VLO - Earnings call transcript Q4 2019 | Valero Energy Corporation

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Operator

Ladies and gentlemen, thank you for standing by and welcome to the Valero Energy Corporation’s Fourth Quarter 2019 Earnings Conference Call. At this time, all participant 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 is being recorded. [Operator Instructions]

to Bhullar. conference like speaker to now Homer today would hand over the your I you. Thank go Please sir. ahead

Homer Bhullar

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

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

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

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

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

Joseph Gorder

Homer good everyone. Thanks and morning

report results. solid to had delivering financial are good that a we pleased quarter We

sulfur feedstocks. wider sour us allowing weakness Our of crude advantage in XX% refineries and operated utilization at take well oil residual differentials high to

to were of and the gasoline to faced most a sanctions Venezuela with business. sour We Iran We was on oil oil addition at highs cracks crude and the narrow lows. at production year Canadian curtailments. the due OPEC crude year, refining record XXXX for challenging for in gasoline and differentials Overall, also with historic inventories environment started primarily

half And sweet crude year differentials to inland with the on crude pipelines second of the Permian Gulf new narrowed start-up from the Basin in of the the Coast. oils multiple

Despite feedstock to flexibility demonstrated to of team product of allowing prior our deliver this free improve our the steady our assets and investments another cash us and and challenging backdrop, flow. earnings year strength

million We of of supply North record demonstrated sweet processing our as crude day by oil annual barrels crude per barrels of X.X of Canadian an XXXX. XXX,XXX in record crude per as flexibility day well oil heavy American a approximately

lowest ever reliability performance safety, another stewardship. on by achieved year events strong our safety also environmental delivering and and milestone history, employee environmental best in to the We commitment the number company demonstrating of

flexibility Central continue up the alkylation successfully the invest Houston in margin XXXX, capability We and projects Project. the to and In started portfolio. Pipelines Texas we enhance our completed and unit Terminals of that

And that year we Charles terminal, cogeneration have including unit. Pembroke will be completed this alkylation units several growth the projects Pasadena and St. the

track Looking Green Arthur should to projects are respectively. XXXX be and pipeline Diesel further the be on in out, in the Port XXXX, completed Diamond still and Diamond and Coker XXXX completed expansion the

to continue renewable is our North in growth explore also We the already opportunities fuels largest business, which America. in

per project Diamond phase announced, previously Arthur, we Green joint is is advanced Texas will day. at over fuels renewable Green in to renewable in result approved, review increasing annually the production or Port over Diesel’s diesel expected the XX,XXX Diamond in facility. our to XXXX, barrels Diesel operations As a venture billion capacity gallons engineering which are plant for the new If X.X commence

investment years, sustainable grade our maintaining sustaining in dividend. and which our in capital, disciplined of remain strategy a prioritizes growing investments our allocation several We rating, constant credit a for and

average and approximately the reliable environmentally on market annual $X.X annual approximately focused growth We for responsible last our are years $X that improvement allocated with billion expansion six to be margin maintain return for our spend allocated projects operations. CapEx which high safe, over consistent and XXXX expect and billion, to with balance is the

to with organic other compete investors. incremental And continue uses discretionary M&A cash our you investments, cash flow expect growth to should to including returns and discretionary

effect for we with ahead, X. oil a refining which Looking have the XXXX just fuel favorable regulation, low outlook IMO margins sulfur January took on

oils. demand crude diesel are is to positioned refining for system to due continues our less results fuel And be oils to renewable advantage lower High segment as sweeter crudes to high oils refineries the of as the strong take due fuels. to more renewable well growing high and discounted feedstocks. to crude sulfur Valero’s switched complex demand discounted sulfur expected complex generate

focus relentless organic pipeline team’s incredible continue our closing, demonstrated of operational shareholder on steady returns Valero excellence, to a growth should position commitment a projects In and well. to high-return

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

Homer Bhullar

Joe. Thanks,

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

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

XXXX. $X.X net XXXX, stockholders attributable to Valero was per or XXXX stockholders adjusted $X.X $X.XX $X.XX per per or billion share to XXXX. billion share per or or $X.XX $X.X to was share compared income attributable $X.X For Valero in net share to billion compared $X.XX billion in income

several the reflected The XXXX XXXX in financial items and earnings tables accompany release. the adjusted that results exclude

amounts, refer actual reconciliations of adjusted please For tables. financial to those to

averaged Refining segment day, per quarter the of refining was XXXX. of of throughput the fourth in the fourth $X.X XXXX volumes quarter for billion fourth was line billion barrels with $X.X which income compared million to quarter Operating the three in XXXX. for

in operating line the quarter loss operating XXXX compared expenses fourth in $XX fourth segment quarter the of XXXX. ethanol the per of were XX% of fourth cash XXXX. The million was quarter Refining utilization fourth operating XXXX. capacity of a generated income the Throughput of quarter in $XX $X.XX barrel in to million with of

to higher XXXX. ethanol from fourth resulting The increase production higher prices. primarily from volumes margins the XXXX Ethanol day per gallons X.X the million was fourth quarter averaged quarter due of in of

quarter was segment to $XXX million diesel increase blenders renewable of $XXX in fourth the in the million fourth of operating fourth diesel XXXX, quarter $XXX the volume. of recorded to primarily was XXXX fourth Operating due the operating quarter XXXX. fourth higher million adjusted tax was the retroactive income million quarter the compared income for The credit income $XXX quarter renewable to of for of for the in XXXX adjusting XXXX. After sales compared in for

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

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

due expenses General to were to for liabilities $XXX in than XXXX. XXXX, adjustments lower million and administrative mainly our environmental XXXX of

XX% quarter effective fourth $XXX XXXX, was tax was of rate in and cash million. operating fourth expense XXXX. the For billion provided amortization depreciation expense the of tax $X.X by activities The XXXX. $XXX Net income was and for quarter million was

