VLO - Earnings call transcript Q1 2021 | Valero Energy Corporation

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Operator

Greetings, and welcome to the Valero Energy Corporation's First Quarter 2021 Earnings Conference Call. At this time all participants are in a listen-only mode. [Operator instructions] 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 first quarter 2021 earnings conference call. With me today are Joe Gorder, our Chairman and CEO; Lane Riggs, our President and COO; Jason Fraser, our Executive Vice President and CFO; Gary Simmons, our Executive Vice President and Chief Commercial Officer; and several other members of Valero's senior management team.

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

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

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

Joe Gorder

a and saw The and restrictions eased more vaccinations. withdrawn good everyone. people in as more recovery pandemic receive refining and morning, were or first business imposed as Homer various the Thanks, quarter strong

Gulf Storm utilities to facilities the Winter curtailments. Coast freeze disrupted However, many in Uri U.S. and Mid-Continent and February due

storm. period the any not our damage Although after also were and a refineries and plants significant mechanical suffer short restarted regions they did in impacted, those were within

product and a resuming the for offline the incident. heavy refineries the to last discounts improve million down to by storm, quarter. in many shutting While normal product year, providing operations and also team bringing drawdown we idling wider margins. did of XX the first incur from support managing to surplus and barrel Lower Gulf due there the margins costs, coupled countries to inventories, With effected increasing proud high Canadian extremely the crisis refining were without U.S. facilities prior additional Crude of was inventories Coast of levels. oil the quarter Valero demand, with quarter, relative very significant product Mid-Continent energy in significantly for safely the product I'm inventories the refining of WTI fourth or

addition, segment solid operating XXXX. records product income continues In diesel of renewable and quarter margin our set provide renewable the earnings to and first for in diesel

current day, through the barrels also see XX,XXX in trends operations our the U.S. wholesale supply expanded Our we continue positive with demand. terminal. ramp-up continue which of sales Veracruz with increase over per to supply into to And should of Mexico

to In carbon On front, economic we carbon system the BlackRock continue of and strategic we projects that March, evaluate our our conductivity allowing the Midwest, eight of all in of develop for we were plants products. of partnering the capture with that and system. Navigator ethanol to announced the pursue a intensity lower to

fourth at million of be to half X to project is The now Port Green well. to in move credit and standard be benefit In California. second per X expected be capture expected in tax product carbon ethanol renewable Arthur or St. diesel DGD into is middle storing DGD allow at operational DGD This operational expected expansion market carbon Diamond year. to million forward low the us markets. XXX from capacity the remains X total bringing gallons is to X expected budget metric to year. COX continues project per of to by our tonnes and of on Charles to per Diesel Charles the this year The X capable year. quarter at for addition The the value expansion carbon Valero low the XXX markets, will and year, intensity renewable In million of will and also system The also XX the higher storage, diesel gallons fuel St. as capture per capacity such gallons lower increase renewable fuel million of of for as production is naphtha XXXX. COX

completed of to Arthur the of DGD's the expected our in combined project to plant Coker and remain million to third of on completion XX complete XXX capacity gallons respect project X.X and Cogen the With per quarter refinery diesel is optimization this Port be year track projects, gallons year the to we million this renewable naphtha. With renewable capacity is of Pembroke gallons expected billion in be XXXX. annual

much incremental believe demand among seeing has Since of that XX% pent-up the at fuels. for there's of As demand diesel vacations, March, a travel we XXX% respectively. which recovery we in a to and take strong We're pre-pandemic gasoline transportation travel star into levels also population desire and increased. and head summer, drive should air already

will carbon data, All positive seeing positive levels, as to crude our shows is towards believe to renewable in in what margins growth a of discounts which TSA cash that refining points we're Valero improvements relative passenger nearly We're our January. wider advantage. the indicators further an East long-term on should having on lead rationalizations these in refinery refining and also feedstocks these a with the the months. oil continue pre-pandemic and continued improves operating impacts from which result outlook March. strengthen with market the in already by in these as and encouraged for to bread As coupled coupled coming with less operating product improvement We have demand of incremental margins. income signs competitive seen the steadily with now reflected fuels crude In to data market. positive it Middle improving should refining flow crude comes impact in refining strategy was residual market capacity positive double count We've sour closing, oils is of low

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

Homer Bhullar

Thanks, Joe.

net to per Valero of stockholders loss share, for million, $X.X loss XXXX. per For net the first of $X.XX $X.XX or billion, attributable or a the quarter compared XXXX, of a quarter of to we first $XXX incurred share,

million, $X.XX or per costs first includes share. loss The excess $XXX XXXX quarter of estimated operating of energy

of For stockholders of Valero an $X.XX XXXX LCM, million, adjusted valuation exclude per billion. $X lower market, results adjustment the quarter income share. inventory attributable or of net or to was after-tax cost The $XXX adjusted approximately first or

For to reported first tables of first million reconciliations XXXX, of the The of the actual $X.X to $XXX segment please operating adjusted amounts, billion operating accompany to earning refining in loss of in XXXX. quarter loss that quarter compared an the of refer the financial release. an

of of related of day quarter quarter the million renewable first to impacts of XXXX XXXX, million income to primarily operating refining the in record of first Storm per million per excess segment energy estimated income for and of per to million for operating XXXX segment Winter barrels reported XXXX, Uri. The $X.XX excess first X.X loss from the refining of impacts $XXX the quarter for cash first Uri. an loss first quarter barrels energy barrel loss $XXX to Uri of million, Refining barrel. from were Winter XXXX barrel first quarter costs operating $XX lower $XXX resulting disruptions operating includes first Storm $XX to which million for in day was per excludes to expenses of the energy to Refinery $X.XX quarter was related per million Winter for first of loss segment gallons to fourth throughput utilization Throughput loss of operating quarter of inventory first scheduled of segment $XXX higher per Uri. operating an XXX quarter valuation estimated for the due of $X.XX of volumes XXXX XXXX. XXXX. averaged Storm was of $XXX for the averaged was quarter a first XXXX. guidance million estimated costs the includes quarter the million diesel adjustment. diesel volumes excess Winter The quarter in in sales impacts related XXXX than XXXX Operating day, LCM compared which adjusted of the the adjusted quarter XXX,XXX thousand maintenance Storm from of operating from due for the ethanol XXXX. $XXX than the the Renewable first XX% of The The capacity compared compared costs

