VLO - Earnings call transcript Q2 2022 | Valero Energy Corporation

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Operator

Greetings, and welcome to Valero's Second Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Investor President, Vice Bhullar, Relation. Homer Thank you. ahead. go Please

Homer Bhullar

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

would to not like one that have If on release on received segments reconciliations call. information can site release and our are financial copy, the find mentioned and a this you and on at earnings you investorvalero.com. the tables Web for our disclosures additional metrics business Also provide attached earnings adjusted

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

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

Joe Gorder

quarter, team safe, in I'm that long-standing everyone. morning, rates report environmentally while and second operations. reliable, responsible and executing run refining to our our Thanks, Homer, commitment the maximized to good pleased

COVID-XX throughput In since demand of along been fact, increasing with restrictions. the easing XXXX, pandemic recovered we've as

were second Our compared is Refining demand, for low competitors. was quarter the strength in second advantage the in of capacity the product refineries supported XXXX, product conversion XX% a rate inventories second XXXX. quarter increased cost COVID-XX pandemic coupled margins supply rationalization global in of and the refineries utilization to XX% by from quarter result continued U.S. of in low low-carbon to Product with the the marginal refinery fuels. energy several of by and as driving continued pandemic, triggered refineries to of shutdown of significant that refinery constrained product

conflict intensified less Russia-Ukraine the Russian market. supply global addition, with the In products tightness the in

help inventories summer up However, product Valero historically demand continues the has this for the when global time supply product pent to at demand strong been driving and to low travel. to due market throughput levels. refinery season at maximize are

Diesel Renewable Renewable Diesel in segments DGD low-carbon record to expansion, production DGD full well as up capacity. The also quarter. Our the volumes performed the ramped had segment Ethanol X and

with in of costs on which capacity, to is front, throughput be XXXX. we to efficiency, On projects improve completed expected also Arthur improving capture. The Port that and track expected while remain turnaround increase refinery's is reduced the the strategic margin growth our Coker first-half project, the

Arthur Port as X As project, of other naphtha sustainable And additional operational the renewable opportunities, sequestration and diesel, continue our Navigator's carbon expected with quarter gallon eight expected on of the of located to and in annual anchor begin schedule, for project million of progressing renewable BlackRock million ethanol capacity to XXX gallons activities to completion startup is fourth naphtha. such to total we and generate nearly late-XXXX. renewable is and X.X. the low-carbon per DGD's our evaluate double The to lower product, of a billion to projects. renewable is carbon year hydrogen, and carbon-intensity margins. refinery, ethanol low-carbon to this plan system, shipper, gallons renewable should sequestration connected plants expected diesel approximately We're fuel, XX which in higher DGD aviation this provide projects, product expected next be to XXXX. be is and

a operations, On credit the June, our incurred strong billion sheet, including in responsible rating. financial of through balance million de-leveraging side, system the framework, resulting products debt prioritizes capital from that innovative In reduced to maximizing optimization fuels in Since our through opportunities projects, and of then, provide the capability We to advantage during low carbon throughput focused the $X.X a to portfolio. which world going further pandemic. investment-grade that reliable, strengthen and and on low-margin will summary, our the remain needs. grow committed forward. an we safe, $X we XXXX margin and competitive remain to long-term enhance incremental our we refining evaluate and allocation debt continue environmentally essential $XXX environment billion, on we've business reduction the And by our

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

Homer Bhullar

Thanks, Joe.

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

idle up was segment XXXX, volumes of for DGD million $X.X the than reported gallons for to compared income the per the XXXX. sales from XXXX income in million for XXXX. of quarter to segment of day operating capacity which Ethanol million second to in second barrels excludes second were the reported the the of million quarter was XXXX XXXX. was of refer Diesel the operating $X our amounts, compared Throughput to compared billion the of $XX XXX,XXX than segment second Renewable throughput second per Jefferson reconciliations second million income compared the second higher second barrels of than operations in diesel of financial the of averaged the XXXX of of quarter to $X.X gain day XXXX. attributed Renewable quarter the second production XXXX. of second million For averaged volumes of second of fourth higher in for for million was volumes of per second of quarter the quarter quarter in gallons was whose expenses XXXX which which $X.X quarter quarter of Refining $XX ethanol second per XXXX second second $XXX of the XXXX per XX% million to was per primarily barrel The for the operating to The of X.X day were gas XXXX. the for higher quarter please the quarter $XXX operating the of gallons for attributed quarter utilization adjusted XXXX. in quarter XXXX of sale plant XX% million refining per $XXX $XXX quarter earnings averaged in X.X Ethanol the income the prices. second quarter quarter XXXX. Adjusted Adjusted accompanying day, to of and second were of operating compared XXXX. sales barrel The income for XXXX. quarter $X.XX the than the second $XXX billion day XXXX, Refining X's primarily release operations the XXXX million cash tables. natural operating started to $X.XX million higher which higher quarter volumes quarter

