VLO - Earnings call transcript Q4 2017 | Valero Energy Corporation

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Operator

Good day, ladies and gentlemen, and welcome to the Valero Energy Corporation’s Fourth Quarter 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session, and instructions will follow at that time. [Operator Instructions] And I would now like to introduce your host for today’s conference, Mr. John Locke. begin. may you Sir,

John Locke

our welcome Jay call. Energy management members Joe With and and Vice and Mike Chairman, and Lane Counsel; and XXXX our General our Riggs, Gorder, fourth Valero’s Executive earnings of team. President Executive Ciskowski, Officer; Executive conference me and Chief other Vice to morning, senior President Corporation’s CFO; COO; Valero President quarter our Executive Browning, Good several today President are Vice

the received you financial not are have release on and website copy, you If provide Also information release a like earnings business segments. the can the additional would our tables that earnings one find on attached at valero.com. to

our that Investor the team call. have and direct attention it like on this press the any your the Relations to call after actual statements state statements I’d summary, In our release covered you the that the are cause or factors says be predictions differ intended to we’ve under contained to company’s with are tables, by expectations in the many questions future SEC. that expectations, disclaimer contact in forward-looking please release. filings statement of Harbor to those after If Securities to laws. reviewing feel including the conference forward-looking provisions could Federal There in or free from those described results Safe the management’s our press

call over turn the for remarks. Now Joe I’ll opening to

Joe Gorder

in in low crude XXXX. a gradual of two year, side, allowed to saw domestic product capture Well, growth Well margin constraint steady the was on return on first to our from available halves. improvement supply. more supply the our economic thanks, created XXXX optimize demand of a In and and, global away system certainly and Canadian of crudes flexibility OPEC us strong supply the margins The the levels John, tale half everyone. the good we of from but morning,

to half inefficiency we million during versus greater tax decline to passed were and the power the barrels per reform change national five-year and U.S. significant like flow We appreciation of fuel step day holidays tax fact, strengthens weather-related industry months communities. of of light tax during position year, competition for manufacturing global over competitive positive American refining tax and the further who fourth requirements inventories the Valero’s unprecedented industry in a believe and critical increased efficiency events below the In to through reform. In families this processed businesses reform. to role the effort also see renewed play the generation. catastrophic our recognize of the American for teams, record second X.X attention the chain time earnings the account glad and brought averages, U.S. products supply families. and crude the dedicated the analyze legal that tax of to We product In of for our quarter. lives and and cash delight accounting the I’d many, recent for and the December, the lawmakers nation’s complexity in and of to accelerated

and cash growth dividends. Incremental investments, credit our and discretionary pay spending prioritizes flow allocation to the need should reform ratings said, reduction sustain versus effective tax a us you uses, Valero’s framework, which our rate to Now significantly. significant reform by to maintaining looking levels. provided would benefit tax being returns. in remain cash also operating discretionary from resulting with including activities should our and expect M&A, taxes capital cash ahead, committed other to nondiscretionary expect business compete investment-grade our we pretax net and And That

reliability, and safety, we XXXX, in Turning business, to Valero environmental records new stewardship. for set performance operational

is on on invested the expansion these and The flexibility, of in plant Wilmington expenses, to in in Also, are Memphis exemplify to track. the our Wilmington's cap the both has to the Diamond deliver The refinery's Diamond of up reliability cogeneration also operations supplies. XXXX, remains unit Green unit Valero's areas stable The the Diamond Memphis running improved more Houston a cost versus cogeneration operating its on Cushing enable Pipeline and started supply line. and in steam we crude while business. the crude and that key billion advantage earnings. providing to capacity Pipeline November increasing delivered in Construction reduce us diesel new commitment accomplishments are Our $X.X and alkylation drivers connects sustain premier grow unit power helping well.

complete and projects half to of the We of these third XXXX respectively. XXXX, quarter first the in expect

logistics Pasadena Texas the Terminal. Central for mid-XXXX the in start-ups the XXXX and Our investments and Ship progressing. Houston are and terminals also along early then Central in are for Channel Estimated pipelines Texas

new The the soon barrels the This cost half second of the is unit was day for a expect start-up total also our ground scheduled by million estimated refinery. of XX,XXX break at Board per $XXX Charles Directors. to approved We XXXX. alkylation project St. on recently with

margins Regarding week, per increase paid activities, continued of XX% and adjusted of near to quarterly share, commitment annually, approved light expect or to dividend inventories our export XX% good refined annual In our this regular demand our product $X.XX the to economic supply of growth, exceeded and $X.XX domestic closing, year. days lows cash for our we further Last in in payout five-year global markets Board returns with investors. XX%. a net healthy demonstrating XXXX stockholders, operating and cash we which out provided range XX% our to target by

a to are quality manufacturer as process premier with optimistic a feedstocks range we and XXXX. and position flexibility advantaged wide of our about fuels low-cost operator, Given consumers, supply to reliably

John, I'll back the that, you to with call So, hand

John Locke

Thank you, Joe.

quarter or quarter, income net billion, Valero in attributable $X.XX attributable million, Fourth quarter share, $X.XX income $XXX $XXX fourth XXXX million, or the per net share stockholders the adjusted per was to to Valero share. per $X.X fourth to $X.XX For was stockholders of XXXX. or compared

in $X.XX $X.XX was billion, income adjusted net to share, or that XXXX, this share or $X.X net benefit to billion, $X.X attributable adjusted was exclude to reflected an billion, compared or adjusted $X.XX XXXX, For Cuts XXXX. XXXX. results financial per items and compared of release. the or while Act several exclude from stockholders per in $X.XX tables attributable Valero share, Tax $X.X per accompany in XXXX billion share billion, results Valero the income XXXX income to $X.X the XXXX per tax $X.X Jobs of stockholders

refer Operating quarter tables. for segment $XXX Refining of in for to income quarter For million of financial $XXX reconciliations fourth to amounts, the actual to the fourth XXXX please was of those compared XXXX. the adjusted million,

