Valero Records Loss Contingency Accrual for Aruba Tax Dispute and Updates Earnings Release Tables

SAN ANTONIO, Nov 05, 2009 (BUSINESS WIRE) -- Valero Energy Corporation (NYSE: VLO) announced today that, on Nov. 3, an arbitration panel in the Netherlands handed down an interim decision on certain issues in dispute between Valero and the Government of Aruba. The panel ruled favorably on Valero's existing exemption from income tax liability for refining operations through 2010. Two other items in the arbitration -- the applicable dividend tax rate and the turnover tax -- were not fully resolved in the panel's decision and remain subject to further review. Valero continues to believe that its remaining claims against these taxes have significant merit, and intends to vigorously pursue these claims through the arbitration proceedings and in proceedings in Aruba.

Valero had not recognized any expense or liability with respect to these matters in its consolidated financial statements or in the company's third quarter earnings release issued Oct. 27, 2009. Due to the uncertain timing of the panel's final ruling, the company has recorded a loss contingency accrual of approximately $140 million, or $(0.25) per share, in its financial results for the quarter ended Sept. 30, 2009. The accrual includes all material liabilities through Sept. 30, 2009 associated with the arbitration.

The company has filed its Form 10-Q for the quarter ended Sept. 30, 2009 and has reflected these amounts in the company's financial statements. A more detailed discussion of these matters is included in Note 14 of the company's financial statements on Form 10-Q. The company's third quarter 2009 earnings release tables have been updated to reflect this accrual. The updated tables are attached to this press release.

About Valero: Valero Energy Corporation is a Fortune 500 company based in San Antonio with approximately 22,000 employees and 2008 revenues of $119 billion. The company owns and operates 16 refineries throughout the United States, Canada and the Caribbean with a combined throughput capacity of approximately three million barrels per day, making it the largest refiner in North America. Valero is also a leading ethanol producer with seven ethanol plants in the Midwest with a combined capacity of 780 million gallons per year, and is one of the nation's largest retail operators with approximately 5,800 retail and branded wholesale outlets in the United States, Canada and the Caribbean under the Valero, Diamond Shamrock, Shamrock, Ultramar, and Beacon brands. Please visit www.valero.com for more information.

VALERO ENERGY CORPORATION AND SUBSIDIARIES

EARNINGS RELEASE

(Millions of Dollars, Except per Share, per Barrel, and per

Gallon Amounts)

(Unaudited)

Three Months Ended Nine Months Ended

September 30, September 30,

2009 (1) 2008 (2) 2009 (1) 2008 (2) STATEMENT OF INCOME DATA:

Operating Revenues (3)

$ 19,489 $ 35,960 $ 51,238 $ 100,545

Costs and Expenses:

Cost of Sales

18,104 32,506 46,275 91,848

Operating Expenses

923 1,136 2,778 3,383

Retail Selling Expenses

182 201 522 579

General and Administrative Expenses

167 169 435 421

Depreciation and Amortization Expense

389 370 1,156 1,106

Asset Impairment Loss (4)

417 43 575 43

Gain on Sale of Krotz Springs Refinery (2)

- (305 ) - (305 )

Total Costs and Expenses

20,182 34,120 51,741 97,075

Operating Income (Loss)

(693 ) 1,840 (503 ) 3,470

Other Income (Expense), Net

9 36 (16 ) 71

Interest and Debt Expense:

Incurred

(149 ) (112 ) (386 ) (335 )

Capitalized

19 31 95 74

Income (Loss) Before Income Tax Expense (Benefit)

(814 ) 1,795 (810 ) 3,280

Income Tax Expense (Benefit)

(185 ) 643 (236 ) 1,133

Net Income (Loss)

$ (629 ) $ 1,152 $ (574 ) $ 2,147

Earnings (Loss) per Common Share (5)

$ (1.12 ) $ 2.20 $ (1.08 ) $ 4.07

Weighted Average Common Shares

Outstanding (in millions)

561 522 534 526

Earnings (Loss) per Common Share - Assuming Dilution

$ (1.12 ) $ 2.18 $ (1.08 ) $ 4.02

Weighted Average Common Shares Outstanding-

Assuming Dilution (in millions) (6) 561 529 534 535

September 30, December 31,

2009 2008 BALANCE SHEET DATA:

Cash and Temporary Cash Investments

$ 1,605 $ 940

Total Debt

$ 7,375 $ 6,576 VALERO ENERGY CORPORATION AND SUBSIDIARIES

EARNINGS RELEASE

(Millions of Dollars, Except per Share, per Barrel, and per

Gallon Amounts)

(Unaudited)

Three Months Ended Nine Months Ended

September 30, September 30,

2009

2008 (2) 2009 2008 (2) Operating Income (Loss) by Business Segment:

