VLO - Earnings call transcript Q2 2020 | Valero Energy Corporation

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Greetings, and welcome to Valero Second Quarter Earnings Conference Call. [Operator Instructions].

As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Homer Bhullar, Vice President, Investor Relations.

Homer Bhullar

Good morning, everyone, and welcome to Valero Energy Corporation's Second Quarter 2020 Earnings Conference Call. our Joe and Chairman Executive several COO; and Gary are Riggs, CEO; Vice other today and CFO; President President senior our Jason Simmons, members me of Gorder, Officer; management and our Lane President Chief Valero's With Commercial Vice team. and Executive Fraser, our

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

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

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

Joseph Gorder

affected all economic has challenging impact aspects. The people severe including many downturn in COVID-XX businesses, many has health and Homer, been of had the This morning, a ours. good ensuing and has Thanks, and and on so global year everyone. pandemic livelihoods the

hungry. stepping whether care sick this its those be regard, team it's those part. doing to need by providing gratifying are to may are our In circumstances our up, As it troubling as time from that food that in time, to helping individuals is those selflessly or health to see be

Valero's know, the country's you As part probably of critical infrastructure.

to keep fuel to providing reduced furloughed our volunteering responders first their difficult or critical generously, through we courageously continues and moving. needs the our tirelessly operate working supplies that our continue and period. off, I'm of that team of country our such, laid plants, who give proud and employees compensation to the this As not have time dedicated XX,XXX any

we Our or asset of and steps to had COVID-XX the to health, make top important to the well-being and employees them greatest work take are company. to at priorities. keep our In headquarters. Their heart among we'll we our they response our the the safe remain field continue shutdown, safety in whether And We our pandemic-imposed necessary of XX% April jet orders for decisions. and the stay-at-home demand last to ethanol product supply gasoline, normal reduced period match XX% for financial year. for demand operational first diesel saw and with and were XX% plant bottom relative out the When in demand. rates issued, same our fuel throughput refinery to at

orders during jet and As travel and stay-at-home to the of XX% of XX% most demand quarter, eased restrictions diesel through of recover XX% and normal, recovered saw gasoline the to fuel the to second normal. we regions U.S.

in recovery and America to product a saw in exports June. also We Latin Europe

and we in step increase prudently ethanol product refining demand. the As a result, with increased throughput in rates

low-value which to Notwithstanding earnings undrawn; raised St. on honored additional making in credit year, maintained diesel under We is demonstrated alkylate year. actions per the annual our mid-March year. buyback Unit, prudent an dividend and invest production in XXXX are our on stock which per and secured XXXX, fourth Board committed expansion feedstocks projects year, premium expected and And expansion by remain progress all Green bringing of the of XXXX. we the XXX capacity project Diamond be Pembroke program are expected this, strength. designed completed budget took this we've to project through maintain to earlier growth suspended Directors Arthur million Pipeline rates; expected The total This our a to completed to million The for $X.X XXXX. completed the commitment Cogen year. as into the Diesel increase expansion capital attractive gallons Diamond by per we to lowered $XXX of product, be project approving be by continue to XXX a financial in to development. convert temporarily our renewable beginning renewable at in low-carbon diesel quarter share is this of $X.XX Coker business. our completed quarterly month. is track project to strategic dividend in of is discipline capital is our gallons of expected the Charles capacity project The also to this And Port and Alkylation deferrals to debt million; facility, We remains be this billion and

progress Arthur, Green make the for the per a to million facility. new plant diesel Texas on review our Diamond addition, at engineering continues Port In renewable potential Diesel gallons XXX advanced year

volatility focus to returns. in demand, honoring investing the recovery our earnings remain our our of the on and stockholder we to we execution steadfast for strategy, in pursuing operations, path As with commitment product growth with excellence improving lower

capital through downturn, us our uses our prioritize pandemic-imposed This sustaining position capital expenditures should of to to dividend. current well Valero execution rating in and recovery and and beyond. and well investment-grade on focus it uncompromising nondiscretionary has continue the continue capital, discipline the and credit We including served

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

Homer Bhullar

Thanks, Joe.

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

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

of inventory $X.X XXXX exclude after-tax lower benefit approximately adjustment Second or billion. or of valuation results adjusted market quarter the an from cost LCM

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

inventory adjusted operating LCM million. second segment Excluding was for loss valuation the the refining adjustment, quarter $XXX the XXXX

XXXX, XXXX. Second XX,XXX the of million per was an million averaged second diesel million for quarter second $XXX $XX the XXXX. $XXX throughput second increase the prices XXXX. quarter utilization second throughput the adjusting lower compared for income of Operating XXXX. of income million sales lower barrel of retroactive of rates. gallons Refining in in second versus impacted XXXX million quarter the quarter the cash the quarter of XXXX XXXX operating lower to barrels was per per $X in lower higher capacity of for of quarter quarter to the the quarter of Blender's X.X of volumes was product demand COVID-XX $X.XX the primarily XX% in income which XXXX and the of were Throughput lower XXXX. pandemic. operating of Tax day second Renewable a Credit, as effect by for in After than to second XXX,XXX XXXX were results due Operating than diesel result compared was second in product demand. second quarter the of averaged the day expenses of volumes gallons barrel day, $XX per segment due second adjusted $X.XX to quarter diesel Refining segment the renewable million renewable quarter ethanol was per

