VLO - Earnings call transcript Q3 2019 | Valero Energy Corporation

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Operator

Ladies and gentlemen, thank you for standing by, and welcome to Valero Energy Corporation’s Third Quarter 2019 Earnings Conference Call. At this time, all participants’ lines are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference maybe recorded. [Operator Instructions]

hand over to today, your like Mr. now the to conference speaker I’d President, Relations. Bhullar, Investor Homer Vice Please sir. go ahead,

Homer Bhullar

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

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

after to feel questions after tables, you team Relations have contact Investor call. reviewing free the any please these our If

I to forward-looking like management’s call expectations, In in are predictions described our many covered cause future the filings this and results your statement could press expectations of the attention it on factors disclaimer the says would to release. to intended Company’s or the statements from state There provisions the be that securities we’ve statements release summary, forward-looking in now Harbor that by the are differ to SEC. actual including under federal those the or our direct press Safe that laws. contained conference with in

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

Joe Gorder

everyone. morning, good and Homer, Thanks,

market We’re again pleased to report solid despite we that conditions results delivered this quarter. financial challenging

oil all steady geopolitical was and quarter. discounts held events. supply Brent cracks previous crude constrained Heavy narrow. Its gasoline from sour and improved diesel remain by cracks crude the the medium Although

cash we tighten steady to from our up Gulf generated assets deliver of again, $X.X Basin earnings operating WTI to flow. free flexibility in headwinds, differential. Once new strength demonstrating Cushing Midland the flow. the Permian cash and Despite the the and these the of oil start billion Also pipelines to crude Coast

the liquids investments commissioned enjoy Houston the benefits project. pipelines recently During our that to value was outlet refinery growing costs June Texas terminals the supply a quarter, a in from terminals chain Central And Texas of and pipelines and octane unit premium new the product. the and Gulf unit secondary the alkylation Central Coast high reduce extends The in gas and began upgrades lower natural we alkylation to inland completed and our olefins from market. to

on the completed St. to Other strategic unit and Pembroke in the Diamond growth Arthur with to Coker in execution alkylation expected terminal, XXXX XXXX. Diesel next Charles remain year, expansion Green be Port and target. projects unit, Pasadena and completed expected cogeneration The are be

facility. our In initiated for an review gallons in begin the Texas construction X.X annually. Green over at capacity Diamond result could September, our to new plant If joint Port cost engineering XXXX. Arthur diesel approved, operations and This renewable Green production projects billion XXXX Diesel increasing in a commence with venture to in advanced Diamond Diesel development expected would

allocation underpinning our strategy capital remains The guiding unchanged. framework

to be XXXX $X.X billion high to with for margin CapEx approximately allocated expansion and focused market are projects for improvement. expect that both with annual We billion continue on XXXX and our $X returns

XX% $XXX by we million of stockholders, During a which activities. to ratio payout net returned quarter, represents the third of operating provided cash adjusted

ratio annual payout target We continue of to an XX% to XX%.

medium quarter sour all are and last significantly Fourth gasoline time and than and market are heavy wider good strong by conditions quarter year last margins Looking forward, and crude fundamentals, favorable. demand higher we’re discounts. Distillate this encouraged. supported

lower market focus volatility discipline and and well us to In to any has be with closing, growth strategy returns team’s our investing uncompromising shareholder capital successful striving an of for drive earnings for proven simple positions operational on excellence, maintaining environment. with

you. to So with that Homer, the back I’ll call hand

Homer Bhullar

Joe. Thanks,

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

and operating Operating per activity day to XXXX. to income in is higher oil. than decrease expenses quarter where million the XXX,XXX segment quarter quarter billion third for the third attributed to Refining $X.XX of compared barrel, in averaged quarter XXXX, $X.X the oil throughput volumes Brent utilization mainly primarily $X.X per maintenance day, Refining third XX% than of in due lower quarter which third capacity of third The narrower quarter the the from the for was the higher barrels was XXXX. per third Throughput $X.XX the throughput of of lower discounts quarter crude of XXXX. barrel barrels third XXXX. XXXX XXXX Refining to per crude cash billion of of X.XX was

The lower quarter to loss Ethanol resulting primarily from third of in operating in was in averaged volumes X income generated to million the XXXX third was income from $XX the segment million quarter operating quarter the XXXX due third the in quarter XXXX. margins of Diesel gallons of of Operating per Renewable of a decrease in Ethanol day $XX higher prices. The million operating million $XX the third for segment compared compared million loss corn third XXXX. XXXX. $X production quarter the to

quarter gallons quarter gallons the averaged XXX,XXX diesel day XXXX, per Renewable versus XXXX. increase XXX,XXX volumes of in of per third third of day the an sales

third project. the of volumes XXXX The plant operating were part Diesel the quarter as results Diamond expansion plan of an Green impacted sales completing downtime by and

