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Valero Energy Corp. (NYSE:VLO)

Q4 2009 Earnings Call

January 27, 2010 11:00 am ET

Executives

Ashley Smith - VP, IR

Mike Ciskowski - EVP & CFO

Bill Klesse - President, CEO & Chairman of the Board

Gene Edwards - EVP, Corporate Development & Strategic Planning

Rich Marcogliese - EVP and COO

Analysts

Paul Cheng

Jeff Dietert - Simmons

Evan Calio - Morgan Stanley

Mark Gilman - Benchmark Company

Alexander Inkster - Sanford Bernstein

Doug Terreson - ISI

Paul Sankey - Deutsche Bank

Ann Kohler - Caris

Presentation

Operator

Good morning, at this time I would like to welcome everyone to the Valero Energy Corp. fourth quarter 2009 earnings results conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions). Thank you. Mr. Smith, you may begin your conference.

Ashley Smith

Good morning and welcome to Valero Energy Corporation's fourth quarter 2009 earnings conference call. With me today are Bill Klesse, our Chairman and CEO; Mike Ciskowski, our CFO; Rich Marcogliese, our COO; Gene Edwards, our Executive Vice President of Corporate Development and Strategic Planning; and Joe Gorder our Executive Vice President of Marketing and Supply as well as Kim Bowers, our Executive Vice President and General Counsel.

If you have not received the earnings release, and would like a copy, you can find one on our website at Valero.com. Also, attached to the earnings release are tables that provide additional financial information on our business segments. If you have any questions after reviewing these tables, feel free to contact me after the call.

Before we get started, I would like to direct your attention to the forward-looking statement disclaimer contained in the press release. In summary, it says that statements in the press release and on this conference call that state the company's or management's expectations or predictions of the future are forward-looking statements intended to be covered by the Safe Harbor provisions under federal securities laws. There are many factors that could cause actual results to differ from our expectations, including those we described in our filings with the SEC.

Now I'll turn the call over to Mike.

Mike Ciskowski

Thanks, Ashley, and thank you for joining us today. As noted in the release, we reported a fourth quarter 2009 loss from the continuing operations of $155 million or $0.28 per share. This number excludes the $7 million in after-tax costs for severance and early retirement at the Paulsboro refinery and $20 million in after-tax asset impairment losses. Our GAAP results for the fourth quarter was a loss from continuing operations of $182 million or $0.32 per share.

I should note that the loss from discontinued operations shown in the financial tables relates to the Delaware City assets that were shut down in the fourth quarter. In the fourth quarter, the $1.2 billion after-tax charge consists of $66 million operating loss after taxes and an asset impairment and other shutdown charges of $1.1 billion after tax.

The fourth quarter 2009 operating loss was $179 million, excluding the special items already noted, versus $1.3 billion of operating income in the fourth quarter of 2008, which excludes the goodwill impairment taking last year. The key drivers of the decline in operating income was smaller discounts on sour crude oil and other feed stocks combined with lower margins on diesel and jet fuel. To put the smaller discounts in perspective, Maya discounts versus WTI decreased 50% year-over-year. Comparing the same periods for benchmark gold coast margins versus WTI, the ULSD margins decreased 66% year-over-year.

Also contributing to the decrease in operating income was the unfavorable effect from a year-end LIFO detriment of $66 million before taxes in 2009 versus a favorable effect from a LIFO increment of $327 million before taxes in 2008. The fourth quarter refinery throughput volume averaged at 2.1 million barrels per day which is inline with our guidance since Delaware City is a 113,000 barrels per day of throughput is excluded. However, fourth quarter 2009 volumes from continuing operations were 371,000 barrels per day below the fourth quarter of 2008, mainly due to lower utilization rates across our refinery systems caused by lower demand, planned downtime for maintenance at our Wilmington and Paulsboro refineries and the continued to idle status of our lubber requirement.

