Valero 2015 Annual Report Download - page 37

Table of Contents
(f) The regions reflected herein contain the following refineries: the U.S. Gulf Coast region includes the Corpus Christi East, Corpus Christi West, Houston,
Meraux, Port Arthur, St. Charles, Texas City, and Three Rivers Refineries; the U.S. Mid-Continent region includes the Ardmore, McKee, and Memphis
Refineries; the North Atlantic region includes the Pembroke and Quebec City Refineries; and the U.S. West Coast region includes the Benicia and
Wilmington Refineries.
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Operating revenues decreased $43.0 billion (or 33 percent) and cost of sales decreased $44.3 billion (or 37 percent) for the year ended
December 31, 2015 compared to the year ended December 31, 2014 primarily due to a decrease in refined product prices and crude oil
feedstock costs, respectively. Despite the decrease in operating revenues, cost of sales decreased to a greater extent resulting in an
increase in operating income of $456 million in 2015, with refining segment operating income increasing by $1.1 billion and ethanol
segment operating income decreasing by $644 million. The reasons for these changes in the operating results of our segments and
corporate expenses, as well as other items that affected our income, are discussed below.
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Refining segment operating income increased $1.1 billion from $5.9 billion in 2014 to $7.0 billion in 2015. Excluding the effect of the
lower of cost or market inventory valuation adjustment of $740 million in 2015 and the LIFO gain of $229 million in 2014, our refining
segment operating income increased $2.1 billion. This increase was primarily due to a $2.1 billion (or $1.92 per barrel) increase in
refining margin and a $105 million decrease in operating expenses, partially offset by a $148 million increase in depreciation and
amortization expense.
The increase in refining margin of $2.1 billion was due primarily to the following:
• Increase in gasoline margins - We experienced an increase in gasoline margins throughout all our regions during 2015. For
example, the Brent-based benchmark reference margin for U.S. Gulf Coast CBOB gasoline was $9.83 per barrel in 2015 compared
t o $3.54 per barrel in 2014, a favorable increase of $6.29 per barrel. Another example is the ANS-based reference margin for
U.S. West Coast CARBOB gasoline that was $25.56 per barrel in 2015 compared to $13.40 per barrel in 2014, a favorable increase
of $12.16 per barrel. We estimate that the increase in gasoline margins per barrel in 2015 compared to 2014 had a positive impact
to our refining margin of approximately $2.9 billion.
•Increase in other refined products margins - We experienced an increase in the margins of other refined products such as petroleum
coke, propane, sulfur, and lubes in 2015 compared to 2014. Margins for other refined products were higher during 2015 due to the
lower cost of crude oils in 2015 compared to 2014. Because the market prices for our other refined products remain relatively
stable, we benefit when the cost of crude oils that we process declines. For example, the benchmark price of Brent crude oil was
$53.62 per barrel in 2015 compared to $99.57 per barrel in 2014. We estimate that the increase in margins for other refined
products in 2015 compared to 2014 had a positive impact to our refining margin of approximately $1.6 billion.
• Lower discounts on light sweet and sour crude oils - Because the market prices for refined products generally track the price of
Brent crude oil, which is a benchmark sweet crude oil, we benefit when we process crude oils that are priced at a discount to Brent
crude oil. For 2015, the discount in the price of light sweet and sour crude oils compared to the price of Brent crude oil narrowed.
Therefore, while we benefitted from processing crude oils priced at a discount to Brent crude oil, that benefit declined in 2015
compared to 2014. For example, we processed LLS crude oil (a type of light sweet crude oil) in our U.S. Gulf Coast region that sold
at a discount of $2.37 per barrel to Brent crude oil in 2015 compared
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