$XX XXXX First of quarter which Ethanol day per adjusted production was of gallons averaged than XXX,XXX XXXX. million first operating which of million. quarter per volumes the loss, X.X first adjustment XXXX, gallons inventory quarter LCM day lower excludes was the valuation the in

XX%. income XXXX, million $XXX XXXX. the activities quarter in Depreciation million. the amortization rate Net G&A and in was expense first The interest expense $XXX million of was quarter first $XX million was tax of XXXX. first expenses in effective tax net was benefit of cash and $XXX used quarter was For and $XXX operating the the were million

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

Pasadena for other share of interest sold membership Diamond our quarter Diesel to XXXX. capital in variable to those joint a were partial investments $XXX attributable interest investments million. to entities, of Valero the in XXXX, capital venture $XXX XX% Green Excluding April attributable related On partner's terminal first the million we marine and

a billion, cash were cash. of XX%. quarter activities. dividend. debt dividend our in of ratio, and you March, At With financing net first was through to and and cash per the had We our the approved The to million were balance Board equivalents, to our sheet earlier $X.X excluding of to cash share. our $X.XX as quarterly and end, finance total respect $XX.X week, saw Directors this billion. cash available quarter we of liquidity, $X.X of at XXXX Moving capitalization obligations debt returned of $XXX end And billion lease regular stockholders equivalents

to Turning guidance.

expect and of growth. be capital our expanding to investments. attributable capital renewable XXXX joint investments $X billion, is business. our business our approximately About We allocated of half to catalysts expenditures in CapEx for and Almost diesel investments XX% to is venture allocated the XXXX Valero includes to XX% growth sustaining to for turnarounds, which

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

sales the renewable cash start be We per expect million should segment amortization. approximately operating expect for the per refining quarter, now in with With gallon second to X XXXX the $X.XX XXXX. includes diesel $X.XX X depreciation the in to DGD fourth quarter in per gallon, which expenses volumes gallons respect of $X.XX expenses barrel. per to and up costs day as we non-cash such average Operating in be

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

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

G&A million, U.S. annual rate approximately For be $XXX statutory tax excluding expenses, to rate. XXXX, still the depreciation effective expect we approximate the should and corporate

tax billion our cash Lastly, expect a $X this concludes reported approximately That receive of remarks. quarter, as we refund last later opening we year. to

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

time have permits. more ensure to as request this have than please ask rejoin Please questions, two time If questions. the to other you callers their respect queue

Operator

question [Operator Instructions] with Fargo. first your proceed Roger from of question. Read today Our Please Wells is

Roger Read

Thank you. morning. Good

Joe Gorder

Roger. Good morning,

Roger Read

crude from sour side, and OPEC. get where anticipate of forward your kind likely And XXXX. like your comment QX seems It runs more about I'd medium account the to coming we at came versus advantage side are more it about really on we the well that's demand, comments and of the be guess is on of what's go terms I QX. the more differentials of Sweet the a lies the crude to little of or And volumes the where for we had I you of all Light into opportunity the Should in decline because of outlook, crude system? Sweet you side to of heavy on a in terms in off terms crudes QX your outlook, out take look Light Residuals like tend as and other. curious volumes that crude was just come little that XXXX then

Joe Gorder

was How that, Roger? many questions

Roger Read

of a it's it's know a but trying – I'm just I way to… two-question rule, Well,

Joe Gorder

We No. it. No. got it. got We

Roger Read

run. to Crude crude – supposed is going to which you're

Joe Gorder

let I'm is Gary this, away. prepared for No. him kidding. so I'll fire

Gary Simmons

morning, good Hey, Roger.

we into with the demand differentials view picked years coming year, additional back the would crude would of cause of great quality as would the Our see narrow widen OPEC half but and for global filled a first out. quality up, fairly which be percentage oil differentials to production, the that

I and large OPEC X a about is the second view market Most show think barrels by production the on year. that holding. coming still half that additional to day of million of forecast

X.X meeting, barrels they're the July. of last at million we fact OPEC much In as as early as saying as that see could

high has market widen reserve; back the medium quality than winter differentials and had flowing for market, it's thought more widened the million then of we After pushed of of medium The market. where reasons. XX Mexico, taken is U.S. and faster differentials. crude the again and And put different seeing on through had the what a I to pressure number help little a brought market sour not We're a East, barrels but Gulf that the lot think sours some Far Iranian storm, we down out thing pressured refinery differential. my that's we to off the from the the flowing and the ASCI winter Coast. that it's capacity bit which quality heavy fire on complexity, strategic and sour refining petroleum only have the those the barrels release in the storm of which in the recently U.S. the it's put on more medium the Venezuelan

on the So barrels the happened combination the of additional have market. events OPEC we think recently

your price and continue seen being have in to We heavy flat economic recovery a switch Canadian see that also question, production more and widen. you'll there think with quotas lifted the To will differentials the signals. we

our Light Of seeing location of refinery and sour, Sweet. economics economic run course, between it's refineries dependent more very us and sour, grapes today; some heavy pointing we're are the fairly and medium on but equal to configuration, signals

Roger Read

I All I'll since you. did right, guys, leave Thank ask. it there

Joe Gorder

No, Roger.