$XX than related quarter million. ongoing quarter repairs operating which US Coast were fourth distillate domestic from quarter is Pipeline, XXXX most residual in to Throughput million primarily to Refining which to of mostly of to fourth refineries expenses and expenses higher averaged $XXX and of versus medium from the million gasoline barrel the operating Pipeline, Crude, million heavy-sour of XXXX. acquired Gulf for per XXXX, volumes XXXX quarter VLP quarter quarter $XX lower XXXX, than in of higher income The decrease due in at million Brent regions XXXX of cash XXXX, was address million acquired primarily in $X.XX XXXX. was quarter fourth increase was Operating crudes partially of were contributions primarily damage to were margins the for was adjusted November of higher wider prices. quarter Port segment income of segment to day, our $XXX of barrels for XXXX discounts January from per lower fourth The margins XXXX XXX,XXX generated Harvey, the Arthur the resulting to ethanol certain Refining was of for Parkway The $X.XX Hurricane in feedstocks. relative fourth and compared resulting Excluding sweet attributed Red from quarter of Ethanol day and from mainly narrower million, $XX income higher due and offset to XXXX. fourth was XXXX. assets operating which the the per in the due increase the utilization to lower which terminal capacity compared XXXX. barrel throughput $XX the X per XXXX. in discounts River throughput fourth The premiums the was in Brent in of barrels and fourth for by from XX% crudes fourth

$X.X December, million adjustments XXXX VLP. fee operating million For and liquidity in $X.X benefit in held the expenses net northern excluding interest available cash our billion and Depreciation investments expenses for California mainly ratio in amortization from total administrative sheet were end, due pipeline $XX for was administrative terminals only reform, debt-to-capitalization $X of tax, reserve temporary was the fourth cash, at the and fourth $XXX General and and and activities All rate the With to general balance effective was were were tax by million. net quarter. $XXX XXXX. of $X.X respect was related cash of a higher was quarter than we billion net XX%. was to Valero's cash XXXX to available agreement and the expense expense of quarter terminating debt which of million and in by to had generated which for billion $XXX XXXX, We million certain tax income billion, American end At of acquire cash fourth the XX% $XXX $X was excluding billion owned of VLP. LP. of Claims the quarter

capital investing catalyst. approximately million, impact of of $XXX $XXX million was growth favorable sustaining capital With investments working the million. generated was regard made and for we turnarounds and $XXX Excluding decrease to cash of which million a activities, $XXX from

billion $X.X was growth. sustaining, XXXX, $X.X and $X.X for of invested For for billion billion we was which

projects. due Our sustaining hurricane million certain primarily lower turnaround related $XXX and expenditures than guidance delays on to were capital lower costs

returned our purchase $XXX Valero and $XXX Moving common was was the million as of quarter stockholders of stock million $XXX X dividends. paid in to fourth to million financing shares activities, million for the we

authority $X.X our As we additional board, have of had approximately by share $X.X of buybacks week billion including for going approximately repurchase of billion forward. last available we December approved XX, remaining, billion the repurchase stock $X.X authorization

day. be are billion $X for joint $X.X and and with operations, ranges; Coast day; barrels million to From the growth. XXX,XXX XXX,XXX per per investments expect barrels XXX,XXX Included the at barrels throughput day; to Gulf to U.S. XXXX modeling volumes North at in barrels per about this Coast million to to turnarounds, West capital at quarter U.S. XXX,XXX day; billion to mid-continent Atlantic XXX,XXX to We allocated business, X.XX to $X.X per following at to venture fall XXX,XXX sustaining first X.X investments. expect US and the catalyst, our billion we total

We expect barrel. first cash per approximately the to operating in quarter expenses refining be $X

produce day as depreciation amortization. Our total per for Ethanol million a X such gallon, first noncash the segment per $X.XX in quarter. should of gallons $X.XX is costs average per Operating to includes expenses gallon which and expected

For The XXXX, $XXX expenses, excluding XX%. to approximately estimated is effective rate at be we annual depreciation, expect corporate tax million. G&A

$XXX For for million quarter, remarks. interest to expense between expect approximately concludes amortization That expense million. million. and expense opening we the our about total RINs million and depreciation $XXX $XXX the first be should And net $XXX lastly, and year should be be

two turn open in that callers our to questions, request respectfully the we questions. to the each to of we protocol call adhere Q&A again limiting Before

you us more ensure their This the have other to rejoin two If please time ask have than helps questions. time callers permits. as queue questions,

Operator

Fargo. [Operator Wells with Roger Instructions] the comes of Our from first line Read question

Your open. line now is

Roger Read

Yeah, thank Good you. morning.

Joe Gorder

Good morning, Roger.

Roger Read

there. quarter congrats And good another on

Joe Gorder

Thank you.

Roger Read

little could crude then two here, a and your we access bouncing heavy a to things, around have lately bit which kind guess difs, I quite talk main bit general barrels. been of

quite I what Gulf access access. remember the if for much Venezuelan Canadian have that’s rail’s pipeline here. that don't heavy production along further the And then a means to Given barrel as meant and for correctly, which you probably beneficial Coast in you declines

Gary Simmons

bit. I'll we’ve Hey, is with Yeah, move Venezuela. Gary. a start Roger, difs seen quite this

in term We this and exports contracts. Venezuela, is production constant have declining, declining of the in our kind utilization to Venezuela been fairly although it's refinery to versus so has us. keeping our is production available Although remained volumes fact attribute down that

off some and and has in of activity swings. Western then Gulf WCS side, is the Brent. the $XX cold caused Obviously, XXX turnaround pretty market the Coast week with asking operating market medium in think sour weather least very the under U.S. of some Canadian good we’ve morning Brent. discounted. dif crude On is to a at the Hardisty some the this And Gulf I close in seen

seem the with good values sour quite be Canadian doesn't keeping seeing today. we're the that the either quality in So, medium Gulf Western seeing or pretty It to discounts.

really of In process as there. don't our Canadian good terms we don't St. Charles capability to for get access area have a a lot good we pipeline access way as Houston Charles. to barrels access, have good has refineries of we but to St. it have where

barge And start St. Canadian barge in into Hartford our operations so, which starting some from we where heavy will are some February. we’ll Charles terminal

Roger Read

And on that some the we’ve kind side, rail of the in companies? rails the from are seeing of contracts Canadian here. balking rail the the of US of Thinking seen term you out the

Gary Simmons

in is to just we're move really what order there's so seeing of Yeah, trains. availability that locomotives the the not

the rail, by So move don't real and trains. great power but have you wide arb the to to ship crude economics

is in rail. we our open things movements of terminal so could up our more volumes very service far, it’s Some some through but the been up planning grain to we been Port see crude limited. by Arthur, have so think some Lucas and that of ramp trains that We're to

Roger Read

Okay. you. Great. Thank

Gary Simmons

Thanks, Roger.

