Valero Energy Corporation

Good day, ladies and gentlemen, and welcome to the Valero Energy Corporation's fourth quarter 2018 earnings conference call. At this time, all participants are on a listen-only mode. Later, there will be a questioning intercession, and instructions will follow at that time. If you require any assistance during today's call, please press start and zero on your text or on the telephone. As a reminder, this conference call is being recorded. I would now like to turn the conference over to Homer Buller, Vice President, Investor Relations. Sir, you may begin.

Good morning, and welcome to Valero Energy Corporation's fourth quarter 2018 earnings conference call. With me today are Joe Gorder, our Chairman, President, and Chief Executive Officer, Donna Tiefsen, our Executive Vice President and CFO, Lane Riggs, our Executive Vice President and COO, Jason Frazier, our Executive Vice President and General Counsel, and several other members of Valero's senior management team. If you've not received the earnings release and would like a copy, you can find one on our website at valero.com. Also attached to the earnings release are tables that provide additional financial information on our business segments. If you have any questions after reviewing these tables, please feel free to contact our investor relations team after the call. I would like to direct your attention to the forward-looking statement disclaimer contained in the press release. In summary, it says that statements in the press release and on this conference call that state the company's or management's expectations or predictions of the future are forward-looking statements intended to be covered by the safe harbor provisions under federal securities laws. There are many factors that could cause actual results to differ from our expectations, including those we've described in our filings with the SEC. Now I'll turn the call over to Jill for opening remarks.

Thanks, Homer, and good morning, everyone. We're pleased to report that we completed another good quarter where we ran our business well and delivered solid financial results. Throughout the quarter, we maintained our unrelenting focus on operations excellence, which enabled us to operate safely and reliably in an environmentally responsible manner. We also delivered on our commitment to invest in growth projects and acquisitions that increased Valero's earnings capability and while maintaining solid returns to our stockholders. In 2018, we matched our 2017 record for process safety performance, and we continue to outperform the industry on our personnel injury rates. The logistics investments we made over the last several years are contributing significantly to earnings. Our investments in Line 9B, the Diamond Pipeline, and the Sunrise Pipeline expansion increased our system's flexibility, allowing us to take advantage of the opportunities available in the fourth quarter of 2018. In fact, we set a record for total light crude runs at 1.5 million barrels per day and a record for North American light crudes processed at over 1.3 million barrels per day. We also continue to maximize product exports into higher net back markets in Latin America. Turning to capital allocation, we continue to execute according to our discipline framework. Our projects and execution remain on track. Construction is scheduled to finish on the Houston Alkalation Unit in the second quarter, and the Central Texas pipelines and terminals are expected to be completed in mid-2019. In November, the boards of directors of Valero and Darling Ingredients approved an expansion of the Diamond Green diesel plant to 675 million gallons per year of renewable diesel production and the construction of a renewable NAFTA finishing facility. With respect to cash returns to stockholders in 2018, we paid out 54% of our annual adjusted net cash provided by operating activities. exceeding our target annual payout range of 40% to 50%. Our solid financial position and a favorable outlook for our business enabled us to further demonstrate our commitment to our investors, as last week our board approved a 12.5% increase in the regular quarterly dividend to $0.90 per share, or $3.60 annually. Lastly, earlier in January, we closed the acquisition of Lero Energy Partners. This transaction was immediately accretive, and it's greatly simplified our structure. While Valero will no longer have a publicly traded midstream business, VLP's assets and ongoing logistics investments at Valero will continue to enhance our feedstock and product flexibility. Now, as we look ahead, we remain committed to our capital allocation framework. There has been no change in our capital discipline strategies. which prioritizes our investment-grade ratings, sustaining investments, and paying our dividends. We expect our annual CapEx for both 2019 and 2020 to be approximately $2.5 billion, in line with where it's been over the last several years. And you should expect incremental discretionary cash flow to continue to compete with other discretionary uses, including cash returns, growth investments, and M&A. In closing, with a growing economy, a year-over-year increase in vehicle miles traveled, and low fuel prices, we're encouraged for 2019. We expect good demand in domestic and export markets this year. Despite seasonal weakness in the gasoline market, days of supply for distillate inventories remain below the five-year average. Expected incremental diesel demand and discounts for sour feedstocks associated with the impending global fuel oil sulfur reduction also give us reason to remain optimistic. We believe that our system's flexibility to process a wide range of feedstocks and reliably supply quality fuels, as evidenced by our fourth quarter 2018 results, positions well for whatever opportunity the market presents to us. So with that, Homer, I'll hand the call back to you.