of production from is due Ethanol ethanol resulting the quarter averaged volumes of operating from Excluding segment million. and gallons lower to day decrease which the lower XXXX, XXXX lower the million margins XXXX gallons day adjustment, loss from for throughput. benefit valuation XXXX. ethanol X.X was LCM in per $XX the than prices primarily the second quarter second income the inventory per quarter second second adjusted of the operating lower was million in quarter The adjusted X.X

the of the and tax Net administrative quarter $XXX was and expenses were the in and income $XXX expense provided interest international expense operating tax of XXXX. that the than of activities million, certain affected in second lower the XX%, million of $XXX of was XXXX, rate was taxed are second results XXXX. $XXX cash quarter that and which net million. are quarter Depreciation second was million, by effective the million rate. by The statutory expense at was rates operations For $XXX our was amortization U.S. general

changes catalysts impact the partner's in $XX venture Excluding from favorable by working $XXX share XX% working turnarounds, Diesel's total cash million the in excluding provided was With growing operating capital we its the for adjusted million $XXX million net the business, the of regard was made investing to capital, capital Green and in the approximately $XXX of our second as by of regulatory activities activities million. change of which as operating Diamond joint cash million sustaining provided for $XXX costs investments net including compliance. business. Approximately quarter of for well of XXXX, was activities,

our capital Excluding Diamond Green $XXX Diesel's were capital share Valero's XX% investments investments, of partner's million. approximately

dividend, operating Moving total million in provided the ratio cash a second $XXX stockholders payout activities. to quarter We our through adjusted in XXXX of to financing net resulting activities. returned of of by our year-to-date XX%

to cash position $X.X end, to approved $X.X cash XX, dividend As end And debt cash. $XX.X billion $X.X investors. sheet $X.XX demonstrating The XX, At at balance of equivalents, to lease were and we Board per financial Directors and share, the With billion. billion total ratio, repurchase debt our of available on cash had sound net billion, capitalization authorization further and July had June approximately cash and respect of liquidity, quarter equivalents quarterly obligations excluding we of our XX%. was finance June, were share of commitment a cash remaining. of return our and of

to expect catalysts still business with $X.X Approximately renewables CapEx overall allocated which for is about XXXX joint to growth. Turning for includes XXXX XX% XX% We and of be investments approximately the billion, XX% expenditures growth business. sustaining turnarounds, our expanding guidance. capital allocated to our for venture and to annual to investments,

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

With and which we expenses respect $X.XX barrel. diesel XXXX per day as the per quarter expect gallon, in amortization. refining costs the in be sales to per renewable Operating be gallon cash XXX,XXX be noncash depreciation $X.XX segment, gallons We expenses expect such $X.XX volumes XXXX. approximately should operating includes to third in per to for

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

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

XXXX, be expect the expenses, $XXX we expense to million. excluding depreciation, million. the year And $XXX For G&A between $XXX million to and for we corporate expect RINs approximately be

Lastly, as our CARES our and pandemic opening discussed due earnings we on as its Instructions]. well not the beneficial tax effective on business, remarks. impact of any tax COVID-XX last the rate guidance Act providing provisions our impact our for as in XXXX. are concludes the the to [Operator on call That

Operator

Instructions]. [Operator

Our Prashant first of question comes today Citigroup. Rao from

Prashant Rao

So in strength how to through the it's versus versus we else? and as of quarter the mentioned to product on we the And the on of how sense everything been demand since? rapid recovery get Joe, Can buckets a product terms demand in if trending of XQ. and I recovery. that gasoline you entered jet color could, wanted start of you think diesel about current any demand

Joseph Gorder

want Gary, you to? Sure. Yes.

Gary Simmons

I'll through walk sure. you it. Yes,

So I'll start gasoline. with

fall to demand we what of XX% As Joe saw off mentioned, have. would about normally we

X/X expected. second have transition volumes most at we fell July. demand has XX% of as By we gasoline than would certainly in to recovery of as export be they our to In recovered you typically were May, Our see system. we've quarter. But continued XX% about normal faster and where mentioned, June, into the in demand people normal,

XX% we volume On as XX% out the the have on estimates of back quarter. to our X/X bottomed export side, normal export the volume. mentioned, we normal export were the about about By in July, we typically with we June, be volume. export I of today, of our we'd

appears expected demand pretty to than gasoline certainly recovered would most faster be have and has So strong. much

destruction On great. demand the the wasn't magnitude the nearly distillate of as side,

recovered demand we to we XX% of to off mentioned, As pretty diesel our typical normal. about of to system, remained of fell we've In But about about back quickly XX% normal demand. XX% demand. XX%

XX% to is below reporting. that's the However, was closer what The diesel DOE demand. DOE

Three Also our And of gasoline there maybe upstream X/X in activity, demand typical think sector. into we seeing of with seeing in and difference a had is going drilling in market, the just lower nationwide. I little we lot our diesel the about Rivers a the export we're certainly the key system, off we're volume than May. less to fell like export diesel

Just were back pace, up like good a And stronger. export normal July. to of in our diesel about really June, actually demand export XX% picked at pretty has recovered gasoline we have In things demand. for

estimate we Our volume's current they XXX% of were for export in July XXXX. July, of July showed where

looking I interesting in the think diesel those production. the other export when at numbers thing the numbers Coast at light that's is really look U.S. you of export Gulf

year of X/X our export what to you exported XX%. if year produced, our diesel estimate July, produced. this exports on the be July we about our at of refineries last So look volumes with in they

are almost our going of So refineries export are what to making the half markets.

