OREANDA-NEWS. Valero Energy Corporation (NYSE: VLO, "Valero") today reported net income from continuing operations attributable to Valero stockholders of USD 1.2 billion, or USD 2.22 per share, in the fourth quarter of 2014 compared to USD 1.3 billion, or USD 2.38 per share, in the fourth quarter of 2013. Adjusting for special items, net income from continuing operations attributable to Valero stockholders was USD 952 million, or USD 1.83 per share, in the fourth quarter of 2014 compared to USD 963 million, or USD 1.78 per share, in the fourth quarter of 2013. A reconciliation of special items is shown in the notes to the accompanying financial tables.

"We delivered another quarter of solid operating performance and strong financial results," said Joe Gorder, Valero Chairman and CEO. "We showed the earnings power from Valero's advantaged and flexible system during a rapidly changing energy landscape."

For the year ended December 31, 2014, net income from continuing operations attributable to Valero stockholders was USD 3.7 billion, or USD 6.97 per share, compared to USD 2.7 billion, or USD 4.96 per share, in 2013. Adjusting for special items, net income from continuing operations attributable to Valero stockholders was USD 3.5 billion, or USD 6.68 per share, in 2014 compared to USD 2.4 billion, or USD 4.41 per share, in 2013.

Refining

The refining segment reported fourth quarter 2014 operating income of USD 1.9 billion versUSD 1.5 billion in the fourth quarter of 2013. Nearly all of the USD 377 million increase in operating income resulted from the previously noted special items. Excluding the special items, operating income was nearly flat in the fourth quarter of 2014 versus the fourth quarter of 2013 as stronger gasoline, distillate, and other product margins relative to Brent crude oil as well as higher refining throughput volumes were offset by lower discounts for sweet and sour crude oils relative to Brent crude oil.

Fourth quarter 2014 refining throughput volumes averaged 2.8 million barrels per day, an increase of 41,000 barrels per day from the fourth quarter of 2013. Valero's refineries operated at 98 percent throughput capacity utilization in the fourth quarter of 2014.

Ethanol

The ethanol segment reported fourth quarter 2014 operating income of USD 158 million versUSD 269 million in the fourth quarter of 2013. The USD 111 million decrease in operating income was mainly due to lower gross margin per gallon driven by a decline in gasoline and ethanol prices versus relatively stable corn prices. Production from the Mount Vernon plant contributed to record quarterly ethanol production volumes, which averaged 3.8 million gallons per day in the fourth quarter of 2014. The segment earned record annual operating income of USD 786 million in 2014 compared to USD 491 million in 2013.

Corporate and Other

General and administrative expenses were USD 214 million in the fourth quarter of 2014 versUSD 179 million in the fourth quarter of 2013. The effective tax rate was 28.4 percent in the fourth quarter of 2014.

Stockholder Distributions

Valero paid USD 143 million in dividends and purchased 10.3 million shares of its common stock with USD 497 million for total cash returned to stockholders of USD 640 million in the fourth quarter of 2014. In 2014, Valero returned USD 1.9 billion to stockholders, or 50 percent of net income from continuing operations, with USD 554 million in dividends and USD 1.3 billion in stock buybacks. In January 2015, Valero announced a 45 percent increase in its quarterly common stock dividend from USD 0.275 per share to USD 0.40 per share.

"We are committed to disciplined capital allocation and to returning cash to stockholders. Our goal in 2015 is to exceed 2014's total payout ratio," Gorder said.

The company defines total payout ratio as the sum of dividends plus stock buybacks divided by net income from continuing operations attributable to Valero stockholders.

Investments and Other Cash Flow Items

In the fourth quarter of 2014, capital spending was USD 857 million, of which USD 157 million was for turnarounds and catalyst. Capital spending in 2014 including turnarounds and catalyst was USD 2.8 billion, which was USD 100 million below recent guidance and USD 200 million under the original budget due mainly to prudent management of the capital program. Capital spending in 2014 included USD 1.2 billion for stay-in-business capital and USD 1.6 billion to advance Valero's growth strategy. More than 50 percent of the 2014 growth capital spending was allocated to logistics investments.

Liquidity and Financial Position

Valero ended the fourth quarter of 2014 with USD 6.4 billion in total debt and USD 3.7 billion of cash and temporary cash investments, of which USD 237 million was held by VLP. The company's debt to capital ratio, net of USD 2 billion in cash and excluding the effect of VLP, was 17.4 percent.

Strategic Update

As part of its strategy to increase growth of VLP and unlock value, Valero is targeting an estimated USD 1 billion of drop-down transactions to VLP in 2015. As a result, Valero expects VLP's fourth quarter 2015 annualized EBITDA to be approximately USD 200 million, or 126 percent higher than VLP's third quarter 2014 annualized EBITDA of USD 88 million. VLP's fourth quarter 2015 results and distribution growth are expected to drive Valero's general partner and incentive distribution rights in VLP into the 50-percent tier, with such distributions being payable in the first quarter of 2016.

Valero continued to advance its refining and logistics capital investments, which are designed to increase its ability to access and process more North American crude oil. Valero completed the Meraux hydrocracker revamp in the fourth quarter of 2014, which is expected to increase the refinery's yield of ultra-low-sulfur diesel and jet fuel. Also, the two crude topping units at the Corpus Christi and Houston refineries are progressing as planned. When complete, these units are expected to reduce feedstock costs at both of these refineries.

Valero expects 2015 capital spending, including turnarounds and catalyst, to be USD 2.65 billion, which includes USD 1.5 billion for stay-in-business capital and USD 1.15 billion for growth investment, and excludes USD 150 million for a St. Charles methanol project that remains under evaluation. Valero expects 35 percent of growth investments in 2015 will be for light crude oil processing and more than 30 percent will be for logistics. Valero believes that most of the logistics investments will be eligible for future drops to VLP.

Valero expects 2016 capital spending, including turnarounds and catalyst, to be USD 2.4 billion, which includes USD 1.4 billion for stay-in-business capital and USD 1 billion for growth investment, and excludes USD 300 million for a St. Charles methanol project that remains under evaluation.