Valero Energy uses $862 million to repay debt in second quarter

By Lisa Kerner

Charlotte, N.C., July 31 - Valero Energy Corp. spent $862 million to pay down debt in the second quarter, ending the period on June 30 with $7 billion of debt, chief financial officer Michael Ciskowski said Tuesday during the company's quarterly earnings conference call.

The company received $300 million from the reissuance of tax-exempt bonds during the period, he said.

Valero had $1.3 billion of cash and temporary cash investments and $4.7 billion of additional available liquidity at the end of the second quarter.

Also, in July, Valero renewed and increased the size of its accounts receivable sales facility to $1.5 billion, providing an additional $500 million of liquidity.

Valero's debt to capitalization, net of cash, was 25.7% at the end of the quarter, Ciskowski said.

During the quarter, Valero returned $124 million of cash to shareholders, paying $83 million of dividends on its common stock and using $41 million to purchase 1.8 million shares.

Separation of retail unit eyed

The board of directors authorized management, with the assistance of Credit Suisse Securities (USA) LLC, to pursue a separation of Valero's retail business from the remainder of the company. One possibility is a tax-efficient distribution of the retail business to Valero shareholders, said Ciskowski.

For the second quarter, the retail business segment reported record-high quarterly operating income of $172 million, due mainly to higher fuel margins and volumes in U.S. retail.

Valero completed major turnaround maintenance at its St. Charles and McKee refineries. The company expects its Port Arthur hydrocracker to be fully operational in the fourth quarter and its St. Charles project to be fully operational in the second quarter of 2013.

"We look forward to the improvement in our free cash flow from the planned decline in our capital spending, the expected contribution from our growth projects and the favorable industry trends that continue to accrue to our assets," Ciskowski said.

Valero reported second-quarter operating income of $1.4 billion, compared with $1.3 billion for the prior-year period. The increase was attributed to higher throughput margins in some refining regions and a 342,000-barrel-per-day increase in refinery throughput volume.

San Antonio-based Valero is an oil refinery owner and operator.

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