provided second the $XXX $X.X amortization was XXXX, net of activities For $XXX expense and for and of was million interest XXXX $X.X million. quarter G&A operating billion and in second $XXX was second XXXX. effective was quarter was rate expenses million, billion quarter the were of the by Depreciation tax cash The expense Net tax expense XX%. income

was working was $XXX net provided and joint Excluding cash capital, venture the net to member other share turnarounds, With business growing regard we favorable activities of made for the working million activities changes the the provided $XXX in of for capital $XXX from investing XX% million $XXX change quarter compliance, second adjusted for billion. was impact the in cash million DGD's costs sustaining capital operating by including $X.X and of by business. operating DGD's investments regulatory Of and which, million catalysts excluding of the XXXX. in activities,

second the is returned approved our through stockholders X, in September Directors other quarter to related of respect we capital investments of by investments to to variable XX% Valero's entities, Valero reduction and in the $XXX $X.XX of XX% attributable joint of payout quarter, regular the XXXX sheet, those activities share of $XXX a Board operating record our interest stock on our members, the second Moving attributable reduced XX% activities, common low-end transaction in earlier cash Excluding other August debt to With annual at this month, to DGD of to million were buybacks quarterly dividend share payable X. venture We by stock and to completed financing capital to the of provided per net target on dividends quarter million. XX% our debt which another balance that ratio. adjusted holders

of with cash. and we of We pandemic obligations, As Valero's down cash and refinancing high XX% transactions to cash result debt the reduction in XX%, of cash the $X.X pandemic. The quarter end billion $XX.X lease of height of COVID-XX reduced was the the equivalents. debt and $X.X ended of by this the debt, combined available debt the of with billion XXXX quarter have of the March transaction XXXX, incurred of quarter $X during with the excluding of and noted, ended which liquidity, the net Joe billion. first well-capitalized and already cash debt at $X.X capitalization second-half the largely completed billion the of XXXX billion total collectively finance ratio equivalents from was And

Valero capital sustaining XXXX for investments. expenditures fuels which joint to business, attributable carbon is to expect we to the in and allocated businesses. of allocated our amount growth. for approximately investments About guidance, is billion, About turnarounds, to growth XX% includes catalysts, XX% $X of to expanding half that capital venture be and to low Turning the XXXX

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

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

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

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

we depreciation corporate That XXXX, to opening remarks. expenses, concludes $XXX our expect For million. G&A be excluding approximately

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

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

Operator

today go you. ahead. Gupta Instructions] question first Suisse. of is [Operator Thank Please Manav coming Credit The from

Manav Gupta

some and Guys, I'm is out footprint. destruction, that's you we only you some were understand the then there? having on and but There there not have help ask can most one indicates The us on dynamics the that worries the case, demand are were question, diversified recessionary demand demand. conversations going to worries actually basically

out it or you there? what understand, So, are of gasoline you. And leave there. diesel, demand in seeing I'll help us Thank terms

Joe Gorder

Manav. Thanks,

Gary Simmons

continuing records; really Manav, demand a this barrels through any read about can previous back destruction. of demand in We XXX,XXX we levels, of June, we a that a in data first trend which in We a did of day. channel of tell X% of levels. but June bit couple diesel showing lull seven-day to averages our in XXX,XXX is In destruction of August barrels we there mobility seeing June, are you, did our gasoline July, and set the a that I see pre-pandemic pre-pandemic actually sales above record, kind at our X% we're 'XX, level not month destruction. the no and day demand of Gary. of Again, surpassed weeks with to indication now range to lot is sold wholesale our system. where

Manav Gupta

you, and on very Thank good congrats guys, a quarter.

Joe Gorder

Thank you.

Operator

is The Chen you. from of Thank go question next Barclays. coming Theresa Please ahead.

Theresa Chen

impressive. quarter, Great team, very

Joe Gorder

Thanks.