For XXXX, the third $XXX general administrative expenses and $XXX interest million net of were million. and was quarter expense

net of billion and of was cash. Valero’s the $X.X $X balance $X.X we debt was income billion. was had and $X.X respect was of were $XXX and our to quarter at the The end, quarter rate expense cash amortization million sheet XX%. and billion was Depreciation total effective XXXX. available XX%. cash liquidity, in million billion With in At third cash tax end equivalents tax September, debt-to-capitalization of excluding ratio expense $XXX

Net in XXXX, of quarter regulatory of the in activities capital $XXX cash we turnarounds, which third by With operating compliance. $X.X investing made million for regard million business, provided including quarter. approximately the for activities, sustaining the to billion catalysts, third was $XXX of investments was and costs

Excluding the change quarter, the billion. provided operating working cash $X.X by during the net adjusted impact from was capital activities in

returned to financing of ratio return activities. was by to of and $X.X brings adjusted our total million operating payout XX% stock. year-to-date activities. activities, balance cash total the net in dividends our cash X.X third common we operating the paid with to to $XXX the provided to XX% Valero stockholders million provided million purchase Moving The $XXX by quarter. as to This payout adjusted was shares of used ratio stockholders billion net

XX, September share we of repurchase billion approximately As of $X.X had authorization remaining.

with expect XXXX turnarounds, for the approximately approximately investments. capital to annual expenditures joint approximately continue XX% and XX% growth. The to both be allocated for catalyst business venture XXXX to $X.X sustaining includes to We and $X.X investments billion billion and

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

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

gallon for average to of a amortization. such expenses includes costs, million to $X.XX includes still the expected $X.XX sales gallons expect be per non-cash $X.XX gallon, day be gallon, per Renewable gallon in non-cash and respect in and is XXXX. volumes as fourth gallons in for such should which quarter. Diesel day per segment, X.X per per the depreciation total produce XXXX which XXX,XXX With to segment expenses costs, Ethanol should Our we per Operating depreciation amortization. as $X.XX Operating

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

quarter, should depreciation interest $XXX expense million and be fourth should net be the expense For $XXX million. and amortization approximately about total

to for remain expect million. the and $XXX we between $XXX expense Lastly, RINs million still year the

opening That remarks. concludes our

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

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

Operator

Instructions] Your comes line with question first Sachs. [Operator Neil the of Mehta from Goldman

line now open. Your is

Neil Mehta

taking the morning. question. for Good Thanks

strong. cracks very obligatory start question. Let me are off XXXX The IMO with the obviously

next strength just of We’re and maybe think sustainability how a versus it’s versus see seeing question XX,XXX couple here sustainable IMO more the it’s How impact and activity of much beginning as the do spreads we is, Do on foot impact, turnaround you plays a screen? IMO your function a years? you of the over the you model out of widening think about something depth of out. that’s the think

Joe Gorder

Neil. morning, Good

Okay. Gary, want to... you

Gary Simmons

is IMO the crack the to, just determine of strength I certainly of shift get to lot pretty Yes, products things it’s is market seeing indications curve to and higher, Neil, and how IMO-related XXXX much think, much difficult continued But just the the how supply. diesel I the starting date. January a in of to is to we’re impact the we be able it. fundamentals the I closer the to point cracks, in would mean

we’re On as well. seeing the indications gasoline market,

would of low-sulfur cats into out cat of crackers put pulled view and Our was the being low-sulfur see that bunker the some market. you these the feedstock,

crackers over moving to bunkers, to If should is VGO and pull low-sulfur forward. that the see point you gasoline start which look yield into gasoline it today, people where $X in cat you’ll of is low-sulfur which impact the Gulf, put out

the The weaker XX% to trading it indicating fuel then going High big fuel, This visible curve earlier thing is side go of forward. the morning sulfur it’s forward on as that on of we high And traded of Brent. Brent very was high is the think sulfur year. this I as get oil XX% business. backward at feedstock as

oil expect, has the that sulfur weaker as And crude starting high you see quality as in discounts. to fuel we’re would traded

of XX% to the Brent. and heavy a had Maya to year, WCS. It’s discount trading of almost today, through So Brent XX% most inside sour we’ve discount

discount that trading we’re Maya today. And XX.XX% I sours get to medium Brent as think weaker well. seeing at

we’re seeing as we it’s clear, impact So the side. on getting side not it the also on think I clear, but I the of product an feedstock business, think pretty are

Neil Mehta

and then the talked you And is anything think about long-term then the this into around renewable see the credit. diesel And fitting for you around blender’s business your tax just about in capacity you how gating Joe, strategy? about maybe can that then you. and part call factors how talk the adding follow-up Thank you that question of

of forward. a gaps pieces in because can diesel, be if to just of can story but it’s the it – relates think as going renewable we part to it So you fill the important lot that, an