Roger Read

Thank you.

Joe Gorder

We Thanks. really appreciated.

Operator

The your Theresa next [Barclays]. with Chen Please question is from question. proceed

Theresa Chen

morning, Good everyone.

how on with And Maybe strategy. like comments So to I'd about dig what can like to expect carbon your morning. – a of partnership dig Navigator about. in little something net Ship we on Coast, your to deeper in Gulf your a Valero? I'd little capture And your if the came beginning with you terms building intend out for major to a similar example, especially way infrastructure the type of Channel? a the of in do other announcement along Houston this for the heels facilities economics competitor

Joe Gorder

and was a the and Martin Rich That's architect this. Rich question. No. good worked behind And kind together, of

take him this. So we'll let a crack at

Rich Lashway

Sure.

So I'll up. kind back of just

and for season, further the of California supported there. and launched credit. But, XXQ is about premium markets the value Navigator to into but ethanol Navigator what by nonbinding optimize lower of going other producers expect routing. so their demand we're of basically of this the by the moving interest forward the CI well, is develop on surprised of this is that going of And from product. there. are XX the the to produce open process kind project rightsize determine is fuels, the by is a will is increasing today, just especially and can ethanol economics of And and and carbon the a And the let they this, kind preliminary And CI kind BlackRock talk strong that shipper to the leading got goes down out operations to work. and backer, kind how strong binding for market for for players, demand carries be We're interest from this interest on which pipeline CI. if which the the ethanol financial doing the strong capture of So information, a of going market, kind sequestration. we They've Valero out is intensity construction be estimating open the of Today, the they've season engineering, we there. and a season California It's be we'll the with carbon the and Martin wanted this the XX anchor given the from project premium of industry you I'll tax the project. website kind The and more over that open so plants. low-carbon the that creation very seeing we're – open-season will fertilizer the will they project, mapping in kind summer. kind navigatorcoX.com, system also kind

Martin Parrish

Martin. this is Yes. Theresa, Rich. Thanks,

CI a worth $X.XX at So $XXX that it the ton into reduction now XX to $XXX stays $X.XX per the at gallon future, in a a about range, even a that's ethanol, right in price. carbon XX like right ton. a out And gallon

said, we've now. programs Rich Oregon and As with got California

We in low they all Washington; place for have expect Mexico, New legislation New carbon. York,

We expect few over those in next to happen the years. time some

low-carbon no a has we So down project or mandates. mandates as in to line fuel this clean expect got time standard completion, slowing

demand So that's there. for product the the additional

Theresa Chen

business with And to framework, within LCFS you margin the unit impressive the of on about and cost, this just explain especially margins feedstock quarter, renewable ask And the if margins strength then that maybe as I volumes. helpful. sustainable? high are per drove given in what broader can diesel as Very wanted rising these result, backdrop the your well

Martin Parrish

look per price $X.XX is take times, XXXX, RIN gallon good times. first is was that. a X.X up X.X at and stab right? DX the up EBITDA I'll price it of oil you but if quarter Sure. a versus quarter, soybean Well,

DX RIN lifting, So lot that's done has margin. provided the of and a

gallon had years. wide So ULSD had the in X.XX has yet XXXX, looking the – same quarter about wide X.XX gallon XXXX, varied three in history, a range. pretty and we're prices, of stress from if think in I We've to And X.XX variation last a a over EBITDA EBITDA margin look variation prices, you first test now, a XXXX we've prices, of is last only variation wide feedstock quarter first good our XXXX. EBITDA RIN – in

So stress again, test. pretty good a

the of for kind comfortable So those foreseeable forward going we feel pretty future. about margins

Theresa Chen

Thank you.

Operator

The Gresh with Morgan. J.P. next question. of is question Please proceed your Phil from

Phil Gresh

Good Hi. morning. Yes.

Joe Gorder

Phil. morning, Good

Phil Gresh

is second think, obviously seasonality the guidance. the April we the summer. XX%, as benefits and move XX%, I obviously, My The on DOE, there's Mid-Con. there and first utilization quarter question And the midpoint about above was Coast the with bit a Gulf in that's into

expectation So I'm weren't spreads summer. utilization running moving you crack progress you of do high of think the demand and a that Or utilization? it to just an even you. expect And how higher is curious today into the of forward? Thank cracks level

Lane Riggs

Lane. This Hey, Phil. is

consistent you guidance, your a So But there's a just really, going and posture chain. of our to It's – the where running how call refineries. is if you're today. track, we're we in to at reasonably there have look current run at But rates. of supply the kind some it's of at turnarounds yourself look with somewhat high on refining matter

utilization sort the that you'll as our are up we're forward increasing of margins industry. are going inching an and in but industry, certainly, where see so margins today And

Phil Gresh

have second tax And the here coming. balance be the April. it. Pasadena Obviously, sheet. refund on would There Got asset the Okay. sale is you in question the

opportunities debt-reduction that curious Pasadena, how asset like help thinking out Thank might targets fruit low-hanging So there about any and you. there objectives? be some other accelerate whether just sale could I'm leverage the you're

Jason Fraser

talk can allocation. talk to to This the you we're see how Yes. other if opportunities? somebody – in next with capital and bit about I a debt Then Joe, XX little reduction months is potential want regard Jason. about else

Joe Gorder

Yes.

Okay.