Refining $ (674 ) $ 1,913 $ (335 ) $ 3,716

Retail:

U.S. 79

81 140 120

Canada 32

26 92 86

Total Retail 111

107 232 206

Ethanol (1) 49

- 71 -

Total Before Corporate (514 ) 2,020 (32 ) 3,922

Corporate (179 ) (180 ) (471 ) (452 )

Total $ (693 ) $ 1,840 $ (503 ) $ 3,470

Depreciation and Amortization by Business Segment:

Refining $ 345

$ 331 $ 1,035 $ 998

Retail:

U.S. 17

18 52 51

Canada 8

10 22 26

Total Retail 25

28 74 77

Ethanol (1) 7

- 12 -

Total Before Corporate 377

359 1,121 1,075

Corporate 12

11 35 31

Total $ 389

$ 370 $ 1,156 $ 1,106

Operating Highlights:

Refining:

Throughput Margin per Barrel $ 4.86

$ 13.11 $ 6.09 $ 10.80

Operating Costs per Barrel (4):

Refining Operating Expenses $ 3.94

$ 4.78 $ 4.01 $ 4.66

Depreciation and Amortization 1.58

1.39 1.55 1.38

Total Operating Costs per Barrel $ 5.52

$ 6.17 $ 5.56 $ 6.04

Throughput Volumes (Mbbls per Day):

Feedstocks:

Heavy Sour Crude 443

565 489 580

Medium/Light Sour Crude 544

670 582 680

Acidic Sweet Crude 24

75 80 76

Sweet Crude 676

578 619 622

Residuals 211

282 193 242

Other Feedstocks 179

136 177 141

Total Feedstocks 2,077

2,306 2,140 2,341

Blendstocks and Other 302

281 305 306

Total Throughput Volumes 2,379

2,587 2,445 2,647

Yields (Mbbls per Day):

Gasolines and Blendstocks 1,207

1,136 1,176 1,197

Distillates 744

906 789 920

Petrochemicals 72

66 67 74

Other Products (7) 360

464 409 449

Total Yields 2,383

2,572 2,441 2,640 VALERO ENERGY CORPORATION AND SUBSIDIARIES

EARNINGS RELEASE

(Millions of Dollars, Except per Share, per Barrel, and per

Gallon Amounts)

(Unaudited)

Three Months Ended Nine Months Ended

September 30, September 30,

2009 2008 2009 2008 Refining Operating Highlights by Region (8):

Gulf Coast (2):

Operating Income (Loss) $

(81 ) $ 1,159 $ 28 $ 2,639

Throughput Volumes (Mbbls per Day)

1,238 1,324 1,316 1,399

Throughput Margin per Barrel $

4.66 $ 13.21 $ 5.22 $ 12.01

Operating Costs per Barrel (4):

Refining Operating Expenses $

3.81 $ 4.83 $ 3.65 $ 4.62

Depreciation and Amortization

1.57 1.37 1.49 1.30

Total Operating Costs per Barrel $

5.38 $ 6.20 $ 5.14 $ 5.92

Mid-Continent:

Operating Income $

5 $ 296 $ 197 $ 514

Throughput Volumes (Mbbls per Day)

374 426 381 426

Throughput Margin per Barrel $

5.38 $ 13.23 $ 7.18 $ 9.94

Operating Costs per Barrel (4):

Refining Operating Expenses $

3.69 $ 4.41 $ 3.72 $ 4.25

Depreciation and Amortization

1.53 1.28 1.57 1.29

Total Operating Costs per Barrel $

5.22 $ 5.69 $ 5.29 $ 5.54

Northeast:

Operating Income (Loss) $

(134 ) $ 387 $ (203 ) $ 357

Throughput Volumes (Mbbls per Day)

485 552 467 545

Throughput Margin per Barrel $

2.86 $ 13.53 $ 4.94 $ 8.50

Operating Costs per Barrel (4):

Refining Operating Expenses $

4.26 $ 4.54 $ 4.90 $ 4.69

Depreciation and Amortization

1.59 1.36 1.62 1.42

Total Operating Costs per Barrel $

5.85 $ 5.90 $ 6.52 $ 6.11

West Coast:

Operating Income $

67 $ 114 $ 331 $ 249

Throughput Volumes (Mbbls per Day)

282 285 281 277

Throughput Margin per Barrel $

8.51 $ 11.60 $ 10.59 $ 10.55

Operating Costs per Barrel (4):

Refining Operating Expenses $

4.35 $ 5.53 $ 4.60 $ 5.50

Depreciation and Amortization

1.58 1.70 1.67 1.76

Total Operating Costs per Barrel $

5.93 $ 7.23 $ 6.27 $ 7.26

Operating Income (Loss) for Regions Above $

(143 ) $ 1,956 $ 353 $ 3,759

Asset Impairment Loss Applicable to Refining

(417 ) (43 ) (574 ) (43 )