Excluding activities by adjusted in from working venture net partner’s $XXX capital the cash by in provided operating change was Green excluding its and of activities, net impact the of cash changing working XX% Diesel’s Diamond operating capital, unfavorable billion. million share provided $X.X our joint

for capital in catalysts million $XXX and for million With sustaining fourth business made compliance. XXXX of which approximately turnarounds, of cost quarter activities, the the of regulatory we regard investments was to including investing $XXX

of includes $X.X capital Diesel’s XXXX, million. billion, For of which invested Green $XXX we all Diamond investments

growing capital partner’s business. the $X share our of Excluding XXXX Valero’s $X.X billion Green billion the Diamond capital approximately Diesel’s for were total XX% of investments, investments approximately for with

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

approximately $X.XX $X.XX had investors. last demonstrating As remaining. to a of dividend share, repurchase of share X% per or our the of in to per share authorization annually week, regular December commitment return And $X.X quarterly our cash approved to our billion XX, Directors Board increase further we

quarter of balance end billion billion cash billion $X.X excluding cash of debt had was debt liquidity sheet December, available Valero’s of to the was At total XX%. With respect cash and end, cash. $X $X.X our billion. we in to net at ratio equivalents were and $X.X capitalization

guidance. to Turning

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

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

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

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

gallon per for $X.XX depreciation XXXX per such includes and gallon, amortization. should in $X.XX non-cash expenses Operating costs which be as

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

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

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

That concludes opening remarks. our

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

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

Operator

Phil from [Operator comes Instructions] the question our first from Gresh of JPMorgan. line And

line now open. Your is

Phil Gresh

Hey. morning. Good

Joseph Gorder

Phil. Good morning,

Phil Gresh

if prices as able that part in you more the actions what sulfur of As to oil was discuss question. have why high in So the think portfolio? much order of how the feedstock you Valero here And the the I question quarter? to fuel across quarter fuel took first you’re incremental in oil beginning well to strengthen fourth actually as wondering, a run XXXX? started capture in two could

Lane Riggs

start looked terms with it’s our at may then market. operating operating and the - sort in finish up of be with envelope Phil, Hey, of we Gary conditions how our Lane. and I’ll can

window resid. the condition, try operating challenging reach our to our operating - widened out sulfur get high and more we to On window

and was as years up market and decade, years changed we’ve would We the we somebody to years to idea XXXX to resid IMO sulfur of to free run, for the least a been but in we and market high of high believe these sulfur conform - always lot resid really buys up or we’ve who at marketplace. the - [indiscernible] try the for opened some to

of because we - to market and blended into get quality high the gets it we it reasons. fuel so sulfur before And want resid the oil

did. high that’s we a sulfur So, that ran we resid have few quite out really ran. what and We historically reached not

Gary Simmons

Yes.

how We part the we in about terms up showed it the mid-December. of fourth coming really that lot resid, a So, second barrels ran of until guess in high much but discounted see I - sulfur didn’t the of in quarter. of

a IMO it industry -- change. more we’re see very respond bunkers on real as in still fourth sulfur the So, phase in of results terms forward. more in high didn’t have significant going what’s you’ll transition spec our early it’s quarter fuel a that sulfur significant getting the But to of we and impact expensive,

the of would for the markets markets it equilibrium. some change to a with it will take so volatility create in magnitude, reach to you and some time expect And the

see in - there’s certainly fuel not there’s paper a in markets we markets. oil liquidity we the more lot physical liquidity So, lot that a the of

Brent If of more is and where you curve the gets will backwardated which of back be. fuel showing forward look XX%, steeply to we kind it think of XX% kind at

So, crude our high view and really discounts in oil sulfur hasn’t fuel respect quality oil to changed. the

widen forward we Coast. markets with for Gulf back sulfur refining sour stocks have see the reflects, as space high capacity the curve have we normalize, to the and expect discount crudes compete in like heavy to the fuel blend as As complex out and

Phil Gresh

Okay. Got you. it. Thank

capital question just things. on second side the of The allocation

XXXX in pretty looks healthy and well that continue announced keep which had dividend flow. a spending really by you just capital cash you You here to covered flattish increase

just about thinking So, this dividend? curious you’re in increase the how

this buyback obviously, flow? of the dividend but buyback that is with burden And just to same the to And over you’re the had today. you’re XX% thinking constructs a it dividend XX% sticking curious all just shift the will the how cash Thanks. from reduce time, you’ve about and

Donna Titzman

payout. is We haven’t continues policy in dividend just we cash overall of part to that a It’s be changed to return. in of to only increase No, part the the flow mind just to the shareholders. don’t of payout. want that from we our return and XX% dividend cash particular to operations it have The XX% anything the regards

percentage as continue dividend that in but see balance varies, buybacks might of You return. cash as will that year vary each flow the our a of fill total the to

Phil Gresh

you. Thank great. Okay,

Operator

Thank you.

