Valero Energy (VLO) 26 Apr 182018 Q1 Earnings call transcript

Company Profile

Participants

John Locke	Valero Energy Corp.
Joseph W. Gorder	Valero Energy Corp.
Michael S. Ciskowski	Valero Energy Corp.
Gary Simmons	Valero Energy Corp.
R. Lane Riggs	Valero Energy Corp.
Jason Fraser	Valero Energy Corp.
Richard F. Lashway	Valero Energy Corp.
Doug Terreson	Evercore ISI
Brad Heffern	RBC Capital Markets LLC
Neil Mehta	Goldman Sachs & Co. LLC
Paul Cheng	Barclays Capital, Inc.
Roger D. Read	Wells Fargo Securities LLC
Manav Gupta	Credit Suisse Securities (NYSE:USA) LLC
Benny Wong	Morgan Stanley & Co. LLC
Prashant Rao	Citigroup Global Markets, Inc.
Justin S. Jenkins	Raymond James & Associates, Inc.
Blake Fernandez	Scotia Howard Weil
Phil M. Gresh	JPMorgan Securities LLC
Ryan Todd	Deutsche Bank Securities, Inc.
Matthew Blair	Tudor, Pickering, Holt & Co. Securities, Inc.
Craig K. Shere	Tuohy Brothers Investment Research, Inc.

Call transcript

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Operator

Good day, ladies and gentlemen, and welcome to the Q1 2018 Valero Energy Corp. 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. And I would like to introduce your host for today's conference, Mr. Locke. John begin. may you Sir,

John Locke

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

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

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

opening remarks. will I for over the turn Joe Now, to call

Joseph W. Gorder

healthy product the days good and below John, and morning, everyone. bullish We demand thanks, fundamentals, year supply Well, light range. the for started of five-year products total with

well challenges, delivered seasonal product headwinds. some Coast storms, solid along Gulf delayed financial strong quarter and But Valero and results. refinery margin winter the utilization creating progressed, performed fog as despite these However, draws, the

well that we've margin We in the and access this our enabling Haven facility quarter, investments are provided Midland greater An system. the investing into refining which to and costs been We Milford example running acquired us increased to Pipeline, in Diamond cost advantage logistics We know, Cushing logistics with LLS. during crudes pipeline of increase made projects. additional which capture. and storage versus capture to Wales. margin capital secondary in is you refinery Memphis additional fuel SemLogistics our As reduce is the excellent further growth throughput

entered also Texas Pipeline pipeline and Falls, connecting a into terminals a the products with agreement We pipelines on Texas. LLC, and Central Sunrise terminal. and joint also ownership Midland continues the new Construction Pasadena Wichita

and refineries We expect XXXX these and product investments completed our when improve to feedstock in XXXX. in in flexibility supply

Turning units. Diamond and to our St. the should XXXX. expansion third Charles track between start this and the refining year investments. and quarter Green the Work remains of Diesel for Houston capacity alkylation on These projects up

cogeneration of XX-megawatt In the addition, refinery. approved our directors plant construction board a at the Pembroke of

reliability completed We and supply expect operating electricity when lower in steam improved and the see project is XXXX. costs to

I'll trends. America. and reliable to And hand you. our With the year. are margin Turning well returns payout we we XX%. stockholders. cash net paid environment to flexible provided refine XX% back Global annual positive to of to by refining particularly we five-year And below an call with the strong, to first positioned days remain out for arising And adjusted is are that, demand In are margin activities. averages. the about Product to supply tailwinds cash target We Latin inventories product highly these continue from XX% optimistic quarter closing, in of between growing. operating system, light economies of ratio our capture John,

John Locke

Joe. you, Thank

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

net million $X or $XXX to per was income share. First attributable quarter stockholders XXXX adjusted Valero

Operating to refining first quarter income the actual quarter the to For adjusted segment of for the of million this XXXX of in please refer compared $XXX release. for was $XXX to tables million the accompany XXXX. amounts, reconciliations financial first that

at to generated for per from The XXXX first $XX was quarter address throughput the related other in resulting $X.XX increase in to the Excluding due XXXX primarily million XXXX. in for our compared distillate quarter the the income throughput narrower sour mainly quarter repairs from medium primarily $X.XX operating of of of was benefit by to refineries barrel first XXXX, in per is $XXX expenses Refining were barrel which Port attributed segment higher barrels weather higher Refinery X.X of million The discounts ethanol and increment utilization quarter Tax XXXX lower distillers of quarter November quarter retroactive the first for were crudes The the was $XX the quarter than of barrels increase $XXX-million was acquired capacity XXXX, of per of in Harvey Throughput Pipeline, certain versus XX,XXX first per damage attributed the quarter XXXX Blender's million assets to XXXX. XXXX. of first quarter Arthur the to XXXX. million of first of from of first compared day from cash in from quarter Credit were VLP operating due Hurricane stronger and Parkway terminal first to in to of million grain prices. first increase and million. the XXXX. the XX% of Operating the was than XXXX was mainly the ongoing operating which XXXX. contributions $XX in day, $XX income segment to million income XXXX XXXX volumes partially $XX offset and The conditions expenses, first heavy primarily averaged margins, which Brent. higher of from

billion, available was administrative quarter-end, billion ratio, the held billion, cash Credit, was cash, quarter in XXXX. million $X.X the cash million available expenses activities for were With effective cash first was $X debt VLP. and excluding of $XXX XX%. and tax million Blender's sheet quarter. and working end general of $XX rate, $X.X in expense fund We in our generated was $X which the $XXX cash $XXX which had and respect the million and total of VLP. amount by million. first Valero's was from to XX% was excluding At of $XXX of only and in we balance temporary interest of a first Tax net use expense the of of For of quarter billion liquidity, operating amortization million net XXXX, investments retroactive cash, Depreciation this March, Included $XXX was were to net is $X.X-billion at capital. the debt-to-capitalization

by X.X provided approximately billion. Excluding working capital, was activities net cash operating