also side, DOE would normal. demand. of demand in stats On week's This recovery show can about the jet jet seeing XX% we

highlights DOE diesel jet of refinery off recovery yields I demand from think the fall data importance the the as really you've recovered, seen demand in has significantly. jet because

diesel yield. about XX% XX% that's down about diesel So peaked come yield, where we've at to

will recovery, you demand see the supply from As yield which diesel off diesel fall you'll jet see help to demand balances. the refineries, continue really

that jet of bit on only the we're the would the the sign pandemic with the spread slow of efforts that's of jet to into think little side, a I some saw July. many troubling. bit but little renewed be and that Certainly some our are of good from in down, we shutting for a we nominations line sight August states have demand lot of demand, a of the down what don't seeing

Prashant Rao

on is held sheet. Net That's balance positive free pretty including working the quarter. the flow, Excellent. sequentially. was well a just debt-to-cap in tailwind, My follow-up cap answer. cash great the And in

corner improve the around does we're these here, like in if to we ride is you're turn seeing it to downturn, feel pullback defensive That far levels, in absent say sheet? on if where this slowly bit what taken sufficient recovery feel in a and Given the are XQ, not year we balance you've to that out demand? another at the commentary the so this the hold demand measures can starting already from

Joseph Gorder

Yes, a we take Jason why don't at shot let that?

Jason Fraser

Hey, this is Jason. Yes.

you're right. think I

we and of available, what $X.X now, other think $X.X this have billion that's how right With do now. the see see liquidity in out the we for cash we it liquidity billion we playing adequate --

Prashant Rao

Okay. new congrats Fantastic. promotion And the look Jason, more on you the in to I to role. and the that future. talking stepping forward front on into

Jason Fraser

Thanks. I appreciate it.

Joseph Gorder

Thanks, Prashant.

Operator

The next Theresa from Barclays. Chen question of is

Theresa Chen

quick commentary that related question estimates side perhaps be some of, such forward? that how permanently was Or XXX% permanently impaired current can any of LatAm. a that would Prashant's much capacity you're your is demand? seeing, perhaps and in operating do region to follow-up market is or optimized of it the normalized The not down that you versus the think on shut about you pent-up that sustainable? you Just think it demand think going levels were economically related, that take optimal share And previously at maybe refineries or I

Gary Simmons

Yes.

is we has of currently prefilling States. when So see we're a we've the the constant. I exports United diesel has that's at that arb And export a America, much export the the cause are close we ready recovery lot to go spike open. little we volumes Where and going. in volume it in you I seeing recovery what winter, some steady a our type But seen, Europe bit. think same for think of the flow to get their getting which as have volume markets really and demand of volumes to spike arb is open to July, demand in to for in where fairly is incremental that may been our least pretty America, system, of very Latin could Latin do inventories been is a

Theresa Chen

the then it. front. to Got And switching differential

I'd to to given to interested in how your And commercial react or seem your differentials could be views presence, DAPL. we hear just regulatory have expansive So several specifically projects pipeline purgatory. on

pipe So but do think differentials, create think perhaps only your that shut is down, not also pull that a What if could how here? Bakken are you you WTI? And thoughts the impact on do will like Cushing?

Gary Simmons

Yes.

So some their improve definitely, efforts certainly if the help differentials. operate, clear DAPL isn't it allowed the have We to Enbridge capacity to that yesterday. They will could Bakken see pressure out weaker. Bakken. came to moving

Of course, through are we that Enbridge system, connected.

our X Québec. line are We to

that volume for have an Bakken benefit to us. would So a we'd Québec, be to which bring opportunity

are differentials, impact forecast significant and WTI think where pipeline don't see In I WTI the terms the a of we having production I capacity differentials. the for really is, where with on on it

$X Brent-TI incremental we're it is based and to mode where kind a think cost of clear. to in get range the I in probably $X that on the Gulf to

Theresa Chen

Understood. Jason Congratulations as to well.

Jason Fraser

Thank you.

Operator

question next from is Crédit Manav Suisse. of Gupta The

Manav Gupta

more is policy First a this of question at a point.

Joseph Gorder

hear we you, Manav, can man. barely Hey,

Manav Gupta

So is better now? it

Joseph Gorder

Sorry.

Manav Gupta

Yes.

point, Joe does in on post So at renewable them to can't nominee the clean and that diesel diesel there is on you chance Do of go energy not the side, point you President but the that at clean energy some agenda but renewable renewable to a you school the policy time? see big this of buses agenda have go can it, Biden's diesel. a on expands electric, of trucks encourage and Democratic thought includes

Joseph Gorder

let Halls fainted at made when a Rich take shot your everybody proclamation. okay? you first We'll Manav, answer, the

Unidentified Company Representative

on renewable take to that. amount have the a the in is that manufacturing farmlands. away with based huge And the and rug with are to country point some his to of the nobody's any is with one from that I pull would I don't some under administration fuels. have thing union in of that things to associated out the There's want Biden that priorities. we Same infrastructure we So the going familiarity that comes there. that think that's going want of out the out jobs

to And statements a think for electrification, And diesel, of big so fits play. big there's renewable about role and marketplace having see diesel lot positions significant there's the it a but there [indiscernible]. I a role aspirational the and out we we in play, renewable a strongly know of

Joseph Gorder

want you anything to Martin, that? to add

Martin Parrish

get if so-called you with vehicle. well I'd numbers, to just you true intensity, look No, that. when zero-emission competes -- renewable carbon at look very diesel the When echo at the you