Theresa Chen

your are supply now the side, light on both crack and what In the the at demand about where developments is thoughts of mid-cycle side macro structurally? the

Joe Gorder

want You guys to --

Lane Riggs

anybody take cycle, view right it's i.e., Gary bit. Lane, significantly recession. mid-cycle, it, our this But, to idea tune mid-cycle little But our probably above said, obviously got at or Theresa, and a of of and go through a is the remember me can at with crack Well, I'll then we matter. entire now economic is else's, mid-cycle for that from that recession to an you least

kind numbers But through we be I energy the those seems that's -- of defined, --- the few least a way the sort of in for reasons, fuels. cycle we and number for through -- lack work so, of investment is whether world economic And believe, the adjustments. descriptive a it's think it's next place where to the fossil of just transition working with we at the trending in and

see types -- mid-cycle above the next the our is for a number these today of sort reasons probably -- cycle. economic we where be For of that of what

Gary Simmons

to we you're Really, a their energy gas talk as about calls U.S. to with to agree high we When a then have that a market tax, carbon as due what I some lower costs, proximity Yes, as And period costs you stocks Lane And raises cost pay we there's be prolonged number natural the having a of which have our above refiners natural of now are feed result currently changes. well. where structural in would gas. our of said. form mid-cycle. outlook getting for what higher cost crude

and are tight, capacity, on to balances logical assume supply would that it's there's the to level. demand start going and as be long to call mid-cycle as a So, that it reset

Theresa Chen

we point demand, at of demand a period And see if or Thank the softness, given demand be you. you extremely to is lived kind build cetera, the risk this piggyback do of Manav's that the whole, to capacity, pandemic. think industry flexible, through run a on refining years shutting related amounts question what for do down as the to inventories overwhelming two-and-a-half industry, of through just having to of et contraction

Gary Simmons

and to -- those feedstock advantages U.S. in I in such a the in again, demand advantages competitive costs costs and be would freight so, feel export America. position the going Yes, South and referring doing competitive here like even in we're strong be kind to we on we American, energy back structural have United the that if States, fell of we South able to volume

Lane Riggs

and pandemic Well, industry pandemic to the destruction, have to obviously, anything through would a a offline. Theresa, where was and is Lane, remotely point, though to your of of recession capacity extreme destruction that. outside mean imagine the bit I going the demand hard this taken measures took our deal close And quite another demand the to pandemic, with going it's

Theresa Chen

you. Thank

Operator

from you. Doug Thank next ahead. is Please The coming of Leggate Bank question of America. go

Doug Leggate

everyone. my morning, good Hi, Thanks for questions. taking

unique as follow-up is X,XXX Pembroke a when that, making a seeing? U.K., opposed kind what advantage given I little an are but is Europe so a your on dynamics than is this today, say, I structural What's about are around versus insight $XX.XX So, to you're lower mid-cycle, U.S.? competitiveness think the paying to in guess, Is it insights on U.S., you question, a global, for as ask relative feet that guess let's differently where of the to little guys, Pembroke that. today? going cost the we its But natural is the happening to obviously, Europe focused, guess clearly somewhere which what's money benchmark, gas, cubic per I'm of of I mid-cycle this.

Lane Riggs

it's Lane. Doug, Hey,

this terms energy is good range. is know, U.K. I the quite To mean, but a of of gas. don't well; you've this this better-positioned having value and million well volatility, $XX is precise natural answer more $XX paying of but the advantage in bit of is a particularly mainly States that a did very talked morning, bit -- There's they're around this of it's Pembroke in a to, about United to Today, more maybe quite quarter. question, we in So, respect than with in would for prices. BTU, the say to, however I obviously, a terms was $XX, give been Europe it little sort bit per about gas, a it past I doing this paying

step things that best refineries some versus even So, gas. natural [Ph] in around change, we not is another maybe the costing another that are, in not there's [there is U.K. in -- don't just there, step] the reading of and the guys refine of same much how these over we're we're European are situation of terms sort change so you gas

is doing it the be sort actually -- doing being of well, Pembroke they're I so the -- and the to heat and at that setting marginal I -- past even so, that setting we're as capacity Obviously, -- So, means out mean well way crack, like wouldn't their -- marginal mainly being fact them the today. capacity consider them the somebody

Doug Leggate

real may on in, prepared to I to cost your portfolio follow-up the Pembroke does you're if extent Lane, sit curve share, today? quick, where

Lane Riggs

U.S. it's and Well, you today, pretty basis, look of on the it's of at those most issues, refineries or our of of in But gas. all sort whether Europe, on they're one on our other basis. cost barrel them -- when good of our cost the an per energy-adjusted a high, actually out, the right, competitive -- sort natural look because

refinery. competitive precision, Atlantic I'm but it's very, They a And very in efficient give the Basin. exact not very so, going are to have

Doug Leggate

know, guess. I I My one, your sheet into, in past see some for just so sheet. a perhaps, debt I'm future? one, net cut Thanks. over the versus you've to balance delighted cash over foreseeable you. quick thank you year, And as Okay, stepping am the building I'll your about there. hopefully half how think curious balance bulletproofing leave it buybacks you your on the follow-up,