Joe Gorder

you Cheng’s – Paul Cheng’s I book a of mean here. took book of out page Yes, out Paul

tax blender’s speak Jason part mean sustainability of kind that there. to fuels, for their environmental about speak let I’ll credit. really the that very a seriously. a got we part I probabilities and three You But cover first are makes we’re and it company it, responsibility want Martin the company about I’ll questions of might of takes motor and strategically,

good at opportunities in where margins, And have going know processes look we how so to to the good We it’s think sustainably a we the going just when renewable produce look something growth it’s we in to And they’re that market really to high run and business. be partner there these really well. to to We’ve We know products Darling. is diesel. very how got a do.

long product middle fits EBITDA this feel we only but contributions good And returns, to for the going a our overall of so that very the down and we’re not so get very come. it about right from time to fairway

So cover it. of Martin, piece want to you a

Martin Parrish

renewable Sure, Joe, diesel. bullish on we’re Yes, thanks.

demand expect strong. growth be We to

in for And got extended Renewable tell gas been has the reduction elections greenhouse California You’ve the in XX% The And Energy XXXX out in Europe II probably to now too. been Canada going national New see then then a State. got standard would extended XXXX. Directive calling you’ve York LCFS the recent us, in to we’re and XXXX. that’s Canada,

we think very So just future diesel renewable the for looks demand strong.

Joe Gorder

blender’s about talk credit? to want tax You

Jason Fraser

this Yes, tax an you is Jason. credit. blenders’ update on the I’ll give

the end that of Both Congress you legislation at have of all proposed would it extend know, Chambers expired it. XXXX. As

two appropriations for on negotiations back the out the now XXXX, going for it three and taking within retroactive place tax extenders this are got is of and and out has other years Senate the process. think BTC the I to context

really We’re and top it. get because will BTC Grassley’s of there’s remains to lot optimistic of a Senate Chairman, the done, it priorities, opposition Finance not one

to. process impeachment bipartisan cooperation get the is interfering agreed the to this with need you However, package that certainly

created what’s than more that’s uncertainty before. So a little a was little, there

Joe Gorder

a point XXX,XXX other I so. barrels can this, why one Neil, to day speak we’d make like doing that think Hey why to, aren’t we isn’t this, Martin like of – on

Martin Parrish

at look about the soon. global can not on ways constraint we worried any supply GDP and that’s and ultimate that to feedstock. that’s But this person, in I it per late confident think the is increasing. feedstock constraints the time we’re the is to feedstock we’re market The source feedstocks these tied as

feel able XX% leader global of our are feedstock. being feel good we so So the in meat And with the to about a feedstock. a place They good source they world’s process the Darling, partnership securing in byproducts, we’re on this. we

Neil Mehta

the Appreciate perspective. all

Operator

comes next from Our Read Fargo. question Wells Roger with

Your is line open. now

Roger Read

Yes, thank you. Good morning.

Joe Gorder

morning, Roger. Good

Roger Read

couple Yes, dig little, a to of maybe macro the on into things more front.

give the of on demand, we’ve light crude. driving us Just product can’t got in absolutely what’s clarity even recognize what, terms on but cracks I you good

turnarounds might maybe in of back things spite to just in there Neil’s the what going we’re demand So be seeing backdrop actually was this I how of the IMO front? curious question solid terms on on look of versus, much better,

Gary Simmons

Roger. Yes,

look I back above were and XX time early was light where inventories to if roll we at product you So XXXX August, think products me, million you the total at same period. inventory in to barrels

we’ve of XXXX. we stats, Now growth were last XX such we over had two the product were below barrels last that significant where the in – set million months,

the change figure. which barrels, at period you’ve inventories, a just million a staggering months, of total pretty product year-over-year in light a couple of So had XX is in

below Shut things driven PES, helps end of so it vehicle certainly outages down at gasoline good. of you supply look break look a And we diesels miles planned index range as are driven then days and just the moving both five-year product well gasoline and look on above But the range. of supply, if average the the as traveled good, at tonnage fundamentals. diesel five-year that well. refinery poor and average you But see down, demand, unplanned forward apparent some there some looks is have sitting good that average and little range, lower the that five-year

So both the for distillate and good moving forward. fundamentals gasoline look very

Roger Read

of in I And clearly great. scrubbers. issue the follow-up that. was couple to part this Okay, the for IMO risk export the We’ve then going ships But in the would these into some product on side moving chasing we at you think crude tanking just dry on that could tanker we with curious any look as product the do legit retrofitting clean on of tankers into markets the is docks risk of that forward? rates, your market, story of tightness markets related go obviously seen impact of as

Gary Simmons

are Yes, of think exports I market. haul Roger, for most our us, short

and So to get advantage those we’re and America competitive other gives for us actually trying freight going a markets. get to to primarily Mexico South rates people by

to really risk don’t I it’s of that us. know a So much

Roger Read

All right, you. great. Thank

Operator

Gupta next with the Our of from question Manav comes Suisse. Credit line

open. now Your line is

Manav Gupta

of Hi and – low-sulfur in would guys. of shippers I low-sulfur tried the had a marine the understand, stage? as actually about about would question I’m very macro trying to bit they the at sticking a oil fuel Can tested substitute or limitations you quick first. cheaper oil stages be fuel looking at this very talk little to the comfortable initial more be gas IMO? oil a