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

now Your line open. is

Manav Gupta

little talk context is XX% the a majors operating results, you have up operating the Joe, which this like could income you I’m earnings about bit XX% Gulf you understand to global the downstream could were on And Gulf be Coast. indicated that trying on one of almost down quarter-over-quarter. Coast

earnings others? XX%. better an in How you alternate down universe Another Valero that than much one reported is are today downstream so

Joseph Gorder

here. it answer, Lane. question why love a don’t that’s but one I and really good Manav, these an you give cover intelligent get of I’d Gary, guys to

Lane Riggs

Yeah.

obviously we fourth did resid discounts crude and which So discounts all, higher mean in discount - of the oil Manav, the first I quarter.

comparing fourth of answer. quarter the the part you’re that’s if to quarter third So

is The of over has second - the because naphtha improved price also better we And answer we naphtha part better netbacks the [indiscernible] again, butane. naphtha got quarter.

you rate when cheaper or butane compare at to least quarter to the with when to capture our is butane helped obviously compared ability third us third fourth our run quarter blended quarter. So

Manav Gupta

the on renewable quick A of follow-up for targeted XXXX. expansion and diesel the late

or a million. you quarter have versus put something another like base of $XXX then the you XXX XXX about $XXX But indicated could XXX, on basic realized margin get even guys this normalized in You EBITDA without and the only million margin BTC. if you

return at you’re $XXX a of So million on project. this like of EBITDA looking

here? million, from $XXX So entire looks this like off it point the payback on Like is expenditure your a right math of capital is two-year project? or something

Martin Parrish

the This good We about forma Manav. Martin still excludes feel is credit. guidance blender’s million. good Parrish. That $XXX pro tax We the pretty of about feel it, the

you at $X.XX per that EBITDA. So puts gallon

kind out with that of what saying. checks I think you’re

Manav Gupta

guys. Thanks,

Martin Parrish

Thanks.

Joseph Gorder

Yes.

So Manav, you’re very close.

Manav Gupta

you. Thank

Joseph Gorder

You bet. care. Take

Operator

Thank you.

Our Leggate Bank from Doug next America. of question line of comes from the

open. now is line Your

Doug Leggate

morning think is New this this time good first Hey, spoken Year. we’ve guys. the happy Joe year so I

Joseph Gorder

Thank you. Same to you Doug.

Doug Leggate

the and Valero. one market one I got on on Joe,

very part the mix it’s more go Let’s your on with the guess of wants in the But asked Maybe returning get of to take XX%, flow payout, with I dividend. were significant I mean about a to this you to I’m Valero curious payout. cash XX% Phil this. paid amount early and cash trend fund. the on the first. shareholders Donna of already

the how paid the dividends it business but both in just over as buybacks? the dividends think performance But credibility as model of has relative the well curious about that? stock, of you more why not I’m

Joseph Gorder

crack Do you take want to it at it?

Donna Titzman

Sure.

So have allocation. do of that be dividend we market to the piece - we nondiscretionary we’ve to of part that told the explained capital look our consider

more the of look to with also at sustainable importantly it in [ph] look but we market peers when that So [attentive] it being we the through the context at market and in our cycles. general, market

mind. with we that in those again, regularly objectives So review

Joseph Gorder

Donna in and a strong to down would you’ve looking is sure very time to said, add something a we the got reinforce lot we cutting aspect what she that a cycle exactly the - that right. I would And having sheet. ourselves which what sustainability by of is be dividend. that don’t you balance spend I market find Doug, What at

the okay, my we sustainability growth And I where to it to longer-term, goes, goes able brain going be this forward. grow. of it is continue and to think dividend the to really if But about the want of

is about more a little you We our bit. go year. way give it want And every doing the that to tempering owners that

more, little did you this which year about we the saw think I last dividend think I year. a bit we moderating started talking

from capital got that’s it, thing earnings significant these other really They projects we’ve on are is encouraging that And my coming are perspective providing stream. the future potential.

lot And flow bunch diesel are cycles, a we Coker. another the but of longer we of them cash the I which some done we’ve plant, last mean, got haven’t over years, got renewable

Port ability going up growth projects, dividend EBITDA Arthur end to These our to we the continue and producing ahead diesel if to going forward. in go the really which are huge deliver plant are then And doing future. renewable reinforce

you at be kind but because I’m And Now, making might objective. of our way knows not we investing capital. our that’s Lord what happen, would look that only a the promise,

total It’s of we The that made the the that’s of formulaic. component here. dividend, that’s more involved. the that place us dividend won’t of up into part, of And that get there at lot payout there’s a percentage not all the takes comprises, looking sausage-making the factors

want that to fairly going a be assured in issue going to forward. when position like know that this you always we But feel an let I this to do we be isn’t something

Doug Leggate

My take about I team. and one online may titles Lane if But of for appreciate you to and year follow-up offer in of a of in the lot also new don’t maybe the guys. But the want the know want years. throw answer to to new coming there’s this the my next this. couple Joe, maybe officers chatter to of I I lengthy congratulations back this capacity end guys,

Obviously, on Are And seems thinking IMO the for about given you I’ll side more it term? transitioning with But China. what’s longer see challenging maybe refining wondering leave things guys kind are on environment that? tailwinds soft, demand into the prognosis a I’m how it short-term you going there. the Thanks. just of

Joseph Gorder

Doug. Thanks,

Lane Riggs

Yeah.

we pace demand and at for least next think we years, year think additions capacity the I growth we have two consumption. kind see between and So balances favorable production to of keeping global with oil still

the industry. capacity out at start we show oil And rationalization see then expect global in time, that to we start years to two demand would outpace growth. But yeah, to additions some three that to

Doug Leggate

up about has mean, kind stuff about concerned the outlook and of next got bunch the online kicks not then? not that couple XX So coming of medium-term so short obviously, you’re of then Amoco you’re Asia a XX, I concerned -- years

Lane Riggs

No. for that capacity growth short We still show outpaces the oil addition demand term.

Doug Leggate

watch guys seeing to forward with Okay. We’ll you looking in and this. Thanks. March watch I’ll interest our conference. at

Joseph Gorder

Thanks, Doug.

Operator

you. Thank

question Our comes from next Mizuho. from line of the Sankey Paul

now is line open. Your

Paul Sankey

higher about of looking if ran talk mass versus than know volume? Good Could higher on not morning, suggests that’s volume region. pattern we of the to But I the don’t talk there. there’s obviously Hi, you sort that. be them could guidance. direction right your issue that’s you I certainly your in follow-up If you guys. Joe, and about capture all. a in. expected every Could

hopefully at the shutdowns come across And furthermore expectations in levels how are this could stay the you’re once in you and situation margins you worse for if Thanks. refining Could you have with - that get system, follow-up explain question. potentially is running helped about to previous right weak any you China? talk the whole you’ve extremely a this and

Joseph Gorder

Okay.

we’ll kind look at follow-up. to question So, Paul a of we’ll we’re give the then this we’re and take if other each your crack - answering you not give us -- looking at let opportunity

Okay.