You're renewable California. already up XX%, XX% to in diesel

You've clean in the and Canada, got mandates out XXXX Europe, to in York California New standard fuel coming proceeding.

we -- see come. the just Rich fuel to as future mix in and just good just So this said, as the a and feel we long globally worldwide growth time really about the for

Manav Gupta

was follow-up. That helpful. One quick

the is showing basically a helpful, capacity your I'm per a of versus indicating Monday which But some actually trying indicators regions? at the out, better you very that why of you which is showing front, the $X is versus variance some when regions rate So the so most are on are margin to your Coast, where of positive Gulf showing understand, every Coast Gulf the just look region improvement. barrel change May, on all improvement, the put other

Gary Simmons

to the Probably biggest crude is variance the due differentials.

tight, have differentials $X. but few in crude move medium $X.XX sours very and days, we've we've heavy seen last move Canadian been the the seen So

on we and medium indicator are that sours, Gulf and of other versus positive the a the which lot the our sweet. Coast, have heavy more so primarily margin impact the on regions, so And run would

Operator

is of from next Sankey question Hubbard. The Paul

Unidentified Analyst

X which And to months, last Obviously, But actually, anyway, feel wondering a been basis. but suburbanization changed spoke. debate capital. side, it's we extent long was X demand has world accessed Hub, and you it's can not Analyst how we and I Yes, since months Joe, Hubbard. intense, gasoline to the secular you've is clearly, you've air referred more travel on what the a

is very one but would further U.S. crude became for balance restating seen think the Equally, different and would will does election of heard that we're you I reference shift. you've the seem now how in a a be change outlook you to the that had terms things, have about how how where since the may on and crude we're You've any in be be commitment terms comments question It guess that U.S. very much there clearly thanks very for interesting. dividend in how available we've markets CEO. already, the going of in change? you

Joseph Gorder

we quarter bet. incredible Yes, roller we last started mean, months, decent horrible. looking the year been time. the of quarters have I the then this pretty of shape, long in just the a this and the a had before business X year. lot just trough. coaster, were a It see And you us in back mean, was room Paul, to a like it's second over quarter look When very of brutal. Most for got this you bit been back you in margins off a I of right? just

could hand And for anyway, to about I a so and we're way term. got they the business we're the need if the the that we have live, on. impacts just of and coming I we've the of And way it an focused conversation our news commentary, on We're doing And this. really day quarter. with that dealing the one have run focus that's every negative probably not we well. coming doing you steady thing and last And country to going lively with over want it we're look lived us now is that out And the fearful. But continue and and you what do on is a people barraging to frankly, think are at election to right that that. long people

bit about situation? little stop talk So crude Gary, anyway, I'll there. a

Gary Simmons

Yes.

So forecast about. talking what confirm see we you're I think most

demand oil of a that sour greater gets I production. with more percentage picks up, think total As filled

especially have will advantage U.S. bringing is of be barrels the as oil. Gulf U.S. with the course, that then sweet exporter barrels assets, well into and still our more aspect. continue that to a heavy some from as as market And the complex sour long on light that is on we're And refining our the crude getting flexibility net view Coast have, exporting help we'll crude Our of medium the will with us we system. oil,

Joseph Gorder

then far ball just your do we Paul, going on the a as mentioned you we products don't what's election. know that are And know fundamentally as necessary have to you and at look life where And if But we produce we the as for no, crystal -- happen. are, we it. that

so lot going conversation you for continue going a And a And can and fuels forward around for what time. very fossil we're do reality, consumption so demand develop to needs what of us continue to are have on. be to to countries -- as with in oil but to forecast increased long going and crude be

So going in that forever. we're need get this think be we to to up in now hung just the in dungeon not -- we're

Unidentified Analyst

Yes. I that. obviously, vaccine mean, change a would

read I really that is think from impressive. I've your comments the clearly of very demand strength

got we've just GDP, it's gasoline demand and quite XX% incredible. down X%, If printed actually we've you minus yesterday, think

Joseph Gorder

You bet. care. Take

Operator

ISI. of Terreson The next Doug question is from Evercore

Douglas Terreson

So of cycle refining between several years as be was that my and thinking like the and barrels closures we of that supply day well. a factors on of closures next X IEA's million couple Asia, closure because capacity it could we've the current And next related I in supply. similar seen on last seems track for recent is million, per of the economics, announcements about question is think are reason final tally X you guys years. ask And refining I over specifically how

there side want in much last different be cycle? So see this for your about the to to drag any by believe is from I factor be affected thinking could really And supply coming will the years. the it how just reason

Lane Riggs

Doug, this is Lane.

had what fundamental at incorrectly the environment for ultimately trying really structural like of and it down, big they look flow. try to is you refineries the cash sort it regulatory of where them always have market just have we've a -- becomes a big shuts a insurmountable, some of lot down. that some ultimately, should sort and And it's as things. of to configured requires sell they're either it change normally closes or sort capital, But then other obviously, whether shuts what of the and whole becomes So start view to it you -- scenario where issue,

is got a The that. had And got it ultimately, to cracking essentially the be a does visited refinery a doing a shut where SEC other They back had kept which was off one got turnaround. that that's that was -- turnaround chose and them. We in they what could it cost few the a we've like put big years of that large, complex to big and it down. alky they turnaround, so U.K., be

it it's And really they gets manage there's something due based has had, refineries. and to generally large it's but if of like these of a or makes then outflow big begin things just when refineries that's with. cash if kind negative they sort a and fundamentals, that, changing, can So it move along expenses refinery an to what outlook on configuration

