Valero Energy Corporation (NYSE: VLO) — 2023 Form 10-K
Business context and reporting period
Valero manufactures and markets petroleum-based and low-carbon transportation fuels and petrochemical products. It operates 15 refineries with approximately 3.2 million barrels per day of throughput capacity, has a 50% interest in consolidated joint venture Diamond Green Diesel (DGD), and owns 12 ethanol plants. This filing reports on the fiscal year ended December 31, 2023; it does not provide standalone fourth-quarter financial results in the supplied text.
Financial and operating performance
Amounts are in U.S. dollars; financial figures are in billions unless otherwise noted.
| Metric | 2023 | 2022 |
|---|---|---|
| Revenue | $144.766 | $176.383 |
| Operating income | $11.858 | $15.690 |
| Net income | $9.149 | $11.879 |
| Net income attributable to Valero stockholders | $8.835 | $11.528 |
| Diluted EPS | $24.92 | $29.04 |
| Cash provided by operating activities | $9.229 | $12.574 |
| Capital investments | $1.916 | $2.738 |
- Margins and segments: Refining operating income was $11.511 billion, down from $15.803 billion. Refining margin, a company-defined non-GAAP measure, was $19.087 billion versus $23.518 billion. Renewable Diesel operating income rose to $852 million from $774 million; Ethanol operating income rose to $553 million from $110 million.
- Cash and liquidity: Cash and cash equivalents were $5.424 billion at year-end, up $562 million year over year. Total liquidity was $10.460 billion, including $5.296 billion of available committed-facility capacity.
- Debt: Debt was $9.218 billion and finance lease obligations were $2.306 billion, for combined debt and finance lease obligations of $11.524 billion. The company retired $199 million of public debt during 2023.
- Balance sheet: Total assets were $63.056 billion and total equity was $28.524 billion. Current assets were $26.221 billion and current liabilities were $16.802 billion.
- Capital returns: Valero returned $6.588 billion to stockholders in 2023: $5.136 billion in cash-flow-statement share purchases and $1.452 billion in dividends. It also reported $5.188 billion of treasury-stock purchases in its equity statement. A $2.5 billion buyback authorization announced in February 2024 supplements the $2.2 billion remaining under the September 2023 program.
Changes versus 2022
- Revenue fell $31.617 billion, primarily due to lower prices for petroleum-based products; lower crude and other feedstock costs partly offset the decline.
- Operating income decreased $3.832 billion and net income attributable to Valero stockholders decreased $2.693 billion. Management attributed the earnings decline principally to lower gasoline and distillate margins.
- Refining margin declined $4.431 billion. Lower distillate margins had an estimated $5.6 billion unfavorable impact and lower gasoline margins a $529 million unfavorable impact; better crude and other feedstock discounts provided partial offsets.
- Renewable Diesel segment sales volumes increased to 3.539 million gallons per day from 2.175 million, mainly reflecting the Port Arthur plant’s first full year of operations. Lower feedstock costs and higher volume were partly offset by lower product prices and higher expenses.
- Ethanol results improved with lower corn costs, higher production volumes, and lower operating expenses; the 2022 comparison included a $61 million impairment loss at the Lakota plant.
- Operating cash flow declined $3.345 billion. A $2.326 billion unfavorable change in current assets and liabilities, including working-capital use, was a significant factor.
Outlook, commentary, risks, and unusual items
- Management said gasoline and diesel demand had returned to pre-pandemic levels and expected typical seasonal patterns; U.S. jet-fuel demand was approaching pre-pandemic levels. Low product inventories were expected to support high refinery utilization in early 2024. These are qualitative expectations, not quantified earnings guidance.
- Management noted that wider crude discounts could support results, but OPEC+ production cuts and the Trans Mountain Pipeline expansion could temper seasonal effects. Middle East conflict and shipping disruption could increase market volatility and freight costs. Renewable diesel demand was expected to remain near then-current levels.
- Valero expected 2024 capital investments of $2.165 billion, including $545 million of growth investments; the company-defined amount attributable to Valero was $1.950 billion. These are estimates, not guaranteed expenditures.
- DGD’s $315 million sustainable aviation fuel project was expected to be completed in the first quarter of 2025; half the cost is attributable to Valero. The Navigator carbon-capture pipeline project was canceled in October 2023. Valero said any potential related obligation was not expected to be material.
- Key exposures include volatile refining and low-carbon fuel margins, feedstock and energy costs and availability, operational interruptions, severe weather, competition, changing renewable-fuel credit and tax incentives, and climate and environmental regulation. California’s SBx 1-2 creates uncertainty around possible refining-margin penalties and restrictions on turnaround and maintenance; the state had not established a maximum margin or imposed such restrictions by year-end.
- Legal and environmental matters include unresolved air-quality notices at the Benicia refinery and a Texas Attorney General case concerning alleged Clean Air Act violations at Port Arthur. Valero also disclosed a climate-related lawsuit in Oregon and said it intends to defend the matter. The filing does not provide a clear estimate of potential exposure for these matters in the supplied text.
- Credit ratings were investment grade with stable outlooks at year-end. Management believed available cash and facility capacity were sufficient for operating needs and commitments. The $1.3 billion accounts-receivable sales facility matured in July 2024, and certain foreign cash repatriations may incur taxes.
- The financial statements received an unqualified audit opinion, and management and the auditor reported effective internal control over financial reporting. The auditor identified assessment of $186 million of gross unrecognized tax benefits as a critical audit matter.
Most important facts for investors to verify
- Whether refining margins and profitability normalize or weaken further, given their large contribution to 2023 earnings.
- How actual working-capital movements and cash generation compare with 2023, and how much cash remains available after dividends, repurchases, investment, and debt service.
- Debt maturities, lease obligations, borrowing costs, facility renewals, and the availability of liquidity—especially the accounts-receivable facility maturity.
- Realized returns, schedule, costs, and policy-credit assumptions for DGD’s SAF project and other low-carbon investments.
- Developments in California’s SBx 1-2 rules and any changes to RFS, LCFS, Canadian clean-fuel requirements, or tax credits that affect refining costs and low-carbon fuel economics.
- Material developments, potential costs, and any changes in reserves or disclosures related to environmental enforcement and litigation.
- The scale and timing of future buybacks and dividends relative to operating cash flow and capital requirements.