Lane Riggs

Hey, that’s is a way I’ll what our refining the over Paul. to strategy and from all a we’ve work sort system in and to to of Lane. helped is very had us. on to XXXX really availability organized seen say XX% This availability dating projects XX% reliability our long start. way back We’ve XX% has gone up

to the market’s when and been better. available We’re perform right able

systems what addition in in that and the the that in feedstocks best where terms highly that. And do industry adaptable of that we’re to we’re understanding in we we’re the to believe go in

in other capture some versus us helps our terms that rates. think of I people So,

Paul Sankey

commoditized just than I Lane that an computer could dig that better arguing programs extent else would a you little Thanks. a If bit because grateful. the to be that could bit or go you just guess not? in down on anyone

Lane Riggs

understand another. our they’re and would tools. that are well. or more implementing that say characterized would we they’re have some because very aligned everybody you and sure I these integrated all Everybody tools to our on believes units believe interesting fees more the commoditized that I It’s and say degree we are making tools

have thing to one It’s tool. the

Sometimes people the tools. they don’t have tools, use but

those understand economics how and in planning terms the in group fantastic they very world-class with those characterized refineries a feedstocks when a of coordinating and are well have understood. operating sub having our we our models envelopes Therefore job systems. do We

Paul Sankey

you Yes. you similar further what big we’ve guess oil I mega I footprint structure the think you guys mean a a would seen are so to refining in against guys wildly of to terms have underperforming previous achieving. question,

try and to what interesting is. establish just competitive it’s the advantage So,

Joseph Gorder

saying appreciate Well, you we that Paul.

Lane Riggs

you. thank Yes,

Joseph Gorder

question the on then And follow-up was capacity?

Lane Riggs

Yes.

be the or situation Far of down So, not. the early in the the that’s able to really it to it’s And I going East developing. judge think just refinery to leads too is whether for shutting and have impact to us magnitude

Joseph Gorder

be reality well of capacity coming capacity is The the probably won’t and run that well. got in on running stream. also future foreseeable it we’ve isn’t We’ve that to got able

and point assume a to it’s lot And capacity shouldn’t be run. that Paul of there’s game, - zero-sum some so going if a you at

an that. and - on Certainly world going effect it’s post-IMO a have have I to

if so guy a point got if them time. due you the And be some then And to got a has process. poorly today, economics, you’ve lengthy performing you’re in at to around going turning bow to that marginal assets is asset

we So more I better more what frankly we of our tendency a at is to do that’s look why than happening lot more what’s focus efficient mean it can to and kind and whole broadly. make business our on it.

Paul Sankey

could a it got ask extreme that assume just in you specific If fuel that demand jet there the what would industry? I there. very global Yes, was Thank weakness and mean If you. I’ll for it. follow-up. leave we And

Lane Riggs

is X%. yield about jet our [ph] Chris Thanks. Okay.

XXX,XXX, make we a barrels day of jet. So XXX,XXX

I suspect we but would that which demand and is refineries inland diesel, the happen. going is Coast it to that put of that’s and if ability stay a Some got our of into what have contract lot demand soft jet demand in Gulf to

Paul Sankey

you. Thank

Lane Riggs

Thanks.

Operator

you. Thank

comes Sam of Wolfe line next Margolin the Our Research. from from question

is line open. now Your

Sam Margolin

are you? how Hello,

Joseph Gorder

Very good, Sam.

Sam Margolin

own a and you on I but question business I not focus market have to start. said the know you your market just

Joseph Gorder

don’t we say didn’t I on the focus market.

Sam Margolin

obvious pronounced been this collapse peak it just from at that effect the but of when So seemed And a a started we a peak, in than lot was why of to is diesel has IMO at having the paid that that so so retrospect of feedstock because Part being drop the it were is more reason in effect. attention the high. time cracks. product

do ago months how in maybe And cracks thoughts the about that really have retrospect. intermediate were was will you when that can So three inform any escape we this period that? help peaking headwind diesel updated What just driving in term?

Joseph Gorder

Sam. Yes,

So refinery back of got as the we fall production to winded quarter, down utilization I see turnaround distillate up and started the think half ramp to we fourth of and obviously season with utilization course higher increased. refinery

And has what we weaker anticipated. than then overall, been demand

So IMO. The warmer a weather we would of lot lot due the a somewhat we get is that’s of thought increase to as been weather. a warmer demand of result offset,

In certainly limited has to export some of U.S. the Coast which addition a the our to very diesel the export Gulf ability heavy that, markets. we’ve had in fog, to

In very addition export. to high we’ve that which had to freight again our rates, ability hinder

South a had big course, of They’ve rain the us. America for in market has which export a is Of lot America, harvest. South delayed

demand. a having hit So again to

then that And thing of the final of stocking low fuel oil the pre think I lot industry. was a happened in very sulfur is there

far impact so that what demand so, are of so in seeing more but quarter the will will than first be confident We type quarter. increase show would demand up And it that it’s far we’re a second IMO that muted the certainly have.

