Valero to permanently close Delaware City Refinery

    Valero Energy Corporation announced today it will cease operations at its Delaware City refinery due to financial losses caused by very poor economic conditions, significant capital spending requirements and high operating costs. The shutdown will affect approximately 550 employees at the plant.

    Valero notified refinery employees today of the impending shutdown, and will immediately begin negotiations with the refinery’s unions regarding the effects of the plant closure and the employees’ severance packages.

    Gov. Jack Markell said assistance to workers affected by the closing will come quickly and the state will make every effort to ensure the environmental health and safety of the site to protect the thousands of Delaware families who live near the facility.

    “The company’s decision to close the refinery leaves us with several problems to solve. We need to help those hundreds of dedicated workers put their time and talents to work in a way that helps them and their families,” Markell said. “To protect the health and safety of everyone who lives near the facility, we need to ensure accountability for the environmental issues that come from closing a refinery, and we will.”

    Markell instructed the Department of Labor and the Department of Health and Social Services to activate the same rapid response teams they used when the General Motors plant closed earlier this year. The teams will work with the employees to ensure they receive any public services available to them, including job retraining.

    The Department of Natural Resources and Environmental Control is continuing to work to identify environmental issues in and around the facility and will work with Valero to catalogue problems that the company has the responsibility to solve.

    A safe and orderly shutdown of the refinery will commence immediately.  Valero will continue to supply its customers, partially through higher throughput rates at the company’s other refineries.

    “The decision to permanently close the Delaware City refinery was a very difficult one,” said Valero Chairman and CEO Bill Klesse. “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.    Earlier this fall, we shut down the gasifier and coking operations in an attempt to improve reliability and financial performance, but the refinery’s profitability did not improve enough.    Additionally, we have sought a buyer for the refinery, but feasible opportunities have not materialized. At this point, we have exhausted all viable options.

    “We realize that the decision to close the refinery affects many employees, their families, and the community. We are thankful to our employees for their service, and we will treat them fairly during this difficult period.”

    In the fourth quarter of 2009, the company expects to report a pre-tax charge of approximately $1.7 billion to $1.8 billion, or $2.00 to $2.15 per share after taxes, related primarily to asset impairment, employee severance and other shutdown costs.  The company estimates the cash portion of the pre-tax charge will be in the range of $125 million to $150 million. The current and historical financial results of the affected operations will be shown as discontinued operations in the company’s financial statements.

    The company estimates the shutdown will reduce pre-tax operating expenses by approximately $450 million, including $125 million of non-cash costs, in 2010 and will reduce capital spending and turnaround costs by approximately $200 million through 2010. In addition, the company expects to receive after-tax cash flows in 2010 in the range of $600 million to $700 million from inventory sales assuming current prices and other cash benefits from discontinued operations. 

    “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,” Klesse said. “Our action is consistent with previous actions we have taken to improve our profitability and lower our break-even costs to become more competitive.”