* Q1 adjusted EPS and total revenue top analyst estimates
* Operating rev surges 40 pct in Co's refining business
* Results could boost investor sentiment for sector-analyst
* High renewable fuel credits costs to stay a headwind-CEO
* Shares rise before reversing course to drop 2 pct
(Adds Q2 throughput volume outlook, CEO comments)
April 25 U.S. refiner Valero Energy Corp
said it would process more crude oil in the current quarter to
take advantage of robust demand for gasoline as the stockpile of
refined products in the United States declines.
The inventory of refined products has come down in recent
months, offering a glimmer of hope to refiners, whose margins
fell sharply in 2016 due to a glut of gasoline and diesel.
Valero, the biggest among U.S. oil refiners, benefited, with
its first-quarter results beating market expectations on Tuesday
as sales in its refining business surged 40 percent.
"With VLO being the first out of the gate and the bellwether
for refining, we believe the stronger-than-expected (refining
and marketing) results, strong export volumes and bullish market
commentary could start setting the pace for improved investor
sentiment towards the sector," Morgan Stanley said in a client
However, high costs for renewable fuel credits would be 'a
significant headwind' in the second quarter of 2017, Chief
Executive Joe Gorder said on a post-earnings call.
The cost refiners pay for credits to meet environmental
regulations for biofuel use has surged, adding fuel to a debate
over who pays for the rising costs.
Valero's shares rose 1.3 percent in morning trading, before
reversing course to trade down about 2 percent at $65.39.
Valero processed more barrels of crude oil than it expected
to in the first quarter, pushing down operating costs, and said
it would ramp up activity.
"(Strong demand) combined with expectations for continued
sweet crude oil production growth and relatively low prices for
crude and refined products, consumer demand should be robust
this year," Gorder said.
Valero's refineries processed 2.8 million barrels per day in
the quarter, compared with its estimate of 2.7-2.8 million
That helped the company's operating cost to average $3.85
per barrel, lower than its estimate of $4.15.
Valero expects to process 2.9-3.0 million barrels per day in
the second quarter, said John Locke, vice president of investor
relations at the company.
Operating revenue in Valero's refining business soared 40
percent to $20.89 billion in the first quarter.
That helped the company's total operating revenue jump 38.6
percent to $21.77 billion, beating analysts' average estimate of
$18.59 billion, according to Thomson Reuters I/B/E/S.
Net income attributable to Valero's shareholders fell 38.4
percent to $305 million. Excluding items, the company earned 68
cents per share, beating analysts' estimate of 60 cents.
(Reporting by Muvija M in Bengaluru; Editing by Maju Samuel and