Operator

The of JPMorgan. Gresh next Phil question is from

Philip Gresh

into you've here -- in bit. pretty referenced just First head and question we improving obviously, still here, soft crack as into August. That the said, July picture the are quite a spreads July demand

the where a care the a situation the extent to to you at balance supply be need of inventory inventories is lower? demand the greater underproduce in year look in the half of to think of second you against second the situation? get we're the we Do through as and take look half So to to do year current able demand the you inventory and going picture, think

Lane Riggs

again. this is Lane Hey,

back about. are. and three there There's back talked into paths respect There's So of then, to we economic matter really with rates? of inventories. it's closures how look, ultimately refiners their sort business, how a of more does believe, you sort many the need course, get disciplined to finally, normalized how X-year to of the utilization to demand range get drivers we for our just And are for

respect that as But where Our economics been utilization with seasonality we and the by in disciplined far terms to response is with the with view the be we've been being will obviously, to and in works impressed certainly, forward, demand butane we encouraged jet of really that. industry's of sort that move are. commensurate this how pool, the seeing rates expect going so

say then somewhere, year, into range to going X-year and back the early our And next inventories. we'll get of I'm view sort is of

Philip Gresh

Got Okay. it.

get with then think a kind your next that you little a by thinking would to demand could So I just forward? you normalized of of picture you Or of further margins view moving if would normalized about level improve? think to the to that imply the do just are back outlook, kind extrapolate things medium-term year, middle of how structurally terms guess, some continues in

Lane Riggs

world back the like sort the of band. should basically at believe some into normalized And look time A back X-year market. of sort inventories that's year, how we but that be sort into more -- yes, how next are it. we That's we looks of

Operator

question next Sam The is Wolfe Research. from Margolin of

Sam Margolin

net about is expansion. question my So DGD potential the

You well engineering. mentioned the this you're in established. the point, The of are underlying kit pretty seems At good. fundamentals business

in that are or a markets high said that that to California. credit that I what think is a reasonable carbon comparable other there's have a system you probability price

So this business is growing.

of or really watching? you're Or evaluation, is expiration evaluating my that this here? it the other Is some question the changes So some front are aspect I what inputs guess of design in are more you commercial? on FIP

Martin Parrish

Sam, Martin. our just is this a new going through is work. This process location. the and We're really gated

with care the refinery. sites, that things the take off the of, So there's you other integration

wouldn't -- a at. have apply feel good I rigor we're -- the to to where doing the things. just cost about not and and you It's think operationally, So say we it's get really to do to commercially pretty estimate these work I really that we

decision start a in and XXXX track. final to early make forward, expect we're So operations in to We're investment if go XXXX. XXXX. construction we expect commencing would in still we -- And on

Operator

is of next The Doug Bank question from of Leggate America.

Douglas Leggate

And Jason, let my you're congrats. -- add me

So looks pretty time. a interesting like the jumping fire you're into at

So good everything. luck with

Jason Fraser

you. Thank

Douglas Leggate

saw seem March, us suggested. ability the the for your you if recall spreads -- launched absorb of the of about light And at Joe, just getting at the appears this end or what beginning crude a you May. import availability through to export I wondering to to its crude. I'm United in That your that tailed beginning of calls at increase pillar crude just walk can essentially I Saudi, flow when to have to huge and And obviously, heavy relating of off in talking from prognosis Saudi of now. we States,

Joseph Gorder

Yes, can this to Doug. speak well. really Gary

Gary Simmons

Yes, Doug.

for us, spreads sweet, about I So seen right think other. of as we've each on for as certainly light and our with medium sour all seen margin heavy sour we've narrow top ever

ramp up in OPEC like coming the As XXX- XXX-barrel million has online range. production we in looks a August. forward, look day somewhere will X barrels a to It Canadian day

show increases, see that off percentage production forecast with than a oil the as oil the the came sour-type we demand total be total which week. rather see filled of that light so demand about last Longer heavies we're And to I the that weaker. medium term, an the moved have starting discounts in $X.XX sour Canadian much market. have larger widened will $X already impact barrel sweet, on market. mentioned a about

as could move And so differentials longer lead to wider that of quality term. we think all forward we

Douglas Leggate

a but Gary. Okay. make to my I that, appreciate this question, to don't footnote just I second that. want

curve studies and quality increase he from be the of from or suggests domestically. absorbed understanding would with Russia Russia, associated it Saudi energy the that center Our at [indiscernible] in

are you believe actually that do those the water? So hitting vials

Gary Simmons

on We we which [indiscernible] in U.S. barrels have Gulf seen in the the U.S. Gulf, up offer or haven't some time. some in show quite seen from the

quite offer, Basra So an been we has haven't some which time. in seen

into the of are So barrels their onto market. the water I making think some the way

bit is to that pressure is like which Far the available the of us. to a also due well, buying some to and helping barrels little differentials crude And it East make also our down looks as is fact

Douglas Leggate

that. appreciate I

policy and apologize you it So seeing we're advance, if is a in position Valero's what and I'll would in mind tax, just light leave of in question, question articulating second on. I and on really carbon And Joe, polls ask it's there. my the you it so

Joseph Gorder

being We out things affairs get And No, on. Biden's going activities. position out, nothing Okay. that have we're I taken, coming really get okay? on proposals want to Doug, thoughts We know Rich, our been comment got We'll him But to responsible because mean our said, right? don't. different government are? to is seems don't Rich. and what's to on. mean great. seeing again, this share Rich of settled what just House I that's looking of he's at yet, a so and -- we'll But the this. come for just and is kind

