1 Valero Energy Reports 2017 Fourth Quarter and Full Year Results • Reported net income attributable to Valero stockholders of $2.4 billion, or $5.42 per share, for the fourth quarter and $4.1 billion, or $9.16 per share, for the year. • Reported adjusted net income attributable to Valero stockholders of $509 million, or $1.16 per share, for the fourth quarter and $2.2 billion, or $4.96 per share, for the year. • Invested $641 million of growth and sustaining capital for the fourth quarter and $2.4 billion for the year. • Commissioned new 200,000 barrels per day Diamond Pipeline and Wilmington cogeneration unit in November. • Returned $727 million in cash to stockholders through dividends and stock buybacks in the fourth quarter and $2.6 billion in the year. SAN ANTONIO, February 1, 2018 – Valero Energy Corporation (NYSE: VLO, “Valero”) today reported net income attributable to Valero stockholders of $2.4 billion, or $5.42 per share, for the fourth quarter of 2017 compared to $367 million, or $0.81 per share, for the fourth quarter of 2016. Excluding an income tax benefit of $1.9 billion, or $4.26 per share, that resulted from the Tax Cuts and Jobs Act of 2017 (Tax Reform), fourth quarter 2017 adjusted net income attributable to Valero stockholders was $509 million, or $1.16 per share. For the year ended December 31, 2017, net income attributable to Valero stockholders was $4.1 billion, or $9.16 per share, compared to $2.3 billion, or $4.94 per share for 2016. Excluding the income tax benefit for 2017 and other adjustments reflected in the accompanying earnings release tables for 2016, adjusted net income attributable to Valero stockholders for 2017 was $2.2 billion, or $4.96 per share, compared to $1.7 billion, or $3.72 per share, for 2016. “We performed very well this year,” said Joe Gorder, Valero Chairman, President and Chief Executive Officer. “We achieved a number of operational performance records and delivered solid financial results.”
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Valero Energy Reports 2017 Fourth Quarter and Full Year Results
• Reported net income attributable to Valero stockholders of $2.4 billion, or $5.42 per share,
for the fourth quarter and $4.1 billion, or $9.16 per share, for the year.
• Reported adjusted net income attributable to Valero stockholders of $509 million, or
$1.16 per share, for the fourth quarter and $2.2 billion, or $4.96 per share, for the year.
• Invested $641 million of growth and sustaining capital for the fourth quarter and
$2.4 billion for the year.
• Commissioned new 200,000 barrels per day Diamond Pipeline and Wilmington
cogeneration unit in November.
• Returned $727 million in cash to stockholders through dividends and stock buybacks in
the fourth quarter and $2.6 billion in the year.
SAN ANTONIO, February 1, 2018 – Valero Energy Corporation (NYSE: VLO, “Valero”) today
reported net income attributable to Valero stockholders of $2.4 billion, or $5.42 per share, for the
fourth quarter of 2017 compared to $367 million, or $0.81 per share, for the fourth quarter of 2016.
Excluding an income tax benefit of $1.9 billion, or $4.26 per share, that resulted from the Tax Cuts
and Jobs Act of 2017 (Tax Reform), fourth quarter 2017 adjusted net income attributable to Valero
stockholders was $509 million, or $1.16 per share. For the year ended December 31, 2017, net
income attributable to Valero stockholders was $4.1 billion, or $9.16 per share, compared to
$2.3 billion, or $4.94 per share for 2016. Excluding the income tax benefit for 2017 and other
adjustments reflected in the accompanying earnings release tables for 2016, adjusted net income
attributable to Valero stockholders for 2017 was $2.2 billion, or $4.96 per share, compared to
$1.7 billion, or $3.72 per share, for 2016.
“We performed very well this year,” said Joe Gorder, Valero Chairman, President and Chief
Executive Officer. “We achieved a number of operational performance records and delivered solid
financial results.”
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Refining
The refining segment reported $982 million of operating income for the fourth quarter of 2017
compared to $645 million for the fourth 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. Fourth quarter 2017 operating income
includes $17 million of expenses primarily related to ongoing repairs at certain of the company’s
U.S. Gulf Coast refineries to address damage resulting from Hurricane Harvey. Excluding those
repair costs, operating income increased by $354 million, primarily driven by higher distillate and
gasoline margins in most regions and wider discounts for domestic sweet crude oils relative to
Brent crude oil, partly offset by narrower discounts for medium and heavy sour crude oils versus
Brent.