Loss Contingency Accrual Related to Aruban

Tax Matter (9) (114 ) - (114 ) -

Total Refining Operating Income (Loss) $ (674 ) $ 1,913 $ (335 ) $ 3,716 VALERO ENERGY CORPORATION AND SUBSIDIARIES

EARNINGS RELEASE

(Millions of Dollars, Except per Share, per Barrel, and per

Gallon Amounts)

(Unaudited)

Three Months Ended Nine Months Ended

September 30, September 30,

2009 2008 2009 2008 Retail - U.S.:

Company-Operated Fuel Sites (Average)

998 984 1,001 961

Fuel Volumes (Gallons per Day per Site)

4,963 4,946 5,022 4,997

Fuel Margin per Gallon

$ 0.231 $ 0.273 $ 0.157 $ 0.173

Merchandise Sales

$ 315 $ 292 $ 888 $ 819

Merchandise Margin (Percentage of Sales)

28.7 % 29.8 % 29.2 % 30.0 %

Margin on Miscellaneous Sales

$ 22 $ 24 $ 66 $ 74

Selling Expenses

$ 120 $ 134 $ 349 $ 375

Retail - Canada:

Fuel Volumes (Thousand Gallons per Day)

3,115 3,126 3,155 3,169

Fuel Margin per Gallon

$ 0.263 $ 0.261 $ 0.255 $ 0.278

Merchandise Sales

$ 58 $ 56 $ 146 $ 156

Merchandise Margin (Percentage of Sales)

28.6 % 28.6 % 29.1 % 28.5 %

Margin on Miscellaneous Sales

$ 10 $ 10 $ 25 $ 29

Selling Expenses

$ 62 $ 67 $ 173 $ 204

Ethanol (1):

Ethanol Production (Thousand Gallons per Day)

2,116 N/A 1,229 N/A

Gross Margin per Gallon of Ethanol Production

$ 0.59 N/A $ 0.55 N/A

Operating Costs per Gallon of Ethanol Production:

Ethanol Operating Expenses

$ 0.31 N/A $ 0.31 N/A

Depreciation and Amortization

0.03 N/A 0.03 N/A

Total Operating Costs per Gallon of Ethanol Production $ 0.34 N/A $ 0.34 N/A

Average Market Reference Prices and Differentials

(Dollars per Barrel):

Feedstocks (at U.S. Gulf Coast):

West Texas Intermediate (WTI) Crude Oil

$ 68.18 $ 117.83 $ 56.90 $ 113.25

WTI Less Sour Crude Oil (10)

$ 1.72 $ 4.05 $ 1.25 $ 5.20

WTI Less Mars Crude Oil

$ 1.78 $ 5.26 $ 1.06 $ 6.40

WTI Less Maya Crude Oil

$ 5.01 $ 11.36 $ 4.68 $ 16.39

Products:

U.S. Gulf Coast:

Conventional 87 Gasoline Less WTI $ 7.85 $ 12.13 $ 8.85 $ 7.66

No. 2 Fuel Oil Less WTI $ 4.53 $ 19.27 $ 6.40 $ 19.17

Ultra-Low-Sulfur Diesel Less WTI $ 6.99 $ 23.91 $ 8.59 $ 24.38

Propylene Less WTI $ 8.22 $ 7.21 $ (3.05 ) $ (0.11 )

U.S. Mid-Continent:

Conventional 87 Gasoline Less WTI $ 8.11 $ 8.62 $ 9.09 $ 6.49

Low-Sulfur Diesel Less WTI $ 8.01 $ 25.55 $ 8.63 $ 25.10

U.S. Northeast:

Conventional 87 Gasoline Less WTI $ 8.34 $ 5.80 $ 8.78 $ 4.62

No. 2 Fuel Oil Less WTI $ 4.95 $ 19.86 $ 7.68 $ 20.85

Lube Oils Less WTI $ 28.89 $ 89.33 $ 40.54 $ 51.75

U.S. West Coast:

CARBOB 87 Gasoline Less WTI $ 18.00 $ 11.28 $ 18.40 $ 12.13

CARB Diesel Less WTI $ 9.29 $ 22.94 $ 10.30 $ 24.57 VALERO ENERGY CORPORATION AND SUBSIDIARIES

EARNINGS RELEASE

(Millions of Dollars, Except per Share, per Barrel, and per

Gallon Amounts)

(Unaudited)

(1) The information presented for the three and nine months ended

September 30, 2009 includes the operations related to the

acquisition of certain ethanol plants from VeraSun Energy

Corporation. Ethanol plants located in Charles City, Fort Dodge

and Hartley, Iowa; Aurora, South Dakota; and Welcome, Minnesota

were purchased on April 1, 2009, and ethanol plants in Albert

City, Iowa and Albion, Nebraska were purchased on April 9, 2009

and May 8, 2009, respectively. The ethanol production volumes

reflected in this earnings release for the nine months ended

September 30, 2009 are based on 273 calendar days rather than the

actual daily production, which varied by facility.