Unidentified Company Representative

you've looking mean, market-driven. structure that. offshore I to on a depends Yes. is got environment? it's drive right? it is a in unregulated tax, to at tax all needs to hard little to You'll tax the to be the carbon structured, to It respond it consider bit around properly need structured to going right, carbon If the abstract, how you're carbon because

You need affordability. about to think

winners letting allow You actually just about need not the market structuring all really it, to and is in important. by to reduction complexity into virtue picking carbon it options and it, play think losers of

all to is economy The this be administration I recovery dealing right to thing energy of any need a COVID considering state other going you the economy, gets with the temper you now. drive I mean, of the elected is think and economy. should that with

You can't and feasible. and really stimulus a drive restructure It's format of nation. layer bunch then in on not the taxes the the for really want to economy completely energy

about the and So going the -- to to to economy, going I energy. economy you're administration, it's is next think the going need be

economy so that campaign fuels the of And to keep going. strong lot to going of a statements, they're the is aspirational there's in a hyperbole and lot the reality while need

position before on our summary, in do going guess be would I say we they're to need see So what just can we to what it.

Operator

question next is of Fargo. The from Read Wells Roger

Roger Read

little winter, what's delays run, question on We've but worst here. get, affect we and on about and I But refining to some just this pandemic may lot maybe other side. fall that meaning people the past next in the the you has of all throw get available one higher a as spring companies that. heard the let's say, I'll lower deferrals maybe guess how and and maintenance A at hit of talk been

kind Lane, should everywhere as notice as to we really the enough that anything question's probably, the you, this Or maintenance surplus we average, additional if deferral back capacity factor an on X-year maybe soft for of help? think that there's is you in that stays As demand won't you think about something getting side? inventories

Lane Riggs

responds I a so really of that think operator to some it's Roger, Hey, of function this. how

We acute the have what to example, on we So opportunity things its one demand that operation. you and we when that sort was out expense incurred cleaned all on. tried that and to additional also its year. for that help the and maintenance we and of right? just thought this know we get next when was of and to its we FCC deal So could But let's to around through took have structural sort get it Pembroke saw with thought, turnaround destruction did actually with first this fractionator, the of issue an what, started we early is down just get get

It lot I in So other a decide An operator. stress may, point all specifically, how they your sheet point, balance debt really is if work it bit becomes have access -- depends that to turnaround going It's condition much is goes the little an third fact, much operator is their size. of to And event, because and think defer stressed, to event. down, we a have who's they with. and the operating on some But a it's or unplanned more they still stressed, risk maintenance that that's out -- point quarter. get the is the sheet push risk think expensive these recovery The fourth of unit, issues. the they the which good have has balance through operator to sort that And sort get enough and turnaround to can we got to there's doesn't that larger into where event. unit didn't afford hope to to a in is. liquidity a just things. issue, got we that a of that -- or in they a lot they the know it unit deal to got at We'll to address do they an at Valero they in the of it how world got work even planned capital

reduced we is, And say so I'll -- the comment yes, general and expenses. other

would One of light was, I call those it, maintenance.

can of You sort the talk. tell way from I

in sort of more a to because that expenses just core risk believe puts is the will in our to and being get such outlay believe it long in this that's even our of we maintenance reliability term. have value cash We we in because as capital ever never pathway at cut higher future the ours we

we little way, touch operate don't maintenance. a lightly but discretionary to did some that on of we of consider we what be bit So

your answer So the that question? -- does debt

Roger Read

Yes, it's can, the here to, I some understand just a trying than it. going to of where things think I'm obviously parts at lot so. are what... I mean, us we other be to of that coming moving

Lane Riggs

operator I'm what Just to trying very say it's is specific.

it some will to If some And all the people are there, careful, matter it have think being look business, if a just how you an you by it's of -- people the all to risk. might additional respond then in characters, this out unfolds. take like people and cast -- of who then and

Roger Read

I question up. back on comes have appreciate follow-up jet demand the from as the comment is the the XXs the low earlier guess high other diesel I I that. XXs No. about to to fuel going yield

we see September overall recovered is I'm as that we know, cuts of to to diesel maybe in into yields where summer-grade Phil's And gasoline. we kind so and face, October, tag of further if curious late the of reasons further to in I continued complicates easier cut make asking order in market? don't if demand. jet improvement in roll just winter-grade from go fuel or make balance run it a one we we gasoline, And a I to the was thing that don't that tends As has diesel demand we on should situation yields been last look in coming is here building weeks several fuel jet Diesel's enough on to actually build. no DOE we've into on bit overall at been at the continuing margins? we we see here teaming where what's gasoline lower Or maybe Are feed Are a point longer the net. diesel seen draws a that the little a question. kind

Gary Simmons

Yes.

up fuel up point. yield gets where recovers is So really fuel and it demand to don't I we that is jet the to we view our correct think fully demand issue, see Lane's were, jet and really picks where where to which

diesel average utilization. to we to that on the biggest And inventories X-year in really range, probably really us to discipline low key total see get to that down the of utilization getting inventories is inventory. see back light For product need X-year keep to average

Operator

from Cheng is Paul Scotiabank. question next of The

Paul Cheng

that Two questions. Jason the Since CFO. is now

CapEx? be not XXXX flat do whether Jason, any down you exact it's to for the up year? comparing or preliminary this to outlook but If So going have amount