$XXX paid catalyst capital stockholders sustaining which quarter to quarter. was expenditures was in With million to of to activities. of the invested We the The million to $XXX of common investing dividends capital made for stock. million growth. shares business, turnaround of and balance regard to sustain the $XXX Moving the and for million our balance Valero in $XXX costs. $XXX growth million activities. including investments, for purchase used returned first with financing million as We X.X was

sustaining growth. expected for billion remaining. XX, with share the $X.X and investments billion we total repurchase have in Included authorization Capital of joint As $X $X.X allocated billion to total about the catalysts to $X.X are to are billion approximately XXXX venture of and investments. turnarounds, business March

X.XX to ranges: expect volumes XXX,XXX West North Gulf per barrels and U.S. to day; at U.S. barrels to XXX,XXX we Atlantic U.S. at operations, to to XXX,XXX XXX,XXX day; quarter following second XXX,XXX within X.XX the our per at day; throughput XXX,XXX fall million Coast at per per day. million Mid-Continent modeling Coast barrels barrels For

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

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

the we XXXX, tax effective XX%. continue about For be to expect rate to annual

approximately G&A expenses, interest second million. million. approximately And corporate Net For at excluding expense estimated $XXX amortization be the $XXX and expect be quarter, total million. depreciation, is $XXX depreciation expense should to we

RINs than expense primarily previous prices. lower which the $XXX our Lastly, for to be guidance, million, approximately million due $XXX That year million we remarks. to is lower and expect opening $XXX concludes between RINs

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

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

Operator

first Our Terreson the line from of with Doug question comes Evercore ISI.

Your line open. is now

Doug Terreson

morning, Good everybody.

Joseph W. Gorder

Doug. Good morning,

Doug Terreson

Hey.

I luck in want to years working first congratulations So, of future, I've all. the first Mike with good that over and you enjoyed and say the to

Michael S. Ciskowski

Thanks, Doug.

Doug Terreson

design issues networks phase seems how are blends, welcome. of two IMO the type And to and to fuel compatibility, market of on in the on stability supply there's as So my questions coming likely uncertainty of how lot And XXXX are a marine guys in that availability area. products thinking are you fuels transition marine IMO market that question You're on along the that years? fuel be these challenging the it and the the is XXXX. goes as about through be in many likely still provided to of specifically and are

Gary Simmons

is This Doug. Yeah, Gary.

I think of part latter I'll start it. with the

on the I of about terms the stability blends, of lot head the nail fuel the in of really IMO think these hit A the challenges quality. fuel. on you it's and

the But things be of in certainly these done certainly lot lot more it's be understand lot challenges, can doing fuel. stability bunker those ULSD a because the to some of the spec. produce work to industry that percent and the towards X.X-way reason; (XX:XX) so we're in able is And area the and pointing a marine to more blends that of of that's a today business the

Doug Terreson

thank Okay, you.

John Locke

Doug. Thanks

Operator

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

is line now open. Your

Brad Heffern

Hey, everyone. good morning

Joseph W. Gorder

Brad.

Brad Heffern

over there to At rather cash or a flywheel the or it the dividend repurchase, is use the looks stock's some more change some or other year. the M&A in maybe is there where to almost the attracted than for Joe, excess up just a capital? front. the repurchase calculation on XX% past some of truly point, Obviously, the

Joseph W. Gorder

the we've continue capital it's in for allocation years used to for just invest now framework several No, latter. growth. the remains place. We'll And

of our continue And been the and will for repurchases. was surplus saw we to commitment part we said, out the there that that's the hesitate share thought provided now it. the model, synergies use we if excellent maintain being framework for several approach that we'll a wouldn't dividend. company, cash to for That years. to But We transaction

anything to forward. don't So I change going expect really

Brad Heffern

all industry Gary weakness see those in we to meet up gasoline? side the of will in going any be helpful. if lines (XX:XX) lot thoughts are about distillate a ask we're thinking But another Thanks order that maybe, with you along the that. to move runs are about, there benefits all other consumed Obviously, offsets equation, guys IMO from thinking for then question. Okay. I'll any And the Are positive potential for I'm particularly that.

Gary Simmons

No, going the a of bunker and feedstocks low-sulfur feel produce that that we're that those actually – I make want be lot IMO think the low-sulfur stack to marine to as you that reason of are will well, we pull in cracks is (XX:XX). supportive crackers gasoline, the to roll cat today to gasoline for

So I both and think supportive distillate. gasoline to very is overall, IMO

Brad Heffern

all. Thanks Okay.