Operator

you. of Terreson line Doug the Thank question comes ISI. from Evercore next our And with

open. is line Your now

Doug Terreson

morning, everybody. Good

Joe Gorder

Good morning, Doug.

Doug Terreson

key environmental on the XXXX, to questions views meaningful of for years sulfur X some feel me, likely get new impact set you the IMO of to wanted updated pretty Tier and the few new that seem which market products to whether your are the between meaning refining next I octane my second, rules. regulations for changes. as are adequate and global crude to margins such going fuel the sources, industries how satisfy making finally, oils positioning how the and for enough US oil vary. spreads then And And are the investments these Valero’s

parts. regulations? So, there's to new these positioned how the industry Valero happens is ready? you Is three, Two, spreads? three feel really what for And,

Lane Riggs

one to So, first. hey, Doug. going with Lane. I’m last start Actually, It’s your

Doug Terreson

Okay.

Lane Riggs

well very for certainly positioned very, is IMO. Valero

destruction, of lot regulation a have this change this we on that destruction. interesting add so and it’s resid a And, expensive. change. a capacity have We It’s coking of lot capacity very of about for secondly lot of the point, regulation space resid grassroots is that pre-investment to in trying thing

expensive in do terms seen. with view. it are think to to other to grassroots compared strategic can capital going think in the of But it a Tier we’re debottleneck I you’ll better respect octane. lot what see X out So, Where the laying industry profit some to unit. big for of be to of the of existing units. a units destroy is remain is versus And as it’s lot Tier X, our we we the positioned. industry, That’ll

to – good we well. the of X is front really about spent still, We’ve rest but this spend a us. We’re is only us where about in are as respect in it Tier to like today. position million is -- of we’re $XXX to million going -- total we in behind still $XXX We’ve we’re think spend space going our got with we feel

Doug Terreson

on till XXXX? Okay. just we Or guys or? closer, to we get make points want should wait of IMO you couple a And

Lane Riggs

of terms likelihood, in Well, or?

Doug Terreson

Well, to likelihood. And do the too? a but it feels what not much it’s the like it happen, that key going market are? I meaningful? what there mean, implications you Do think you view have so is

Lane Riggs

I’m sorry.

yes. So

So, I started there.

to very heavy destruction. that fact resid X% very are displaced I well cost is the Like I a said, regulation are get the think that absolutely, coking And for. we in refinery and we to positioned world. going

Doug Terreson

Sure.

Lane Riggs

a X is X% issue, going widen to sub definitely that probably and industry figure fuels industry exactly as it you is but you how don’t the to try to everyone think distillate. reuse are run solve I and our this out trying shipping will

destruction widen which see to on driver market going the want You’re resid and other impact. for the that coking that’s And is resid and to between think driver, add diesel out. that? I anything you Gary,

Gary Simmons

No, I that’s… think

Doug Terreson

Okay. Thanks guys. lot, a

Joe Gorder

Thank you, Doug.

Operator

And comes our you. Thank of the line Barclays. question with Cheng next Paul from

open. now Your line is

Paul Cheng

morning. Good guys. Hey,

Joe Gorder

morning, Good Paul.

Paul Cheng

coming the the to saying flow, also, one just much you do that is define adjust Joe, cash you flow as guys operating cash the will you exit to XX%, if you just operating And maybe you cash Or so in that cash way decide, increasing like how that shareholder, expected, XX% end the event should we be that however operating that would clarify. organic other will range? to debt better the purpose flow? than are CapEx? When that that end the assume incremental used up up it reduction maybe or for the

Joe Gorder

You bet.

Mike Ciskowski

we statement, Mike Its we provided back How capital impact. cash This that. net our out cash define on do by that? then flow activities the is operating and Paul. on working Yes,

Paul Cheng

Okay.

Lane Riggs

question the was we flow, second have going to the it? assuming free additional then part are cash do on, with what of And we

Gary Simmons

I going our target, to nondiscretionary. as compete and comments, opening his Joe to XX% increase in still pay flow mean, this Right. just discretionary talked we’re XX% in cash the the as out about will with

Lane Riggs

put that surplus not allocation the sit liquidity Paul, ago going perhaps the to in what going sure we’re it’s our we that enough be do. to And place to We’ll we’re end the we’ve I that the best a framework, fair for in is business And and forward do several to forecaster on we’ve extent it. cash think think adhered I that bet retain to capital years going things got the want to do it. we with cash, up we to history.

what history now I in think well going we speaks probably for would consistent We’ve forward. some pretty So, that time. to do probably again, been

Paul Cheng

the give can what to you the if quarter, you capacity on looking whether the the fourth what that in is also, question in And running? are quarter? fourth second expect City in you to same And first Quebec And that Diamond X quarter? right is is margin number much that is, Memphis? at to, full comparing say, My that, at Diamond the Okay. how now? we’re incremental And

Lane Riggs

Well, you're a magician.

Paul Cheng

We try.

Gary Simmons

to You want ahead? go

Lane Riggs

Yeah.

Gary Simmons

take questions. I of those first the four

Lane Riggs

line looking The benefit spread December online. it run LLS. since of In of spread during is Diamond was had very up you're January, coming and in good economic the November. of start-up, December $X.XX really operation, kind extremely wide. Pipeline started remained barrel. first We that full the terms that December between first was a a WTI at month and well month our of late-ish and operation, has in our

So, between averaged and WTI a in LOS spread barrel. January, that $X.XX

that our very an seeing economics We're that on Diamond kind impact line having with today. So X gives economic good Brent the the similar Line idea TIR. wide as is you of of through X well. system

have in that was on $X.XX So, I X line don't barrel a alternative barrel. by spread exactly where prompt but a and December about January, beats basis, an

Paul Cheng

throughput you But, that that the in expect what quarter? X fourth warning first shipping Gary, from line quarter you have Quebec and you're City do into the in

Gary Simmons

So, that. we guidance give don't on

utilizing We that we are have capacity full available to our us.