Gary Simmons

Yes.

we have blend offering Corpus So are we compliant Christi in that a the market.

being have are low-sulfur proceeding blend also lot with of lot low-sulfur able Paraffinic also we’ll to a this challenges X.X in we project, with on the is blend We But able there Pembroke. that especially a the crudes. a material have seen be of where to

the material. good there will transition lower then I sulfur marine oil chance run So gradually that initially think is ships bunker gas and a to

Manav Gupta

they right, in marine the for continue as diesel good to gas use stages? that U.S. the understand, I initial And if oil would demand, be

Gary Simmons

even low-sulfur blend. on with I think distillate percentage the And bunker a fairly seeing still those will. blends the material we’re the when it significant contain Yes, of in

see And low-sulfur a in so burning still change the diesel they’re if demand. even bunker, step we

Manav Gupta

a XX% I’m XQ A that running and up day, is of year. issues back-to-medium seeing widen barrels solve XQ? which Should sweet quick bit the there lot are in we a are almost some of trying Gulf last to switch now is, would of a you a we out. the follow-up XXX,XXX about heavies, that Coast, discounts sour little had ahead, and understand naphtha finally you on think light crude in going also versus

Gary Simmons

Yes.

barrels utilized We medium starting what we’re economic The sour heavy record favored well. in much crude. that quarter. favor of So third we we third we the discount, saying light see capacity quarter. X.X to exactly of for and economic sweet see. that’s a were another the are especially But sweet become processing the pretty strongly at in sour the and set light fully crude certainly crude in signals been million We’ve the as are of day with quality overall crudes widening that

Manav Gupta

Thank Thank you congrats questions, taking and good quarter. for on another my you.

Joe Gorder

Take Manav. care. Thanks,

Operator

Phil Our next Morgan. with question comes JP Gresh from

is line Your now open.

Phil Gresh

bit residuals Hey, good have feedstock? the to of do of on sulfur Coast, of few sulfur as Gulf kind have a quarters. high slate How been what here, so, a to question feedstock? your that of fuel barrels think how a ability is Manav’s you oil much run the I fuel XXX,XXX just A run oil more each day of flexibility do about, and morning. in a you your about to terms follow-up think or past high as

Gary Simmons

really blend We’ve do high some a and that we of lot of flexibility the haven’t And to running move as we’ve going are into forward. market. run sulfur oil some those fuel, more expect fuel components we but been high and to have sour heavy or So of we been that it have crude. we high running do backing out been sulfur doing we sulfur

Phil Gresh

Coast just to but of second how – Maya these the Okay. obviously barrels on competitive especially the Eastern barrels And what I’m about sours. the Maya to the has WCS, how be you which Middle heavy a regardless barrels, more formula, question, be formula seems also is but you think is. then then more, curious are as obviously change the coming Gulf need have the to there price, medium have rail, via discounting you

about So should all other? you to how these how think do price relative each

Gary Simmons

Yes.

almost So we fuel high weaker Maya Obviously market. the approximately the really value. in oil had trade are we priced and are trading correction where formula a forward. other, made they moving expected believe trade you to at which September, both where the sulfur But each October if heavy and is Canadian at in and trade they top expect of much should those to look Maya today, of Maya out in PMI WCS same on

Phil Gresh

Thank great. Okay, you.

Joe Gorder

Phil. Thanks,

Operator

next comes Rao question Citigroup. Our with Prashant from

Your line is now open.

Prashant Rao

morning. Good taking question. Thanks for the

Joe Gorder

Good morning, Prashant.

Prashant Rao

end After other. Good Joe. and we Phil’s above into like, market? looks It starting roll start bit. the curtailment, following look barrels Gulf In the each up Maya on of and those WCS little to a price talking on – top we on down factor to how the as Coast access, is Canada of is could one curtailment rail are the about see moving more relatively Gulf of to off of question there, market Canadian are morning, barrels Brent we’re a another, get

dynamic basis I can there on of how just that further any of the sort what Maya sense curve? maybe kind versus firm sense into delivered for what wanted a pricing does get of you out give seeing us get and to that U.S. of of a barrels play and versus you’re a

Gary Simmons

Yes.

producers ongoing volume. Western negotiations several in delivered in on we’re Canada So with rail

and you WCS equivalent ramp delivered Arthur on feed anticipate there. anticipate equivalent – something the that rail quarter, Gulf. as support We we the Lucas in move And barrels run-heavy we those a we’ll fourth and to up rail lot see capacity have Maya to as our volumes the buy or will of refinery through facility we Canadian