Operator

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

is line open. Your now

Neil Mehta

big start morning you a Good with team. Cisko. to to I just wanted thank

a at the You ride one came we but looking the is know appreciate been before hand morning, We great shift. it has of the looked stock your steady the linear, into over been hasn't years XX Xx dividends. X,XXX%, helm and the at up role ago. market the a financial this even We

Joseph W. Gorder

So, bar has over... high a Neal, Donna to jump got

Neil Mehta

all Well, on had the light perspective first the because crude in here And were the side. I'll unique one guys differential this. have questions start you I on

in with economics. your you it, So these side back we've investor half pipelines coming WTI widen good out of There's Sunrise that towards now especially really with very let's perspective new a have a XXXX. with few call on on out here into, seen and differentials concern, XXXX, certainly, – guys this, could trucking producer Midland really the new the involvement widen

from have going Corpus Are want West the I Texas at kind play and there trucks ultimately Christi? to the to on how down Midland? move Is from the on there centers follow-up all then refining what's get crude of the your constraints, heavy to does So a on this I side. perspective out? in sufficient And

Gary Simmons

Hey, this Gary. Neil, is

a we what's market with November the the Midland-to-Sealy at I takeaway the you barrels capacity. six pipeline day kind over look to enterprise, come months, of happened when last Midland had of the on XXX,XXX think

And consumed. all capacity As compound spread in in then I as that Cushing much started narrow was again Gulf you and then see Mid-Continent. had either fairly refinery production to to production in continue the or Coast the some at ramped up, pipeline came we think, maintenance being the the the Midland all first ramp-up, to up Cushing quarter, pretty the that, which

barrels so of demand some typically widen so really And that's the went the out. some Cushing those Midland Midland there for of spread away and

we think will once production look see ramp where and Mid-Continent, online. the to a that we'll again see will I in on will the does as it XXXX, as year wide some. Cushing up we out relatively project early that refining point will be period be pipeline until is Midland spread the in and back be get a like limit come back Cushing – what spread into for in logistics this that comes next capacity But where later Midland you come

Neil Mehta

crude terms the Texas in assuming is that from truck much do And will Cost to of barrel? Gulf a how you Gary, cost the to West it down view, have marginal

Gary Simmons

little We are, several don't out to when the it's and bit of by But numbers years what move that the I did blew differential expensive ago, Neil. a remember truck.

Neil Mehta

ramping All and seen differentials be Great. turnaround end this to May looks production a it in But a Canadian on keep the June. going year. the We've on side. up It's like big follow-up tighten here. of to right. going heavy And season question towards

despite And has issues So would these some just also Maya, Venezuela increased be Canada? then which Western thoughts on LLS helpful. of

Gary Simmons

the Yeah, differentials have out online. saw We I'll come I blow think really Fort in then come Hills Okay. start in we some. production Canada. had since and Canadian

were the logistics barrel. on clear definitely the be you And limited to in to production increase able so

around but Some production, of restriction, also rail, both weather-related pressure had lack issues we it the line. had a de-rated that around was increase – then, And in the lot of and locomotives. Keystone issues also which a rail the of

Canada, saw restore their lowered occurring then some At – moved capacity. production. up further We've which same some to seen was maintenance being quarter, in as Western time, the Keystone we the we the rail. So in improvement seasonal in able

Western So in have XXXX back we pipelines those clear barrel view come will the which until But a think, of the outpace discussion. Canada more comes in one is cross-border production differentials one, I ultimately, some. ability to that that

barrels. Maya WTS weaker. wide Fuel to in the widening Maya discounts out At all refinery And to U.S. LLS, relatively we Maya And contributed K, and Western you when weaker. the contributed see you'll can Maya to due (XX:XX) lot maintenance. first but a to moving correct think of Brent I moved components saw at of those the of a weaker. look demand Gulf I in Maya TI Canada on oil down the they Maya are quarter certainly, the formula the weaker. that think moving formula, was the lot was with what Coast adjustments moved their

to having actually low being change reluctant think within they production. position length a were the so they were And in And of at K. I

quarter. And we competitively Maya priced so the during saw very

Neil Mehta

Appreciate the insights, guys.

Joseph W. Gorder

Neil. Thanks,

Operator

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

is open. Your line now

Paul Cheng

Good morning. guys. Hey,

Joseph W. Gorder

morning, Paul. Good

Paul Cheng

you What going and wonderful retirement. you to time young the want that I really to Mike, all that you congratulations to the so a sure are you time? wish But say on are do to want you're retire? with First

Michael S. Ciskowski

thanks, Yeah, Paul.

I think I little Thank that. late a for But probably you it's much. very appreciate yeah, it.

Paul Cheng

the fun following a ride sector, that you a in ride. have been as not fun been year sector long I been was for as the this Has has all but

the help the throughout So, thank you for all decades.

Michael S. Ciskowski

You're welcome.

Paul Cheng

I question. two guess, have I

I you the all the unexpected anything to First that, talking sulfur would related that about fuel able also we low (XX:XX)? heard machine technology. directly heard XXXX. in terms the have low people hydrocracker because cheaper talking – see a they're the how sulfur going technology new that. anything seems high heard sulfur I'm the have may any be to are the you And heard someone about (XX:XX), (XX:XX) if just have for that run consequences to going of curious that cooking through without convert you bunker any It Gary. and that or Wondering about the into IMO guys

first So that's question. the

run will crude much able said you pipeline that have McKee any additional And be how (XX:XX) currently Second is and think your the question system? that to more be you how rest may the – of able to get if Midland much the arrangement? then for in you you

Gary Simmons

I'll Okay. start.

first I impact fuel question the the your was ships' think So, lower running that engines. sulfur have on a may

Paul Cheng

That's correct.

