Valero reports improved operating income for ethanol segment

By Erin Voegele | January 31, 2017

On Jan. 31, Valero Energy Corp. released financial results for the fourth quarter of 2016, reporting the company’s ethanol segment achieved $126 million in operating income for the three-month period, compared to a loss of $13 million for the same quarter of 2015. The increased operating income is primarily attributed to lower corn prices and stronger ethanol prices.

Valero’s ethanol production volumes averaged 4 million gallons per day during the fourth quarter, up 104,000 gallons per day when compared to the fourth quarter of the previous year. In a statement, Valero said it expects export demand for ethanol to remain strong and domestic demand to improve with seasonal increases in gasoline consumption. The company also noted it expects high domestic corn production to keep corn prices low in the near term.

Valero’s biofuel blending costs were $217 million during the fourth quarter, up $60 million when compared to the fourth quarter of 2015. For the full year, biofuel blending costs reached $749 million, up $309 million when compared to the previous year. The higher costs are primarily attributed to higher renewable identification number (RIN) prices.

Overall, Valero reported net income attributable to stockholders of $367 million, or 81 cents per share, for the fourth quarter, compared to $298 million, or 62 cents per share, during the final quarter of 2015. For the full year, net income attributable to Valero stockholders was $2.3 billion, or $4.94 per share, compared to $4 billion, or $7.99 per share, for 2015.

During an investor call, Joe Gorder, chairman and CEO of Valero, indicated the company is continuing to work aggressively with regulators in an effort to move the point of obligation under the renewable fuel standard (RFS). He said Valero believes moving the point of obligation will level the playing field between refiners and retailers while improving the penetration of renewable fuels, lowering RIN speculation and reducing RIN fraud. Based on current regulations, however, he said Valero anticipates 2017 biofuel blending costs to be similar to the $750 million incurred in 2016.

Regarding future ethanol production, John Locke, vice president of investor relations at Valero, said the company is expected to produce approximately 3.8 million gallons per day during the first quarter of 2017.

Valero currently owns 11 corn ethanol plants with a combined annual capacity of 1.3 billion gallons. The company also operates Diamond Green Diesel, a renewable diesel project that is a joint venture with Darling Ingredients Inc., along with a 50 MG wind farm and 15 petroleum refineries with a combined throughput capacity of 3 million barrels per day.