Refinery cash operating expenses in the fourth quarter of 2009 were $4.03 per barrel or $0.16 per barrel lower than the fourth quarter 2008 results due mostly to lower energy costs, but our focus on other cost reductions has also been successful. Comparing to full year 2008 versus 2009, our refinery operating expenses excluding depreciation and amortization were down $900 million. Much of this was due to lower energy and natural gas prices, but we estimate more than $215 million was due to our aggressive cost reduction efforts.

Looking at our other business segments, retail has continued to produce strong results with operating income in the fourth quarter of 2009 at $61 million, which is less, though, than the $163 million in the fourth quarter of 2008, mainly due to lower fuel margins in the US, which were partially offset by lower selling expenses.

For the full year 2009, retail earned at $293 million of operating income, making it the second best year for retail. Our ethanol segment had an excellent fourth quarter with $94 million of operating income, which is nearly, double the $49 million reported in the third quarter of 2009. The continued strong performance was due to higher margin and increased production volumes from the prior quarter.

Our timing with the initial acquisition could not have been better. In less than three quarters of operation, the initial seven ethanol plants have earned $165 million in operating income, and had yield an impressive returns on the $477 million purchase price.

General and administrative expenses, excluding corporate depreciation were $137 million in the fourth quarter which was $30 million lower than the third quarter and in line with our guidance.

For the fourth quarter, total depreciation and amortization expense was $356 million, which was lower than our guidance of $390 million, mainly due to the reclassification of the Delaware City refinery in to discontinued operations. Net interest expense was $113 million, which was in line with your guidance, but down from the third quarter due to lower interest expense on several tax matters. The effective tax rate benefit on continued operations in the fourth quarter was 39.5%, which was higher than our guidance.

In the fourth quarter, we had a loss, which means an increase in the tax rate is a benefit. The increase in the tax rate benefit resulted from a gain on the liquidation of Aruba inventory, which is not taxed. The gain lowered our consolidated loss, but because it is non-taxed, it increased the tax rate benefit. In addition, Congress passed the law in November 2009, allowing companies to carry back 2009 losses five years instead of two years. Carrying back to five years to 2004 enabled us to reduce certain recaptured tax items, such as the section 199 manufacturing deduction, and this also resulted in additional favorable tax rate benefits.

Regarding cash flows for the fourth quarter, capital spending was $600 million, which includes $114 million of turnaround and catalyst expenditures. For the year, capital spending was $2.7 billion which is a sizable decrease of nearly $600 million, when compared to 2008.

With respect to our balance sheet at the end of December, total debt was $7.4 billion, we ended the quarter with a cash balance of $825 million, and we had over $4 billion of additional liquidity available. In addition to this existing liquidity, as previously mentioned, the 2009 net operating loss for taxes can be carried back up to five years to offset previously paid taxes. This will allow Valero to claim a sizable tax refund that we expect to receive in the second quarter of 2010.

At the end of 2009, our debt to cap ratio net of cash was 31%, which is far below the credit facility covenant that requires a ratio below 60%. In addition, we do not have any covenants with coverage-type ratios.

When you look back on 2009, it was clearly a very challenging year for the refining industry and Valero. Refined product demand, shrink in the face of the deep recession, driving down margins and discounts in a very competitive environment. Given these conditions, we took action and reduced costs, we cut capital spending, and we shut down plants that were dragging down our profitability.

We also stepped up and made a significant investment to enter the ethanol industry by buying seven plants out of bankruptcy at 30% of replacement costs. The returns have been outstanding so far, and we recently acquired two more plants and expect to close on a third plant this quarter.

The consensus industry outlook shows that 2010 will be another difficult year for refining margins and discounts. However, the strategic actions we have taken should enable to be profitable in 2010, even if we have another year of low margins like 2009. But due to the poor conditions and uncertainty of our industry, a high priority of Valero will be to maintain our financial strength in 2010. As part of this effort, we reduced our capital spending budget to $2 billion, which is a $700 million reduction from 2009 spending, and we reduced our dividend rate.