Gary Simmons

had these diesel sulfur shoreline I and wear. we areas next are and any see think ships that the a history the get I'm negative on they burning of into low burning not that impact today they anyway, so have fuels on aware some when of to engine lot

second The answer. (XX:XX) convert to that I'll resid question let terms of technology to sulfur part low in of Lane

R. Lane Riggs

is and I you I had was out the have to something mean, have where I view infrastructure. do. and to try just go to expensive our to at somebody Yeah. guess build mean grassroots pretty all this some like

So existing these a that. a anybody one some be don't Their is but maybe but lot would guess not those. I'll an trigger, we resid talk it know at resid I hear hydro leave it's looks I a looking lot if time. this it's seriously cracker at about like refinery. use whole I have into experience at this it, with a put best of

Paul Cheng

Okay.

I technology the may of a about a you So, this are be the claim heard about – bit mean, hydrocracking quarter someone cheaper, this much talking corresponding skeptical that I brand solution. brand-new

you thought have that on any guys just So that. curious

R. Lane Riggs

Yeah.

think to it what, would saying, probably it technology be would people pretty I it commit skepticism they aren't that see And a to – the be much market to matter think everybody say maybe to a would refiner familiar with. just is money, people this. is I I do that expensive that would before particularly want new have to able what have be and evolve to a I overstating no wants think, bit. I'm

Paul Cheng

Okay. Very good.

Gary Simmons

capacity question, you number as Midland we are Gulf into is And Gulf a barrels we a McKee a to I'm bit. could guess much run getting run little is all so all that, us what evaluating day projects your we the Permian Midland. lot be take could at on I Midland certainly crude recently run up all Midland flows Then pipeline – opportunities day another of from really contracts our capacity sure, get light of don't Midland of X.X we sweet McKee Today, Coast how system values. priced and have can million some priced the get of all to at barrels number and to is – we're crude, Midland reasons at and We of Sunrise run both XXX,XXX negotiable priced Midland time, that then, Ardmore. lot the is Ardmore and the to the that priced addition in at our that Ardmore type refineries. we pricing actually But that export the we we is divulge off these will McKee. priced Midland. both the crude for a announced and are a give and to project, which Midland crude the of could looking at of And that to more and much

Paul Cheng

running and Sunrise Gary, be? up when is is will

Gary Simmons

of Yeah, First XXXX. first quarter of quarter XXXX?

Paul Cheng

you. you Thank very Thank much.

Joseph W. Gorder

Paul. you, Thank

Operator

Thank you. with of from next Fargo. Read question And the our Roger Wells comes line

now open. is line Your

Roger D. Read

And enjoy it. morning. Good Yeah. Mike

anymore. us much to have too You Wall to listen won't Streeters

Michael S. Ciskowski

Okay.

Sounds great.

Roger D. Read

Hey, gears I guys, bit wholesale little shifting might has good. cracks little enthusiasm that a been a detected crude's up, look have here, running in up, response. been price much moving too

in that we see – several is retail kind and gives confidence? you in maybe of response on at thought First do where $X. how What we're closing demand time gasoline your what on experience you might years, a looking

Gary Simmons

certainly seen that You place certainly is I where range somewhere an to was We that certainly a there. price I destruction we demand haven't to start $XXX response. that demand there know take you And terms gets destruction $XX always has have crude don't place But exact Roger, see negative reaction some and of barrel to crude in got the view a start took been the our to if Street know be think number. $XXX when that demand high. between over yet

Joseph W. Gorder

look that SUVs. the I though. I light really of cars happened that it's type make muted vehicles and because trucks announced to Ford purchased And has so today, of you anymore. they're for not always It's at mean, are think many what's cars you and going demand at if being – look

So a to standpoint, Roger, higher on it's going to vehicles moderate based price, people from practical that that consumption their be the they're the with today. for buying much even difficult

Roger D. Read

Yeah. Absolutely.

little good to of has us. hands it than to got somebody who Just their get closer the a rest always

normalized now margin other curious, is, in of growth down. for think point them I shut is growth America The true In share this call been from forward? out I have for just a other growth? market this maybe market Latin guess refining area a words, probably America refining question I was rate what about had, you finally that you we growth, more it from a from point the do has from in backing America standpoint Latin a Latin level think you. forward, What should I beyond given out nice of seen Venezuela activity you'd guess, that

Gary Simmons

you that if a in and it number. way refinery region confident reasonable of kind way outpaces we're I'm I of up with at ramp of market. John demand of we ramp-up can we've not you growth you in what terms absolute Roger, that looked sure don't a But is look any we've utilization growth, give give kind planned refinery a on. the reasonable rate, utilization that what looked number to you with the in know We kind we I can figure get an at Yeah, But is absolute the give can and I at is.

Roger D. Read

it. you. Okay. I appreciate Thank

Operator

Manav with And line the Suisse. our Gupta Credit from you. Thank comes next of question

you fixing ownership. offered first help so question with their last assets open. Pemex and Suisse (USA) percentage LLC Thank now - approach much possible a Credit Manav Gupta you guys did my for is is question. line year for Your My Securities taking

but offer. be you those you coker And project? Can on I'm an is it? more wrong some not project not add little specifics just about you Port You generally talk guidance, you of Arthur. color may the because but in this, at go looking a have with bit what Can I the about for to refineries saw a some which you did decided it? ahead around decline one EBITDA second

Joseph W. Gorder

Yeah.

So, bit Manav, because let's go Lane it's it's tons specific a and ahead, just take talk it around have little let Mexico, and about specific would that. what to turn – I'll to to not but with refinery, experience we a of challenged

you to want thoughts? your Lane, So share

R. Lane Riggs

Yeah.

