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San Antonio-based Valero Energy Corporation has announced a 77 percent drop in net income as high crude prices, tight margins and outages at several plants put the squeeze on its profit for the first quarter of 2008.

The United States' largest oil refiner reported a net income of $261 million, or 48 cents a share, compared with $1.14 billion, or $1.86 a share, the previous year. The results are in stark contrast to major oil companies such as BP Plc, Royal Dutch Shell Plc and ConocoPhillips, which have been able to achieve massive profits from their production and exploration arms despite also struggling with tight refining margins.

The company generated operating revenue of $27.9 billion, up from $18.7 billion last year. However, cost of goods sold and operating expenses jumped to $26.7 billion from $16.4 billion in the first quarter of 2007.

Valero's margins declined in 2008 compared to the previous year as the price it had to pay for oil and other feedstocks increased at a faster rate than the prices of its refined products, such as fuel oils, gasoline, asphalt and petrochemicals.

"The average price of West Texas Intermediate (WTI) crude oil increased nearly $40 per barrel, whereas the average wholesale price of Gulf Coast conventional gasoline increased by about $34 per barrel, causing benchmark Gulf Coast gasoline margins to narrow by $6 per barrel, or 59 percent, in the first quarter of 2008 versus the first quarter of 2007", the company said in a press statement.

Despite a difficult few months, Bill Klesse, Valero's Chairman of the Board and Chief Executive Officer said Valero ended the quarter with a healthy balance sheet and was positive about the company's future outlook. "For the second quarter, average throughput rates for the Gulf Coast should increase by approximately 100,000 barrels per day as we complete the repairs on the coker drums at our Port Arthur refinery and the vacuum tower at our Aruba refinery in May. These refineries specialize in running heavy, sour feedstocks, so there should be noticeable improvement in our Gulf Coast performance."

"We continue to benefit from a very solid on-road diesel market, with margins over $25 per barrel across our system," said Klesse. "Concerning refinery inputs, differentials continue to be wide for the heavy and sour feedstocks that we can process, such as Maya crude oil, which has averaged $20 per barrel under WTI in April.”