Oil refiner Valero Energy Corp. (VLO), announced Friday its intention to permanently shutter the Delaware City refinery, citing high operating costs and capital spending leading to financial losses amid the poor economic conditions. The company added that declining demand for refined products, and poor coking margins have also negatively impacted the refinery operations.
The intent to close down the refinery was intimated to company employees that is likely to affect about 550 jobs at the plant. A safe and orderly shutdown of the refinery will commence immediately, the company added.
Valero owns and operates 16 refineries throughout the U.S., Canada and the Caribbean with a combined throughput capacity of about 3 million barrels per day, making it the largest refiner in North America. Valero with a total of about 22,000 employees in its rolls, reported revenues of $119 billion in fiscal year 2008.
In a statement, chairman and chief executive officer, Bill Klesse said, "The decision to permanently close the Delaware City refinery was a very difficult one. We have spent the last year diligently trying to avoid this situation, and I have worked closely with Gov. Markell in an effort to find a different outcome."
The company added that despite its efforts to improve reliability and financial performance, it has not been able to do enough, and have currently exhausted all viable options. The company shut down its gasifier and coking operations this fall, and also sought a buyer for the refinery, but feasible opportunities had not materialized. Valero now expects to continue supply of refined products in the Northeast through higher throughput rates at the its other refineries.
The San Antonio, Texas-based Fortune 500 company said it would start negotiations immediately with the refinery unions on employee severance packages, as well as the effects of plant closure.
The company said it expects to report a pre-tax charge of about $1.7 billion to $1.8 billion, or $2.00 to $2.15 per share after taxes, related to asset impairment, employee severance and other shutdown costs in the current fourth quarter. The company expects the cash portion of the pre-tax charge to be in the range of $125 million to $150 million.
Additionally, Valero estimates the shutdown to reduce pre-tax operating expenses by about $450 million in 2010, including $125 million of non-cash costs. It also anticipates a reduction in capital spending and turnaround costs by about $200 million through 2010. After-tax cash flows are anticipated in the range of $600 million to $700 million from inventory sales in 2010.
"As a result of this business decision, we expect the substantial cost savings and cash benefits will improve the company's financial position and cash flow for 2010. Our action is consistent with previous actions we have taken to improve our profitability and lower our break-even costs to become more competitive," Klesse added.
In order to rationalize underperforming operations, Valero subsidiary Premcor Refining Group. Inc. revealed plans to shut down the coker and gasifier complex at the Delaware City refinery, while indicating that the coker will remain idle until improvement of coking economics and the closure of gasifier complex would be for an indefinite period. The shutdown led to a headcount reduction of at least 150 employees and 100 contract workers.
At that time, the company indicated that it expects to extend the plant-wide shut downs at Valero Aruba refinery and intended to reduce production capacity of certain cokers at its refineries, until coking margins improve. The Aruba refinery has been generating losses as a result of narrow price differential between heavy sour and light sweet crude oils, lower demand for refined products and the current economic conditions. At the Aruba refinery, the company expected to release more than 700 contract workers.
The Aruba refinery was also impacted by looming local tax burdens, including a disputed tax on revenues and the December 2010 expiration of the current 20-year tax holiday. Valero also added that the shutdown of a coker and a fluid catalytic cracking unit at the Corpus Christi refinery announced earlier in the year would continue.
In Friday's regular trading session, VLO is currently trading at $16.76, up $0.21 or 1.28% on a volume of 5.16 million shares. In the past 52-week period, the stock has been trading in a range of $13.94 to $26.20.
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June 05, 2026 16:18 ET A busy week for economic news flow saw a slew of reports being released that reflected the trends in the U.S. labor market. In Europe, economic growth and inflation data gained attention as the European Central Bank and Bank of England head for policy session later in the month. In Asia, the monetary policy session of the Indian central bank was in focus as the country, a major oil importer, reels under the pressures of a weaker rupee and rising inflation.