Refinery throughput capacity utilization was 96 percent, and throughput volumes averaged
3.0 million barrels per day in the fourth quarter of 2017, which is 156,000 barrels per day higher
than the fourth quarter of 2016. The company exported a total of 392,000 barrels per day of
gasoline and distillate during the fourth quarter of 2017.
“Our Port Arthur refinery completed its post-hurricane recovery efforts and resumed normal
operations in the fourth quarter,” Gorder, said.
Biofuel blending costs were $311 million in the fourth quarter of 2017, which is $94 million higher
than in the fourth quarter of 2016, and $942 million in 2017, which is $193 million higher than in
2016. The higher cost is mainly due to higher Renewable Identification Number (RIN) prices.
“Looking ahead, we continue to see a favorable fundamental environment, with abundant crude
oil supply and strong products demand being supported by global economic growth,” Gorder said.
“We’re also encouraged by the potential benefits to the refining industry from Tax Reform and the
reduction in the global limit for fuel oil sulfur.”
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Ethanol
The ethanol segment reported $37 million of operating income for the fourth quarter of 2017
compared to $126 million for the fourth quarter of 2016. The decrease in operating income is
attributed primarily to margin pressure resulting from lower ethanol prices. Ethanol production
volumes averaged 4.0 million gallons per day in the fourth quarter of 2017, which is 53,000 gallons
per day higher than in the fourth quarter of 2016.
VLP
The VLP segment reported $80 million of operating income for the fourth quarter of 2017
compared to $70 million for the fourth quarter of 2016. The increase in operating income is mostly
driven by contributions from the Red River pipeline segment, which was acquired in January 2017,
and the Port Arthur terminal assets and Parkway Pipeline, which were acquired in November 2017.
Corporate and Other
General and administrative expenses were $238 million in the fourth quarter of 2017 compared to
$208 million in the fourth quarter of 2016. For 2017, general and administrative expenses of
$835 million were $120 million higher than in 2016 mainly due to reserve adjustments and a fee
related to the termination of an agreement to acquire certain terminals in Northern California
owned by Plains All American Pipeline, L.P. Excluding the income tax benefit related to Tax
Reform, the effective tax rate was 30 percent for the fourth quarter of 2017.
Investing and Financing Activities
Capital investments totaled $641 million in the fourth quarter of 2017, of which $142 million was
for turnarounds and catalyst. For 2017, capital investments totaled $2.4 billion, consisting of
$1.3 billion for sustaining the business and $1.1 billion for growth projects.
Valero returned $727 million to stockholders in the fourth quarter, of which $421 million was for
the purchase of 5 million shares of its common stock and the balance was paid as dividends. In
2017, Valero returned $2.6 billion to stockholders, or 63 percent of adjusted net cash provided by
operating activities, consisting of $1.4 billion in stock buybacks and $1.2 billion in dividends. Net
cash provided by operating activities in 2017 was $5.5 billion. Included in this amount is the
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favorable impact from a $1.3 billion decrease in working capital. Excluding the change in working
capital, net cash generated was $4.2 billion.
The company is targeting a total payout ratio between 40 and 50 percent of adjusted net cash
provided by operating activities for 2018. 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.
“With a lower tax burden in 2018 resulting from Tax Reform, we expect to see a significant benefit
to Valero’s net cash provided by operating activities,” commented Gorder.
On January 23, the company announced a 14 percent increase in its quarterly common stock
dividend from $0.70 per share to $0.80 per share, payable on March 6, 2018, to holders of record
on February 13, 2018. The Board of Directors also approved an incremental $2.5 billion share
repurchase authorization. Valero has approximately $1.2 billion of repurchase authority available
under its previously announced buyback authorization, giving it $3.7 billion available for stock
repurchases going forward.
Liquidity and Financial Position
Valero ended the fourth quarter of 2017 with $8.9 billion of total debt and $5.9 billion of cash and
temporary cash investments. The debt to capital ratio, net of $2.0 billion in cash, was 23 percent.
Strategic Update
The Diamond Pipeline and the Wilmington cogeneration plant both started up in November and
are performing as expected. The 200,000 barrels per day Diamond Pipeline increases Valero’s
crude blend quality and supply flexibility, including access to many crude oil grades in Cushing,
Oklahoma, for the Memphis refinery. The Wilmington refinery is benefitting from reduced
operating expenses and improved supply reliability for power and steam.