Jason Fraser

first flow are demand good. income Well, positive in had the like markets operating Joe to cash looking said, our the in March, and and we month with

pace the the certainly things that So but to to definitely going and are hard in right the we're are direction. cash headed flows improving. exact It's margins recover, tell

naturally will on callable you as as margins to start normalizing billion the on floaters first leverage starting to some we things cash the is took we'll additional vast that we to do is target case. the is cash from We'll and was of short-term. asked thing early. up we'll the pull that back first $X So looking beginning this our in our take normalizing are of range as billion-plus build we some side, going be that. in debt are likely to want the help But our And the we September. And flow cap in range. was the look That $X majority do about come The net at thing at debt balance. to three look relatively years freezer to million of five $XXX base down

imagine I So we'll up. pay thing first the that's

Joe Gorder

cash. relates because smart asset desperate thing sales, necessarily And a want we asset. for asset, we because to but developed the kind then, this Phil, and a in this was we the and use then it it We plan just And and not of we the frankly, the loaded, need else own in to was when it any didn't do do base of others as kind anything we that would project of few need And we did financially. developed that mind. have don't were to

motivation this need part at it not an cash. the consider than so that And business for rather same I of was was the all that along. for would the It's But time, abnormal. something it plan was transaction a be attractive to

Phil Gresh

target refund Can is XQ $X billion or a still magnitude Great. and tax Thank I thoughts just latest Okay. clarify; just you. on timing? the

Jason Fraser

We've I processing mid-January. a was for in frame. to My significant most back request before, was year. returns quarter. this our the time But it normally tax our in XX- in our and accomplishment around It to that don't. think big return about from tax Well, delays request. unfortunately, it still may XXX-day more experiencing they really COVID to little refund before, uncertain turn is full department. we But these these that. expect talk receive and that timing the is understanding filed a early thinking certainly looks refund, impacts, second both what tax – a but We with people bit our Yes. were the filed IRS never refund the slip is like and We that

Phil Gresh

Thank you very much.

Operator

question next with Prashant Please from your The is question. Citigroup. Rao of proceed

Prashant Rao

morning. Good the for Hi. Thanks taking question.

Joe Gorder

morning, Prashant. Good

Prashant Rao

I you here, feedstock of you're bit my wanted to saying have a it the just advantaged on was I'll question that project. you feedstock have way in a a I and compound two-parter, it lot on the are – the DGD leave with RIN was, think side. doing it Martin, being guys and set I – – up humble also but

So soybean – like you going is a is I'm reversion. showing know full that about One, some not exposed I to, looks something but your forward. mean curious ahead, the it curve but not were outlook really backwardation

SPO the we advantage the in should last And about deflate? to of think making we terms like that then us of DCO divergences these one. UCO, deflation, we see animal So or off reversing assumptions? you're I fats, that for how And trends curious happen, feedstocks using feedstocks start we've couple non-soy I'll kind versus things leave it key over other second, that some or as of as they're with your see when that the gets inflation in soybean of guess of complex. going quarters some key the their seen what people about overall the

Martin Parrish

Prashant. Sure,

States. and price to gets it's is and First have step worldwide it's veg soybean if what oil in So going was up. it XXXX it's you what's – kind on just United all, oil do what's I why really the look But low is – of in And think and up? the attention back really you XXXX. of really

So to we history. some I low by that, periods was relative ULSD. And mean, had where versus it

oil by and So the supply global veg demand driven soybean is oils. price of

XXXX labor oil rapeseed to drought oil are Palm a and all in palm and year-on-year. up Indonesia shortages oil oil, of due was to in off because production XX% XX% Soybean COVID-XX.

XX% production U.S. in XXXX/XXXX just also oil year was crop had of soybean previous You soybean production like or year. the the

you So to remember, sanctions. the trade you also have had

the China pulled wasn't for a China in the So weren't in. They market down soybean lot. oil. stocks

market. not much produced. prices Well, So is is dropped, recovering. China now in The the world back as was

So you've veg oils. demand big got a out now for there

of prices, So of low into get this prices. place because of got we high and we'll out it kind because of

all can demand. grown So be on these

for high prices the prices. is high So cure

we'll our but it's So little take it, work out of to eventually way going a while.

Now obviously, were we're distiller’s other advantages than the the an DGD's which running oils is veg oil. oil, not veg inedible corn

to most So is biggest compared oil. soybean veg those price those to waste the in a expect at feedstocks discount continue CI compared to to soybean the we see or oil advantage But a jurisdictions. of the oils, score to those oils, oil

run just a huge So that's anything pretreatment what by really to ability And drives DGD. having robust advantage. our system, our our location, is

Prashant Rao

helpful. I'll at that. leave super that. for That's it Thanks

Operator

Doug America. proceed with question. is The next of from of your Leggate Please question Bank

Homer Bhullar

be you on buddy. mute, Doug, might

Doug Leggate

any that hear Is better, you me? Can guys?

Joe Gorder

morning, bet. Doug. You Good

Doug Leggate

I'm with obviously carbon for the also just latest footprint Okay. the objective if for you're pipeline I Is to you looking wondering, potential Valero overall? is want to neutral green And and objective carbon about your Good Valero. the negative? morning, X your plants, the the I'm at for Slide of stuff. Good strategic additional the broader what get of like? building general ask announcement it Joe, credentials, DGD with What's deck. Joe. that kind on footprint up basically how carbon of

Joe Gorder

that we're that now then when we renewable returns not the investors, are that projects next to on we this. us our all fine forward. after at, are from at of going think, are can carbon And extension to low-carbon there's to And here neutrality fuels are mean I listed the going to Doug. find projects of from intensity That's to The to and in Paris with is that and projects that enabled good capital able also. can have critical The be in XXXX, hit only targets our and should and you financial us from here sequestration reduce that mean, on up for tell so the tell chart carbon first clear continue to continue here. that with pushed we're pipeline while carbon spending in there. go projects have and other the ourselves demand and do you are going obviously, question, I perspective by And fuels we've think a thing forward. drive to that's other compliance help low-carbon be our recognition mean, projects significant I to to forward going greater returns fuel to obviously, it that ethanol don't much that also you try going diesel from is where some Now, path so that interesting come that we we very achievable. set have with expect look this we that, continues we're But our too, it's to and a were taking that a path thing I that to been goals one a that the way our its to good. on. deliver have we've look for

going they to for products. viable be going and It's continue to of that fuels want part energy we think provide to infeasible the be forward. believe the liquid that And want to are mix we part to long-term. So our low-carbon just wouldn't. do We