Paul Cheng

All right. Thank you.

Operator

America And our Doug line the Lynch. you. Merrill comes Thank of Leggate, from question next Bank of

Your line open. now is

Doug Leggate

Thanks. Good morning, everybody.

Joe Gorder

Doug. Good morning,

Doug Leggate

pretty bottom think Joe, at distribution. point really price does think margin the are awarded I mean the wonder the the cash market, and low that it much is you've reset clarity the cash Obviously, the that. lot now. on shares you're I for of all-time what I towards flow is whatever obviously if back giving cycle to we at cash the buying tax been can for high your But touch resets cut is the in a stock whereas flow of the

terms trying to that. has wondering go? skew sustainable you think too you you've get I've much how that a have dividend? slow and a up, more a buyback Obviously, as I'm balance is got you of just how please. back further down towards what already much a really of is follow to limit to And guess in done I'm buyback where do I the would to So, much

Joe Gorder

take Mike, a That's you a this? crack to question. at fair want do

Mike Ciskowski

did Yeah, we our we as have just dividend. increased recently

of So to piece that the XX% will take up our of a bigger XX% target.

tax cash Now, evaluate talked about. -- and through increase, of as investments we'll Joe with will will available and to compete reduced our capital cash returns. reform, as it that flow And M&A our allocation through process continue amount is and taxes it will growth this

Joe Gorder

been Doug, several I think Is that and that think Are we for mean, ourselves that about Is at and we when has buying shares would a is shares we too buying the back we refining received consistent too XX? we Are we high? undervalued, it, the that at and high? you question XX? back find this years. And on is remain I too of in shifting. mid-XXs kind paradigm our here Frankly, high. independent are view it be

is off in opportunity maintaining to Valero and cash throw certainly significant cash funds. focused on around to amounts our back continue more flow, of to that And shares discipline the the free capital much use to we flow of higher are buy the extent create the to stock continue free producing We we're higher lows going have price. highs and and

there me So, to no. going if think say the that in payout answer should a if result, with I I think overvalued do that we're we're yes. you would to repurchases. upside say continue our today, expect And ask balance the is is as out personally, I'd think I And I price, stock you

Doug Leggate

how it thoughts. just what's share kind a best Anyway, I I spring. about if timeline, the and not here? guess But out had you it's an I question. be on rewarded. of some I RIN getting know My also of for call you answer. and the could plays really both from answer. by a ethanol the resolution that seems. your guess XXX our appreciate what follow-up both to share it's that thought for comments down, worth taking Do you're But so, it I'm made before I we I wondering take. and and gets come and S&P costs to prospects that is yield you, on one biofuel think of your diesel shifted RIN stock, view easy on kind optimism you marathon dividend we appreciate just have interesting the Gary the probably if is the

Joe Gorder

planning. insights in here, good I. share him and question. He's have neck-deep we'll particular strategic Jason and issue, obviously some this runs he policy been let on a And is as Doug, that. Fraser That's

Jason Fraser

received focus here Yeah, the dramatically especially hi. is with the PDS This heated increased the reform and situation. in definitely needed. is Things up RFS months, few Jason. showed have an how past badly That

on So, light let's it. help shed some

have to and going the Midwest efforts a get Senate down term also senators solution Cruz for a the the all sit higher We two that RIN do and discuss producers. with to now near also within Senator solution would benefit trying prices,

have We to reform. with with and has who period also Senator time and very up long stakeholders Cloridon over of a working hard legislative been try other senators come to long-term

hear months. comments, so I this the I seem didn't Timeline, there be don't visibility specific couple his does effort know urgency area So, past to but his of and more and in about around

So, than been. are we're have more Things optimistic looking better. we

Doug Leggate

do why that's Jason, really RIN couple you months? that's off reason do Or a the bit have think, in think - the that you last costs more come Jason, seasonal? is

Joe Gorder

prices that. those, were negative what not kind something may and There's that risk is signaled also lot but to they're effecting other of exceptions, would got at too. a RIN smaller on obligated would mandate. it. a grant could a EPS be to they think they That of have them the has do. more market, would and is refiner there's not been a view we discussion parties, Gary reallocate effect that's the redistribute that there on of If end, the to which have of They looking that

a around. are Gary that. don't beyond several I view know Gary, floating things if So, But, there has

Gary Simmons

way. it the same see I No,

figuring see in something dumping the read changes, aren't worth RINs, press time much you be future. think they hoarding potential hoarding market start in that I are that people that RINs the any the them in you on regulatory may

Doug Leggate

and I York couple Gary, Gary answers, Joe, weeks’ guys. Appreciate in the a New see you guess, And, of in time. we'll

So, thanks time. for your

Joe Gorder

Doug. you, Thank

Operator

question with Thank And next of UBS. Spiro line our you. comes the from Dounis

is line open. now Your

Spiro Dounis

Good Thanks morning. taking for the question. Hey.

for on hoping here. M&A was assets, specifically refining environment for the Just comments

change Curious still really for between sellers. on And valuation few due you're as refining the that of just year buyers the pulled on block if last like tax spreads does on there a and optimism any and bid-ask case? seems your you? calculus seeing it the to think outlook I reform renewed of them and were a and the XXXX, assets got lot

Mike Ciskowski

Okay. We ability Yeah, economics Tax this change deduct reform PP&E bit would purchase to is have little the one. of the the the M&A. price does on a in Mike. a year

are potential targets. on we in of our so, various updating the process And analysis

Joe Gorder

that But in of know marketplace for today I or of really is interest. sale, the don't anything that's

you're right. and So,

the think in the I on only as out everything spreads it's And guys look is that not refining to and tend on bid-ask been a pretty also, logistics take assets, we but know, broad. assets at you market, list then something we be interested together that we in. hasn't just allowed And to have a us way target has come execute that of things particularly track that we'd we a it be in with. that would pleased

just So, we'll nothing now. but continue right there's watch it, to there

Spiro Dounis

position? guess expand able America, into when that I if that I for Mexico, progress you was How us of Got update Latin of you it's you believe stepping And progressing? think would it. then that the wondering project be on And just stone line could and it. you on I was project there? a to kind on along so Got the maybe do

Rich Lashway

This is the Rich acquiring early the the February. here. land for progress and handed here to us over in of who The be going facilities the their construction is inland in are to crews be for terminals, doing should

bit wants We the all the on little Gary Maybe operational a up share marketing the of facilities first expect the That's be in of running side. that side. kind quarter XXXX. of on to and would

Gary Simmons

think we anything opportunities in comes South to we Mexico yes, communicate looking into I different on the on. see us so time. have ramp-up Yeah, really and are at And, don't penetration at this the a for in the lot terminal you'll wholesale after that market America. of And

Spiro Dounis

the Appreciate Thanks, color. Understood. everyone.

