Valero Energy Corp. (VLO) has increased its capital spending budget by $300 million for 2011 from this year's budget of $2.3 billion. The company said this in a slide presentation filed with the U.S. Securities and Exchange Commission. Valero also gave hints of pre-tax $100 million savings this year, through cost-cutting measures.
 
We appreciate the largest independent refiner's continued focus on reducing costs and improving operating efficiency, which will significantly improve its competitive position. Valero sold its 182,200 barrel-per-day (BPD) Delaware City, Delaware refinery in June and is currently negotiating to offload its Paulsboro refinery, New Jersey.
 
Following significantly weak refinery margins last year, the company said that the scenario is slowly improving with growing demand. Also aiding this recovery is the shutting down of excess capacity by refiners worldwide.
 
This favorable margin scenario is reflected in the company's June quarter results, which swang to profit following four consecutive quarters of loss.
 
The company is consistently reviewing its refining portfolio, and upgrading its asset base by selling refinery assets that do not fit the business mix. Valero's 235,000 BPD Aruba refinery is undergoing extensive maintenance and is expected to come online in mid-October.
 
While we believe that refining industry fundamentals will remain weak for rest of the year, we appreciate the company's continuous cost-reduction initiatives and management's decision to accelerate completion of Port Arthur and St. Charles refinery hydro cracker expansions. We are currently Neutral on Valero with the Zacks #3 Rank (Hold).