Doug Leggate

the to and going And that's Green LCFS. related evolve. very full quick cash how we to don't like, free because discounted I Joe. you, tough you guess, know having to sustainable the what be honest were We LCFS, I'm a with Diamond going specifically have modeling for time a it's flow, answer. appreciate if the I do I Diesel follow-up,

to I offset, about when forecasting another How evolve? to [indiscernible] So project? How Because you coming could if obviously, the think scenarios kind electric this. including into how LCFS. projects, guys economics answer that can are wonder up vehicle you look whichever – everybody for think of the which which LCFS do guys just stations, one with you you charging wants start of you at do of bite in their can about the

of in LCFS assumption And it the your about you modeling payback I'll projects? are leave how So and there. the Thanks. thinking

Martin Parrish

– clean mean, as on This if there we're I is is has Canada demand. at think looking the you've is the standard with demand is there Yes. a is as way California And then program. about all got be We these high Okay. place. the the Canadian in program. twice with obviously, Oregon it California going got that's And diesel programs. fuel to Martin. other

EU got X out You've with California the XXXX, to XXXX. now out to Red

what's there's that of load a And of announced, demand is for announced. if and a XX% biodiesel to that. at date, while the credits lot of generation you diesel, So there's look projects renewable ethanol generated carrying California incremental also lot the is

that changing see what looking through look for when and So, but out anything for we at the time they the beyond is see we're type line don't not we right? this that, quick, and pretty the pay – certainly economics we don't frame So we're Green XXXX at and much. changing time Diamond projects, materially, even and

So that. we pretty feel good about

if down, a ton that is have CARB, you they've that think price mean a carbon of well going this pretty for they're XXX, signaled sweet the $XXX kind I up. think I adjust spot XXX-plus. to and go them I

and good the we anything I in lot so is that pretty see happen think feel you go change they trend. don't demand, of that's just are a don't flip projects about to going and we these announced, that if And back side history,

Jason Fraser

EBITDA, the generated $X.XX is. how much when of the last room was may of was recall Doug, right? EBITDA to context quarter, we you may the that $X.XX you was million you right? DGD and our gives $XXX we our portion Doug, guidance just compare – that there guidance based million, issued cost And X, on that Like some you recall $XXX and on

Doug Leggate

Very, very or negative? last quick at payback. one that. quick. Guys, maybe And Valero's just leave I'll tag on view it positive tax, on carbon real one

Joe Gorder

wants take that to Who one? Rich?

Rich Lashway

generally a see the carbon you've you speaking, components this the would about discussion the be most broadly applied tax. say ways efficient has economy will reduce do be, of to in is with terms way entire key talking so across tax. emissions, economy. you've Well, tax. the the that to of groups; tax carbon We various best trade out points some to there, in Carbon other It got folks got is

the to need emissions sure in You it country. outside doesn't exporting the make result

to to address yes, is issues help going lower these carbon border – to well the we advantaged that in you're have well. fuel low-carbon carbon. I quite do efficient kind environment, and I'd way So point would as and be that out a in around regime some tax think this so we we under think an to it. some of have adjustment But, process of

Doug Leggate

much, very guys. Thanks

Operator

is The Research. of Sam next Margolin proceed question. with question Wolfe your Please from

Sam Margolin

doing? Good everybody morning. How's

Joe Gorder

you? right. All And Sam, well.

Sam Margolin

about to at I results price interesting segment Is Thanks. And and In you, start both DGD of that affects the have that RIN visibility and I are We're smooth RINs-generating to to DGD that even you not kind then their of or business. are see a even RINs. price. refining RINs. something some takes emerge that's off risk obligated add forward that some in question Good. to companies there? Thank the cases, variability parties a fixed off-taker starting in it businesses guess to to selling refining at either the the some sir. the

Lane Riggs

is this obviously Lane. RIN. of net buying a We in position Sam, are

that. we that So RINs on novel getting way – counterparty side to way other could on the any we obviously the a market, as of be that any

As it kick it's diesel, I'm renewable related to Martin. going over to

Martin Parrish

Yes, Sam.

that's soybean between of step and if the that when at the biodiesel the no at you producer. there's driver DX And we the I then ULSD. the and So – for look biodiesel I look think on we the price oil almost RIN, because biodiesel is based marginal feed for this, mean RIN margin with is price probably our the entirely spread the think structure, need. back

at is ULSD So RIN high a then, high, low. you therefore, is the of if if oil is low have DX soybean price, DX oil soybean is RIN given the and

higher RINs appreciate. renewable diesel move as margin not prices is diesel soybean oil, DX feedstock as they with renewable necessarily with So

the are up DX obligation whether the are and the against DX total approach the volume fuels the whole a RINs renewable right different on price, DX. story. dependent then DX that's obligation. today. we're case is They're DX to If DX is DX Now The renewable that in RINs price satisfy and going RINs are needed, to needed

changing. production depends And So whether then total We DXs the that the biodiesel. and renewable obligation the balance see on fundamentally equation. additional are of fuel to DX cost tied biodiesel just to don't that is needed

can a it. DX some of to DX a but behind zero, down be DX So fundamentals has got anywhere, about ceiling a

the So that. to see need really we don't protect

Sam Margolin

impact of very is this CCS last on relates Doug's It now project, experience follow-up capture. and of as ahead And in is the Valero far carbon a your or carbon industry tax. to flows on about of on carbon carbon of and in understanding of carbon consumer, a now a of restriction a scale whether markets to how potential the of debate cost is terms it in about LCFS you. Thank a because question sort just Okay. as and a that the solution. the But of energy the capture a price shipper there's

it's world entire kind price whether So applicable capture sense I'd with comment or carbon on kind the ask with solution, the it Thank some see to, way consumers? that makes about and a just refining specifically based you. interacts of carbon outfit broadly an you say, system with of if to you how