(2) Effective July 1, 2008, Valero sold its Krotz Springs Refinery to

Alon Refining Krotz Springs, Inc. (Alon), a subsidiary of Alon USA

Energy, Inc. The nature and significance of Valero's post-closing

participation in an offtake agreement with Alon represents a

continuation of activities with the Krotz Springs Refinery for

accounting purposes, and as such the results of operations related

to the Krotz Springs Refinery have not been presented as

discontinued operations in the Statement of Income Data for the

three and nine months ended September 30, 2008. The refining

operating highlights, both consolidated and for the Gulf Coast

region, presented in this earnings release include the Krotz

Springs Refinery for the nine months ended September 30, 2008. The

pre-tax gain of $305 million on the sale of the Krotz Springs

Refinery is included in the Gulf Coast operating income for the

three and nine months ended September 30, 2008.

(3) Includes excise taxes on sales by Valero's U.S. retail system of

$226 million and $207 million for the three months ended September

30, 2009 and 2008, respectively, and $659 million and $605 million

for the nine months ended September 30, 2009 and 2008,

respectively.

(4) The asset impairment loss for the three months ended September 30,

2009 relates primarily to charges of approximately $340 million

resulting from the permanent shutdown of the gasification unit at

Valero's Delaware City Refinery. The remaining loss for the three

months ended September 30, 2009 relates to the permanent

cancellation of certain capital projects classified as

"construction in progress" as a result of the unfavorable impact

of the continuing economic slowdown on refining industry

fundamentals. Losses resulting from the permanent cancellation of

certain capital projects classified as "construction in progress"

in prior periods have been reclassified from Operating Expenses

and presented separately for comparability with the third quarter

2009 presentation. The asset impairment loss amounts for all

periods have been excluded from operating costs in determining

operating costs per barrel, resulting in an adjustment to the

operating costs per barrel previously reported in 2008.

(5) Effective January 1, 2009, Valero adopted certain new accounting

rules that require restricted stock granted under Valero's

stock-based compensation plans to be treated as participating

securities under the two-class method of determining basic

earnings per common share. Basic earnings per common share for

prior periods are to be adjusted to conform to these new rules.

The adoption of the new rules did not have any effect on the

calculation of basic earnings per common share for the three and

nine months ended September 30, 2009, but did reduce the $2.21 and

$4.08 basic earnings per common share amounts originally reported

for the three and nine months ended September 30, 2008,

respectively.

(6) Common equivalent shares have been excluded from the computation

of diluted earnings (loss) per common share for the three and nine

months ended September 30, 2009 as the effect of including such

shares would be antidilutive.

(7) Primarily includes gas oils, No. 6 fuel oil, petroleum coke, and

asphalt.

(8) The regions reflected herein contain the following refineries: Gulf

Coast- Corpus Christi East, Corpus Christi West, Texas City,

Houston, Three Rivers, Krotz Springs (prior to its sale effective

July 1, 2008), St. Charles, Aruba, and Port Arthur Refineries; Mid-Continent-

McKee, Ardmore, and Memphis Refineries; Northeast-

Quebec City, Paulsboro, and Delaware City Refineries; and West

Coast- Benicia and Wilmington Refineries.

(9) A loss contingency accrual of $140 million ($.25 per share) was

recorded in the third quarter of 2009 related to Valero's dispute

with the Government of Aruba regarding a turnover tax on export

sales as well as other tax matters.The portion of the loss

contingency accrual that relates to the turnover tax was recorded

in cost of sales for the three and nine months ended September 30,

2009, and therefore is included in refining operating income

(loss) but has been excluded in determining throughput margin per

barrel.

(10) The market reference differential for sour crude oil is based on 50%

Arab Medium and 50% Arab Light posted prices.

SOURCE: Valero Energy Corporation CONTACT: Valero Energy Corporation, San Antonio Investors, Ashley Smith, Vice President, Investor Relations: 210-345-2744 or Media, Bill Day, Executive Director, Corporate Communications: 210-345-2928 Website: http://www.valero.com/ Copyright Business Wire 2009 -0- KEYWORD: Aruba

United States

North America

Caribbean

Texas INDUSTRY KEYWORD: Convenience Store

Energy

Oil/Gas

Other Energy

Retail

Other Retail SUBJECT CODE: Earnings

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