Operator

RBC. our with question And the you. from next Heffern of Brad Thank comes line

now open. line Your is

Brad Heffern

morning, Good everyone.

Joe Gorder

Good morning, Brad.

Brad Heffern

barrel. Alki Just on the distillate more and your lot question the mean, have project Alki, are and the projects old Alki side I guess. a your new peers I on now the of project, a of so both been marquee focused CapEx two

the that What there? destruction, octane about? things? Is thesis what’s it makes like the X over you Or you increasing just pursue So, is octane talked demand of Tier time? this side

Lane Riggs

Okay.

Brent, So, Lane. is this

up of it. the hit you So, first on part

emissions industry the optimistic octane autos, happening is the Two, destroying in One that about are with them the octane. there. trajectory is to for helps We’re octane is their meet X it’s obviously tier requirements gasoline, to their require two more and things compliance.

part shell a all going view to just, the that’s that of function play other a we’re NGLs long, we that of The there. is be that’s have are and out

so floor these the all a going exports to a position. to have have you’re little world. facilities, as NGL even export You different That’s

So, it a really of we the that these to bullish end both spread of at high into on. strategic is And the view. sort butane that we’re fit projects octane gasoline day, think

Brad Heffern

position then And our Lane? diesel, Gary? on

Gary Simmons

the view. feel, that’s making really the not money We’ve big sort we we remember. made I It really which is way function natural liquids of that area, world aren’t – to going of was investments really and big cheap of the play two forward, basically if make invested a And a It in built diesel, to we’re we’ve – diesel, diesel. We’ve so have focusing. with viewpoint, fuel. Well, shell gas what lot and NG. gas our similar hydrocrackers, that was you was our

construction. focusing not your make to it’s diesel We’re more on trying unless

Brad Heffern

going hydrofluoric potential about How an Wilmington? to the Okay. are to be pursue guys thinking Got lot And it’s there CapEx you it. don’t a required. are mitigation out shifting procedures QMD if more the of as likely then to they you that Thanks at California, how likely seeming there’s acid for that. And spend that avenue? ban

Mike Ciskowski

And the viable on either works the to get that total optimistic are. are involved working in out obviously, everybody or how find the stakeholders solution investment we working pretty we mitigate there. that right We depending for that all we’re to how absolutely to South we comply. make with out, feel to right there investment, won’t good the the very meet And that area. to we all HF that But will will right Well, are get Coast to place.

Brad Heffern

all. Thanks Okay.

Operator

Weil. with line Thank Fernandez of you. comes And next the our Howard Blake question from Scotia

open. now is line Your

Blake Fernandez

Torrance Sticking was West up quarter, a rest of have the for but but you the country. what running, Coast morning. is curious Good maybe I’m and significantly It question on the that? into other on the if just guys. really the half the margins driving Gary, second on this know theme, Hey, was It thoughts any seemed I weaker. and to that. relative any of thoughts back was collapsed

Joe Gorder

Blake. Yes,

I more generally think in Coast we West the the what a see. that see quarter. in severe weakness This historically was little than fourth you

touched you of on utilization think was Refinery high. I some it.

pool. gasoline on butane high season, bit West a demand were of some RVT And weather you the swelling You of issues in the softer then so with the little had kind Coast.

that all to you’ve the that think I seen. drove weakness

balance. on. then we will forward, turnaround go in gasoline. going already grade help slow market Angeles, switched have Los of the Moving summer into grade supply activity another weeks, bit to The of bring summer and Bay And inventories little into couple start back to we which a in to will

Blake Fernandez

Great.

question for of tax we thinking repatriation billion obviously should a as And curious cash, $X be then about any given any far European may the this given benefits was I reform, have be on you Mike, on Okay. but that? operations, impacts Thanks. just that as some the and

Joe Gorder

and cash if both need bring here UK, in have Canada don’t time. adequate, we do back some We back the this is need to U.S. we cash, to. we that But it and bring so Yes. and at position could the our in

Blake Fernandez

Got it. Thank guys. you,

Operator

comes with Thank line from you. of Justin Raymond And our next question Jenkins the James.

open. Your line now is

Justin Jenkins

beat guess, capital it’s everybody. tax thoughts or VLP, to drop-downs whether about the sorry I strategy of Joe, you’ve if relates here think as curious dead mix I’m as to lower spending? I I’m a allocation, here? for the morning, clear pretty growth rate Any anything affects but Thanks. Good it been horse

Lane Riggs

Mike, you to or, talk Rich, you want Donna? to Or it?

Joe Gorder

multiples Yes, are happened and Or will and the so those the I market-related, I go we reform, ahead. guess obviously, affect – sure mean, it December, The just to affect the remains just to are reform tax know drop-down how seen that how how on going tax – activity. don’t you be for drop-down, it multiples. in that’s

Lane Riggs

an a And if doing a treatment different third related-party and than that is Mike, you’ve Well, got then on you’re party? acquisition drop-down, the from a transaction.

Donna Titzman

full about you’re If extension? talking

Lane Riggs

Yes.

