Valero Energy tops profit estimates on higher Gulf Coast margins

(Reuters) - Independent U.S. refiner Valero Energy Corp VLO.N topped Wall Street estimates for quarterly profit on Thursday, as it earned more from refining low-cost Canadian heavy crude.

FILE PHOTO: The logo for Valero Energy Corporation is shown at a Valero gas station in Encinitas, California, U.S., May 2, 2016. REUTERS/Mike Blake

Refining margins in the company’s biggest segment, U.S. Gulf Coast operations, rose 16% to $1.64 billion.

“Our refineries operated well at 96% utilization, allowing us to take advantage of wider sour crude oil differentials and weakness in high sulfur residual feedstocks in the fourth quarter,” Chairman and Chief Executive Officer Joe Gorder said.

Most of the U.S. Gulf Coast refiners, including Valero, can process heavy crude to make marine fuels compliant with the International Maritime Organization’s (IMO) new regulations. Refiners spent heavily in 2019 to refurbish distillation units and cokers to process cheaper, heavy grade crude.

Analysts have highlighted Valero to be a major beneficiary of IMO’s low-sulfur fuel oil mandate.

During a Thursday morning conference call, analysts sought to better understand Valero's higher-than-expected results, which were opposite of what major oil companies like Royal Dutch Shell Plc RDSa.L had reported.

“Valero’s Gulf Coast results show its ability to run a cocktail of crudes including high-sulfur fuel oil which add to the earnings upside in an IMO 2020 environment,” said Credit Suisse analyst Manav Gupta.

Planned overhauls will cut the company’s refinery utilization in the first quarter of 2020.

Valero plans for its 15 refineries, two of which are outside the United States, to operate up to 91% of their combined capacity of 3.13 million barrels per day (bpd) in the first quarter of 2020, said Homer Bhullar, vice president of investor relations, in a Thursday conference call.

Excluding items, the company reported a profit of $2.13 per share beating analysts’ average estimate of $1.62, according to IBES data from Refinitiv.

Net income attributable to the shareholders rose to $1.1 billion, or $2.58 per share, in the fourth quarter ended Dec. 31, from $952 million, or $2.24 per share, a year earlier.

The San Antonio, Texas-based company’s total revenue, however, fell 3% to $27.88 billion.

Rival Marathon Petroleum MPC.N posted higher adjusted earnings on Wednesday, well-above Wall Street expectations on better-than-expected refining margins setting a positive tone for the entire sector.

Reporting by Shradha Singh in Bengaluru; additional reporting by Erwin Seba; Editing by Vinay Dwivedi and Diane Craft