Jason Fraser

I We'll take the been doing be doing one. basically is Thanks, can in Doug, this thing we've Jason, the past. same

Our mentioned, side, last a we on transactions, build progress down far. And cash $X.X as when through series of start debt debts running September X, paying capital allocation start a where fronts. we said We June recovering, Joe both priorities the we those you back made COVID margins and paid mentioned we billion Homer haven't our of of on debt starting and and so good the priority; changed. our had really

side, said planned XX% more COVID, we whole debt at what cash to the the We're a we'd be to quarter. of of end the $X.X $X cap billion we billion look range at On given at. a through now net billion with $X experienced we'd second the

think good fronts. we So, those on shape we're a in

at we shape, our the approach buybacks down year the the our to Now, we're so plan and XX% to same, range at XX%, by remained continue think year, so from a and far priorities debt good guided to net building far of We've our XX% payout our paying and more debt lower-end in target paying be so the of of cash. shareholders. just the We're to payout commitment return ration of doing will competing back to cash operations. we'll continue given the our this honoring this

Doug Leggate

I Thank guys, the right, All appreciate you. answers.

Joe Gorder

Take Doug. care. bet, You

Operator

The question Read go next Thank Fargo. from ahead. is of Wells coming you. Roger Please

Roger Read

good Yes, thank morning. you,

Joe Gorder

Morning, Roger.

Roger Read

the in coming forward out of Europe. of this but like thing, next in big look, mean And cheaper. in as the doesn't gas the to kind surprise look winter look spring I you're demand it if a more was a maybe any gets little Europe Coming back we distillate the winter, to of

the about into you way can the we it overall which oil and in as the Basis and this the summer, do diesel make in fuel at distillate there we're ways running affect as incremental Europe see what So, think or Atlantic demand point, margins?

Lane Riggs

be lot Europe. to a into for real going be it's us, to Roger, diesel to supply a challenge Yes, able more

with industry U.S., which a where to bit. inventories getting they the driving basically ULSD all-out. running If recovering We're you in little back yields U.S. is the look, where jet are, is demand actually the down

that from me for the be it's U.S. seeing to Europe. of flow very difficult into a going there's So, lot

Roger Read

on as payout number ratio, then And a there of XX% to you. Got ran above well a that were follow-up level. pre-COVID times XX% the you

where as achieved better of we as, cash. of high-end a you is or in cracks Do like debt we're than you to the the it $X as where situation going looks kind low-end, that a saw -- this want range or that that for let's you are evolves situation while, more something stay does the second in of undershoot say, to as to consistently persist Now is may -- a thereafter? see it hold or at into mid-cycle, quarter back the go is billion just repayment this

Joe Gorder

answer to You want the first one?

Jason Fraser

Yes, down several Yes, at we've months, for future, right, debt. priority that got sure. next still in paying you're of competing foreseeable our the least the

any I lot the cycle while we'll right; you're end stay continues the to of to think at have of paying excess down we're So, we'll cash lower strong, If super debt. a be consider.

Lane Riggs

to go get Roger, absolutely and we makes I completely balance of a and more cash want And Yes, that sheet do. mean Jason with things cleaned get up, something is lot sense carrying what and a agree this to ahead bit said. bulletproofed. I

hand, from where today, the consider right is certainly to above it cash on experienced we're is continue hand, higher I second what going with It mid-cycle. course, the dividend to to to stated, to we'll turnaround see cash we'll certainly build Gary what time. traditional well covered not lower be like for to and end. honor some a if looks for and quarter continue the environment the the has like end then we be we it'll probably in covered would the but the think And and payout, higher have move we with we your and as maintenance on But, cash anyway, You'd CapEx margin on now go.

Roger Read

-- dividend, back as getting increased that of as balance just what repos, I the ultimately once another while it's guess, been is wanted you've little on that, you think change And at. I'm way one really you Okay. tweak as that becoming cash? think Should we the does share is about since sheet a return the way maybe versus dividend to

Lane Riggs

be That is down. we we'll Yes, the look met And that. will to and getting at, our in something be that that's focus something sustainable is approach short-term we've something I through COVID, looking discussed, at ensure you we'll coming mean, We debt but measured cycle, at looking we back given it's We'll be this our this as before. should. is experienced especially at. looked on what through

Roger Read

Great, you. thank

Operator

you. of Thank The next Sankey Please question go is coming Research. Sankey from Paul ahead.

Paul Sankey

Hi, good morning, everyone.

Joe Gorder

morning, Good Paul.