So of really America capital. to less say, I lack a I mean of sort exposure some has to Joe's point, all maintenance would of, Latin more or having the

their time fund over can't eroded, their They operations. – of flat really the probably because and reliability their price have in can't crude. they largely So operations fund

was that to of depending how we've of And – so some long how mean, at had least really long political conversations the of that counterparties stare that of typically – recover. at And years, it – whether certainly types a the management years a work you than a some involved like And that's this. of to that or cycles, on in a sort that long time I And time. the longer of two in trying there's you or you – times, the to out get lot deep these past about and to takes this two if have it's is lot XX cycles. have some management think duration story goes, done. of the a even turnaround your in involved a lot turnaround sort sort of X

in a turn complex very, refining these many to refineries very, that American difficult thing it's Latin a gotten it's in. So of very around when are states

Joseph W. Gorder

coker. On

R. Lane Riggs

Suisse (XX:XX) the fully the Oh much Thank on Port get along We permit you Arthur in Credit it. to LLC expect I'm this still so sometime the permit year a (USA) stakeholders Thank Gupta - sort all (XX:XX) we're TCEQ Arthur coker, Port that get Manav sorry. with move to with community you. guys. Securities working forward. of

Joseph W. Gorder

Thank you.

Operator

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

Your line is now open.

Benny Wong

I thanks wanted your guys. view. Hi, to get just

level One as the and is making U.S. of a in potential the higher replacement for the proposed RFS. things standard octane being – in gasoline a

Just and of color share the you making think on wondering and the how it that happen. other points on being side, views of if any by the is maybe your merits received you could sticking proposal it's what

Joseph W. Gorder

Yeah.

So a bit. then talk maybe takes, what about the that'd let want about we Jason if And or why be process don't here Gary great. talk it little Lane to

Jason Fraser

– moving for high this retailers something in conversations right. now. ethanol. enable year Benny, expanded by more Yeah, the helped the of reform recently make you're to the a is around this of That them autos with vehicles. everybody. all around include do Jason. working will the about being legislative And have context high the efficient to the talked (XX:XX) And long-term is the for in It we fuel that's And think on And RFS to this be win efficiency octane standard. a autos

ethanol CAFE can an It'd standards be it easier. for hit source the low cost excellent because So octane. ethanol win is of a

we And benefit all combustion (XX:XX). an internal would more ethanol. competitive longer engine for demand against term So making increased

do at. it's to we think So be needs something looked that

Unknown Speaker

get there? to blending gasoline (XX:XX)

R. Lane Riggs

and aromatic-based Well – clean dilute Lane. is that help so, octane octane perspective, blending of a like this this They is in sort ethanol will to Jason gasoline blends the source in industry the mean, octane. has pool. gotten it other ethanol. the of in are require From it out And to, certain process. some a alluded gasoline high the of alkylate I a used components of amount like help

a blend. of is part to And the going so that be definitely

balance, on naphtha. what have light to is the think you I with deal

(XX:XX) assuming will industry the that somewhere stream else, the it it be have the naphtha that's somewhere whether fall are just between – goes trying olefins olefins pool. out light – but – we'll to else, of components off that to or and is high way blend find getting Some a the full to it its crackers octane into going to

Benny Wong

this to if or the guys you color have have do And corn they opposition? ethanol any or open is any side

Jason Fraser

This is again. Jason,

think the the think of XX some get market. initial are roughly sense for they trying level, that I larger indications kind from they the type it. still around call to equivalent or (XX:XX) to I But arms ethanol of this of something producers they makes their is which are AKI, XX acknowledge it

Benny Wong

have just And – Appreciate may. prepared your apologies that. have guys it And a if on if I remarks. in I if follow-up, Thanks. you touched

there City status of on an Texas the is – Just update the Refinery?

R. Lane Riggs

yet. is No, So, anything we said haven't Benny, Lane. this hi

the I Texas City think we forward to don't alky, to Friday based it to we're on scheduled want we Open, just it bringing forward, to execute the past going (XX:XX) that are So Valero I've we're the we fall, turnaround had of talked the FEC repair at but bring – know, now. you I Texas where alky this the last of

Benny Wong

Great. it. Appreciate

Operator

comes Thank you. from line Prashant question the And Citigroup. next our with of Rao

open. now is line Your

Prashant Rao

for Coast. Good question. the morning. I West to to wanted Thanks focus the turn taking the

conditions in quarter So, for you're we the year. some operating in XQ. the Coast concerns XQ general the did about performance market West this industry in black have in earlier And better than last

been point So the year. how rest should for turning think where point? a remainder outlook of thinking So to the or get to year of wanted kind a get for month like about, addressing be market just of versus starting have Maybe, about concerned ago. your on a seem maybe, it are now sort we last the might a read of where and two we I dynamically Does from those the year. want stronger thoughts I

Gary Simmons

I West I this Overall, Coast still market. support certainly has XX we think we Coast what threshold, week and a that believe so provided lot the that on West is capacity. we for refining the Yes, the inventory draw the getting think, saw long below saw of million-barrel

utilization are the so becomes refineries spikes refinery all the market in long running as And as the short. really all at the can't market and market down, you high But see rates, the absorb the when goes production.

deregulation really the that is Mexico. opening term, look longer and to things that think can the I market help I in up

serving up, in cross-border into markets to some that some back the west will the which more of the Arizona El to bring Coast Coast you see will ramp that Mexico. start will think of go And help West I exports barrels West like you then, also Paso see balance. from the will market side is you'll see sales market