Sam Margolin

strong really very Okay. And diesel. renewable my It’s been are on it this accretively. said economics scales the Thanks. call follow-ups on already

imagine getting side, business feedstock constraints as this bigger? there are the On any you

and recently your in future. pivoted of a in of strength the that avoid little who of bit There with is the see possible your Or Diamond feedstock the operator tightening you business does was friction? Do that? help kind – you any partnership on said another was side the

Joseph Gorder

partnership of the the our meat us. of world’s byproducts. with XX% processed Well Diamond helps definitely strength They

So is and we’re the capita have. the to GDP position per Feedstock growing in that’s growth tied world. a with in unique we JV

to so up source feel being as good talked far. what we we it’s about to able So still we’ve constraint with a and going don’t about see tighten it that but some

Sam Margolin

Thanks right. much. so All

Operator

Thank you.

the Our from next Paul comes question Cheng from Scotiabank. line of

Paul Cheng

Hi. Good morning, guys.

Joseph Gorder

Good Paul. morning,

Paul Cheng

Gary. for think is the I that one probably either first or Lane

quarter. historically quarter? - - guys capacity whether I that the be have export high have the suppose fourth sulfur that whether the tested if do low And you here? directly to how also crude is that in Have M-XXX; And for the configuration you to do you unit. or You may any - big won that directly you be through one able will the you the that

Lane Riggs

Hey Paul this me start is I’ll Gary and Lane. up. can round

As typically ran. you equal. We but what history - quality not in XXX are alluded quality. have be consider to, window to running would we had we a a varying historically we’ve XXX, They all We’ve a we them resid. stock run in obviously There’s long created in cutter We crude run types little those of we of widened out. and do -- a our run have bit supply. that

about we’re that, for year. resid been and the running running well, an fleet And past doing to the we’re we the a And to of raise of because that’s percentages crude crude makes buildout it the think as is obviously refiner. you what to advantaged them, so fill really the then we’re as bottom supplement

crude really envelope operating that with it’s all we for are at were So, constantly the optimizing by sour And all then find optimizing availability. can call the the resids these time the we versus domestic light in heavy resids we looking that the the over world. opening

them. trying always And -- new are of and that’s more the run hard are of to worked to these we’ve really how run. kind we market that characterize of some to just We’ve

second So, what question? was your

Paul Cheng

have the I you No, first no export mean sulfur any one resid?

Lane Riggs

Yes.

far we same quarter signals sell economic a and signals quarter in did in our bit have economic crackers. the of seeing it been quite so So, we’re cat to low sulfur the of the fourth the out first And

Joseph Gorder

well. that run that addition exporting that normally a we so addition to in lot low - of as sulfur Paul in ATV In our we’re we’re to also

Paul Cheng

of is and economic you I that perhaps has the people mean margin how What the have thought? than export? of kind much better part why been your reason

Joseph Gorder

quite what resid and selling bit low quite we a I above sulfur a the bit were of worth? particularly mean ATVs Yes. been historically process hydro some they those above obviously other

Paul Cheng

is you any volume per per barrel And barrel Is it there share? say day, number? that Yes. of XXX,XXX rough can kind XX,XXX a day

Joseph Gorder

share don’t No, to want we that. probably really

Paul Cheng

Okay. to run XXX,XXX would any you room Final more there one barrel be that expand the day per WCS. of able you that? Is

Joseph Gorder

Yes there is.

-- the to Canadian. City. have We Charles of Canadian also at take we have run more Texas St. we Port run plenty it capacity Arthur we can primarily to and So, in

Paul Cheng

get about supply? Can How you it there?

Joseph Gorder

can. we Yes,

out and buy the the lot pipeline problem So, to we of today rail. coming out by is of but certainly Canada volume also we take full pipelines a continue Western are

think I So below did day the Canadian quarter a a fourth of we little barrels heavy rail. by XXXXX in

volumes ramp second We’re quarter. up first and those the up the seeing expect even quarter to more in in ramp them

Paul Cheng

Thank you. Perfect.

Joseph Gorder

Paul. Thanks,

Operator

Thank you.

Our of question Neil from the Sachs. Mehta Goldman next from comes line

is line now Your open.

Neil Mehta

morning let me add Good and my…

Joseph Gorder

morning, Good Neil.

Neil Mehta

I on issue lot the spend a carbon we Lane the here and on Gary promotions. more we time is my of with investors guess than in ever first have question intensity. ESG. about ESG for maybe it’s you level of And carbon intensity. the Valero’s about think just really could talking how And and to you Joe high talk framework side the investors sustainability

to big around? renewable and targets would you diesel how you’re be carbon disclosure difference and of of like business want where a feel respond part think the that emerge you Do there narrative becomes you on then the I to might any

Joseph Gorder

a time Yes. Valero’s and speak a frankly think No, lot let question. in some those are this story. for lot you responsible And responsible of We do spend I’ll a efforts great this. our And John jointly Neil guys good this. And that’s are And two made got of progress. around Jason detail. a on is I we right. to really

Jason Fraser

bit is Jason. a Two correct. is about strategy glad be you this to you are to of three And – point the segments little you of it. about our made course, I’ll talk now as Yes, renewable. Neil

diesel largest producer area continue We’re discussed. through look renewable to ethanol in as U.S. expand second producer largest DDD the and we’ve at that of it we and

to we’re our low business. at looking And and lower existing carbon also fuels carbon other our ways intense

business has So it a footprint.