Paul Sankey

It obviously, momentous else? in various oil Good terms happened Brent/WTI of, and a quarter what's obviously looking Thanks. the a the at, outlook and the for bit talk what everything Russian just morning. we're markets, Spread, differentials impacts is markets. Can in was you about crude the

Gary Simmons

Gary. this is Yes,

the somewhat. to The on certainty to overall, see with the to combination I the also that think, of SPR has trade a and oil to on Russian So, be caused quality differentials the certain of but And it's was change flow, what pressured Russian that, would flat Russian sanctions, in the some continued to on production less caused then started in it not parts market. down. market, price barrels time we come world it's there flow, growth coming appears oil has happen as not gone

oil weaker, as move fuel the mentioned, prices differentials I high things the sulfur seen pressured which to differentials. sulfur to fuel well. impact addition quality largely we've releases, SPR, the the And tend medium-sour with early high barrels oil then In

the [Ph], [resid] starting back to is Russian is its that of market. Some to make way

starting the You're and come the Mexico, more to fuel differentials high are sulfur market seeing today. from pressure things seeing so quality in those oil we're

Paul Sankey

change how thanks. you but forward just I to months that next released, some helpful, thing presumably I mean obvious I know, at that SPR, the so? it's do very things being is or continue will stop That's one you right? point got six thought, Could think don't mean the over

Gary Simmons

exactly that's Yes, right. well,

I lower see from forecast. Most kind their you'll demand SPR. have global volumes of people oil lowered think coming

fairly lot the from expect markets the a differentials think well-balanced. today. they oil of are wouldn't are in We movement I So, where quality

Paul Sankey

Thank you, guys. appreciate Thanks, it.

Joe Gorder

Take care, Paul.

Operator

John question next Royall Morgan. you. of Thank The ahead. from is go JP Please coming

John Royall

my morning, guys. question. for good Hey, Thanks taking

expect any quarter? talk then, about in in the can what pieces So, do you've and there I backwardation, And know on the R&D, long-term that diesel X the once a XQ, normal about -- have captures DGD you you you once moving to for up in stepping down structure beyond you talked last captures business the and the to and more looking get look running? like know, market

Eric Herbort

is This Eric. Yes.

think nail was the the if big but the I Really and QX the of you rest at the the look head. on backwardation you of severity second which prices and of was the capture versus rate, in hit difference to weaker, quarter quarter. $XXX the soybean sort prices $XXX quarter-to-quarter, the QX yes, were averaging in down between were higher, obviously closer LCFS first

backwardation second is lower rate quarter, mostly you mentioned. So, margins and to due the in tighter it's capture clearly

you you the little look again said I as RD. think will markets bit of return of forward, a you back-half this year in USD that for If see normalize normal

John Royall

news where federal with thoughts think then, on and think to your I about, know R&D, go scoping you've we California, LCFS starting And I good just you and there? give we know morning. pricing latest program program picking staffs this in and process the on could next have Great. year. you now the some in have the a Canada BTC Could the had

thoughts any helpful. the there second-half on next just pricing will year into be So, and

Eric Herbort

a of range. LCFS they we obligation. have the XXXX, should $XXX see you moving. It's The We to see LCFS California the a about as muted and mentioned, really of just increasing other have, up for have just the to into to don't obligation, big gasoline scoping it's Because -- -- as market Coast obligations lot meetings and there. stabilized renewables on in is sort driver demand credits. which a credit diesel the volume And the of greater a consuming $XX demand seemed Yes. create still in relatively with now, not considering has the the XX% West renewable they're

emerging market. opening goes and all to at, you then that Washington and to The valued And figure mentioned $XXX to Canada price. these to of that's in what up, federal new seem now next into earlier effect I credit they an So, Canada, be opening prices regulation is obviously between going are be $XX world think with around is June. the trying Oregon same we credit sort hanging see

to want of go an we if going and see kind we it see to seems obviously in stabilized have was to -- would I some that outlook, up, to like more So, back have range. that

John Royall

Okay, thank you.

Operator

Lynagh ahead. Morgan is Connor coming Stanley. The from Thank question Please you. of next go

Connor Lynagh

thanks. to export to the balance. return and I wanted sort of topic of Yes, the global markets

proposed As date and we sort Russian wondering Europe's when get of about of to stop how your taking market the to of position, products, we sort implication high-level what's I'm view the refined here will America will change, Russian a key you as highlight there, great. just is you on to likely be be volumes exports, your competitive is area that of Latin that do high-level thoughts think closer

Joe Gorder

Yes, going difficult it's with to the know sanctions. to happen what's

some see interested in countries seem I barrels. taking be some think to Russian American South we that

into a we that Europe, some certainly diesel lot to And backfill South America. clarity be So, the could to see Russian of scenario have what's happening, but way I happen. develops going don't that really a of could then that we makes its

Connor Lynagh

will just diesel the a was trying that -- were to would be view were enact, suggesting And I'm this a then likelihood Europe, not or particular near-term of that expectation? revisit is that guess more U.S. you that there you in a term I sanctions shorter maybe basically to that flowing is of high but just if then triangulate, comment? duration comment, with earlier the you probably to more of

Joe Gorder

and rates freight Yes, happen don't short-term, what's Latin incentive see going certainly the to in Russian terms high, going in a know into we the are America. better I rebalancing. in of sanctions

So, better of and we wait just kind see.