Throughout our system, we will continue to reduce costs, optimize our operations, and upgrade our portfolio of assets to improve our competitiveness. So far in 2010, we have had a couple of positive items to announce. Last week we agreed with the government of Aruba on a framework for a stable tax structure. The agreement will become effective upon approval by the Aruba parliament and other Aruba authorities.

The framework once fully effective is expected to resolve all prior tax disputes with the payment of $111 million, which was previously reserved in the third quarter of 2009. The $111 million payment is fully escrowed as restricted cash, separate from our year-end cash balance of $825 million. The framework will also effectively tax income at a rate of less than 10%, with an annual minimum tax payment of $10 million beginning mid-2012. We believe this structure has the potential to enhance Valero's strategic alternatives for the refinery and provide certainty as Valero's tax (inaudible) was set to expire at the end of this year.

In addition, we announced last week that we are in advanced negotiations to sell the shutdown refineries and terminal operations in Delaware City. Our discussions are ongoing, so I cannot provide more details at that point, but we will keep you informed when we finalize the terms.

Now I'll turn it over to Ashley to cover the earnings model (inaudible).

Ashley Smith

Thanks Mike. Modeling our first quarter operations, you should expect refinery throughput volumes to fall within the following ranges. The Gulf Coast should be at 1.1 million to 1.15 million barrels per day. Mid-continent should be at 360,000, to 370,000 barrels per day. The Northeast should be at 340,000 to 350,000 barrels per day, and the West Coast should be at 260,000 to 270,000 barrels per day. Refinery cash operating expenses are expected to be around $4.45 per barrel, which is higher than last quarter due mainly to lower throughput volumes combined with slightly higher expected energy catalyst and chemical costs.

Regarding our ethanol operations in the first quarter, we expect total throughput volume of 2.4 million gallons per day, and operating expenses should average approximately $0.37 per gallon, which includes $0.03 per gallon for non-cash costs such as depreciation and amortization. With respect to some of the other items for the first quarter, we expect G&A expense excluding depreciation, to be around $135 million, net interest expense should be around $115 million, and total depreciation and amortization expense should be around $365 million.

Regarding our tax rate, in this margin environment, small changes in assumptions are yielding a very wide range of results for the effective tax rate, so at this point we would prefer not to provide guidance, which may not prove to be meaningful. We will now open the call for questions.

Question-and-Answer Session

Operator

(Operator Instructions). We'll pause for just a moment to compile the Q&A roster. Your first question comes from Paul Cheng.

Paul Cheng

You indicated what's just LIFO loss in the quarter. Is there any trading profit offsetting that loss or more than offset that loss in the quarter?

Mike Ciskowski

No, in the fourth quarter, we had about a $40 million loss on our trading operations.

Paul Cheng

You actually have a loss in trading?

Mike Ciskowski

Small loss, yes.

Paul Cheng

Okay. In the trading loss, I presume that in the LIFO loss, you are being spread according to all different region, based on the throughput level. How about on the trading loss? Where did we see it in the result?

Mike Ciskowski

It's also spread the same way, Paul.

Paul Cheng

Okay. So, does it have a reduction to the margin?

Mike Ciskowski

That would be correct.

Paul Cheng

Okay. On the special item, you have an asset impairment charge of $32 million, what projects does that relate to?

Mike Ciskowski

$32 million. Well, primarily it's related to the Port Arthur coking project. And that's about $30 million of it.

Paul Cheng

Okay. Just actually, out of curiosity, with your dividend, I understand why you cut it, but why only cut it to $0.05? Why not all the way that cut it down to zero? I mean from the shareholder standpoint whether you have that $0.05 or not doesn't really matter. Why don't we just do a more clean cut? Is there any particular rationale behind?

Mike Ciskowski

Obviously 2009 was a challenging year for us, and 2010 looks challenging also. We felt like, though that we needed to maintain some level of dividend to attract all potential investors, but we also wanted to cut it to a level that we felt was sustainable through the trough if you will and so we came out at this $0.05 per share.