I the to market have think as changed. evolving we’ve been expectations

that a job done you’ve side. think I on

been our In and had our refining In ever we’ve contractor had of employee proud and record. on NGL in scorecard combined best focus lowest employee a about On the the impact. of big we best company the very rate environment lowest rate our our safety is side, performance we’re ever always ever history. ours. environmental was events our always mindful number has We’ve XXXX, it’s second environmental our been XXXX was

a have XX of we think We our good directors governance structure. are XX independent.

have on. diversity we’re working is We substantial always something

good really oversight, risk our have risk governance structure. management within We

put more we’ve then which on things up ESG In last our the of September beefed report in on And area. the is published definitely years you the as here asked we XXXX, area focus disclosure risks the of couple and on we about, it one opportunities. climate-related

as be and coalescent that they And alignment a around recommendations that lot – out being to are more in be our there. we with seems which the regimes more seem TCFD prepared There investors a standard the to of want. competing

where annually stewardship try also the So to standardization to continuing see about and that kind to responsibility every about report out they year also play. us were just of other on work some stuff into to better. and about make good we’re a but some we sustainability-oriented carbon areas talk putting come And

once outside large know the standard. year maybe and SaaS in what I some being as And people of again disclosure been want. been there’s a there’s variability different may lot focusing of And structures carbon investors on

there doing a improve. to comparing this and to taking year we we’re if to So SaaS hard always to see at what are look need tweak some looking we’re things

Neil Mehta

I years RINs, relates question to exemptions were that cases becomes And collectively a pressure the around it. our risk topic. recently actually waiver, the court is put RINs around could Appreciate headlines But of there and smaller this upward follow-up you any favorite an couple issue Right. then know some Do see least the waivers price on from ago. that for of again? small a the refiners some RINs which

Joseph Gorder

ahead. Go

Jason Fraser

neither their the see. we - the of and evaluating the this again. Circuit EPA as appeal Court options several did see Supreme go of of the Yeah one case know of last CVRs. in what is Okay. Tenth to did all whole three will they’re Denver the has and And including and will appeal, frontiers appeal, that that to options, for expect probably or vacated We SREs they refineries, like Jason out it week. two straight hear a the And was have case

So I that not judge past. know court took the past far a been the the way constrained keeping as has the by fairly reading view definitely of with it’s the they’ve in as in view done statute but the court a at in had the interpreted statute

an of is. impactful So to how idea with what judge to this does we the see have really get it

it the only because important which legal when effect clients circuit. decision at filed it, within the was they made of DC point and the circuit has is is One the a circuit, it’s

that only it binds So within DC six those EPA states by circuit. covered the the are

let’s it So see evolves. how

Joseph Gorder

RINs market it as plays early probably to result this a too see we’ll on of out. how prices Yeah, signal really. case It’s a give

Neil Mehta

you. Great, guys. Thank

Operator

Thank you.

Theresa question next line comes from Our from the Chen of Barclays.

Your is now line open.

Theresa Chen

the like Christi Gulf earlier narrowing touch at as Coast stock discussion goes that developments competitors’ seems in of comments Permian I’d on releases on to be to Joe, a continued And projects and inland. one morning. yesterday dock your your about on far delayed Corpus based the of of one may Good And pipes potential bit. bigger constraints been as there’s that area. it

we lot inland price accrued this since Corpus, public indeed current no your really might there. would how have on about benefit backed at we would MEH first get is I’m And are effect possibility outlook sure then Or the and dock if facilities that there which corporate What think constraints up? should your there’s that? a affect

Joseph Gorder

good close a Gary to question. that’s is Theresa this. Yes,

let talk for Let’s him minute. about it a

Gary Simmons

Yeah.

very there get but plenty time will tight. capacity it be So we’re this, are some look there where of periods that looks when we dock available it of -- like could at

the sure has lines so of focus of been can to connected all And Corpus our Permian to Rivers. to coming out that we’re really Three barrels or these make and take we

expanding we’ve from capacity Christi then refinery. effort Corpus put also our our dock into And

XXX% able is export completed. essentially So that capacity we’ll double By part our we’ll be system. quarter and that second completed early have project project of that to put our through

as And of Permian really I The on. back it the probably part second the first. affect would question, its time yes, work to it yes, posting your goes then, will into way MEH expect

Theresa Chen

And gears a bit. it. switching Got

this seems you about year? could talk be can how So outlook this business depressed, pricing tailwind the of much pretty natural for a gas your

Lane Riggs

Well, this Lane. is

part a And the So is in it’s business. that’s our -- been obviously depressed cost of big energy structure for while. a

not advantage as our So it’s largely. refineries we advantage U.S. run a to world. gas really obviously compete mean to I And it’s -- in general. works advantage, natural refining only these the industry’s for big how in but the it

Joseph Gorder

all Really industrial activity. Yeah.

Theresa Chen

you Thank very much.

Operator

Our next Morgan from Wong line from the question of comes Benny Stanley.

Your line is open. now

Benny Wong

Canadian to perspective Coast. morning. more Thanks question to on I your to viable Gulf Paul’s building taking barrels units, of talk just more about north a of question, want that, good kind Canadian for wanted around Hey, that’s if barrels. my get follow-up the path There’s the kind of reach U.S. on for just

And just kind of the any facilities? they’re really been unblended And desirable that’s these curious feedstock you bitumen totaled if what’s of or type at? have tested more of

Gary Simmons

refinery ongoing from and our at it is discussions Canada and ran Yes, St. this at directly Gary. several Western so producers. And we took Charles have bitumen with yes

system it have barrel into run it. of by be a to move and fit well able to and undiluted lot get rail, if you take we capacity our can You would plenty more the

Benny Wong

will that. the setting it in standard RFS more and octane Gary. about And seems There is maybe that like program a XXXX? the focused start on higher it can is. seems what of in D.C. chime Jason look sunsets alive And Thanks this on gasoline is Appreciate my again. follow-up in be program more like after to

really Just this and get thoughts if And wanted about to your at guess beyond is if there you or for think path program Thanks. XXXX? time that? on I a that

Jason Fraser

it’s but volumes open. a set to We fuels falls that that’s the the EPA great The the of hands the to do, Jason. XXXX. They standards you’re part of and to in about they’re And set what this signaled Sure. still octane got is program like Yes. to using hadn’t into expire would And back certain a lot right the volumes as think solution. the going it answer. we be tables

and It carbon this lower all those great competitor. world taxpayers, great combustion It’s engine for maybe keeps the in us. evolving viable more it’s more for internal for

octane. its great And they’re a ethanol guys choice of for because good low-cost

it’s that like we a great the definitely win/win/win We are it see country. would really to it’s solution So think for attraction. solution the talking up. a we And

Benny Wong

guys. Thanks, Great.

