Valero expects improved ethanol margins in second quarter

By Erin Voegele | May 04, 2016

Valero Energy Corp. has released first quarter financial results, reporting the ethanol segment posted $9 million of adjusted operating income for the three-month period, down from $12 million during the same period of last year.

Ethanol production volumes averaged 3.74 million gallons per day during the first quarter, which was essentially flat versus the average of 3.78 million gallons per day reported for the first quarter of 2015. The gross margin per gallon of production was 35 cents during the first quarter, down from 43 cents during the same three-month period of last year. Moving into the second quarter, the company expects recent increases in crude oil and gasoline prices to improve ethanol margins.

Valero’s ethanol production volumes may also increase during the current quarter. During an investor call, John Lock, vice president of investor relations at Valero, said the company’s ethanol segment is expected to produce an average of 3.8 million gallons per day during the second quarter of this year, with operating expenses averaging 37 cents per gallon.

Regarding renewable identification numbers (RINS), Locke said Valero expects costs related to meeting its biofuel obligations to be between $750 million and $850 million this year. This is primarily related to RINs in the U.S. he said. During the call, a representative of Valero indicated the cost of RINs is up so far when compared to last year, reaching $161 million during the first quarter, compared to $133 during the same period of 2015.

Overall, Valero reported adjusted net income attributable to Valero stockholders of $283 million, or 60 cents per share, for the first quarter, compared to $964 million, or $1.87 per share, during the same period of 2015. Actual net income attributable to Valero stockholders was $495 million, or $1.05 per share.

Valero owns 11 dry mill ethanol plants with a combined production capacity of approximately 1.4 billion gallons per year, including facilities in Linden and Mount Vernon, Indiana; Albert City, Charles City, Fort Dodge and Hartley, Iowa; Welcome, Minnesota; Albion, Nebraska; Bloomington, Ohio; Aurora, South Dakota; and Jefferson, Wisconsin.