Prashant Rao

because start the that’s great. just out? question but EBIT on playing a wanted Okay, other how sort ethanol, on ahead you then potentially see too a that of obviously see couple another And factor, a is swings the the smaller into to could if segment, sense to see get incremental when us that of next in the out positive, black need quarters give factors right? of we I the back we just And to could post time first follow-up quarter’s What there to going be ethanol? upside do the to play that’s

Martin Parrish

Martin. So is this

this is you’ve think What looking which than is Inventory The U.S. has seen oversupply inventory time near-term margins. lot ethanol low, is year. I trending production the did. better is just October barrels in data. is too million the pressuring third weekly now quarter X.X than data What the the is is lower, DoE recent a on right. the last issue been lower

to in the we’re then Ethanol is mix And run. for the still U.S. going long bullish. be long-term, gasoline

we and a We incremental we really small EXX expect incremental growth fuel economics, from expect, to expect the U.S. renewable see just economics mandates. and favorable export sales. higher from standards the the some and year these due efficiency is small fuel the and in And some octane ethanol rebound demand global to demand then big round thing blending then blend to

we corner. So around feel still think to that’s in the long-term be very constructive going and the

Prashant Rao

All for right, very it. Appreciate the thank you time. much

Operator

question from Weil. Cheng next with comes Scotia Howard Our Paul

is line open. Your now

Paul Cheng

morning. guys, Hey good

Joe Gorder

Hi, Paul.

Paul Cheng

maybe have think I two Gary, questions. is I think. for I One,

directly That you stick it’s sulfur, a to that you high given sit I whether multiple. you do? really try forward the mentioned fit delayed we a does that Coker something would sit, not technically, guys the And Is believe that two, economic Coker. Coker. matter So way before we to it just Gary, can or as the haven’t to you

Lane Riggs

like ran done and blend of Lane. lot better what a than we fuel oil historically lot the we in We’ve we’ve go stocks about understand a quite it’s the that of Hey feel a technically that people always talking that. a it’s maybe was run into industry. – we Gary the a outside market And part Paul, was of X.X%

work into towards feedstocks have sours really but of keep and strategy critical increasing we these challenges. focused that. on run. other make IMO the at things, are connectivity going sure There of between hard going one doing to in this, defaulting And and the crudes the that we we is and are you heavy They amount around of technical very some are heavy

Paul Cheng

the saying crude the heavy that sour see, so won sorry? heavy we won I’m Lane, sour, the you’re you or you

Lane Riggs

We but question and... was around both, do your resid

Paul Cheng

Right.

Lane Riggs

So What question fuel stocks blend really is we run don’t per more fuel run oil go are that you was, we X.X%. oil and into the the earlier running we se. run

people you world and as to that see so our you’re around and very out the system, as is unwind as to into aggressively do technically going And see fuel, these that And a going of understanding become available. the and fitting components key more there that. which we’re working

Paul Cheng

second How delayed whether that my or make question, of it’s whether your a any Coker won ability – and difference about the part fully that to Coker those?

Lane Riggs

really. Not

Paul Cheng

continue – okay. really, you Joe cash to And do that and Not flow have strong so. for

Your by we to balance get but sense when, is given that pay the much to that at point down lower draw of but shape, makes may? a part know at the hit in debt to uncertainty move in may level point the economy. the Will really some we recession, cash some debt free good sheet to don’t down in

Joe Gorder

good a will Paul. it’s Yes, let I to that. speak Donna question,

Donna Titzman

balance sheet are capacity shape. jeopardy. have don’t in in think go. do think We I No, good actually our ratings is additional to I debt our

today. We have good liquidity

is I’m – that don’t not debt now paying necessary. again, So right down believe

Joe Gorder

there to Yes, tell, is nothing Paul… really

Donna Titzman

expensive. Well, it’s very

try to is to and in our to called uneconomical the with that next and XXXX get early right, maturity us. expensive You’re

Paul Cheng

That’s it. Thank you.

Joe Gorder

Thanks, Paul.

Operator

America. question from with Bank next Our comes Leggate of Doug

open. now is line Your

Doug Leggate

good morning, morning Good everyone. Joe. and you Thank

Joe Gorder

doing How Doug? you are

Homer Bhullar

are How Doug? you

Doug Leggate

I for them making the as so well. I us, thank thank room rest of for probably should Paul

IMO the I the the explain industry benefit. two feedstock. for is of So, any to it, of about, be side it, market perceived just questions, things question The give My will VGO, it of to right like year is product now. react on side things Obviously, my sour go the is and duration the more nature. seems reallocation whole really quick further, To this your with question on to our focus Joe. that view can that stickier perspective

more and it In product what mean to the side you operate in done I prepared described quick to And case, going is VGO VGO? forward? your of perspective do think balance with So follow-up Maybe as of like expect your you’ve what that please. well? sticky for just a explain as your experience got want you does get about what gasoline which it you remarks given how I’ve