Donna Titzman

Yes.

regards fluctuations third-party income some you it a to significant allowed expenses calculation public need to would In the from allocation and not create because be likely would year acquisitions, normally or drop remedial related So VLP from perspective, parties. year are that in does Valero because elect holders. to of VLP the not unit

So, answers bonus do but. that to question, your for I’m that. if has not been available chosen sure depreciation – take not many yet, years and not MLPs generally, have

Justin Jenkins

pipeline the that strategy? And just that. that’s queue? thinking the on on Canadian then into how maybe of you VLO’s gears crude, might following I to perfect. that here, in talk along access then shifting Roger’s XL. the about And appreciate projects fit Keystone No, overall are I’m can question up lines the

Lane Riggs

forward, big we heavy it’s it high in will the and U.S. access backers growing Coast our Keystone to refinery, believe excited so of Canada. certainly refining to Yes, Western were of system, Western project’s kind Arthur oil that and brings access Port it to a project so and we’re moving obviously as great production direct the that that our improve complexity Gulf XL Canadian

Justin Jenkins

Perfect. there. Thanks, I’ll leave it guys.

Operator

And comes the our of with Redburn. you. Thank from Peter question next Low line

now Your is open. line

Peter Low

my for Thanks Hi. taking questions.

Just two, please.

Diamond And you help motivation the there first biofuel And Thanks. that the West just your capacity what costs? any mitigate secondly, you see consider own your makes is the it be of synergies those the future it primary of on with can that region? understand DGD? operations. in just between update Coast to Green just an portfolio? provide doubling you blending proposed your and Diesel? Do returns Or its rest of would rather is interested can the refineries Is ever I’d to right? then, The Valero’s own on project exit on

Lane Riggs

the some it’s Peter. say synergies, the Valero would Coast, good there’s the and of right. All a between I That on Coast mean, limited being rest system. I Well West said, West operation. the but largely synergies

West We margins experience a strong we great them. and option when it have Coast on is management good

of our don’t of part have it’s interest So, portfolio, it to it. divest cash flows, we so ourselves and any

far as DGD, Now, want to… you as do Martin,

Lane Riggs

Diamond have be We’ve stand start its will gallons also to decide will That the will from cash what a and final That that the looked made expansion on at quarter. that about from to on do. million own going off that a investment XXXX a rights. and JV, project as in We’ve go XXX at XXX decision throws the third talked gallons we’re Green, it and look year. Yes, to up underway a XXX in year we to million XXX. second we

we’ll there. how that’s So decide

Peter Low

Thanks.

Lane Riggs

Peter. Thanks,

Operator

And comes Phil JPMorgan. line our next the Thank question of from you. Gresh with

now is line Your open.

Phil Gresh

Yes. Good morning.

Just percentage $X.XX a bonus the savings tax basis? or expect was you’d et from benefits, on the clarification Whether curious effective Was the How about reform; cash XX% a it? from you think a cetera, there basis gave additional rate. you if basis? depreciation

Joe Gorder

the expensing. available we our results, our of wanted so full capital and all Okay. Yeah, well we $X.X assumed had to change XXXX in We pretax the on pro-formed was for the cash determine as available provision that reform. tax we XXXX What billion was did income. we taxes, as in

by statement, approximately income share. the in be our So, $XXX tax to would regard or per provision million $X.XX lower

assumptions. to the be tax system, million. include by when side, taxes, million on approximately Territorial transition $XXX decrease $XXX savings those the On you cash our the would based repatriation our then taxes would U.S. to And cash the cash

Phil Gresh

Okay.

at So number. it we're your just to clarify. If year-over-year, would be CFO million looking the $XXX

Joe Gorder

That would correct. be

Phil Gresh

Thanks. Great. Okay.

came from In much a quarter. to that of and the bit expectations, just throughput? the fourth just slip guidance difference Or first our is then XQ? out fourth mean, stick in higher. is fourth in the Philip anything between Primarily you the gas else cost and in in the terms you quarter the that would well so were is simply on better in below why quarter nat It's and I Lane. quite activity turnaround question your first OpEx. Second your quarter,

Phil Gresh

Okay. Got it. Thanks.

Operator

Thank comes of Research. from next line question you. our Paul of the Sankey Wolfe And

open. is line now Your

Paul Sankey

Good morning, all.

Joe Gorder

Good morning, Paul.

Paul Sankey

where know afraid, the your Back revisit paying multiple cost which horse, to argument which we guess or kind question, that's it I'm doing. to think answer relative that you. can I and my I'm buyback. follows of thinking seems think just the of capital is to whether keep you part your Joe. the debts. wondering of be be the the I of dead paydown it expanding, possibility more Thank about debt mid-cycle. maybe doing into would and do if you possibly should to that second lower And are down you there's not less on I

Joe Gorder

Okay, Paul.

start this second to of part with want the first? So, you

Lane Riggs

inventory, you relative I When mid-cycle, I market terms the been And mid-cycle. to have largely strong. so where Yeah, in think the diesel have we cracks year been looks to we've start think, because the barrels XX below below relative are we distillate mid-cycle million softer. distillate on where of very been

we cracks, I think above through to in pull the and year. you'll see significant begin as you'll the mid-cycle diesel strengthening margins move

Joe Gorder

want you about to debt? Do talk Mike? And,

Mike Ciskowski

I our guess debt-to-cap on percent low end which the debt of range. XX is we're at the

of don't in maturities XXXX. None upcoming. so far we a so, have And lot

And really just so, debt hadn't about I this much paying I time. down at guess thought

Paul Sankey

to back the go just I Sorry, think now? you Can we're mid-cycle above guys. clear, very That's right saying mid-cycle? were you that

Joe Gorder

to moving a been above below have be where to transition we mid-cycle but you'll period forward. start think I mid-cycle, we'll

Paul Sankey

Yeah, okay.

it's said, guys. much, I kind of very Thanks up. As a follow

Joe Gorder

Paul. Thanks,

Operator

Stanley. question Benny the Morgan Thank of from Wong you. line comes And our with next

now line Your Your is line open.

Joe Gorder

Benny, are you there?

Benny Wong

guys. Hi,

Sorry about that.

still, out guys. Joe. Just use guess. phone to the figuring I how Hi, Hi,

Joe Gorder

Hey.