Joseph Gorder

hey. Yes. Paul,

haven't as But... you well we yet know. guidance given So the

Paul Cheng

That asked I [indiscernible] outlook. why

Joseph Gorder

-- okay? just $X $X.X projects, the see us really we'll what to So I now, billion this would going I'm on The okay? high say billion and to need end think I need slow we wait capital execution on it. got of a and plan we be that continue do low happen. to well right to these the would positioned or probably then if some project end, of Lane's the delay

I think we're Green very confident. to Diamond project. just highly Diesel to the with continue going proceed We're

Jason Fraser

now. down slowed haven't We

Joseph Gorder

not that we're down. slow to going Yes,

projects, first this, billion. -- $X if need talked do we strong do I and to some ahead But I guys just funds get we really capital a repurchases. reduce could happen can we're Paul, back see build sure to to restart we we if know. like we And would before, sheet the really as So it, margin to like restart these our sooner the ultimately, talked okay? talked And about to share is see than we we'd that then That balance debt have think be extent prioritize about, going the then we've that cash. of and Jason, at some the think at coker, that things don't your company, go later, the some. we've capital but these like high-return one of to we'd going projects of environment, to use Paul, come inventories I'd to say, you're in we look down the look to

So around of our of kind use that's cash. the sequencing anyway,

Paul Cheng

down return bring the other to And Jason, you shareholder consider level debt what need is back options? will to the maybe before you

Joseph Gorder

Bring capital saying? to down or you

Paul Cheng

Correct reducing imagine to maybe down want of your I debt And it wrong, at start want if the priority, down what increasing and then to okay, that that return between to this No. you still will at down you level shareholders that Because be bring want the debt. I'm have so priorities that point that generating would say, the me you to is that that one it more cash, but first wow, free at balance the you when the that could we more to. bring same we if level time.

Jason Fraser

Okay. Yes.

we framework and hard guidance There's target our XX% guideline. as an allocation to XX%. a That's absolute fast capital good on Our good That's not rule. a thought.

Joseph Gorder

look for Steve it continue look prohibitively past, there. the and Jason, it. all in been it's we've to But look the Paul, to know We out we'll us debt to what But do It for call past, at I time. and so mean, it. go out And continue just do kind to and of hasn't regularly. at And in going expensive the looks we got you made sense we'll at debt, forward. okay?

Paul Cheng

you're bit? final elaborate me event can for Okay. on side. In the A the Gary, question you maybe [indiscernible] my a alternative, being little supply

Gary Simmons

Yes.

from barrels. have waterborne water. barrels economic but an we've history, African the U.S. supply provided Line Coast over we the ability the can for the barrels Québec nice with benefit supply -- It's fully to the is to Québec really Gulf supplied or us, throughout either So us. West refinery we water, a the over optimization Québec X

Paul Cheng

supply to additional what more winning or that's supply? or that's But no any North local additional able Or is that gain or well really Calgary that that Line there supply just into we'll to opportunity American is Bakken option fund X that? be

Gary Simmons

is X Line So and from that's the X. Line close really is Line all not line X, fed of

have closed, feed Line that Canadian So is even we'd we could believe barrels access still X. if Western Line to X

Paul Cheng

Line the in how your process? work, Is Is actually? assumes Or call normal it shut that that Line does available that and the you the of that it half. X will total it does work is half get rate? allocation? How say, X become,

Gary Simmons

to That's would it how close work.

into So goes progression based shipper your there a effect be history. on would that

we on would volume XX%, fall is half Line that, And then of and through so what X ship would where be out everyone the normally Line sure. X. to of assuming was we not I'm XX% But

Operator

Markets. of The next question is from RBC Brad Heffern Capital

Bradley Heffern

a softer up like Joe, longer potentially could I'm if a you we you've be target we recovery that curious how now paying sort the as environment, crisis, of of to long margin financial time had the are in dividend comfortable above addressed? maybe XX% for long you're before now. return XX% target the need sort to end cash

Joseph Gorder

Jason let how generally we're and We'll the okay? flows dividend about Okay. cash thinking talk here,

Jason Fraser

well right. We're You're it. above

XX% of an at short-term But we this Now we're adjust being -- year-to-date extraordinary I think don't and type we're payout. a not going on Homer event, with to situation. this that based said, on

stick we we that. be with don't So our guidance. on vary if we would have with an from how long We number I won't it. exact comfortable know

Joseph Gorder

not. do we No,

Bradley Heffern

Yes.

be repurchases, about then, I obviously, historical time. same And all the we've obviously, that's been along has sort price the I you when mean, seen? just at money proven that have the guess, of do the stock to given And lines, to is changed what thoughts Okay. repurchase true have higher. certainly this program, your

cash balance on level great. like higher be sustain a that debt maybe see is color side, we we previously? would that with a than and chance a the overall Any thought there So other lower Valero

Joseph Gorder

evaluate of to to okay? be what you, know key going is we're going to here remember hold next what next is it is what want the don't week year. to? we we're the to funky, talk you consider in to think a or short-term, going tell month -- about And to or short-term period, a We I I'll you hold next or it's again, the it. So me kind

doing to it sticking comfortable done in the we've so right we're what now. is what And with we're past, and

We how were a everything. downturn. in 'XX are today We've well We positioned back where stress had it. at previous versus looked positioned going test into when we we we're

make on term based of set to implications what decisions circumstances. long-term to now right willing not we be a we're with short consider So

out. this going happens. just see play to we're So We'll what

Operator

The next Neil of Sachs. from question is Goldman Mehta

Neil Mehta

The first is question I DGD have just margins. on

quarter. You've They margins your thoughts looked on good. Volumes been softer on indicator second would little in But website. margins a we the just expected any the what XXXX be DGD than came helpful. in following

Martin Parrish

is feel gallon EBITDA, can quarter was we this pretty I which it. Neil, Martin. Yes, good a the $X.XX second about you, actually tell

diesel $X.XX look multiplier's second now you quarter, at gallon. a If relative $X.XX DX the up RIN where to with price's we're up gallon. a The component the

we than a better components. indicator those So second you're close were to in the $X.XX on quarter gallon with margin the

looking we good rest the feel DGD the year, be about for So the the going for to of and foreseeable where of really is year rest out future.