Prashant Rao

a a Okay. earlier, difficult the on medium Thanks. talked availability current just this being quick think then, – And bit sour I the little question about That's environment. in more about helpful. we've

your of Just to then is back that addressing or should still be on sense thoughts terms read wanted the market. be And get to get year. a coming sort Want that or your in bit to where expecting something intermediate dynamics just little be scarcer? there next we term there might longer sourcing maybe that

Gary Simmons

Yeah.

to problem really we incentive those of I there's system. economic availability just with crude think barrels. So priced show an a not maximize to where not medium sour product It's

the However price if where will sours they are, back that think crude until see we continue certainly, at inter-related. the expect medium to a And a comes medium production I it we'll whenever is, and back into to if think you our year. run level that and we OPEC early that or wouldn't high-volume bring online, sour next I get medium widen you see additional later is those the But comes them online system. in year back OPEC will market, discounts supply production this

Prashant Rao

Thanks the very right. time. much All for

Joseph W. Gorder

Thanks, Prashant.

Operator

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

Your line now is open.

Justin S. Jenkins

a question front. morning but maybe diesel I to on everybody. the I Hey. more will guess, Good Roger's start with corollary gasoline

low inventories IMO as they've here since XXXX been as obviously the got and in on the U.S. You've horizon.

impact and continue equation about all think diesel broader maybe on economy, to that maybe we should to move the how expect, the one? or prices start there higher we'd if as that So demand does even

Gary Simmons

Yeah.

demand as you were then, heating see we the oil demand. with had weather demand Northeast. year, last we million think we below where in And strong XX we're very little barrels that's (XX:XX) colder very And good mentioned, strong. I diesel rack seeing

think the had it barrels actually upstream I well we're see in just be you to we And just the thing of lot the available. overall big to overall it's is the we typical exports. some growth activity. to and of stats short increase global us then an a as record economic appears seeing is out get distillate started what heating season of could in But

to remain going certainly strong the think start throughout market be feel impact that distillate an year, we'll then see alluded – and we I to to, like you very So this as you is – IMO I'm us But as starts feel diesel that sure. fundamentals. good kick affects certainly When we're year to on of not terms very a that we the well. in, that the in distillate side in for

Justin S. Jenkins

Perfect. closer Gary, Appreciate pipeline think even midstream the Permian you and how gather Gary, crude that. about assets. in that be or on to side. Maybe participation towards Joe Gulf may Coast I'm But to further? the the getting wellhead you control alluded to barrel for your the curious, potential

Gary Simmons

Yeah.

projects any group Lashway cost control lower Rich crude then evaluate online, And better of reasons. running of all also quality One that then our One, the think, a that it's refining these I come is to our us my our certainly it control reasons. cost and deliver couple better over them. of allows barrel couple delivery the also So, and allows accrued, of is to us of lower in and we're system. for it of

we're lines makes So on. to so. on in to us involved reasons, if processes these the for certainly look it for all those participate sense And new do coming

Justin S. Jenkins

Okay. leave I'll there. Thanks guys. it

Operator

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

now line Your is open.

Blake Fernandez

miss with morning. the will It's Good run in a opportunity up over to and I been Mike, you you guys. to Texas. certainly Hey, congrats West man. good catch

Michael S. Ciskowski

Blake. Thanks,

Blake Fernandez

but on from guess, been lot wanted getting of with likes, light sweet processing. some you've I where we've to I addressed, mediums of stand been to the we and go a I recently out clients questions Gary, back. maxing kind inbound the know of has the, regard

– to exhausted say sweet and backing mediums mean, capability fully point? you of at I to but mentioned and light your max week I sweet you going out that can me had last this you're running you light have heavy, think

Gary Simmons

Blake. much, Pretty

If you barrels million day look ended capacity. at light a processing where we said X.X were that crude sweet of we in quarter, the first at we

because refineries we that at But lot maintenance of pointing our capacity. couple a of going much Although it much maximize on we sweet crude the light pretty our pretty of fully had that it capacity we signals wasn't a was light wasn't used, us can. everywhere economic sweet utilized, are that to – backed processing some out

Blake Fernandez

Okay.

of that numbers that nameplate any and the sustainability thoughts maybe that. little second the curious above to and just above with improving, stale, you been would pretty industry around, along just driving Is bit there? if maybe, you where question, a are well thoughts just is any have The the utilization suggest or what I'm historical your kind rates expectations. of or have have reliability what's capacity creep norms And

Gary Simmons

I some trend look think utilization, back I at in go trend crude. when is tied lighter the and in of it the refinery running to

throughout slate the So gravity as gone the with utilization has API – up has the it. gone up crude average industry, API of

at see we higher diet, some refineries, us of as lighter certainly enables a rates. to we run So run it our

So would and with there's falls the as quality slate heavier, gets back that occurs. utilization a that, crude if off discounts you widen expect maybe that the chance

Blake Fernandez

it. Got

R. Lane Riggs

hey, Blake, I'll other – Hey one thing. add just

you've one few over think maybe than different seen years I of the things last historically. is the

refinery. most unit the much been been there's pretty on in call that's the economic signals, a So crude capacity

in capacity refiners it. is feedstocks will always make do all So of sure everything were front utilized, to that well

fact you You in lose sure incur might demurrage that capacity. don't even to make

part on because mean, other intermediates So, of the to crude unit utilization, capacity. things. with going is respect buying what's clearly number the been and that It's I not that's

Blake Fernandez

Got it.