Connor Lynagh

near-term? the All be enough. the going the big rates right, of to we that in result strong should pretty actually have in think sneak you in is one fair one pretty quarter to here, XQ just Maybe refining last that Do you about Anything think of are third swing held business. where terms up indicative in in here? capture factors

Lane Riggs

is Hi, Lane. this

any it be So, fairly similar. speaking I normally in would say, would big moves flat absent price,

Connor Lynagh

I'll turn back. it it. Appreciate

Operator

coming Sachs. you. ahead. Thank Mehta from of Neil next is Goldman go question Please The

Neil Mehta

on good here. quarter Congrats team. morning, Yes, a great

was blender's could an some extension of out night Wash there around We tax question got there. first credit. the be news that The last

on just understand love the would And DGD Washington? how you business? perspective what could for do your mean that So, in ruminations

Eric Herbort

because is fairly model be there's that this sort business we blender's we would Well, them BTC we the said always Eric, that have start. the decade. I'll been renewable obviously tax capture obviously, one part last some and is diesel certain are with of for for credit, of a always there The

perfectly you seen, it not but blender's there's know, maybe view range. [defo credit have some certainly We [Ph] up, and RIN] that dollar-for-dollar, pick would of a XX%-XX% tax without the the sort

plays out. will we see all business. of comment the this But supportive if how political at so, certainly know wanted side. And on to it's I don't Rich the renewable you

Richard Joe Walsh

tax XXX some pages, came late I Yes. just are out it. This are too be SAF and there there sort that last to our obviously trying is to just are is talking a there through. in looking a that some as at, night, also tax mean helpful we through the about, we in we are Rich saw there're credit business, things things we mean will there well bill I Walsh. credit we're looking

without to has really of would year. be always it tax don't up before I on forefront. quick, to the -- surprised came and stronger everybody But thought ever we bills on credit think out this good problem I the -- it's the that think looking one that be blender's credit see was the that these tax end end a So, of going

Neil Mehta

we is that environment being in great trading switching, distillates obviously are off inventory? able catching that, yield and and on the some pressure we capture heating to oil the well Follow-up equation it. help see are All do take and to now, the the just switch industry distillates, company as gasoline, to right, above does you recapture how

Lane Riggs

Lane. is This Neil. Hey,

a little our assets for been this addressed few weeks. of bit, have kind a mode distill in Gary So, max

Joe And diesel covered, occurring deals made fall, now, so, yields right dynamics one of it's the distillate actually fall. as that's or

at that to right running So, of up rates. there's diesel of answer opportunity additional runs else a I make the kind see incremental through is might outside and not a decent is have lot now. seen utilization don't somebody I similar big is guess everybody pretty of industry have, shortfall the doing signals, high short I

Neil Mehta

Thanks, Lane. Thanks, guys.

Operator

coming The is Sandler. ahead. Please go Piper from question next you. of Todd Thank Ryan

Ryan Todd

you in in Maybe kind low you you thanks. little you kind equilibrium those soybean there, seen Good, out here. in the of in of look a late towards start DGD about of year, we to normalization spreads, difficulty] follow-up is second-half expect then and X would seeing significantly and particular, talk that have markets the are of some diesel, see on you and animal [technical Can some there pretty -- would there year first-half that feed last ways the volatility? we time start renewable little up of oil fat, as kind moves where as saw the we those expect more, recent a and market; and you the the feedstock spreads of year, period where buying what widen obviously

Joe Gorder

I I was I any or market feedstock are you as soybean the said, oils down, -- is different come problem the since the you Relative along. we second if goes availability mean Yes, and it in oil look animal not there, of but sourcing fat think having mean values, feedstocks. quarter, pricey waste any at

it last and that has there the advantage availability get is time as for the if our quarter as know, unit But to change of of third LCFS, in of not this certainly need sources being certainly of have been where look is X you up DGD the sort largest year. as With and global pull at you starting flows in all we X, feedstocks the the a from U.S. we lot we DGD the it some and as well fourth can with trade doubts no will feedstocks.