Benny Wong

the Quick so question Jason be I here. on for you. this guess might regulatory for front, is this more

Just review. in to coming regards mid-term are that going through standards to the CAFE up the

have I think you're expected to outcome in April. an

get California there want of if efficiencies, efforts if back coming roll to that any if that? there anything to doesn't on side? be wondering are is And out up looking - you any you Just are would any see guys held for of if thoughts efforts

Jason Fraser

obligations. Jason. very The firm is is reopened EPA that midterm I has think these Xst April deadline. We're evaluation. happy course administrator The Okay. to that meeting of is Trump This that on meet going

XXXX. there in those think that. understand the for used the lay meet to think had they and like EPA's with did national California. -- with I years Memphis prefer trying autos program. what productive would standard the it. to prefer they've EPA looked can. obligation is conversations All it see majority credits we certainly We past We from to to So, have work of having the Everyone And one been

EPA definitely needs at said that that If numbers. open XXXX, ever-increasing XXXX. at, enough is these that this have credits they the to trouble keep tells until to So would be we're believe that you I to have something looked starting themselves

some the this end process people market and levelling reasonable of sell but off with standards hoping will actually want cars a is the to that you we're sustainable. number, as So, allows

Joe Gorder

in regulatory good kind the they're it it, the EPA and a midterm that their of allowing review that other that doing the situation the to process and you're are aborted I to bodies. autos communicating previous the of completed. it's job the shows administration fact mid-stream Well, be reassessing encouraging mean, the

made what it happens. And be conversation into this comments will octane the dovetails see interesting that So, around Blake to on earlier. CAFE and conversation the

an issue in be it it's start and it way is needs to resolved buy. be that US that unless what to we're they So, dictating can a to needs going consumers resolved, reasonable to

Benny Wong

may much interesting that did a in more regards environment? new now in Appalachian be any maybe environment new wondering little the your to that unit, portfolio impact in just And weren't color. before attractive if the Appreciate tax the And that how projects decision, Great. there's just the if any? that

Joe Gorder

the the our the least to organization we kind at view, primarily a we we focus then projects it involved. we the of with on it look as rates. fence - our at use octane, our and hurdle wasn't strategic first like hurdle to hurdle to risk ensure these and these of to with was strategic start Again, way we respect use context So, minimize view rates on commodity us rates in get a that

strategic of view about regulation Appalachian answer that answer to tax So the say, pertains we in general. going change didn't long sort And were the we how that's same no, to unit. investment the think how to

flow our go seen. how through not use model all to time we'll So, - cash think, asset our we've be again, to see we'll it it I'm out. and and again just said free remains allocation works time I

Benny Wong

Thanks, Great. guys.

Joe Gorder

Benny. Thanks,

Operator

And comes Goldman Sachs. of line with Neil question the you. Thank from our next

open. Your line now is

Neil Mehta

team. morning, Good

Joe Gorder

Neil. Hi,

Neil Mehta

WTI. get ago figure my A again, around asked couple this what trying out to but it. the you Brent weeks Joe. I head for still to normal and Hey, question a new trying - I'm is I'm

number usually. it's we the to obviously way and things in we'll but blow on down, frame up these transportation economics through fluid terms try a the it Now, and of way

outcomes you about, think a the you you the how like Brent economic guys a as think guys what lags about of spread, normal? normalized frame are standpoint of what when So think from an kind WTI for do that new

Gary Simmons

in Hey, Neil. the logistics the it is getting assets beginning you're that push This Permian is online with Cushing we incremental look the Gary. The in production to way Gulf. coming at and region, to the

to differential. barrel, And or really so, $X.XX barrel, up is has $X.XX And you're to today, which, tariff a then $X.XX at looking Gulf. get walk about a the a to Cushing Gulf spot to generally the gets or when quality DSW it

it to get then have water. on that and about $X.XX, $X.XX you $X.XX the another to you So from this moves $X.XX

range we viewed a believe So, kind is TI sustainable kind $X.XX Brent $X.XX what this is spread. of to of in we anywhere it

Neil Mehta

whether Just water, we there logistically? to similar had are crude curious the at into US One wall do especially or to to couple any, who around capacity question constraints was continues get at were some doing point? grow see if you next pace people of we a outcome. export Yeah, just we years, this as run it the the you over around getting once any are just limitations a

Joe Gorder

even logistics Well, for see, are higher some access. point. you the where don't think we is today, today. we may charge people start dock higher the like to premiums do feel with you ARP and see it at What limiting I

that like cents I wide want to So if the water quoted number more see the you ARPs. get is to $X.XX as $X.XX people today

Neil Mehta

Thanks, guys.

Joe Gorder

you. Thank

Operator

next Tudor, Pickering, Thank you. from Chi And comes our the line Chow question Holt. with

now Your line is open.

Chi Chow

morning. Good Thanks.

Joe Gorder

Hi, Chi.

Chi Chow

Hi.

risk going For still at PMX of really ahead looks to do you the change market of do pretty Gulf its on out there. the Coast? expect fourth reports you you Regarding But sorting it out like all any quarter operations? product own export, with guys instance, are progressing the strong in see

Gary Simmons

in think it's get quoting improvement anything refinery to of Gary. numbers is I PMX this but seeing America. to demand Chi, then also the significantly South you're the in that we than Mexico don't longer One, they're different think we take that's or see terms growth. utilization going good

utilization demand So still that we improvement will growth refinery refinery strong export we'll outweigh and see utilization regions. even those think demand into if that improves,

Chi Chow

Great. Okay. IEnova then services? Fairmax and term the And on terminals on Gary. Mexico questions. the couple on for What's three with have on Thanks, rail agreements the the the strategy, you a also

Joe Gorder

the that. years than that It's half on IEnova on and it's the XX it's less so Fairmax

option these We the to contracts. have extend

Chi Chow

reform any Okay. on there on upcoming momentum might risk Great. the the from you election? what presidential see And do to down transpire energy

Joe Gorder

though, We be we're potential mean, better that election. it there I this else the Yeah, any watching what than anybody their might I of read, pretty morning know did carefully. don't it statement hasn't very direct would been opposition there an party by to attempt that difficult they that, was and if try do execute. a would undo the the reforms be to to outcome

other do on Jason, So, any that? color you have

Jason Fraser

these That's we energy concern is It people on you policies out, reforms, confident there right, will most Mexican now Mexico. going to figure told The coming when the favor he's best started undo been economy Joe. to pain really elections lot in is the rolled they're them. big interest the in views does July it's this change first always that we are this see their basically place. And that have a we and And in think The of voiced X. up a about It's of constitution. was prevail. people - short-term of getting but very is Obrador's long-term Lopez hard out very, are election Mr.

