Valero Delaware City Refinery. Click to enlarge.

The Valero Delaware City Refinery, acquired in the purchase of Premcor in 2005, was commissioned in 1956 with a throughput capacity of 140,000 barrels per day (bpd). The refinery has undergone several revamps and expansion projects to increase the total capacity to its current rate of 210,000 bpd, and is designed to process heavy, high-sulfur crude oil.

The plant has a 1,800-tons-per-day petroleum-coke gasification unit and 180-megawatt co-generation power plant. The refinery’s petroleum coke production was sold to third parties or is gasified to fuel the co-generation facility, which is designed to supply electricity and steam to the refinery.

It processed 180,000 bpd of low-cost heavy-sour and high-acid crude oil, producing conventional and reformulated gasoline, low-sulfur diesel, home-heating oil and ultra-low-sulfur diesel.

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. A safe and orderly shutdown of the refinery will commence immediately.

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.

—Valero Chairman and CEO Bill Klesse

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.