Valero's CEO Betting on Lawmakers to Fail

Valero Energy (NYSE:VLO) CEO Bill Klesse says he's not making any changes to the business to deal with cap-and-trade legislation - amounting to a bet on the bill's failure. There may not be a choice: Refining-only companies can't offset refining impact with oil and gas production. Klesse thinks Valero's share of emissions costs in 2020 will be $6B, 10% higher than its record profit.

Valero shares aren't moving on today's news, shares remain trapped in the high $18 range and YTD they are down 12%.  Its hard to believe Valero shares are still below $20 and if anything from the stats (200 & 50 Day moving averages) now is the time to think about building a small position if you believe this stock can make a comeback.

By Jessica Resnick-Ault and Daniel Whitten (Bloomberg.com) -- Sept. 11 (Bloomberg) -- Valero Energy Corp. Chief Executive Officer Bill Klesse is so sure the Waxman-Markey climate bill will fail to become law that he’s making no strategic adjustments to cope with the legislation.

“We are not altering our business model based on this legislation because we think the legislation is so poor for all the constituents, the consumers, everybody,” Klesse, 63, said in an interview at the company’s headquarters in San Antonio.

As head of the biggest U.S. refiner, Klesse may have little choice but to bet on failure of the bill, which passed the U.S. House in June. Valero said it stands to lose more than any other company and can’t turn on a dime to blunt the impact.

Refiners would have to pay for carbon-dioxide emissions the U.S. Energy Department estimates at more than 2 billion tons a year, minus up to 135 million tons covered by free allowances. The Congressional Budget Office estimates that allowances will cost $28 a ton in 2020. At that rate, the industry’s cost would be about $52 billion. Klesse estimates Valero’s allowance cost at $6 billion a year, 10 percent higher than its record profit.

“There is no way for refiners to win the way the rules are being drawn, no way,” said Kevin Book, managing director at consulting firm Clearview Energy Partners in Washington.

Unlike integrated oil companies such as Exxon Mobil Corp. and Houston-based ConocoPhillips, Valero doesn’t have oil and natural-gas wells to help offset the impact of higher refining costs. Nor does the company have plants outside North America that could export fuel to the U.S. and dodge some of the costs called for in the Waxman-Markey bill.  

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SOURCE: http://www.bloomberg.com/apps/news?pid=20601110&sid=aMIe2ox8pfHM