Okay. you, Thank guys.

Joseph W. Gorder

Blake. Thanks,

Operator

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

now line Your open. is

Phil M. Gresh

the morning. good taking Hi, Thanks question. Yes. Hi. for

just LLS discounts higher Houston? presume to towards relative on to starting that's to you and think see LLS how those some the the of a First bit Diamond moving here widen Brent. one and I about out to side. And DAPL But this towards Houston creep knock is discounts effects. on We curious year, just started say

Gary Simmons

Phil. Yeah,

of LLS some marker. crude as stranded to think I degree, view a somewhat we're starting to

Diamond When that at around a since anymore. I we started of especially just the not Pipeline, lot market. think there's liquidity we exited LLS

us, heavily And so marker. the sweet MEH Gulf at LLS. to one to relevant we look more the that for marker (XX:XX) light Coast look to U.S. the more tend And is that's than

Phil M. Gresh

That it. makes Got sense. Okay.

There and around refining up The this weekend. are phase-out slides want phasing second I know hydrofluoric get your California the be potentially thoughts a of which Wilmington altogether, talking to question about coming on market. fairly a know in acid out costly published is meeting, I just HFA that latest there's would advance some I meeting the endeavor. committee discussions.

the just phase given size refinery. want of this the viewpoint I out, particularly on cost to So HFA relative your get the to

R. Lane Riggs

in arrive the sort the This and SCAQMD That's continue calls what to stakeholders Lane. conferences and stating believe. and is Hey. with We be at ultimately we then still we've out reasonable that will all work really Yes. there just solution. what a think what to and we community the the other of been really the all

Phil M. Gresh

a say to just for you clarify, you guys? at wouldn't of mean, So this would a I phase point HFA be out nonstarter

R. Lane Riggs

again? that Say

Phil M. Gresh

sulfuric The idea that HFA that would for some a is non-starter perspective? be out cost solution, phased other or a from

R. Lane Riggs

refinery at alkylation at our well would Charles. – St. and an It, – we're building it our unit absolutely Houston

the sulfuric probably something you're more. acid so about so it If be $X.X would order on even we And the would in of build in fact and California, billion. talking then be that

short expensive the a on very, a if West there very endeavor, So be fuse in phase-out a very, it'll was Coast.

Phil M. Gresh

Okay. Thank you.

Operator

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

open. is now Your line

Unknown Speaker

is Clay A of have This question. for for Thanks taking guys. Doug. Hey, my touched (XX:XX) things been here. on lot

So U.S. to on creating I in refining in just big system Obviously, want the thoughts America. Latin played underperformance that opportunity exports. a the to get your has role product ramp

know is for. to upside that crude today, want what runs risk are out and are you Just there the guys if any to prognosis watching

Gary Simmons

both distillate. good the we in we Latin demand pools gasoline we're anything product horizon that see and us causes think going America. for what doing think see (XX:XX) I don't pause don't a see for that. I to that's We very on change still anything

Unknown Speaker

right. guys. Thanks All

Joseph W. Gorder

you. Thank

Operator

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

open. now is line Your

Ryan Todd

a Maybe question. follow-up thanks. Great,

view until increase to and run you the in being And is had able overall or are strong volumes the your crude about talk from possibility couple – Canadian you to Canadian you You now? can any there availability But Venezuelan going runs maybe heavy heavy differentials – kind the heavy addressed to cross-border still in earlier. any you your of are how of years? able I next on a there within system impacts much any heavy are your you XXXX, seeing realize have Gulf? the potentially over falling but right What are pipelines it's heavy be and difficult

Gary Simmons

Yeah.

we in day a ran not the Ryan, quarter, our more XXX,XXX it's about and Canadian, It's heavy of So of optimization. barrels an a in limit system. economic really

heavy be lot signals American Latin the a more So it the that be Maya. Canadian we at the or would could in Venezuelan of But expense it grades, run economic us direction. some other if pointed of

with the issues our volumes some our we good more were we see we Follow-up, would Canadian the the in Venezuela, barrels was we've what guess, production economic. continue those if those historical sour been. consistent got value for first in quarter volumes certainly have alternatives. most to for seen versus around with grades and of And other issues out logistics. I the Venezuela heavy for push Some part, But

Ryan Todd

up the follow-up into the it partners there of of down Brazilian one you about of is like maybe looking in view partnerships what similar And describing Latin of America is talked situation helpful. we've obviously (XX:XX) some or feels That's and out markets market? the lot with Thanks. for refineries Petrobras that – you're Great. as Pemex, today. do – potential But a how on opening some you the there. a earlier there Do view opportunities

Joseph W. Gorder

Joe. mean, take we'll I look. is a this Well,

your think as mean, don't I too it to asked for know just you early answer it's yet. I us we question specifically as though.

just mean, like a it we what just with sure more look do about let we'll the you like can I'm And later. it. looks I know take So see many we'll opportunity and see and others what then,

Ryan Todd

Joe. Thanks, Great.