Joe Gorder

Lane Okay. this. Gary speak can to and

you prospects been shaping You then… to talking Doug, if the I speak okay. in know, XX from Paul, months the issue something, mean, it’s one market, and probably first about up IMO of anticipated. – that had and can way for to recall So we’ve you the weight The the problem this you addition in want excuse IMO the kind me, or speak that the Who we to solves question is, it how and guys creates the circumstances fuel solve and oil? in in comes do the your around guys general X.X% to

Lane Riggs

the be always to for tune demand way quite how go intensive to Joe ultimately have later we – this fuels. alluded try X.X% the is all perspective. technical to It is capital capital Gary difficulty the fuels And those of task of have making make easy it. that not to to bit and to Gary, for it sort played from of time work you’re think to here, little on will create we and on, of an we a I it some seen I’m more weight, on early much But home depending thing that work much we then – longer goes. long a up that interesting going course, a term, for thought, alluded can it I to start I’ll It could see making a – the this, that some mean, Yes, out diesel. compatibility through. having a not like the

extent alluded the be earlier say of X.X% valuations not on are about interesting What heavy – but valued open somebody question they’re to running these are now, medium sour – being value crudes the – is, And they’re right that was and I would an not sour crude. asking weight. will based culture, on being based

know don’t quite that going greater. see it we try to see path close it to you’re of gap, could You all but you that all to can takes disconnect bit about think that – capital. I even know – the get a

Gary Simmons

offline, then crudes, a come certainly some here online, see anticipated, it come around come they when other of on you’d the think of that do technical heavy and I maybe Yes, of And would scrubbers that’s these when does market. they the as thought. of this back is on sour scrubbers fast appears what issues uncertainty. lot medium but the we a uncertainty that We area production lot some as don’t there’s

very to difficult give timeline. So you a

Joe Gorder

it’s... But

Doug Leggate

I to answer Joe, were on think it, trying you go sorry.

Joe Gorder

It’s problem resolved quickly. going not to get that’s very a

of I played think, product kind side. again more always the on but whole feedstock down think of I we’ve this, expected the side we’ve

We’re in right solve. to a is to going take but seeing this while now, both it

Doug Leggate

and to terms Thanks you guys Joe either follow-up a markets. guys. buybacks specific for or one, other tough whoever really take you in between reliability, Valero, balance terms execution, of particular. industry, but and dividends, for to I in know better Donna, frankly, obviously the constructive it’s attempting answer this, the operating in in refinery your but you’re wants of to than any My

right margins the I pretty up? strengthening some but the industry. your back as stock. that, You kind goes pretty still been buying price you’ve of the you of in your guess. and to especially market, buyback level is and know periodic When skewed obviously for know consistency is share dividend to delivering get always I sensitive What

So do it or the you of a there, a I’ll thanks. leave see rebalancing And cash? return how in we dividend maybe step-up

Joe Gorder

the going right. dividend how to talk not had has forward. your outlook Because that’s a mean, to Yes, – there this, you good, it going I Doug, obviously for pretty have this. I I’ll let a felt been you’ve approach is we’ve Obviously, why we market formulaic to increases. mean, Donna do significant

We want be have the and not broader competitive – had yield you to with only but peers from with market. your a perspective,

So mix… not far into all taken things those as but the as consideration,

Donna Titzman

very Yes, part that sustainable. return, to I do mean we important it shareholder it’s but us dividend is so of it as that view total important is also the

be able to our that also peers. be we market it want we through specifically very and in the So to competitive sustain But cycle. to generally the earnings dividend want against

it. look mix. So We review that continue to we always to always continue at

Joe Gorder

Yes. frankly on than ratability at buy plus, we with quarter. on we our we’re altered look more the buying a IMO. looking say, And back for haven’t And that strong we good quarter quarter more said it’s you approach into and we previous to a we when we where noticed time fourth a dips situation the side and had buyback look this at did did prospects shares. the We we

in quarter. we what third that’s So the did

and took we an that we’ll So forward. of going advantage do opportunity,

Doug Leggate

slow to – say, were buyback shares? did still back the expect you buying let’s higher, would you your if we you XX% be Would

Joe Gorder

If goes we were XX% higher, it to... all

Doug Leggate

As you obviously. cyclical know, it’s business a

So buy back. you

probably, you is guess, so to You know at strengthening? I drop some to do again how point going respond continue

Joe Gorder

And XX% to on XX% make things going So, are around to in sense to adhere to an this we basis. Doug, our payout well, doesn’t ongoing ratio. it jostle business

markets only are you You what gives with set but you business. the achieve afford consistency, expect can financial you, work from to the your what target and and operationally to you going invest grow can you in how and not it to

to allocation why out. it adhered totally capital so we in this, then we that’s it place said have ago work framework since several and and seems And years to

So had make rely to you do the do and to at going forecast we’re and fact increases that we’re don’t going all, we just dividend on told it. any we what

Doug Leggate

Appreciate answer. Great Joe. it. Thanks

Joe Gorder

You bet.