Paul Cheng

Okay. Mike, can you tell us that what is the current carrying cost still on your book for Aruba? If that's anything on the diversity and also in (inaudible) including both the refinery and the terminal and the storage capacity?

Mike Ciskowski

Yeah, the book value?

Paul Cheng

Yep.

Mike Ciskowski

Okay. The billion dollars on Aruba.

Paul Cheng

Aruba is $1 billion?

Mike Ciskowski

Yes, it is. Okay. And then on Paulsboro, it's $1.3 billion then on Del City, about $150 million.

Paul Cheng

Okay. Assume that Delaware City is all just related to the storage facility and all that? Its nothing to do with he refining [Multiple Speakers]

Mike Ciskowski

We have a little value, scrap value, if you will for the refinery, and we have a value for platinum too.

Paul Cheng

I see [Multiple Speakers]. Is that the kind of information that you guys will share in terms of the storage capacity that in those three regions, those three facilities, Delaware City, Paulsboro and Aruba what is on the site?

Mike Ciskowski

Paul, I'll tell you what, I guess to answer the question and I won't do it directly, but we look at this, we've got to look at it from a terminal perspective, rather than from an operating refinery perspective and so I really can't tell you right now, what the working capacity would be for both of those plants as terminals.

Operator

Your next question comes from Jeff Dietert from Simmons.

Jeff Dietert - Simmons

Dietert with Simmons. The way you've reported the full year '09 numbers in the back with Del City as discontinued operations, you've got $55 million of continuing operations excluding special items. So that adjust for Del City, I would assume that with your targeted operating cost, we could add some improvement from cost savings as well. You've got a full year of ethanol, and I was curious what you expect full-year volumes to be in the ethanol segment?

Mike Ciskowski

It's up around 2.8 million gallons per day if you kind of look at our existing seven plus our time frame for getting these new plants on track, around 2.8 million gallons per day.

Jeff Dietert - Simmons

Okay. So there is an incremental positive influence from a full year of ethanol, cost savings. Aruba, I assume was profitable in 1Q '09 and probably not profitable thereafter. Is Aruba profitability going to be meaningfully different in 2010 from 2009? What would that adjustment look like?

Mike Ciskowski

Well, I tell you what we know if the show was running today, it would not be profitable. Okay? I mean, you've got a combination of factors Jeff. You have got the heavy sour discounts being where they are. You've got the kind of weak desolate cracks where they are, you know, VGO certainly comes in to play in this and VGO profits come off. So it wouldn’t be profitable running today. So, I would say our plan going forward for the rest of the year until it looked like it was profitable we wouldn't have any plans to start it up.

Ashley Smith

I might point out, Jeff though that, in 2010 we continue to depreciate Aruba, and so that is non-cash obviously, but that's going to show up as a loss, and then we have also agreed to pay the salaries, wages, and benefits until June of the employees, and so obviously that's going to show up as expense. And so, here in the first part of the year, you will see some loss associated with Aruba.

Jeff Dietert - Simmons

Was Aruba a net positive or net negative contributor to net income in 2009? For the full year?

Mike Ciskowski

For the full year they are operating income would have been about $130 million loss.

Jeff Dietert - Simmons

Now as far as inventory at Aruba, Paulsboro and Dell City, can you summarize what inventory you're currently holding at those three plants?

Unidentified Company Representative

We're liquidating the inventories at Aruba and Del City, okay? And I'm not sure exactly what the numbers are there today. I think we estimated it by the end of the month for example, Del City would be done at three million barrels from a six million barrels where we were at then of the year and Aruba is going to be almost zero, Jeff. And Paulsboro, we're still operating as a going concern and so there shouldn’t be any change in the inventories there.

Ashley Smith

And Jeff, I didn't mention that in my comments, but I mean obviously that is going to add to our liquidity sources. So we're going to get this cash from the inventory.

Jeff Dietert - Simmons

Yeah, that's what I'm trying to make sure I capture in my expectations. Very helpful on comments. Thank you.

Operator

Your next question comes from Evan Calio with Morgan Stanley.