“We were excited to receive our first barrels of crude oil off the Diamond Pipeline,” said Gorder.
“With current price differentials between WTI and LLS crude oil, our Memphis refinery is
enjoying a significant cost advantage versus crude delivered on Capline.”
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Valero expects to invest $2.7 billion of capital in 2018, of which $1.0 billion is for growth projects
and $1.7 billion is for sustaining the business. Included in the growth investments is the
construction of a new 25,000 barrels per day alkylation unit at the St. Charles refinery, which
received final approval from the company’s Board of Directors last week. Total cost for the
alkylation unit is estimated at $400 million, and completion is expected in the second half of 2020.
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 Corporation, 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.
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Valero Contacts
Investors:
John Locke, Vice President – Investor Relations, 210-345-3077
General and administrative expenses (excludingdepreciation and amortization expense reflectedbelow) — — — 715 715
Depreciation and amortization expense — — — 48 48Asset impairment loss (c) 56 — — — 56Operating income by segment $ 3,774 $ 340 $ 221 $ (763) $ 3,572
See Operating Highlights by Segment beginning on Table Page 8.See Notes to Earnings Release Tables on Table Page 15.
VALERO ENERGY CORPORATION AND SUBSIDIARIESEARNINGS RELEASE TABLES
RECONCILIATION OF NON-GAAP MEASURES TO MOST COMPARABLE AMOUNTSREPORTED UNDER U.S. GAAP (g)
(millions of dollars, except per share amounts)(unaudited)
Table Page 4
Three Months EndedDecember 31,
Year EndedDecember 31,
2017 2016 2017 2016
Reconciliation of net income attributable to Valero EnergyCorporation stockholders to adjusted net incomeattributable to Valero Energy Corporation stockholdersNet income attributable to Valero Energy Corporation
Reconciliation of earnings per common share – assumingdilution to adjusted earnings per common share – assuming dilutionEarnings per common share – assuming dilution $ 5.42 $ 0.81 $ 9.16 $ 4.94Exclude adjustments:
Lower of cost or market inventory valuationadjustment, net of taxes (a) — — — 1.25
Asset impairment loss (c) — — — (0.12)Income tax benefit on Aruba Disposition (c) — — — 0.09Income tax benefit from Tax Reform (d) 4.26 — 4.20 —
Total adjustments 4.26 — 4.20 1.22Adjusted earnings per common share – assuming dilution $ 1.16 $ 0.81 $ 4.96 $ 3.72
See Notes to Earnings Release Tables on Table Page 15.
VALERO ENERGY CORPORATION AND SUBSIDIARIESEARNINGS RELEASE TABLES
RECONCILIATION OF NON-GAAP MEASURES TO MOST COMPARABLE AMOUNTSREPORTED UNDER U.S. GAAP (g)
(millions of dollars)(unaudited)
Table Page 5
Three Months EndedDecember 31,
Year EndedDecember 31,
2017 2016 2017 2016Reconciliation of operating income by segment to segment
margin, and reconciliation of operating income bysegment to adjusted operating income by segment
See Notes to Earnings Release Tables on Table Page 15.
VALERO ENERGY CORPORATION AND SUBSIDIARIESEARNINGS RELEASE TABLES
RECONCILIATION OF NON-GAAP MEASURES TO MOST COMPARABLE AMOUNTSREPORTED UNDER U.S. GAAP (g)
(millions of dollars)(unaudited)
Table Page 7
Three Months EndedDecember 31,
Year EndedDecember 31,
2017 2016 2017 2016Reconciliation of refining segment operating income to
refining margin (by region), and reconciliation ofrefining segment operating income to adjusted refiningsegment operating income (by region) (h) (continued)
North Atlantic regionRefining operating income $ 199 $ 207 $ 985 $ 1,355Add back:
Natural gas (dollars per million British Thermal Units) 2.90 3.03 2.98 2.46
Products (dollars per barrel, unless otherwise noted)U.S. Gulf Coast:
CBOB gasoline less Brent 8.49 8.03 10.50 9.17Ultra-low-sulfur diesel less Brent 15.03 12.83 13.26 10.21Propylene less Brent 2.40 (9.78) 0.48 (6.68)CBOB gasoline less LLS 8.95 8.59 11.19 9.32Ultra-low-sulfur diesel less LLS 15.49 13.39 13.95 10.36Propylene less LLS 2.86 (9.22) 1.17 (6.53)
U.S. Mid-Continent:CBOB gasoline less WTI 16.43 9.36 15.65 11.82Ultra-low-sulfur diesel less WTI 23.41 13.99 18.50 13.03
North Atlantic:CBOB gasoline less Brent 11.31 11.89 12.57 11.99Ultra-low-sulfur diesel less Brent 17.66 14.04 14.75 11.57
U.S. West Coast:CARBOB 87 gasoline less ANS 10.57 11.56 18.12 17.04CARB diesel less ANS 18.81 17.34 17.11 14.52CARBOB 87 gasoline less WTI 16.75 12.51 21.78 17.62CARB diesel less WTI 24.99 18.29 20.77 15.10
New York Harbor corn crush (dollars per gallon) 0.20 0.47 0.26 0.30
See Notes to Earnings Release Tables on Table Page 15.