Operator

Our next Research. comes Wolfe question Sam Margolin with from

Your line is open. now

Sam Margolin

Good morning everybody, hi.

Joe Gorder

Hi, Sam.

Sam Margolin

a context a follow-up in location just a because location a or around thing – might feedstock I importing that factors of evaluating on I’m more be at why comment can diesel of exporting? Port talk is you’re like it the constraints, It seems or about performance? this you’re the one? good little actually. you you have the bit know to of It’s local renewable have that project biomass. scales places Arthur, the is you for marketing in asking Are the you as sort look good just operate that business the

Martin Parrish

helps that is with the Yes, renewable co-located is thing this being mean I diesel refinery. Martin. the

So all we’re place can at the primary looking that’s hit the and we probably where thing markets. in

supply to of is than States were driven better U.S. of the per the Coast feedstock base Gulf – anywhere just renewable drives really else that So the the diesel you the installed in and because the in in world. United

Arthur doing Port it. So we’re that’s on and the to analysis heading why reviewing engineering

Sam Margolin

Okay, thanks.

weeks we’re any far as seeing uptake count Gulf gets That’s like out crude feedstock Middle in from in So the it’s seeing mix six crude the bit But East then, feedstock, or sour ships quality helpful. down here sulfur a and there’s facility repaired? change as of combination who And coming to quality people the can the little of interim in you’re went since what placement that Saudi, stabilizer supply, exports. thanks. stable the as that see talk you’re you as about far high been as a if

Gary Simmons

Gary. this Sam, is Yes,

really volume quite some in haven’t any purchased We Saudi time.

really And give can’t a comment. so you I

Iraqi into some all. see been and due the our Kuwait. running but West system It’s unaffected, at any volume Coast, we primarily coming which to has don’t We’re Saudi

Sam Margolin

All much. so right. Thanks

Operator

from Heffern Brad Our next RBC. question with comes

line is now Your open.

Brad Heffern

on everyone. Question exports. Hi,

for barrels when the So you over numbers factor other a guys weakness over looking demand the I there Is that year of? some think export is just This for that pull not U.S. thinking third XXX,XXX, a was or day. exported is last at year XXX,XXX I’m that the into little was quarter, I

Joe Gorder

Yes, Brad.

net The you but had into that’s and kind the only on of than demand back bit, you dredging markets us us for locations the Arthur markets. limit and rather you large thing to, life product large tell driver U.S., dock draws Port domestic I and pointed export big the hit optimization demand a with an did better the our of little is, doing think there, what which were and saw a one it. I what the on we lack is is was going into some the it work export that’s of it inventory we drove pull in we would

Brad Heffern

question Okay, got refining then on OpEx. it. And a

years Is sometimes. used in any higher quarter XXXs underlying there XXX just number? was the this back high couple the number a at think billion. When even it phenomenal to or be ago I of OpEx $X.X So driven factor that’s

Joe Gorder

rigs. It’s compare to sort of year-over-year for the it to easier by me way

volumes down and deal Port through three with went the operations. we storm then quarter, had external Arthur failure, Our they in had affected largely third the our we were power

a high did is is little on as per weren’t as other were the changed higher just and thing. it’s it’s they some then with out, these, volumes in. what and now part Our barrel that operations back have in bit we and our of We’ve MLP basis, out of

have in, which out. used We to Green Diamond be it’s Diesel,

occurred as time are has some So changes over well. like there that

Brad Heffern

structural? nothing Okay,

Joe Gorder

nothing No, structural.

Brad Heffern

Thank you.

Operator

comes Cowen. Gabelman with from question next Our Jason

line open. now Your is

Jason Gabelman

side Thanks. this higher from those costs? I how Yes, I in follow-up the for kind just were there and the than rates. higher also they crude rates in to and for higher hi, year. of the you market and refining be structurally rates the the asked in on shipping talk expecting around, taking feedstock first maybe product blended think questions. thanks Read near-term on global shipping product half Can the both totality a Obviously, of guess margins then Roger is on wanted feedstock volatility to rates, but something the Valero, I those lifting some Company’s on earnings? are the higher side impact both side perspective

Gary Simmons

side. – a start were the Sure. Obviously delivered running, crude and short water, running barrel. then haul getting we’ve the pipeline been of with the of we’re feedstock the over barrels lot a I’ll lot on

in on America. Mexico barrels we costs So short domestic export are in we fairly don’t and haul the locations see South a big the products, impact the similarly on our markets, to going or and feedstock

So material impact. not a

of we have Some run, some we that helps. as those freight long-haul which protection barrels do well, do on the

crude. positive $X, to with as is thing to the and freight capacity give spiking spread pipeline out import coming spiked, TI refining freight the but I which Brent over when sweet of Joe light into obviously TI higher significant us some we’ve global online, trying previously going on advantage mentioned actually gives to blow over mentioned that you’re Obviously, comments back the our location, to advantage big those seen in rates is a rates running Brent the seen U.S. back business, refining that the with in freight opening competitive markets. the we’ve our been his had some as a And competitors Mexico, rates export come