feedstocks the change see then and a you some a trade settles trade of in So, of any How collaboration sort time are but it we as as year I out. next flows, those will right, we -- think flows in see general lot impact change. of I think will we

in and start earlier up one and as some we that will opening so, it feed at you be be looking see Canadian looking up, thing versus That and we are stocks. it. we And be other the how will at like I interesting will regulation out up mentioned opening markets are all plays

Ryan Todd

then next on see question inflationary timing. over are the I budget, that it project chain project the Any having and [indiscernible] months? have or doesn't think an DGD supply XX maybe and clearly or mean look from as environment spend Yes, environment. it I the quick your we impact impact like you update a will capital on on X things

Lane Riggs

is to and Hi, in Lane; where of this all else prior projects locked right and are that this we time inflationary is labor prices steel those everything now. sort experiencing

Ryan Todd

you. Thank Perfect.

Operator

ahead. Thank Sam from coming Please you. Wolfe question next is Margolin The of Research. go

Sam Margolin

Hello, how are you?

Joe Gorder

Hey, Sam.

Lane Riggs

Sam. Hey,

Joe Gorder

Good.

You?

Sam Margolin

Good. WCS Thanks. are I comment think and to the me made blowing I Light call mentioned spreads ask very fuel a got discounts heard out. that are want deep. on high We've earlier premiums about you Sweet sulfur

do products, was very people market everything imagined wondering scenario specifically on? how these I wide got else that think and in also differentials that is that's gasoline. And have distillate You given just the today sounds IMO between for XXXX. influential you the It like other going

Joe Gorder

diesel seeing higher contributing well. in are And that you lot then sector. a XXXX think the of fuel as IMO in through to are marine distillate today. stronger the market because has cracks discounts the sulfur also pull I it's It's contributing seeing more you of to been pulled the

Lane Riggs

marginal unlike this happening of that. am again bit -- really I'll the on to landing add little weaker, valuations what's a also basis to Lane. probably the It's say high Hi, some I sort going sort trying of they crude it's is can of because Sweet of not right? it's market, sulfur sours. value Light the out up So, market, medium bidding make of fuels not to versus gas, so the natural stay up the it's propping on that to high try that refiner that

Sam Margolin

a energy other prominence And the much taking into diesel over fuels I side. feedback the security that's conversation are when support ethanol Okay, and down follow-up lot of and almost that a industry is maybe we've on interact moved have including -- the and same carbon your with emission side. there the government. And support incremental contact regulators then, was DC. But I then, the seeing drilling some category. say you if in thank policy that from wondering from thing gotten for renewable you. is that's very you And recently should renewable spurring counterparts on

Richard Joe Walsh

would opportunity by I an take saying there. low I'll carbon they Rich. are too. just is This qualify

also carbon moving just solution. They the not are So, low are security. of they into part

intensity So, that on outperform at EV the carbon if renewable light alternatives there. you carbon of look can basis are actually a diesel, some it out

what an are implement. for among one, think, low actually that is climate starting issues these that there. the solve you I realization to And They cheaper So, to some fuels are see opportunity available they provide of now out to also are carbon regulators dropping. a They are are consumers. liquid

is course, of And, recognizing strength the in you of are real domestic So, I marketplace they what I U.S. seeing the might are think mean alternatives. the better that and be these economy.

starting surprising fuels. carbon affection not more for are it's you that to So, see the low

Sam Margolin

so All Thanks much. right.

Operator

Cowen. Jason of you. ahead. coming Please next Thank is from The Gabelman question go

Jason Gabelman

ask the only want too that to questions. high, month firstly interested intervening the there seemed particularly the the the can obviously rise when [Ph]. and government policy Hi, the in and back-half concerns I got petroleum markets taking my side, a of in ago, flat prices on [crude again is on into toys] year prices

the export realistic quota option and the how you? maybe in wondering when you a was a higher I Thanks. government And could conversations follow-up. particularly petroleum a products policy impact with around discuss that banner the government think I implement So, and that if you if could future, have bit would that's

Joe Gorder

Okay.

team with to various her the talked of off was to had the the Biden's consider in the of meet make I fact pressure on the to you team it sense response in members the members with could were, just fuel that continued and Secretary help request, President other -- implemented short-term, take meeting well-briefed have that changes follow-up to Energy the issues prices what and to meeting She of Lane and what constructive. the and in would policy implement. options of some staff and of to our about in hand, that might be has some the implications would opportunity I mentioned. So, staff We of her be try see of that those to in and attendees

So, Lane, it that? would to a good was anything you add meeting.

Lane Riggs

of any mention thing exports only The don't remember trying I would -- to I add, limit

Joe Gorder

No, no.

