Engineering News

Valero Bullish On Distillates; Eyes Acquisitions
February 05, 2009

The chief executive of top U.S. refiner Valero Energy Corp. said on Thursday he was optimistic about long-term demand growth for distillates fuels, noting that global diesel supplies remained tight.

Demand for distillates has been growing faster than that for gasoline globally and strong 2008 profit margins carried into January 2009, Valero CEO Bill Klesse told analysts in a conference presentation that was webcast.

"We are still very optimistic on distillates demand growth increases," Klesse said of the middle distillate fuels which include road diesel, home heating oil and jet fuel.

He said near-term demand was being negatively impacted by a slowdown in transportation, including a decline of 10 percent in the United States, but added Northern Hemisphere heating oil demand is up year-on-year due to a colder-than-normal winter.

A presentation slide noted that the "world is still tight on diesel."

Margins on gasoline, which lagged well behind distillates, have shown some improvement in recent weeks as lower pump prices spur some demand recovery, Klesse said.

But for recovery traction, refiners must restrict motor fuel output, he added. Last month, he said that Valero was maintaining lower gasoline production levels, running its fluid catalytic crackers at 70-75 percent of capacity.

ARUBA STILL ON SLATE

Klesse said Valero, which owns 15 refineries, was still running a process for sale of its Aruba refinery, noting some companies were still interested.

"We actually have an ongoing process today ... we have a couple of strategic companies interested in the asset and we are still seeing how it develops," said Klesse, whose company has said it may shutter some refineries if it can't sell them.

But Valero is "very interested" in snapping up suitable downstream assets that add long-term shareholder value, he said, calling the low valuation environment a buyer's market.

"Yes, the answer is that we are very interested as some of these refineries are coming into the market and this is Valero's business," Klesse added.

He said Valero has slowed share buybacks as the economic slowdown deepened and is not going to commit to that now.

"Right now we are focusing on maintaining our liquidity because we think there are opportunities out there," he said.

Klesse also said Valero, which last week posted a fourth-quarter loss, has no plans to cut its dividend.

Shares in San Antonio-based Valero were down 36 cents, or 1.51 percent, at $23.56 on the New York Stock Exchange versus a $62.97 52-week high.

Source: AFX News Limited

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