Valero 2015 Annual Report Download - page 46

Table of Contents
(g) The regions reflected herein contain the following refineries: the U.S. Gulf Coast region includes 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 $7.2 billion (or 5 percent) for the year ended December 31, 2014 compared to the year ended
December 31, 2013. This decrease was primarily due to a decrease in refined product prices in all of our regions. Despite the decline in
operating revenues, operating income increased $1.9 billion in 2014 due primarily to a $1.7 billion increase in refining segment
operating income, a $295 million increase in ethanol segment operating income, and a $34 million decrease in general and
administrative expenses, partially offset by an $81 million decrease in retail segment operating income due to the spin-off of our retail
business in 2013 as mentioned previously. The reasons for these changes in the operating results of our segments and general and
administrative expenses, as well as other items that affected our income, are discussed below.
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Refining segment operating income increased $1.7 billion from $4.2 billion in 2013 to $5.9 billion in 2014. Excluding the LIFO gain of
$229 million in 2014 related to our refining segment, our refining segment operating income increased by $1.4 billion. This increase
was primarily due to a $1.7 billion (or $1.36 per barrel) increase in refining margin, partially offset by a $190 million increase in
operating expenses and a $31 million increase in depreciation and amortization expense.
The increase in refining margin of $1.7 billion was due primarily to the following:
•Higher discounts on light sweet crude oils 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 2014, the discount in the price of some light sweet crude oils and sour crude oils compared to the price of
Brent crude oil widened. For example, LLS crude oil processed in our U.S. Gulf Coast region, which is a light sweet crude oil, sold
at a discount of $2.79 per barrel to Brent crude oil in 2014 compared to $0.41 per barrel in 2013, representing a favorable increase
of $2.38 per barrel. Another example is Maya crude oil, a sour crude oil, which sold at a discount of $13.73 per barrel to Brent
crude oil in 2014 compared to a discount of $11.31 per barrel in 2013, representing a favorable increase of $2.42 per barrel. We
estimate that the discounts for light sweet crude oils and sour crude oils that we processed in 2014 had a positive impact to our
refining margin of approximately $680 million and $800 million, respectively.
•Higher throughput volumes - Refining throughput volumes increased 83,000 BPD in 2014. We estimate that the increase in refining
throughput volumes had a positive impact on our refining margin of approximately $340 million.
• Lower costs of biofuel credits - As more fully described in Note 20 of Notes to Consolidated Financial Statements, we purchase
biofuel credits in order to meet our biofuel blending obligations under various government and regulatory compliance programs,
and the cost of these credits (primarily RINs in the U.S.) decreased by $145 million from $517 million in 2013 to $372 million in
2014. This decrease was due primarily to a reduction in the market price of RINs between the years.
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