Lane Riggs

I about not talk will whatsoever. really

Joe Gorder

the they of that And yes, implications understand my point decisions. to goes it these some of

tell. You supply certainly higher probably know, just pressure want out some far put they the that would that prices shortfalls are have can some we the the have would banning as without industry, there. to drive the it on and to would effect the global as It exports doesn't U.S. backfill of

place, be what So, they to there and was happens seem It's constructed always have I a that these encouraging is And they're for to still a it solutions. after consider meeting, us, that. see follow-up it, talking. in grasp any interesting actual was to interested there conversations keen but would but take and with

more Jason. to come, So,

Jason Gabelman

with that Were you eye the solutions there any on? met and representatives potential right. All you

Joe Gorder

Yes.

RVP things I change. the of think one was

Lane Riggs

to self-respect, in essentially the refiners that -- an policy have that there's That's it major essentially could I initiative relaxing would help self-respect. export give, because clear. of ongoing U.S. some maybe think fairly you RVP of was -- the

and little the that again these, just those the require areas then some metropolitan That's other to of move, so, have are relaxing think non-attainment -- about. would the what Joe things the to mentioned, a a and RVP in talked And would that like reformulated land. from was some we conventional I of but bigger idea go that

Jason Gabelman

from an back or partners, the to will joint be when I was about flow And we cash are help guideposts X time the distribution That's to inflexion us business could DGD, starts venture you what getting on just we DGD wondering least follow-up point my when up, a it. think expect this really for helpful. on update at Thanks. could and the cash in Got that? policy if

Jason Fraser

growth was in. cash -- is start till business are and largely can maybe from how flows DGD We was the then the chime This off, the all know use it's will Okay. Jason. Eric business, now. we I funded all funded, build,

coming X online DGD fourth the will quarter. We in

be time it. there at the what flows tests, out the look and do partners to will So, with [indiscernible] to should some cash be

Eric Herbort

Yes.

flow there expect cash a up, to finishing year project. do we positive be obviously DGD capital with the next starting on that and X So,

And we so, work do partner with that obviously want our cash. we what with on will have to to

discussions then associated new do what hook that And the discuss that out know, and with talked so, want policy recent elements, after with night, a to to -- cash in to about lot we starts up, like we with of DGD have today product market feedstocks flow between you take we be things we DGD. a and came said, X should kind know, cash, you have last we're on going XXXX of a obviously we the but take pause look of the there and

Jason Gabelman

All right, a for answers. thanks the lot

Joe Gorder

Yes.

Operator

next The Pickering, is Holt. Please ahead. of go question Blair from Matthew Tudor, you. coming Thank

Matthew Blair

X, Hey, through, would for if kind think If about potential thinking yields SAF this so, good at we morning. adding goes SAF of about? and capability DGD be you should DPC what

Lane Riggs

we get certainly things a we of details see still lot how of credit is a is obviously, waiting to SAF going that out. wings the -- the but there's got this before so, to play Yes, have in project to

of to -- for with project a is DGD there do capability roughly SAF on looked that so, at kind to a and bolt-on yield And that would XX-XX SAF of engineering continue X that renewable we diesel. we

the be capability of producer would it largest SAF increase for SAF. obviously the U.S., a in significant So,

does be work has like details be could of it said, then as a well standpoint, that a a like lot our and through policy to but it with possibility, to discussed I you partner. So, from

Matthew Blair

details million. at the like What DGD? it that there? And through margin like us you QX? And good. could look hedge, impacts of Sounds a was does or any for then, in this, walk QX inventory headwind hedging $XXX a QX hedge an think I

Lane Riggs

it's than being And the product really, would all severe that's in backwardation details second Yes, is I be say those of quarter. the Q. -- what quarter more in will all a first the just

of rest as But ULSD because how market earlier, think tied looking said really it'll currently of favorable that the year. back-half better, how larger the But mostly capture effects impact on be year the to looks if a out. plays I of more plays that's all, the why, the out. was market and it just see But in little lower was let's the probably that's margin a ULSD. see So, much we we

Matthew Blair

thank you. Great,

Operator

to question-and-answer you. end Bhullar of like brings session. back floor the Thank comment. Mr. would close the That the turn to over for to I us

Homer Bhullar

you. great IR you you, contact us We Obviously, and team to day. Thank today. Great, additional everyone if appreciate have feel everyone, thank joining have the a free any questions.

Operator

gentlemen, and participation. Ladies thank today's This for you your event. concludes

or lines at webcast enjoy of the day. your the You time, may and your logoff this rest disconnect

Valero Energy (VLO) 28 Jul 222022 Q2 Earnings call transcript