, which was 414 thousand barrels per day lower than the first quarter of 2020.
“We are encouraged by the substantial increase in products demand and refining margins in the last three months,” said Gorder. “In fact, we achieved positive operating income and operating cash flow in March.”
The renewable diesel segment, which consists of the Diamond Green Diesel (DGD) joint venture, reported $203 million of operating income for the first quarter of 2021, compared to $198 million for the first quarter of 2020. Renewable diesel sales volumes averaged 867 thousand gallons per day in the first quarter of 2021.
“We are leveraging our global liquid fuels platform to continue expanding our long-term competitive advantage in renewables,” said Gorder. “Valero’s operational expertise and commercial strength are demonstrated by the record operating income and renewable diesel margin by this segment in the first quarter of 2021.”
The ethanol segment reported a $56 million operating loss for the first quarter of 2021, compared to an operating loss of $197 million for the first quarter of 2020. The operating loss for the first quarter of 2021 includes estimated excess energy costs of $54 million related to impacts from Winter Storm Uri. First quarter 2020 adjusted operating loss was $69 million, which excludes the LCM inventory valuation adjustment. Ethanol production volumes averaged 3.6 million gallons per day in the first quarter of 2021, which was 541 thousand gallons per day lower than the first quarter of 2020.
Corporate and Other
General and administrative expenses were $208 million in the first quarter of 2021, compared to $177 million in the first quarter of 2020. The effective tax rate for the first quarter of 2021 was 19 percent.
Investing and Financing Activities
Capital investments totaled $582 million in the first quarter of 2021, of which $333 million was for sustaining the business, including costs for turnarounds, catalysts and regulatory compliance. Excluding capital investments attributable to our partner’s 50 percent share of DGD and those related to other variable interest entities, capital investments attributable to Valero were $479 million.
Net cash used in operating activities was $52 million in the first quarter of 2021. Included in this amount was a $184 million favorable impact from working capital and $108 million associated with our joint venture partner’s share of DGD’s net cash provided by operating activities, excluding changes in DGD’s working capital. Excluding these items, adjusted net cash used in operating activities was $344 million.
Valero returned $400 million to stockholders through dividends in the first quarter of 2021.
Valero continues to target a long-term total payout ratio between 40 and 50 percent of adjusted net cash provided by operating activities. 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 and DGD’s net cash provided by operating activities, excluding changes in its working capital, attributable to our joint venture partner’s ownership interest in DGD.
Liquidity and Financial Position
Valero ended the first quarter of 2021 with $14.7 billion of total debt and finance lease obligations and $2.3 billion of cash and cash equivalents. The debt to capitalization ratio, net of cash and cash equivalents, was 40 percent as of March 31, 2021.
Valero continues to evaluate and pursue economic projects that lower the carbon intensity of its products. Valero announced that it is partnering with BlackRock and Navigator for a large-scale carbon capture and storage system in the U.S. Midwest that would capture and store carbon dioxide (CO2) from eight of Valero’s ethanol plants, making a lower carbon intensity ethanol product to be marketed in low carbon fuel markets. The system is expected to be capable of storing 5 million metric tonnes of CO2 per year.
In addition, Valero and its joint venture partner continue to steadily expand DGD’s capacity to produce low carbon intensity renewable diesel. The DGD plant expansion at St. Charles (DGD 2), which is expected to increase renewable diesel production by 400 million gallons per year, is on track to be completed and operational in the middle of the fourth quarter of 2021. The St. Charles expansion will also provide the capability to market 30 million gallons per year of renewable naphtha into low carbon fuel markets. The new DGD plant at Port Arthur (DGD 3), which is expected to produce 470 million gallons per year of renewable diesel, is expected to commence operations in the second half of 2023, increasing DGD’s total annual production capacity to approximately 1.2 billion gallons of renewable diesel and 50 million gallons of renewable naphtha.
Refinery optimization projects that are expected to reduce cost and improve margin capture, are progressing on schedule. The Pembroke Cogen project is on track to be completed in the third quarter of 2021 and the Port Arthur Coker project is expected to be completed in 2023.
On April 19, Valero sold a 24.99 percent membership interest in its Pasadena marine terminal joint venture for $270 million. Valero will retain a 25.01 percent interest in the joint venture.
Capital investments attributable to Valero are forecasted to be $2.0 billion in 2021, of which approximately 60 percent is for sustaining the business and approximately 40 percent is for growth projects. Over half of Valero’s 2021 growth capital is allocated to expanding the renewable diesel business.
“Continued improvement in product demand and refining margins supports a positive outlook for our refining business,” said Gorder. “Those improvements coupled with our growth strategy and operational expertise in low carbon renewable fuels, further strengthens Valero’s long-term competitive advantage.”
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