Evan Calio - Morgan Stanley

A bit of a strategic question, I want to ask divestitures and I understand your hesitancy to comment on Del City in negotiation, but would it be right to think that there could be a potential linkage between Delaware City as a terminal and a potential Paulsboro sale?

Mike Ciskowski

Well, we are working the Del City process as we described earlier, and we're also launching a separate process for Paulsboro going forward, which will probably start with the initial bids in the February timeframe and we'll just go from there as far as the actual closing date.

Evan Calio - Morgan Stanley

Okay. Is there any political support or kind of open issues from the Delaware side that could facilitate a Delaware transaction in an effort to save jobs or of the like?

Mike Ciskowski

Yes, that's correct.

Evan Calio - Morgan Stanley

Okay. If I follow up on Jeff's line of question and in to your comments, this is more to your statement about assuming whether refining margins in '09, that you'll be profitable in '10. That’s primarily driven on ethanol year-over-year kind of at the levels you talked about. He can assist you in the margin; give you close to over $100 million correct? And that also I think seems cost control and tax, I mean those are the three elements that support that assertion on the same year-over-year margins that is correct?

Ashley Smith

That's correct. I mean, yeah if you take 2009, in fact if you look at the reconciliation table on page five of our earnings table, we have kind of a 2009 excluding the special items at $55 million. Right now, we don’t expect the LIFO implement for 2010 and so add that back after tax after you $43 million. That cost us $100 million cost reduction to our may have mentioned in the press release. After tax it's around $60 - $65 million. And then if you just gross up for full year based on like 2.8 million gallons per day, reflective to capacity, just go look at what kind of operating income margins we've achieved for 2009 well over $100 million of potential drop in 2010 and that's just using 2009 price set.

Evan Calio - Morgan Stanley

The stable tax structure when executed, the clarification tax holiday and liability. I mean is that a gain item in kind of your opinion on any potential disposition to the asset? And was that…

Ashley Smith

Having a stable tax arrangement with Aruba going forward since the refinery has shut down here, what's happening in 2010 as far as tax structure is not that important. But going forward, the agreement we have with Aruba is for 20 years. So, it absolutely makes for both Aruba and for us, gives us optionality here as we look for the proper transaction for that facility.

Operator

(Operator Instructions). Your next question comes from Mark Gilman from Benchmark Company.

Mark Gilman - Benchmark Company

What was the cost in 4Q and full year purchasing rents? And can we assume that terminal blending limitations would argue to purchase versus buying ethanol and blending it? And what do you expect the cost and volume to be in 2010 of purchase return assuming no change in government regulations.

Mike Ciskowski

$11 million. Okay. Fourth quarter was $11 million. For the year it was just under $75 million. And I would say our budget for 2010 is probably $140 million.

Operator

Your next question comes from Alexander Inkster from Sanford and Bernstein.

Alexander Inkster - Sanford Bernstein

Another strategic question here. I was wondering, given the strong performance of the ethanol business so far, are you planning to continue expanding that business or was it really opportunistic and you are happy with the size of the business as it is?

Mike Ciskowski

We are very pleased with the business class, we are very pleased with the ethanol business and up to the specific, what we expanded is exactly the same as we said before. We get nice [bolt on] opportunities here to buy quality assets at below what we consider below (inaudible) cost that fit in with the network we built. Yes, we'll look at acquiring and adding to more to this business.

Ashley Smith

This is Ashley, I'd like to change. I do not expect us to spend a $140 million in 2010 on rent. The issue we get into is what is the price of a rent and its not that high as the number that Joe gave you for the budget as it is today. So, I would expect us to manage this and we will not spend that much money. It's very hard though for us to give you a number that really has to deal with price of rent. But the budget Joe gave you is $140 million but I do not expect us to spend that much for rent. Is there anything else, because we can't hear you?

Operator

Your next question comes from Doug Terreson with ISI.