Chi Chow

of campaign think comments you are some Lopez's Do there? actually they put just out statements he's do rhetoric believe or the

Jason Fraser

know. don't we Gee,

Joe Gorder

to tell. hard It's

Jason Fraser

don't know. We

Chi Chow

the for Thanks Okay. Appreciate color. it.

Joe Gorder

Chi. Thanks,

Operator

And our Kazarian Suisse. line of Credit with the Kristina you. from Thank question next comes

now is Your open. line

Kristina Kazarian

Hi, guys.

Joe Gorder

Morning.

Kristina Kazarian

like A to a pipes in that? Corpus. one you think about in about Gulf long-term to potentially something given refining talked partnering and from Permian ownership the number on building one of companies your footprint talk stake about thoughts committing your with those those to potentially now Could Coast an how about even maybe pipe and pipes of take capacity companies this of have pipeline the maybe you like

Joe Gorder

from lot Permian always Currently, mean with of going anything. Sure. can have there's on But got I looking at to is Kristina, a and we're or going Rich. commitments right projects on committed now reduce or open that us you to know Corpus binding Houston. provide any cost it's Buckeye Epic but this We have don't revenues, not interesting. secondary projects anybody. season and, the logistics we're to our opportunities third-party Magellan

Kristina Kazarian

And of Okay. does that interest point just mean are so lack decided at since this or many there options? haven't on

Joe Gorder

just we're mean we're is, the just news there's - looking into Corpus going them. for of lot refinery. a to crude more There's that's coming options, right, Corpus The and good at

So grow when markets the thing excess we where that's capacity. a always refining pipeline capacity there's good can coming our into

Jason Fraser

of our interest Well, a on there's lack not part.

Joe Gorder

Right.

Jason Fraser

But Rich's them. DLP not Valero think is you but at Energy, options we're just mean, them, what to also commitments we made brings we'll continue I look I evaluate against and the options today. other to your benefit any it point to looking only but so at haven't

Kristina Kazarian

lot to there get the is noncore a longer maybe guys more chance on of a think that the earlier side in do you some refining capital in about interest potentially you the think market with across considering space, selling bidders you other that And you one guys asked increased Okay. then some term questions other you make out space? were around see the if M&A, assets, the there of might

Jason Fraser

don’t Well, we noncore assets. any have

may for more very earlier we this, that. that talked that’s would but part situation premium, out on So see under about first activity he that wouldn’t Okay? as I extract of M&A the a I being figure new of suspect spreads it take based could you long to also say everyone’s reform. high. would seller a bid-ask a result tax

And adjust. prices the so, will

going the be that don’t day. probably buyers work a the same of so to change of So, sellers both whole going but I the more at are we a thesis end ourselves that and activity, lot’s can and a into know to aware there’s lot said facts,

Kristina Kazarian

guys. Thank right. All you,

Operator

question Ryan Todd comes Thank you. of line from with Deutsche next the And your Bank.

is now line open. Your

Ryan Todd

a Maybe forma its the exclusion you $XXX upside you pro to of for status guys. what share whether Thanks, inclusion on savings you numbers? your Can on theoretical Good. the biofuel ones. quick tax made tax would it your or think thoughts XXXX? Whether million specific any the in assumption is extension? credit And or couple offer

Joe Gorder

want Martin to about talk it? Jason, you or

Jason Fraser

would we going it create it? Yes. He’s just saying get to And it create upside. would Are upside.

Gary Simmons

credit delayed do revisited for to the we in I been to the retroactive up these changing try look don't in caught talking bring be credit. and all a drama that out mean, to with see seems That passed government We through Yeah, expect passed They immigration and of Washington at it's producer’s into just keep XXXX it's but right called wall need to years We going everything involved may get going that has about tax changed forward, day, for think going think on the to and the to out the it be end get current the and something now. just subsequently on. two XXXX. everybody the would extended it do blended got just tax that’s situation. funding up XXXX. legislation At

happen. when. going So, of it's think question It's we a just to

Ryan Todd

then to us? And its value

Joe Gorder

It’s gallon it’s of $XXX It’s for significant a million. retroactive, to So, us the JV. right? $X.XX value

it’s So, significant.

Ryan Todd

trade? a a costs? drivers then the you thoughts recently I what of quite any speak way for IMO oil feed There’s Thanks. seasonally. we beyond stock sulfur it your and even in on Or maybe And the And that? expect recent particularly weakness early around fuel front-running think spreads specific Or of too of is been to potential function potentially Is one. one fundamentals? lower would fuel the a that? of that? you spreads, to bit it above then Okay. oil capitalize the Is on guess other high Can

Joe Gorder

of market. IMO Yes, to seen impact the for in it’s too be early the think I probably any

they for and you’re globally to generation. sulfur ban what are in though, import think then fuel beginning able countries burning the seeing, infrastructure is I LNG, put power high to to of

roll that’s countries, And markets. consuming so, off that the couple recently weakness I fuel, we’ve see and seen countries a in in stop seen you’ve happen And what think and you transpire market. the as in those

Ryan Todd

you can the the things? capitalize something is within And relatively Or portfolio? Thanks. this scheme insignificant Okay. in of on

Joe Gorder

fuel on much High oil input, the impact heavy sour No, sulfur significant it very is. a prices. has crude

And so as high which we us discounted, quality discounts sulfur benefit fuel generally greatly. see wider gets

Ryan Todd

Thank you. Great. Okay.

Joe Gorder

Thanks, Ryan.

Operator

return any call for for Locke to like I’d to remarks. Q&A the that And today. Mr. conclude John Thank you. closing does

John Locke

everyone, thanks, Well, for on Okay. joining us the call.

have additional Thank team. at If call give didn’t a a chance any or get Investor ask, you the you. Relations us just questions to please

Operator

program, for Ladies day. you all in Everyone, and and have participating This does gentlemen, thank conference. a conclude you great today’s the may disconnect.

Valero Energy (VLO) 1 Feb 182017 Q4 Earnings call transcript