Valero to Make Another Share Buyback of Up To $2.5B

Valero Energy Corp. will spend up to $5 billion redeeming common shares starting this year.

"The Board of Directors of Valero authorized us to purchase shares of our outstanding common stock for a total cost of up to $2.5 billion with no expiration date, which is in addition to the amount remaining available for purchase under the $2.5 billion authorization that was approved by the Board on February 23, 2023", the petroleum refiner said in a filing with the USA Securities and Exchange Commission (SEC) last week.

San Antonio, Texas-based Valero did not make any purchase under the program approved February during the first half of the year, based on its latest quarterly filing July 27. In the second quarter, it completed its $2.5 billion repurchase program approved October 26, 2022. "During the three and six months ended June 30, 2023, we purchased for treasury 8,421,452 shares and 19,414,793 shares, respectively", Valero said in the earnings disclosure.

Two buyback programs of $2.5 billion each that were approved 2018 and 2022 had already been wrapped up, according to the company.

Valero ended the first half of 2023 with $5.075 billion in cash and cash equivalents and $1.193 billion in current debt and finance lease obligations. Total liquidity stood at $10.135 billion as of June 30, according to its results filing.

The company logged $5.268 billion in net profit for the January-June 2023 period, down from $5.735 for the first half of 2022. Valero attributed the decrease to weaker product prices. Oil refiners reported higher margins last year as oil and gas prices skyrocketed following Russia's invasion of Ukraine.

"Our operations generated $4.7 billion of cash during the first six months of 2023. This cash was used to make $982 million of capital investments in our business and return $3.1 billion to our stockholders through purchases of common stock for treasury and dividend payments", Valero said in its quarterly filing.

Valero declared $1.02 in regular common stock dividend for the second quarter, compared to $5.4 of earnings per unit.

After revealing the new buyback program Friday, Valero outperformed the stock market in this week's opening session. It rose 1.81 percent or 2.6 points higher to 4146.28 on the New York Stock Exchange on Monday, compared to the S&P 500's daily gain of 0.07 percent, Dow Jones' 0.02 percent and Nasdaq's 0.01 percent.

"Heading into today, shares of the oil refiner had gained 7.56 percent over the past month, outpacing the Oils-Energy sector's gain of 5.62 percent and the S&P 500's gain of 0.38 percent in that time", Zacks Investment Research wrote Monday, projecting a third-quarter profit per share of $6.45 for Valero.

Leadership Changes

Also in Friday's filing Valero said its senior vice-president and chief technology officer, Cheryl L. Thomas, intends to retire January 2024. "In the interim, Ms. Thomas plans to help transition her responsibilities internally as part of Valero’s succession plan", it said.

Earlier, chief commercial officer Gary K. Simmons was promoted to chief operating officer while maintaining his position as executive vice-president, as confirmed by a SEC filing July 21.

On May 9 Valero announced Joseph Gorder had stepped down as chief executive but won election to be board executive chair, both changes effective June 30. President and chief operating officer R Lane Riggs has been elected to replace him as chief executive.

The changes bared May also included Robert Profusek being named lead independent director.

Climate Roadmap Row

Profusek's naming as director came despite opposition from Valero investors.

Mercy Investment Services in April urged fellow Valero shareholders to vote against Profusek and two other director nominees over the board’s “inadequate oversight of the company’s unique climate-related risks and opportunities”, as stated in a letter by Mercy Investment Services published on the SEC April 24.

Mercy Investment Services argued Valero’s greenhouse gases (GHG) reduction plan is below industry standards. “For example, in its 2035 GHG reduction target, Valero uses the lower-carbon profile of its biofuels products to offset its scope 1 and 2 emissions. Proper protocol would instead categorize Valero’s biofuel emissions as scope 3 product emissions”, the letter said. “While we do not dispute that Valero’s biofuels are lower carbon than its fossil fuel products, accepted protocols simply do not allow for this type of offset”.

Another Valero investor, Miller/Howard Investments Inc., supported the call. " “Miller/Howard Investments, Inc. is concerned that the company’s lack of strong and comprehensive greenhouse gas targets—in contrast to peers like Phillips 66 and Marathon Petroleum Corporation—raises questions about its strategy and preparation for a low-carbon future”, it said in a SEC filing May 8.

In a reply to Mercy Investment Services, Valero said the shareholder's call for changes to reduction targets translated to closing refineries. “Our strategy, on the other hand, is to run the most resilient refining assets, grow our low-carbon fuels production, and meet our aggressive targets by leveraging resilience and our low-carbon fuels growth strategy”, Valero said in a May 22 filing.

On Scope III emissions Valero said it has not set a target “because the methodology is riddled with duplication and other challenges, and we do not have a clear line of sight to the use of our products by third parties”.

To contact the author, email jov.onsat@rigzone.com