Doug Terreson - ISI

Most of the recent portfolio management activities and discussion for Valero have involved divestitures and closures and I realize that those are appropriate at this point in the cycle in a lot of cases but at the same time over the past couple of industry cycles in refining in today and ethanol, you guys have made a variety of acquisitions during pretty challenging industry periods, many of which led to value creation for shareholders as we all know. So my question is how do you feel about acquisitions today? That is are they even a consideration and if so, are the geographical or functional emphasis that make sense for the company and if so where are they and I am just talking about in the refining space.

Bill Klesse

This is Klesse. Your comment is exactly right. The difference though in this environment as we see it with alternate and renewable fuels taking gasoline market share also, with changes that are long term, we believe that the industry has to rationalize and consolidate here and this would be true both in Europe as well as North America and you are seeing examples happening right now in both places. So, having said that, we'll take one million to two million barrels a day long in both places of earning capacity. Now, at the same time we have a portfolio of refineries and we are always interested in improving our portfolio and so we can change into look at refineries that come on the market primarily we look in Europe and here in the North America. So you can see us continue to look. We're very careful. We want to be sure we are improving our portfolio, enhance shareholder value in the long run.

Operator

Our next question comes from Jeff Dietert from Simmons.

Jeff Dietert - Simmons

A question for Joe, the West Coast has been soft so far in January and we're continuing to see imports of gasoline into the West Coast. Could you talk a little bit about the dynamics that are impacting the West Coast margin so far in this quarter?

Mike Ciskowski

Well, Jeff, I mean I think if you look at the margins being weak right now, as much as this is kind of a preparation for the transition from winter grade to summer grade. You look at prompt margins there might be eight plus out there right now. They are 12 in February. So, I think that’s really what we're seeing. Demand isn’t strong there just as its not strong anywhere else. I think what we are seeing in the marketplace is more that than anything.

Jeff Dietert - Simmons

And when do you shift from winter grade to summer grade and when is the requirement and when do you actually start making that shift?

Mike Ciskowski

February in the south and March 1, in the north. So, LA in February and San Francisco in March.

Jeff Dietert - Simmons

And it looks as though desolate between the Gulf Coast and Europe has gone negative after a number of months of being positive. Could you talk about your desolate exports out of the Gulf Coast in both Europe and Latin America?

Mike Ciskowski

Sure. You are right. The (inaudible) is closed today probably by about $0.02 and we have seen a reduction in our exports from the Gulf Coast to Europe. We've got some of that volume turned up, those barrels continue to move but all the spot barrels aren’t. What we are seeing Jeff now, a bit more demand out of South America. I mean Peru and Chile are both taking barrels and so barrels that were previously moved into Europe are now headed south. Our export volumes will be down from where they were in December and last year.

Jeff Dietert - Simmons

Okay. How significant a loss?

Mike Ciskowski

I would tell you if we were doing 15 to 20 a month last year, we're probably going to do 10 in January, cargos.

Operator

Your next question comes from Paul Sankey with Deutsche Bank.

Paul Sankey - Deutsche Bank

It seems to me that you are more or less calling the bottom on U.S. refining here with your statements about the potential for profits in 2010 at least from your own point of view, a bottom. Going back to a couple of the regional questions we had. You pretty much lost money in every region here. How do you expect the regional dynamics of U.S. refining to play out? Are there any areas? Given that your profit view is based on a total corporate level. I was just wondering if there is any regions where you expect things to be relatively better or worse over the course of 2010? Thanks.

Gene Edwards

Paul, this is Gene Edwards. I think when we look at, it's our world economy and everything is tied together. So I don't really see one area really doing much different than the other on a relative basis in 2009. So, the discounts are a little bit better in the mid-continent and you get a little bit better margin there but…

Paul Sankey - Deutsche Bank

I mean I guess what I was driving at is the shutdowns on the East Coast. Obviously there is different dynamics, is there a region where you've seeing more shutdowns on the East Coast. I was wondering whether you saw the potential unit for a bigger bounce on the East Coast, whether you are more focused on demand recovery on the West Coast or as you just mentioned some subtleties in the mid-con. Anything you could add about regional color would be great.