VALERO ENERGY CORPORATION AND SUBSIDIARIESEARNINGS RELEASE TABLES
OTHER FINANCIAL DATA(millions of dollars)
(unaudited)
Table Page 14
December 31,2017 2016
Balance sheet dataCurrent assets $ 19,312 $ 16,800Cash and temporary cash investments included in current assets 5,850 4,816Inventories included in current assets 6,384 5,709Current liabilities 11,071 8,328Current portion of debt and capital lease obligations included
in current liabilities 122 115Debt and capital lease obligations, less current portion 8,750 7,886Total debt and capital lease obligations 8,872 8,001Valero Energy Corporation stockholders’ equity 21,991 20,024
Three Months EndedDecember 31,
Year EndedDecember 31,
2017 2016 2017 2016Cash flow data
Net cash provided by operating activities $ 1,660 $ 998 $ 5,482 $ 4,820
See Notes to Earnings Release Tables on Table Page 15.
VALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO EARNINGS RELEASE TABLES
Table Page 15
(a) During the year ended December 31, 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 reflects expenses that are not associated with our cost of sales. Other operating expenses for the three months and year ended December 31, 2017 primarily 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 year ended December 31, 2016.
(d) On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (Tax Reform) was enacted, resulting in the remeasurement of our U.S. deferred taxes and the recognition of a liability for taxes on the deemed repatriation of our foreign earnings and profits. Under U.S. generally accepted accounting principles (GAAP), we are required to recognize the effect of the Tax Reform in the period of enactment. As a result, we recognized a $1.9 billion income tax benefit in December 2017, which represents the estimated impact of Tax Reform. This estimate may be refined in future periods as further information becomes available.
(e) The income tax benefit for the three months ended December 31, 2017 includes an income tax benefit associated with Tax Reform (see note (d) above). Excluding this effect, income tax expense was $227 million, resulting in an effective tax rate of 29.8%. The variation in the customary relationship between income tax expense and income before income tax expense for all periods presented is due primarily to earnings from our international operations that are taxed at statutory rates that are lower than in the U.S. In addition, for the year ended December 31, 2016, the variation is due to the recognition of an income tax benefit in the U.S. in connection with the Aruba Disposition (see note (c) above).
(f) 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.
(g) We use certain financial measures (as noted below) in the earnings release tables and accompanying earnings release that are not defined under U.S. 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.
VALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO EARNINGS RELEASE TABLES (Continued)
Table Page 16
Non-GAAP measures are as follows:
Adjusted net income attributable to Valero Energy Corporation stockholders is defined as net income attributable to Valero Energy Corporation stockholders excluding the lower of cost or market inventory valuation adjustment, its related income tax effect, the asset impairment loss, the income tax benefit on the Aruba Disposition, and the Tax Reform income tax benefit. 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 Corporation stockholders divided by the number of weighted-average shares outstanding in the applicable period, assuming dilution.
Refining margin is defined as refining 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 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 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 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 operating income is defined as ethanol 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 operating income is defined as VLP 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.
(h) 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.
(i) Primarily includes petrochemicals, gas oils, No. 6 fuel oil, petroleum coke, sulfur, and asphalt.
(j) 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 of throughput and per gallon of production amounts are calculated by dividing the associated dollar amount by the throughput 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.