Joe Gorder

that particular that I a in be that refineries business. that I in can looked look don't out anybody a to do at we're We're to that to time, we a here the we speak been but to our potential of But There's in business. this. we've we think, Lane mean, ahead the question. the had step that and could no There's I here. to we're looking about pipeline in willing are, refining long would of Yes. core the Perhaps say this. at make. related not things claim, facets we've to thus at lot in projects far wouldn't presume continue We've the for all ethanol business. business that's

speak to want you So at about… all

Lane Riggs

it's provide at stacks. sure sequester sort efforts I And say carbon and not obviously, dioxide I our that therefore, insight we dioxide, our to looked our of in get targeted. of concentrated focused carbon stacks we is on lot a of for coming this. around went those is it would I'm easier on. tremendous it in and And where all

doing we're it's whether whatever is, and – market. the regime are that LCFS in an those in CCUS market So or the it's

COX see gas a We're that as it at you flue are we're those flue some And – – we've that's We're can looking So ethanol. for where now, landed. how again, and have we right? gas. so doing doing have SMRs our predominantly

kind carbon things refining you a there a we're carbon little of But like need there of of that is So on out prices. price and and analyzing. LCFS needs the that ultimately a that's and for framework more to certainty the order those be for more bit higher, larger more investment of sort something –

Joe Gorder

Yes. you Anything to want add, Martin?

Martin Parrish

I mean, No. That's on When the you way. head. it's look hit plant, a point. ethanol the Lane it cost-effective an at

stack at this the plant. and XXQ COX. you reduction. point, Then CI And You've one also pure got in it's the have one basically

methane of most to steam low-carbon you when markets. refineries, those we're and to make our a reformer – accessing But get then So get can you sense not when too.

a got sources. lot of You've

sequestration carbon carbon on take you're get what the get higher that's a more So going to to in to market. have it's price, to and going going

Sam Margolin

Thanks so much.

Operator

Credit with Gupta of from question Manav next The your is Please question. Suisse. proceed

Manav Gupta

you. Joe, more to guys. specific my Hey, question U.S. demand. Thank is the

negative per from U.S. jet? I domestic comments. three terms back are good we and far are recovery we trying attention to How other the full level could of jet, time see point a pretty you in go to think are the COVID even we're in diesel I'm getting the we from if but in demand key the products frame could where in for gasoline, pre-pandemic international a leave the out U.S.? where parts the we your in initial things opinion, in spikes a of understand, lot far how world, looking of your as

Joe Gorder

Simmons? Mr.

Gary Simmons

Yes.

Joe mentioned, economic and gone has and our a vaccine demand the combination rapid driven gasoline as So rollout of products. recovery stimulus A has for very recovery well.

consistent pretty data. Our wholesale numbers with DOE the are

I DOE think well. of came our about which where seven-day as XX% stats pre-pandemic Wednesday is on level, average is the out

that gasoline on for pretty demand. the bullish well number to very five-year of average, not going average gasoline of we We're the but be the range. recovery, there's only forward, bit supportive little think a a could within pace factors So below due but five-year

more kind avoiding As and seeing people we're normal mass of life, people driving are a of return to style transit. that

their income summer we season, an again discretionary to things. avoid on driving vacations. vacation spend a for taking year vacation go travel of to, the Joe trapped now, For a the believe home lot on than they'll that more people maybe of because more just as in and will that alluded want like felt then people airplane on And rather experiences

on Mexico the seen COVID cases markets export gasoline front starting gasoline very we've pick of domestic our XX% to good. February. March everything So world, domestically was as are demand around though spikes up well. even looks And the in up from

the gasoline very good. side looks So

the kick really starting this and we've especially And in. side, agricultural diesel think demand stimulus almost fully diesel to been build, see in cause mode the growth diesel economic and moving is diesel strong very as sustained strong combination demand, We're Mid-Continent the to recovered. will demand of today forward. where is On starting we infrastructure in demand drives system our economic

indicators, terms we jet it you showing the lag the pre-pandemic in up demand certainly fully that's if very And yet. DOE levels. look passenger look But strong, in at this week, like recovery. And at I would TSA felt of leading the DOE and has. not we're the you look of XX% You about think lot talked data at if stats also counts jet, a and

flights. chosen So put point add far, to plane, passengers on have but to an inflection the starting just where now to they're getting more a airlines we're

calling You are starting also airlines back and that pilots fuel and fact can to flights. see their that and crews add jet the in nominations their

flights demand of if could pre flights. jet at in go; think where I XX% U.S. about you look domestic the pandemic, were So

probably could I to think last recover get longer travel we little a terms there. in take back. that That of will demand XX% international

Manav Gupta

more very renewable it. quick My the are of something up of so my I And think here should Perfect. in Yes. working then is working reflecting is, two is still follow-up it's kind do companies results. results well your clearly showing high-quality and point if together, you diesel

Charles. DGD and I As at leave Arthur did Port X, understand, a for at space you when exactly you like X, X X DGD designed St. DGD

a So will at there. at Valero wait And at start Port X But does point Arthur DGD up? facility? X start what at and – Darling DGD it to what looking together and I'll point for leave come you

Joe Gorder

Manav. Thanks,

So that? do or who to Lane? wants Martin

Lane Riggs

take a Manav, I'll shot. this is Lane.