Neil Mehta

then brings That's that us follow-up. to And the great.

the some how and and your Just of DX earlier? mentioned it from back kind just it RIN thoughts particularly play on could and RIN here the out ties into of election

Martin Parrish

lot going on. a term. we There's RINs expect now, in right remain supported Well, the to near

prices relative RIN. prices, the and energy agricultural low that got less You've competitive, which a higher to makes typically biofuels means

refinery program. got of around You've on the uncertainty gasoline. effects exemption And obviously, small COVID-XX

next know don't year. just absorb volumes pool will You -- if gasoline mandated the can ethanol the you

been EPA, So that's RVO And a indefinitely. the postponed risk. itself the has XXXX then

RIN So a there's around right just uncertainty lot the of now.

me, as we So the excuse lower. energy we prices, turn higher RINs at recovered levels, on lower it's drift result, get energy the a pandemic, to corner higher. expect the Once price we and

Operator

next question Chris The of is Sighinolfi from Jefferies.

Christopher Sighinolfi

it up Maybe high configuration if the continues all of With push guess, the question. given the in procurement the uncertainty jet questions. you and grade, on doesn't? a you processes, rebound following next pace and regard for change Roger's two swing product are slate last and just I maybe months? first, and yield how perhaps And unit product degree earlier have there and couple demand changes could changing do with individual the and couple I of note, winter and continuing distillate? crude for into over of to gasoline at demand on related months to

Lane Riggs

you answer good XX%, be different of a of really it's independents, a overall. gasoline sort you to distillate. of refineries. if XX% probably would maximize trying In the give to and of order in it's probably in minimize terms were low It the a obviously it's of function yields -- yield, in mode Gasoline

makes Our like Venetia gasoline, refinery. so and our it's refinery XX% Mckee

more a different. the refineries of heavy Some are little bit

recover recovered out And and limits certainly refineries. on the of But function going if a and into the really we'll of year. refiners how the way, first again to gasoline disciplined for the careful. works you is test that quarter probably jet consequently, got depending going quarter the world it's probably and rest the second into doesn't So where are of be

Gary Simmons

crude, early sour and yield. medium guess, promote I On gasoline in got second to Since our that more into what the I the changing a pushed higher weak, And run. see future. real similar crude little when don't try we quarter a very bit distillate near to we in off, then in diet to backed we're we typically system

Christopher Sighinolfi

the as next we Lane, year. early expectations and And your into I Okay. Great. discussion sort of of appreciate product inventories move

ratio? normalization question, that the you those in shadow think represented terms inventory about it about you a sense? this how an days do recapturing low a refining demand I and X-year of when utilization just components. edification, I'm team that to and you curious about think you of with absolute do ranges think guess, own that, all prices think by conceptual inventory rates. your I and in Or my the cracks, might it's know about For signal send inventory

Lane Riggs

-- question. different obviously, just excellent demand time. We there's through an always That's because

out looking days we look that there And there. the we not supply. start inventories that's That's not are forward, start. just where X-year And else of so of where inventories are at then DOE the sort somewhere then is look And certainly in range. -- it's at we capturing maybe we

disciplined. And X-year want look to demand's -- then that we and is sort and in normalized places back. at obviously, inventory We saying range. -- industry its way things, to It supply, guess start into days sure. there's a there to account. all we at the level, for the on needs high in of what be it's so see And those to unusual just we're take needs we'll there's I But of inventories at are be looking

Operator

question last Wong from of Stanley. comes Benny The today Morgan

Benny Wong

just want of to I to mindful it time. your keep one. I'll be

of of in we maybe to business diesel, When little of much flow looks kind it be index a at reasons XX. than X aside close $X.XX, back bit margin Just would better, we at kind business the the or renewable we to XX, at in into margin even when margin factors your there looking is commodity movement year? was better X any spot magnitude of what your put like that not half prices we the there and prices, came in recovery your business expected. XQ like which should price same But the look expect

Martin Parrish

This is Martin.

bit of As recovery I the LCFS said earlier, diesel we've numbers XQ the since the seen price a in flat. quite average RIN. and both price is

good feel expect guided So kind third quarter renewable I would that we of for about ought and what before diesel. fourth to say to you pretty we've

Benny Wong

Got it.

that. Appreciate Okay.

costs of that in movement that rates Is think the upon year. incrementally and right? back we like within nothing have to half there's capture the So might in

Martin Parrish

correct. That's

Operator

to That's remarks. closing all would I the now to Bhullar back like time questions the for call we turn Homer today. have for

Homer Bhullar

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

Operator

conference. today's concludes This

You your at Thank your participation. lines disconnect may time. now this you for

Valero Energy (VLO) 30 Jul 202020 Q2 Earnings call transcript