Gene Edwards

Well the East Coast is influenced by imports. The refinery shutdown there I mean it's really just a small percentage overall demand there so usually the imports just kind of rebound the equation and we've seen East Coast raising above the Gulf at least. I remember years where the East Coast is actually negatively gulfed. So maybe there is a little improvement but I think we actually saw that all last year with the East Coast is a little bit over the Gulf too. So, imports are down, European economics are bad with (inaudible) of cracks over there. So we are seeing less imports than we saw last year, and last year, imports were down for the prior year. So that’s all helped to rebalance the equation as well. But all in all, I think you know its kind of the world dynamics are kind of what determined the cracks in each region, and unless you are in a real true niche area, you kind of just rebalance in it, (inaudible) of fluctuations, but overall we have a big change from…

Paul Sankey - Deutsche Bank

Yeah great Gene thanks. This might well be a follow-up question for you. Given again that you are effectively saying that we've certainly seeing the bottom of assuming the '09 margins are about as bad as things can get. Would the portfolio rationalization program be limited now just to the ones that we know about in terms of some sort of action on Aruba, falls for it [does if you] obviously handled. Do you think beyond that now, the portfolio is as the portfolio would be for Valero on the disposable rationalization front? Thanks.

Gene Edwards

Yeah, I think that's all we see doing right now. I think after you have the discontinued ops in the rest of our portfolio, it looks pretty good until last year, and even with low margin environment, we think we've got refineries (inaudible). We still have got a couple of other refineries that didn't do as well last year, but we have plans to improve those operations through some minor things we're doing to the turnaround of 15 [indiscernible] we're doing like in Memphis and St. Charles that we're going to put those refineries back in the block as well.

Paul Sankey - Deutsche Bank

Right. When do you think you'll get a resolution on Paulsboro? I mean would you expect the Delaware City type outcome as the ultimate way of handling that?

Gene Edwards

Well we think it's a viable refinery that can be sold as it instead of a shutdown operationally Delaware City was, and we think we've got some interested parties. So we'll just add data how it plays out.

Operator

(Operator Instructions). Your next question comes from Ann Kohler from Caris.

Ann Kohler - Caris

Good morning gentlemen. Could you just give a little bit of color on what you saw in terms of same store sales in terms of volumes as well as merchandise on at your retail operations here in the U.S. as well as in Canada for the quarter?

Mike Ciskowski

Okay. In the US fourth quarter of 2008 versus 2009 and this is on a same store basis. Our gas was down about 4.7%. Diesel was up about 5.4% and in total it was like down, total fuel was 3.7%. On the inside sales we were up quarter-over-quarter 1.7% and that’s in the U.S. In Canada, Ann, I don’t have those volumes here with me. We'll have to get those to you.

Ann Kohler - Caris

And do you have any color regarding turnarounds for either the quarter or for the year?

Rich Marcogliese

Sure. This is Rich Marcogliese. We have a pretty significant turnaround activity here in the first quarter. The (inaudible), cat cracker and healthy units are down. Currently this is going to be about a 37 day outage. In February, we have a planned turnaround at the same St. Charles prudent cohort that’s based upon the overall economics of running the plant. Its is going to be a plant wide shutdown. We're going to take the opportunity to make some cat cracker repairs at the same time. Following that we will take the Memphis cat cracker down in March for a 45 day turnaround. This will provide an opportunity to do a large revamp project, over $200 million on this cat cracker which actually is one of our strategic projects, should increase operating income at Memphis over $100 million a year and then finally in the first quarter we have a hydro cracker outage Corpus Christi in March for 18. Beyond first quarter, then turnaround activity will subside but then it ramps up again in the fourth quarter and the main activity there will be the (inaudible) refinery plant wise turnaround which is scheduled for November.

Operator

At this time there are no further question.

Ashley Smith

I just want to thank our shareholders for calling and listening to the call. If you have any questions, feel free to call investor relations department here at Valero. Thanks a lot.

Operator

Thank you for participating in today’s conference call. You may now disconnect.

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