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    Valero Exceeds Expectations, BP Improves Performance

    Oil companies managing roller-coaster oil and gasoline markets.

    SAN ANTONIO -- Valero Energy Corp., the largest U.S. refiner, posted a smaller decline in third-quarter earnings than analysts predicted, after crude oil costs retreated from an all-time high, easing a squeeze on profit margins, Bloomberg News reported.

    Net income fell 9.6 percent to $1.15 billion, from $1.27 billion a year earlier, San Antonio-based Valero said in a statement. Per-share profit excluding a divestiture gain was $1.86, 35 cents higher than the average of 18 analyst estimates compiled by Bloomberg News.

    Crude oil futures touched a record high above $147 a barrel in July before plunging below $70 on concerns that slowing economies around the world will sap fuel demand, according to the news service. Valero said its average profit per barrel of oil processed jumped 32 percent to $13.11 as margins widened on products such as diesel and heating oil.

    "The challenge for Valero and the refining sector is similar for everyone else," Roger Read, an analyst at Natixis Bleichroeder Inc. in Houston, told Bloomberg News. "It's what is in front of you that looks more challenging than what's behind you.''

    Valero's revenue climbed 52 percent to almost $36 billion, the company said. The July sale of Valero's refinery in Krotz Springs, La., resulted in a pretax gain of $305 million. The 2007 results included a $426 million gain on the sale of the company's Lima, Ohio, plant.

    Gasoline purchases in the U.S. were down 7.6 percent from a year earlier in the four weeks ended Oct. 17, according to MasterCard Inc.'s SpendingPulse report.

    Hurricane Ike, which slammed the Gulf Coast on Sept. 13, idled three of Valero's Texas refineries for at least a week.

    Between Ike and Hurricane Gustav, which struck 12 days earlier, about 20 percent of U.S. refining capacity was shut and the nation's gasoline supplies were cut to a 41-year low, according to Bloomberg News.

    "This will be seen as a decent result, given the hurricane-related operating problems Valero experienced this quarter," Mark Flannery, an analyst at Credit Suisse in New York, said in a note to clients cited by Bloomberg News.

    In other earnings news, BP is "making good progress in its drive to improve performance," according to Chief Executive Tony Hayward, who announced profits of $8.9 billion for the oil company's third quarter.

    Despite some operational upsets, including hurricane damage in the Gulf of Mexico, BP's oil and gas production was up slightly from the same period last year, with downstream pre-tax profits up 70 percent to $1.3 billion.

    "We are making good on our promise to deliver the strategy we laid out earlier this year—upstream growth, downstream turnaround and corporate simplification," Hayward said. "We are well-placed to weather the prevailing financial storm and to benefit from the business opportunities that may well arise from a downturn."

    Among the company's financial results were a replacement cost profit of $10 billion, up 148 percent over last year's third quarter; an operating cash flow of $14.9 billion, an increase of 133 percent; and a slightly higher output of 3.66 million barrels of oil equivalent, showing an underlying rise of 5 percent.

    While oil prices may dip further as the world is poised on the brink of recession, Hayward said BP is "well-positioned to cope with such volatility. Our balance sheet is strong and we have committed less of our portfolio to high-cost options like tar sands and gas conversion than some of our peers. We think the current turmoil may in fact create opportunities for us and we will look at those very closely."

    Describing the pace of BP's recovery as one of "steady acceleration," Hayward said in refining and marketing, BP is "closing the competitive gap against our peers."

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