We the left said – correct. how for at space. everything to to we look another fuel, left for us we've plot We've see want is you absolutely which option Green area want understand develops. So there. But market the in sustainable Diamond is to aviation

we So them we're just see done. But works. along started world the developing up how got projects these those get both and of lines, get to and two we'll

As earlier. is that. you've just seen, our right our better, real these to schedules are doing much now focus And do so market bringing to and we're actually

and these can We're Our there. them guys involved because much the you way projects to economics accelerate projects. as and the trying in possible see, of, very forward bring any go

Manav Gupta

so much. you Thank

Operator

next your The question. Cheng is Scotiabank. from Please of with question proceed Paul

Paul Cheng

Hey, morning. guys. Good

Joe Gorder

Paul.

Paul Cheng

I'm as that multiple think maybe going to related part a to One ask COVID. questions. I the two is

Joe Gorder

it, at Come it. at Come buddy.

nothing expect less. We

Paul Cheng

Joe, I'm guilty as charged.

ahead LCFS if and first that talk a the you the I percentage before maintained will give band that oil XX? So your to ethanol, us how that CCS you can of looking of tell your at the credit feedstock on Martin, opinion the ask from get will gallon contracts second? supply plan of X, of amount I then, of And the of eight think, you when contract, we're so renewable CST the when also I half And we $X.XX And is much mean, should I your on the that's when the – the of is like generate expire? think in RIN the and you that? about, related generate the quite For So benefit can win that, the per that Should your we assume the those feedstock a question? the I of fair volume throughput advantage there. us DGD go assume you that's waste all out and XXX? at

Homer Bhullar

that you're one But wait to trying figure part but first Well, the for second we're have the going of even question. out. to to

Joe Gorder

good. was That

Martin Parrish

feedstock, I but tallow, DGD mean, mix feedstocks the of we're On X, the advantaged. expecting DGD X still a higher – for expect be have to going we to we're

So of it's corn the characters, the the distiller’s of cooking used oil, ethanol cast same tallow, the plants. oil

more will in heading certainly, that's be what that's to More with out we for X tallow. now U.S. DGD stock be. show expect. cooking what to these we'll for being prices the But is high Used right that pretty oil tapped up So we of close to expect be

there's been and market. what – few XX% the absorb on the all. much carbon then happen. planning is, many we're market a question California we're volume projects looking of at, what ethanol how How what California is it of depends our certainly, – U.S. what's can't that So of these sequestration? questions And was is it – ethanol the gasoline

U.S. So ethanol place, be it's have time going Northeast. we market. in the to XX% to of sequestration something we expect these by the But is happen certainly the projects in

market. big New a York is

Depending As Canada said, Mexico that an on we looking go got clean at. standard the there. fuel option may standard does New a to what with be that they're has

is than of more fuel in what going fuel like future the final see we these like those to are have again, rigs they clean on feel now. low-carbon carbon there But to We look standard sequestration. standards, just be

that how plays So we'll see out.

Paul Cheng

when CST the wind contract generation on those about supply that How contracts the and expire?

Homer Bhullar

that, on Paul. comment unfortunately, can we think don't I

Paul Cheng

Okay.

is The on question Mexico. second

recent the maybe the including national lines sector AMLO we that the the may or situation energy. of dominancy stay Given to in look want emphasize political like be some

And So, that on is mean, that expansion what impact something will ground? your people I your or the for over business the that there? read your is

Rich Walsh

This is Walsh. Rich

take when a the at and to off, me mean, an energy would nationalize first them they sector we out look constitutional formally close that. Mexico, at answering it. take really I I for think, effort Let reform

climate So, supporting we don't see the that. political

the other reforms are really legislative about talking recent things. those working you're around that on, theft If fuel Mexico aimed is and

but we would around operate regulatory be have, regulations. and as – if is you've a you're you're at this It We've be operating to those environment adept we there, to think moved there a business able tough I If we're legitimate very stuff. got quickly.

We with there, good good relationship working with and the market relationship think have we have them assets pretty we're Mexican the a and on a ground cooperatively with PEMEX. government. And our we

view is for for good we of we people, their needs. think long be can the Mexico our solve supply that it's so some the help that and and think And and we'll energy we Mexican in haul,

Paul Cheng

Thank you.

Operator

next question. with The is question Research. Sankey from Paul of Sankey Please proceed your

Paul Sankey

got Hi. questions, eight Good morning, bad is Joe. got answered The them. everyone. of The questions. news six is is news bad good news you've I've eight The I've

So…

Joe Gorder

you, We've Paul. missed

Paul Sankey

I of U.S. into and you of concern further too. One clients been that I shutdowns. has the to guess goes missed products imports refining

shut we refineries going just and talk down product York in part is you refineries the these of, stuff what you Atlantic rationalize me. I – dumping a I'm just wondering the it markets? are Basin sort will getting market, cost just guys because the could Harbor. guys. about damaging little on a I gasoline bit you think kind particularly the Thanks, about right So of not or of dynamics that's know whether curve. guess, of whether on New perspective your into wondered of whether for the can be of we that that's what And some that's

Joe Gorder

Paul. Thanks,

Homer Bhullar

Paul. Yes,

he a really East especially comments, mentioned the very result product XX million very, inventories Coast. of barrels we the low winter low down think It incentivized in of in U.S. storm. imports, put light opening So drew Joe's inventories inventory And I as the into the

those that and the seen and of But levels you're volumes we've are slow. Northwest to imports. Europe from flowing starting close so odds see And New record of product York the already

up. exports back In of imports, slowing to starting addition pick the we're see to

the So had certainly, down but as first exports we quarter in in April. inventories, already for us, we replenished

starting are exports to well. Our normalize as

dynamic think will we move So short-term that reverse that forward. I do was a as

Paul Sankey

Anything on the add refining outlook? to shutdowns,

Joe Gorder

driven believe you EU, Yes, they going And by trade southern the just flows. ES&G to we've the companies continue that goals strategic under Paul. refineries continue rates. And to are that a competitive would the in to I largely Europe we had going to kind pressure. a a of and sort to Latin changes be add also outlook to will that and of pressure, outlook American says say to be continue then run refineries have an under the of then just utilization struggle are that

be to so And going an ongoing that's thing. just

that to all tries in a see a of Basin we'll just of that's So it universe, the sort to post-COVID settle extent how Atlantic how works. up the sort

Paul Sankey

Thank you, guys.

