Klesse continued, “Refining industry margins and feedstock discounts in our markets were very strong in the first quarter because of global demand strength and production issues in foreign refineries. In particular, our inland refineries benefited from processing WTI-type crude oils, which have been pricing at a significant discount to waterborne light-sweet crude oils such as LLS and Brent. Combined with our heavy and sour crude oil processing capabilities, more than 80 percent of Valero’s refining capacity can process feedstocks that price below waterborne light-sweet crude oils.”
Valero’s retail operating income was $66 million in the first quarter of 2011 versus $71 million in the first quarter of 2010. The slight decline in operating income was mainly due to the narrowing of U.S. retail fuel margins as pump prices failed to keep pace with rising crude oil prices, while Canadian retail fuel margins increased on local demand strength.
Valero’s ethanol operating income was $44 million in the first quarter of 2011 versus $57 million in the first quarter of 2010. The decrease in operating income was mainly due to corn costs rising faster than ethanol prices, squeezing gross margins from 63 cents per gallon in the first quarter of 2010 to 50 cents per gallon in the first quarter of 2011.
Regarding cash flows in the first quarter of 2011, capital spending was $737 million, of which $299 million was for turnaround and catalyst expenditures. Also in the first quarter, the company paid $28 million in dividends on its common stock and repaid $510 million in debt. Valero ended the first quarter with $4.1 billion in cash and temporary cash investments.Commenting on the industry outlook, Klesse said, “Although crude oil prices have been over $100 per barrel, demand outside the U.S. and Western Europe is resilient and growing. The rapid economic growth in developing economies has been fueling the strength in refining margins the past year, and we continue to see attractive opportunities to export products from our Gulf Coast refineries. Benchmark margins and feedstock discounts in the second quarter have increased from first quarter levels, and prices in the forward markets over the past couple of months have consistently implied very strong refining margins throughout 2011.”