Jason Gabelman

of appreciate I marketing could And changes Syncrude I decent crude going that. for using and market, guys maybe northern Syncrude run next Syncrude know of and if to you thanks there the for Do that there’s the on like color. from Bakken, pricing maybe because just diluent right, bleeding paradigm running for that a to months the into the to few refinery be Quebec. shift switching kind I amount the kind operator Syncrude in over into and less a the All then in XXXX? seems in Syncrude see Northwest you then up of balances some WCS. terms ask It emerging

Gary Simmons

IMO Well, crude. be environment it’s an interesting. Syncrude obviously premium in price a could

think Quebec environment. view a going – bit So see as of line a we we spent see I we we lot have see optimization IMO would nine an and what than we probably to more syn forward little on our Bakken opportunities in through move

Jason Gabelman

lot. a thanks right, All

Joe Gorder

Thanks, Jason.

Operator

Patrick next Flam Energy. with comes from Our Simmons question

open. is line now Your

Patrick Flam

your taking are partially thoughts guys program. My the RFS basically, could changes to hoping the changes guys was any to the I hoping you is morning, it could a first bio-diesel operations, context lost I you around your like for frame thanks any those would by question. of refinery some recent way Good ethanol as proposed kind small question to Obviously, operators? come but changes you was hedged back politically? up and exemptions, reallocation larger seems of give of volumes you to on

Joe Gorder

on. is Jason right. All

Jason Fraser

Yes, hi, Jason. is this

but supplemental they put comments which refiners prior and formula average granted. million On on their XXX will know October for the both. a public lot there. these three RVO of addition DOE for To the the to years be share. be And asking included of on that reobligated released the right. in SREs, gallons on, on years comment normal be I non-exempt EPA That’d recommended XXth, You’re use in gallons. to it other or ask XXX the your obligations three million about prior then words

you already You then get get this should get what on you and top.

done other simply the no it It’s unworkable shown then SREs the it Congress the on burden because on time who many reallocation and ethanol real past, demand again this the us got has has been as may obligated they by like this to clear we of violation reallocating been have liquid It of frustrating SREs this as in parties our and fundamental that no view and effect they’ve onto moved, that with on industry is actual fairness especially be members no negative program. a volume data bearing it our but of illegal. blending on already granting EIA also is those ethanol destruction. So

Joe Gorder

so it. the volume comply reallocation on obviously So more but cost to for he if I to going material, a it wouldn’t It’s it about the of with impact we like obligation. us, not, it call asking is wouldn’t mean SREs, the was us the was reallocation, larger $X.XX, I

going anyway, what to So we’re to can with we deal help this. do

Patrick Flam

third step appears on Okay, the kind sales volume the Green that segment. great, in pretty that’s of fourth Diamond very detailed up any second around give the Is order target, question it helpful. is Thank and you. My why will materially. there the a can It back you seems be day, came like pretty case? more context, might question quarter meet a to have low that XXX,XXX quarter in Diesel gallons in full-year to that

Jason Fraser

and XXX,XXX that. we of year full expect the for make guidance had to still We

quarter catalyst We the why We change we for guided with. the per scheduled in the XXX,XXX expect had year a gallons and begin strong fourth quarter. day a that’s third to

the we about So feel numbers. pretty good

Patrick Flam

Thank you. Okay, great.

Joe Gorder

Thanks, Patrick.

Operator

Our comes Blair of Matthew from question next Pickering Tudor line Holt. the with

now line Your open. is

Matthew Blair

of how morning good turnaround sense XXXX everyone. could give a compares Hey, to XXXX? you was schedule I hoping your

Lane Riggs

turnaround We of Lane This policy. forward don’t Riggs. is Matthew. to schedule any our real the give guidance Hi,

Matthew Blair

down a come all West you this great would expect in have to capture this to got a start quarter Okay. off then run and so have bit your it Coast two cracks How refineries little QX, here. California upside? And far

Lane Riggs

a we We around, than that San Yes. refinery, This well run on small wasn’t for the run we Francisco that to other our it is but We ran to again. meaningful well performance and this. they’ve area one Lane been pretty pretty ran had blip – all continue well. through

Matthew Blair

Thanks. good. Sounds

Operator

back no Bhuller closing showing Mr. this to queue turn in at further time. I’m I’d like questions for the call remarks. to

Homer Bhullar

today. appreciate team We please Thanks the you any have questions. free to everyone out guys. if reach joining IR us you. to feel Thank Obviously, further

Operator

conference today’s participating. and Thank concludes gentlemen, you for call. this Ladies

disconnect. now may You

Valero Energy (VLO) 24 Oct 192019 Q3 Earnings call transcript