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Originally published Wednesday, January 27, 2010 at 5:24 AM

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Valero posts losses in 4Q, full year

Valero Energy Corp. said Wednesday it lost almost $2 billion in 2009 as the company shuttered a Delaware refinery and struggled to pass higher oil prices along to consumers.

AP Energy Writer

NEW YORK —

Valero Energy Corp. said Wednesday it lost almost $2 billion in 2009 as the company shuttered a Delaware refinery and struggled to pass higher oil prices along to consumers.

Much of that deficit came in the fourth quarter, when America's largest independent petroleum refiner lost $1.4 billion, or $2.51 a share. Quarterly revenue increased 6 percent to $18.9 billion.

Refiners, which buy crude to make fuels and other products, have been caught in the middle as gasoline prices failed to rise as much as oil prices last year.

Oil doubled between February and December after a weaker dollar sent investors pouring into commodity markets. In that time, pump prices increased only about 40 percent as Americans cut back on driving.

The result wasn't good for Valero.

For the full year, Valero lost $1.98 billion, or $3.67 per share.

The company's Delaware refinery was in particular trouble, hemorrhaging money at about $1 million a day last year. Valero shut it down in November, taking a loss of $1.23 billion.

Without that, Valero's fourth-quarter loss was $182 million or 32 cents a share. Analysts, which typically exclude special items, expected a loss of 47 cents a share.

"It's not a very profitable environment for refiners," said Jason Gammel, an analyst with Macquarie Research.

With oil around $75 per barrel, refiners need gasoline at about $2.50 a gallon just to pay off the cost of buying and transporting crude to their plants, Gammel said.

"And that's not even covering their operating expenses," he said.

The refining business is expected to remain a sore spot for the entire oil industry this year. But larger companies that also produce oil have so far been able to post profits overall by getting higher prices for crude.

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ConocoPhillips, which also reported fourth-quarter earnings on Wednesday, earned $1.2 billion in the fourth quarter. The company's U.S. oil production business nearly tripled profits to $667 million in the fourth quarter, while its refineries lost $325 million.

Valero CEO Bill Klesse said in a conference call with investors the company has taken steps to cut unprofitable parts of its business, and 2010 should be Valero's first profitable year since 2007.

Profit margins will remain tight, however, as new refineries open in the U.S. and elsewhere.

"While 2009 may have been the bottom for refining profitability, there's too much inventory and spare refining capacity in the industry right now for margins to rebound quickly," Klesse said in a statement.

Valero and other U.S. refineries have slowed operations to cut costs and get their plants ready for more expensive fuel blends that will be required in the summer. Together, they've cut fuel production to the lowest levels on record for this time of year, according to the Energy Information Administration.

Valero also will cut capital spending by $700 million in 2010, and the company slashed its quarterly cash dividend to 5 cents a share, a third of what shareholders got in the previous quarter.

Last week the company said it was in "advanced negotiations" to sell assets from its closed Delaware refinery to PBF Investments, LLC., a subsidiary of European refiner Petroplus Holdings.

Valero also bought two ethanol production plants for more than $200 million. Ethanol is considered a safe investment for refineries, since the government is expected to eventually require more of it to be blended in gasoline.

Valero shares gave up 60 cents, or 3.2 percent, at $18.42 in afternoon trading.

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