Joseph Gorder

Benny. Thanks,

Operator

Thank you.

from line next Roger of the Our comes Read question Fargo. from Wells

now is line Your open.

Roger Read

everybody. morning, Good thanks. Hey,

Joseph Gorder

morning. Good

Roger Read

benefits little sort more the in performance. And the of global good the and bit versus natural There from rates on performance gas to benefits NAPA, hit and butane. from issues stuff the of months but also North couple mentioned some already been with here, just things like Lot of a tanker some maybe you’ve from in were that. dig last American

everybody those events, takes business call So them or quickly. let’s it as of pretty this advantage normalized in where

curious worried much What advantages. here to there, benefits We the versus we’re are – grade hey, not months the more has goes thinking way sustainable you gasoline go own to its our just what just in for looks which looks going so transitory what next seeing? few you’re

Joseph Gorder

where sweet to U.S. Yes many running of assets. We’ll domestic having our as good crude markets, advantage is clear I go. to rates the the despite freight production think overall as export long light see at

into the IMO would of to complexity sulfur high and stocks We high sour looks fuel of the bunker what as I favorable very foreseeable our also the the Outside else spec don’t be well see that for future, running result blend I heavy as add. change. assets that, know a

Lane Riggs

I I’ll one Roger, thing. add want line. just one to add

SEC what then for low And constructed for - that marketing cut. market. fuel into and be is oil SEC sulfur does low to what is think really seeing is really we I the as alluded for sulfur going low gasoline you’re to; are because VGO that sulfur ATV we’re

playing and in, certainly about to you’ll - IMO sort mean talking market for rolls we’ve going mean, into the season really to past a the the essentially see is it I of years the that over I get about when we out. two feed that’s have were is talked you’ll gasoline compete it of for gasoline market. that last part as

diesel. be So, both should supportive gasoline it of and really of both sort

Roger Read

there’s of OpEx Yes, that. consolidation over And Obviously, higher natural gas. is about the we’ve years. in and to been question over than guidance cash seen of kind And I changes Okay. then the Teresa’s some back all X% few what last helpful. of know that’s VLP maybe

going on can things side OpEx moving that a that I be But end? here OpEx Or keep help something curious that there upper the was just the around see? are other to should on is we

Lane Riggs

Roger, you if So, again. hey - is this Lane

if flat. much basically our turnaround timeframe. That’s quarter XXXX you our XXXX first to pretty sort compare to quarter So, is of guidance first large

that’s flat But Green our so goods would of the all we’ve sort had you structures. Diesel stuff realignment sort certainly, the taken OpEx. of been we’ve moved which year-over-year. out in when We renewable And MLP have in our Diamond just the it say would the and I reporting into cost longer at and came look term, of

in that as in of so higher. sort bit all OpEx little little realigned we bit stuff And a terms a it our resulted of

what performance it when And in of when in would call first you our on means so are comes cash inflationary we pressures the we which compare to then the pacesetters you the overall there - are quarter, there’s industry by obviously some OpEx the far cost. again, a When - world. are we sort in overall basis

Roger Read

That’s answers. guys. Thanks, well pretty

Operator

you. Thank

Our next of Brad comes from line from RBC. the Heffern question

Your open. line now is

Brad Heffern

Hi, everyone. for question A Lane on maybe throughput.

X.X So quarter this barrels there of suite. million was day almost a

have that X.X%. like more guys quoted you I historically capacity think is

you running So, Maya forward And Is the then going how the should about that resid is dips we is that with something think to of something widening that’s like changed? that there out? do? allowing some

Joseph Gorder

really So, I components. we’re doesn’t it much running on the that touched what as you’re bit of more and resid little more lighting earlier kind a have

up sort medium move out you that - year-over-year look we’re if at as and real the really thing or substitutes of sour. it heavy So, backing either

light it. So, sort is sweet more have of what’s more it’s doing medium which running and which what -- some happening into is for substituting we’re that’s does

max and we on. we’re journey signaling a heavy fleet and crude light We’ve heavy crudes been that’s So, max sour resid. optimize between and

we’ll higher, so but a higher can see how that lot And whole go. just and see can we know don’t we’ll we -- and quarter-to-quarter I much go

Brad Heffern

past. a talking then bunch Joe about haven’t and of sort mentioned for comments, different M&A I were in Thanks whole that. know capital in prepared you for recently. you you Okay. And you have as competing the done your things

what You’ve the of be some the acquisition. potentially I put just would you is any interested guess ethanol in done on you terminals terms can in that M&A meat or front? deals on

Joseph Gorder

let Yes, that? about we talk why don’t Rich

Rich Lashway

is This Hey, Sure. Rich. Brad.

yeah they continue look we So to at arrive. as opportunities the

things of the we arise this seen arise, stuff advantage. capture and tends Coast just niche there. to markets. where a a lot the focused would they in of haven’t and lot synergies have be we As And Gulf the we’re That’s would on where

that So I up, but opportunities any look projects see don’t mean, that we compete we organic everything the at we of as have. against it pipeline comes

Brad Heffern

it. Appreciate you. Thank Okay.

Operator

Thank you.