Joseph W. Gorder

Ryan. Thanks,

Operator

line Holt. our of Blair the comes Matthew Thank from And Pickering, Tudor, next question with you.

open. now is line Your

Matthew Blair

morning good to back. everyone. Hey, circle Maybe

part much Lane's I refinery talking today. the the of think about comment, how was crude has most tower it the pretty economical been

what Gulf any recent of thought (XX:XX) at you've system, you on projects distillation kind the to seeing crude looking Corpus those Coast? crude and products, on you topper your more economics of the Coast (XX:XX) Houston. just Is produce capacity X.XX And run projects? adding at about after So but topper recent there of crude, X.XX Gulf even are

R. Lane Riggs

a have capability, crude crude ULSD to that can such Lane, downstream how – sized would go even – Well, we build it at some on, in so The this you you out. to our two there's them diesel When match spec. is again. issue have out much our point didn't wouldn't hydrotreating, or meet to because market the they put toppers and limit try that we particularly we something run

and look We at a And many we reason do because crude lieu were intermediate so other to I – people project, a in feedstocks were of units the involved. think have is were number – crude. when we to unit of that buying going there's they're to able

So that set the size.

to in of us second question? For the hydrotreating. diesel hydrotreating gasoline was lot go invest and would to we have up What a your part in space, that more

Matthew Blair

the seeing Corpus Houston What on you are of returns and toppers? kind

R. Lane Riggs

exceeded (XX:XX) can to the give our funding great They've with been IRR. you projects. decisions have respect they specifics,

great been for us. projects They've So

Matthew Blair

Yeah, like yeah. it. Seems

Second on product question is exports.

day reported you exports. per of barrels So XXX,XXX product

how that was to I ethanol diesel? you much quite And and between due down think in blends was higher much Brazil can also Was a split provide a year? how year-over-year. was gasoline this bit that

Gary Simmons

Yes.

weather Joe we probably reasons prohibited The We to the and barrels of Also a more exporting a with exports some maintenance fog there's during for quarter. barrels of the exports limited production. So issues Gulf, a year-over-year was had a the start U.S. refinery diesel us the biggest our significantly, strength in and day. gasoline that. numbers that we were alluded are But did market. really from XX,XXX XXX,XXX that thing day lot of of the especially number down that. fairly

those barrels for value rather the water better the than for the saw market, So we barrels a and the on actually during we the put to quarter export the ability market. putting have to take lot instance, on water us to Florida we're

the of just an demand indication export Florida So than had barrels capacity I we rather was of markets. the was to it's think don't waterborne economic U.S. better as market, our send to dock consumed it we to always optimization any a market. and markets – that in view like netbacks taking other lot the lack of

Matthew Blair

you much. very Got Thank it.

Operator

next of you. comes line Craig with And Thank Shere question from our Brothers. the Tuohy

Your is line open. now

Craig K. Shere

Good morning.

Joseph W. Gorder

Good morning, Craig.

Craig K. Shere

what industry governor opine upper M&A on But see consolidation buyback holdings that, payouts over the attractive as limit there can years? really in price really versus could is as you there terms midstream in an might cash considerations. understand I that is And long-term a doesn't refining? follow-up the to on targeted of to upper of materialize two or three far limit a not if you next as share impact

Joseph W. Gorder

do the Mike, you do one? Okay, to first want

Michael S. Ciskowski

evaluate has Yeah, changed. we of to cash and cash not I allocation uses the flow. surplus That continue mean, the the flow

is of We XX% XX%. continue to the to several to cash whether framework. Right any look allocate If we quarters, surely, significantly adjust payout built over in ratio would it have type next that opportunity. at M&A payout were allocation to we now, per see of capital need to our that ratio absence

Joseph W. Gorder

of the Craig, was refining whether on second would in and consolidation, Okay, it be or the part question, it your MLPs?

Craig K. Shere

And right. which earlier, might come

Joseph W. Gorder

side really an from team the want be perspective, to purely also. Yeah, just the today. portfolio comment of it there's is amount any the a for of to consolidation business And going our open members we of don't if Valero's opinion, to because refining okay, this think they I But opportunity up on like significant I right.

creating bolt to I as a that not nice portfolio. more onto something excellent would to mass, an that's do create needing there's mean, have. have to far today. lot it do We – just could we transaction that But we critical that things as be a need to

to we feel at So but need everything, don't opportunistically, look anything. we speaking, we practically do

more Sure. Now, be could there consolidation?

always ways have are synergy MLP the a I that. for it create think you a combining, do don't view? by grow makes sense if their know. certainly, do looking to different lot you can businesses. of In I people Rich, to And space,

Richard F. Lashway

now access think that say right be is the market. would MLP it market to would capital in consolidation I kind of a the reassessing equity the to challenge of – everybody's the

right happen markets capital equity let for kind like there now momentum seem to of doesn't a would figured to gets be it that out. So that

Craig K. Shere

payout like all It to I the just have is that makes Okay. eventually to rise sense. sounds over going mean, ratio time.

Joseph W. Gorder

yeah, stay consistent. but target the going Oh the is well, ratio probably to somewhat might rise,

our know the to volatility a in as strip. done that best team we business, You historically to have try this had we which

careful sure owners our is And once everything so you to we to in going put and be commitment we that be with always that do we're to want it the sustain sure to be that and can place, our dividend dividend. you

balances so – number And told we years Mike now And what Mike market cash particular like and a look the not at forward. we don't we're look several hoard we've targeted for cash, Donna have the going the always because forecasted going haven't. to and

think, going ourselves on just sitting of so assume you we're And return pot to Craig, it. I find that cash should if a that we full

Craig K. Shere

Great. Thanks for the thoughts.

John Locke

Thanks, Craig.

Operator

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

John Locke

a give IR the team to Feel have Okay. you Thank if additional Well, call free you thanks, everyone. We us appreciate you. today. any questions. joining

Operator

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

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