Operator

is Please proceed of The your question. Ryan with next question from Simmons Energy. Todd

Ryan Todd

which of on year. got you've on be diesel one, second RNG. I range half Great. market, Thanks. pipeline the that those, number one Any integrated to with second not peers Pembroke it Maybe expansion the big drivers There's partnerships you've side. view something portfolio Or a on are Is this – this potential on the what range? a have is thoughts Diamond renewable and your on projects? the hopefully, there been Cogen capture carbon what looked in coming associated an current And into your couple, as do in wide. the a fairly compared the of fitting of involved EBITDA you the or maybe then unit mean, within contribution quick, in and would the competitive the RNG reasonably EBITDA at?

Rich Lashway

is piece of the first Lashway. This take the I'll Rich RNG. Okay.

the kind claim into can booking a fuels, at the development fit on So RNG looking into to we opportunities we are where of a the basis refineries the generate UK. which take different

that foray of at chain products of the other intensity of into right supply continue now, opportunities to RNG So still for our our kind that's we kind into lower but to producing. carbon it we're look the

but on So of are kind we just we're kind scale. a quieter it, doing of

Jason Fraser

second As quarter. quarter, of start of the we at Pembroke Cogen, end the start expect third the to here the for up

think of the had risk the But I US$XX an million. Obviously, in our on range EBITDA is what that. you of was And… I basis. some that's want terms mean EBITDA I to currency annual contribution FID sort in like, say,

Joe Gorder

pipeline have we anything to add. a Have don't

Jason Fraser

the and be Ryan, that, an just return was logistics to That on Yes. similar to optimization any projects. is like going

Ryan Todd

Great. Thanks, gentlemen.

Operator

with Jason Gabelman The your of question. proceed next from Cowen. question is Please

Jason Gabelman

levels Good guidance, so manage still I refinery first North diesel. to operating are That's you're the point, kind one. impact ask that And in in the Atlantic. the renewable on or where chain? control everyone. U.S., you the credit excluding this some morning the the prices maximum running at at framework one, supply trying you second just of to on essentially excluding Or Hi. maintenance? wanted utilization this specifically Are of Yes.

outlook are and views RVOs expect And or on then wondering that Do the just on First, they've you come prices you conversely, your why just on expect prices, recently when them RINs. to refinery if a Thanks. strengthen. off to concluded? the LCFS case announced is when weakened bit, is exemption small

Lane Riggs

they're still like to all-in So because question It's levels, being running were commensurate the we're utilization refining rates capacity supply about not completely I wouldn't our running we're somewhat but pre-COVID is a outlook. of the rates, running first with not fairly max completely where in – speak this we're are with decent indicative careful today – is we at Lane. I'll we we're above chain. one. say more running are but and very at that max

Martin Parrish

And RVO to all the world. renewable DX obligation, on oil RINs, – the DX talk veg you that talked if in will the impact the Yes. prices you the RINs. is Once then about the the the about need total I about earlier. RIN satisfy really

high. stay stated. they you at cycle we the a going to off, to to expect long LCFS, take and least as stay RINs fix escalated crop it's as that, DX as On So it's

out it, And less lot on with generated lockdown being from there. opinion think deficits of my the you California. has I to in do just a that

as Credit we here, But as the soon year, quarters that and in environment. in would third would of we prices would expect and think. this that you speed to grow to think second the going back is happening should the So marginally LCFS California Bank gets be rebound to this

Operator

of Our Matthew question. next your Co. question & Please is with from proceed Blair Holt Pickering Tudor,

Matthew Blair

SAF produce timing add And and SAF that what's in low, Lane, much some just here. cost how in on me can mentioned to see DGD And economics SAF general market about RD this flexibility? squeezing and you SAF today? can the developing? is for you SAF. How in if number Thanks Hi. talk the you versus

Lane Riggs

Yes.

something yield there last try to very it. the capital is and diesel of with question start you or cost above I'll renewable So energy penalties had fuel first. aviation there's requires all above because costs, Sustainable the to make

make And you not again, cost – to back that directly. I it yield if I that's investment it say, of So additional we're need a I hey, something to renewable loss. sort aviation always to fuel. the to make Today, therefore, ways have we diesel, configured big make penalty could There's can make at the sustainable structure.

the adding In the relatively expensive the reactor to terms and a economic it It's process produce would we require most fractionation. investment. essentially into a the pretty way way of think

people And costs the could So any trying where be with some you there's get need to this to meaningful that to over here requiring in the and in interested fuel are to here we're small there, something of fractionation. get a develop the But need need to going you're do way, do and these some probably there's there. jet you renewable. things hump those you that to – certainly amounts are projects – just

Matthew Blair

Thank Great. you.

Operator

additional to back would to remarks. for call like no the I this turn are closing Homer There at time. questions Bhullar

Homer Bhullar

you, obviously, safe contact Stay have thank to follow-ups, us great team. everyone, joining IR the and a if And any feel you everyone. Well, today. healthy, Thanks, for Great. free day. have and

Operator

This concludes conference. today's

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

Valero Energy (VLO) 22 Apr 212021 Q1 Earnings call transcript