Our line next question Gabelman comes from the of Jason Cowen. from

Your now open. line is

Jason Gabelman

like follow-up. to ethanol in of bit markets? you diesel indicators And like quite from XQ year? how And question about throughout renewable have on what’s wondering looks a I Thanks. just ask segment. Yeah. a fallen the a see evolving course And have morning. those Hey the I’d year-to-date. two going that guys, It to the and I’m the

Martin Parrish

Okay. This is Martin.

the diesel, you now. renewable tax the -- blenders the drops the credit place in On have indicator because

the add RIN, on a bit little you market feedstock costs is. got a get higher, really where to indicator little to that up gave a need we but So $X to gallon

all. at forma, $X.XX but XXX is really that’s So again that so pro we’re concerning gallon, one a EBITDA not per

correct a I January. tough gallon, demand domestic quarter Fourth business. build ethanol is inventories the EBITDA was in gasoline always ethanol you’re $X.XX mean, our that’s and January was in there. is come low, performance always in what

in for at breather due and XXXX several ethanol they space years. oversupplied XXXX. XX% what’s we’ve growing were that to was sugar U.S. the through up CAGR in the been Really Exports really happened took in low prices world. a the

made Brazil ethanol. So more

averaged they are XX% though is XXXX, strong. prices now up Right sugar versus where export demand

numbers We’re good really December, seeing January, February in March. and

really this ethanol and of the hopefully industry higher fuel the stay - standard U.S. is EXX, obviously. incremental still mix we to octane would help bit the little then So in in

the So we’re future. about still optimistic

Jason Gabelman

running much much around could or fuel of running result? high sulfur I crude intermediates Can I put And that thoughts. appreciate of just how a out -- just numbers And backing incremental as if how some those that then Thanks. go you’re oil. resid you feedstock? those back discuss and is to

any is? Just a economics barrels. running give but to per single-digit uptake high per on indicative double And digit you us are we to understand there’s parts, those addition in the sense a are the I dollar there moving low of of barrel, of type give lot barrel that, dollar could that in what Thanks. single-digit range? talking

Lane Riggs

Hi.

is Lane. this So

what low detailed off market that. margins our share to They’re volumes a the is function in obviously a going And a out crude the are out another. of all are trying market, sulfur two function respect how market we oil there, the dynamic the sulfur the with of market, still is. themselves of terms not all that’s do fuel which latter high relative of market, to not the one There We’re to fixed IMO sort fuel XXXX.

like just feedstock any we other vary things run. these So that

are to not optimizes looks margin and the all different relative time. another. this at And guaranteed refining the margins going be There’s a over one to capacity then they -- all as if

anything that that there’s can -- can you So, your not communicate per there’s hat hang se. we on nothing

Jason Gabelman

Thanks. Okay.

Thank you.

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

Your line is now open.

Matthew Blair

just only product given areas weakness? all sulfur fuel how X% your high on it’s realizations in recent wanted and volatility on but slate, check has I on to pricing know these I coke. pet in asphalt fared and the of about oil the

Gary Simmons

Yes.

is this So Gary.

that we’ve But have an on relatively of we’ve And to the an asphalt have impact asphalt may system these weakness. of wouldn’t push much coke. been high that say all you far, our sulfur see lot margins seen there surprised a overall remained strong. I be would thus market, margins stayed in attempt I at into thought We asphalt strong. think resid pet

Matthew Blair

Sounds diesel the strong sales fourth And the renewable in then volumes in quarter. good. were quite

run to result confirm or inventory wanted those selling down of that was did some Just actually at to a levels? the plant

Gary Simmons

We ran at those levels.

Matthew Blair

very Okay. Thank much. you

Operator

Thank you.

comes the from next Our Jefferies. from Chris question of line Sighinolfi

Your line is now open.

Chris Sighinolfi

have earlier I investment taking guess two And first just for could. to carbon capture if I question CCUS facilities? wanted off questions. I Neil’s to Joe sustainability looked I my Thanks incremental you have questions. follow-up at everyone. Hi, on

I know some of some peers your of are to on EOR on operations. their working that facilities integrated specifically ethanol using

something wondering just at So, opportunity what be? set looked I’m the you it’s might if and

Joseph Gorder

it. team road a are kind this. Yes. and at down put they of We Martin on we’re And together looking got and the Rich are

the I is like project to always you to question care about economics to are of that what the think wonder -- going I the real cost we’re in look guess like investment going trying on what’s be this. an a

we So, are at looking it though.

Chris Sighinolfi

has [indiscernible] second pillar refining light a BTC it’s sustainability And valuable your from then Okay. key clearly environmental guess which become story set the is peers. clearly I of as your apart in in noted extension more

just But businesses guess make ethanol I’m independent? credit for think you do being Valero? sense Joe about are internal what you any within the if And curious when and I evaluation that appropriate or franchise more get might thoughts those or

Joseph Gorder

it ES&G think we is think from matters Yes. I do Well, an very and different those does. are questions. it perspective two One definitely

We happen to the what we’ve a really clear and they now. of a -- is very is teams. good things And believe both great world the is have demanding fuel key are going and good news where view businesses we that. great of that And and renewable got be component assets what

others So, see people as of these from out because there time Valero perhaps will differentiated I investments. on, think somewhat goes that

they intensity as and Valero motor types off, far fuels, of very produces producers my fuels of motor fuels, but they’re separating carbon view fuels are them and As is motor different low motor motor fuels.

really to do the integrate are refining processes and plants these well. That’s renewable we what are they to the that on implemented well, scalable our we’ve largely and side operations. operations business diesel it is our And and ethanol process

Valero embedded think brings the I company, value more split being out. in to it it And it frankly that so would just

Chris Sighinolfi

for Thanks it. perfect. time. a lot That’s the Appreciate

Joseph Gorder

You bet.

Operator

further time, I to turn this no for remarks. to back At Bhullar would questions. call the you. closing Thank I’m over Homer showing like

Homer Bhullar

the joining if out Thank follow-up please Great. today. any Thank IR have you everyone to us questions, you. feel free you. And We team. reach to appreciate

Operator

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

may now disconnect.+ You

Valero Energy (VLO) 30 Jan 202019 Q4 Earnings call transcript