Valero Energy Corporation — 2021 Form 10-K Summary
Business context and reporting period. This is Valero’s annual report for the fiscal year ended December 31, 2021, not a standalone fourth-quarter report. Valero operates 15 petroleum refineries with approximately 3.15 million barrels per day of throughput capacity, a consolidated 50%-owned renewable diesel joint venture, and 12 ethanol plants. Results are reported in Refining, Renewable Diesel, and Ethanol segments. Unless noted, amounts below are in U.S. dollars.
Financial performance and position
| Metric | 2021 | 2020 |
|---|---|---|
| Revenue | $113.977 billion | $64.912 billion |
| Operating income (loss) | $2.130 billion | ($1.579 billion) |
| Net income (loss) attributable to Valero stockholders | $930 million; $2.27 per diluted share | ($1.421 billion); ($3.50) per diluted share |
| Cash provided by operating activities | $5.859 billion | $948 million |
| Cash and cash equivalents at year-end | $4.122 billion | $3.313 billion |
| Total debt, excluding finance leases | $11.950 billion | $13.013 billion |
Net income was $1.288 billion in 2021, including $358 million attributable to noncontrolling interests, primarily related to DGD. Total debt and finance lease obligations were $13.870 billion at year-end. Reported liquidity was $9.263 billion, including $4.086 billion of cash and $5.177 billion of available committed-facility capacity.
Segment operating income was $1.862 billion for Refining, $709 million for Renewable Diesel, and $473 million for Ethanol. Valero’s non-GAAP segment margins were $9.202 billion, $904 million, and $1.161 billion, respectively; these are dollar amounts, not margin percentages. The company paid $1.602 billion in common-stock dividends and invested $2.467 billion in capital projects during 2021.
Changes versus the prior comparable period
- Revenue increased $49.065 billion as petroleum product prices and sales volumes recovered from pandemic-driven weakness in 2020.
- Operating income improved by $3.709 billion; stockholder-attributable results moved from a $1.421 billion loss to $930 million of income.
- Refining throughput rose to 2.787 million barrels per day from 2.555 million. Higher gasoline and diesel margins and throughput helped, while compliance-credit costs increased by $1.3 billion and lower crude discounts were unfavorable.
- Renewable Diesel adjusted operating income rose $74 million, as higher selling prices and volumes were substantially offset by higher feedstock costs.
- Ethanol adjusted operating income improved $558 million, reflecting higher ethanol and co-product prices and production, partly offset by higher corn costs.
- Operating cash flow increased to $5.859 billion from $948 million. The 2021 total included a favorable $2.225 billion change in current assets and liabilities and receipt of a $962 million 2020 U.S. federal tax refund; these factors should be considered when assessing cash-flow sustainability.
Outlook, commentary, risks, and unusual items
- Management expected gasoline and diesel demand to remain at pre-pandemic levels and follow seasonal patterns; jet fuel demand was recovering more slowly. Renewable diesel margins were expected to moderate from 2021 levels, and ethanol margins were expected to decline from 2021 record highs.
- Winter Storm Uri contributed an estimated $579 million of pretax excess energy costs ($467 million after tax). Hurricane Ida temporarily shut two Louisiana refineries and the renewable diesel plant; management reported minimal physical damage, but restarts and shipments were delayed.
- Valero completed an expansion of DGD’s renewable diesel capacity to 700 million gallons per year in 2021. Construction of a second DGD plant, with expected annual capacity of 470 million gallons of renewable diesel, was underway; startup was expected in the first quarter of 2023. Expected 2022 capital investments were $2.390 billion.
- Renewable and low-carbon fuel programs are both an opportunity and a material exposure: compliance costs were $2.1 billion in 2021, versus $767 million in 2020. Credit prices, mandates, tax incentives, and approved fuel pathways may affect results.
- Other material risks include volatile refining and feedstock margins; COVID-19 and supply-chain effects; energy price and availability; severe weather, operational outages, and cybersecurity; environmental requirements and climate-related policy; and competition for renewable feedstocks. The company cautions that its forward-looking statements are uncertain and are not guarantees.
- Unusual 2021 items included a $193 million charge for early debt retirement, a $62 million gain on the sale of a partial interest in MVP Terminalling, and a $24 million share of an impairment related to a canceled pipeline project. Valero reported several environmental enforcement matters under resolution discussions and stated that an adverse outcome would not be expected to materially affect its financial condition, results, or liquidity.
- Auditors issued unqualified opinions on the financial statements and internal control. The audit identified assessment of $816 million in gross unrecognized tax benefits as a critical audit matter.
Most important facts for investors to verify
- Whether refining, renewable diesel, and ethanol margins and volumes sustain the 2021 recovery, particularly given management’s expectation of moderation in renewable diesel and ethanol margins.
- How much of the $5.859 billion operating cash flow reflected recurring earnings versus working-capital movements and the tax refund, and how cash is allocated among investment, debt reduction, dividends, and repurchases.
- Actual compliance-credit costs and exposure to changes in RFS, LCFS, and renewable-fuel tax incentives, including the blender’s tax credit scheduled to expire after 2022 absent extension.
- Progress, cost, timing, and expected returns for DGD’s second plant and the planned ethanol carbon-capture project, whose initial service was anticipated in late 2024.
- Debt maturities, refinancing needs, and liquidity availability, including the 2022 mandatory tender of $300 million of Gulf Opportunity Zone bonds and facilities with near-term maturities.
- Developments in tax audits and the $525 million biofuel-credit refund claims, as well as environmental proceedings and other contingencies.