Valero Energy Corporation

Good day, ladies and gentlemen, and welcome to the Valero Energy Corporation's first quarter 2019 earnings conference call. At this time, all participants are in a listen-only mode, so if anyone should require assistance during the call, please press star, then zero on your touchtone telephone to reach an operator. Later, we will conduct a question and answer session, and instructions will follow at that time. As a reminder, today's conference may be recorded. I'd now like to introduce your host for today's conference, Mr. Homer Buller. Sir, please go ahead.

Good morning, everyone, and welcome to Valero Energy Corporation's first quarter 2019 earnings conference call. With me today are Joe Gorder, our Chairman, President, and Chief Executive Officer, Donna Tietzman, 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 teams. If you have not received the earnings release and would like a copy, you can find one on our website at bolero.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 now 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. Our system's flexibility and the team's relentless focus on safety enabled us to deliver positive earnings in an otherwise weak margin environment during a period of heavy maintenance. The first quarter presented us with tough market conditions. Differentials on medium and heavy sour crude oils were compressed by a number of factors, including OPEC and Canadian crude production curtailments and Venezuelan sanctions. We also started the year with gasoline inventories at record high levels and the gasoline crack at historic lows. Despite this challenging backdrop, our premier assets and prior investments that have improved our feedstock and product flexibility enabled us to achieve positive earnings and operating cash flow. We demonstrated the flexibility of our system by processing a record volume of 1.4 million barrels per day of North American sweet crude oil, as well as a record amount of Canadian heavy crude in the quarter. The Diamond Pipeline and Line 9B continue to provide cost-advantaged Cushing and Canadian crudes to the Memphis and the Quebec City refineries, respectively. We also continue to maximize product exports into higher net back markets in Latin America. Our investments that are expected to grow the earnings capability of the company continue to move forward. The Houston Alkalation Unit and the Central Texas Pipelines and Terminals projects remain on track to be operational in the second and third quarters, respectively. The Pasadena Terminal, St. Charles Alkalation Unit and Pembroke Cogeneration Unit are all on track to be complete in 2020. The Diamond Green Diesel Expansion and the Port Arthur Coker are expected to be complete late 2021 and 2022, respectively. Turning to capital allocation, we continue to adhere to our disciplined framework. Our annual CapEx for both 2019 and 2020 remains at approximately $2.5 billion, and you should expect incremental discretionary cash flow to continue to compete with other discretionary uses, including cash returns, growth investments, and M&A. With respect to cash returns to stockholders, we paid out 55% of adjusted net cash provided by operating activities for the quarter, and we continue to target an annual payout ratio between 40% to 50%. Turning to financing activities, we completed a $1 billion public debt offering in March at a coupon of 4%. with the proceeds being used primarily to redeem $850 million of 6.8% senior notes due in 2020. We also funded the buy-in of VLP with $950 million of cash on hand in the first quarter. Now, we remain constructive for the rest of the year. Product fundamentals continue to improve with gasoline and distillate inventories now below their five-year averages. Additionally, Additionally, product shortages, particularly in Central and South America, should continue to support robust exports. The impending IMO 2020 fuel oil specs should also lead to higher gasoline and distillate cracks, along with improvement in the medium and heavy sour crude differentials. Our advantage footprint, with its flexibility to process a wide range of feedstocks and reliably supply quality fuels to consumers here and abroad, coupled with a relentless focus on operations excellence and a demonstrated commitment to stockholders, continues to position Valero well for any market environment. So with that, Homer, I'll hand the call back to you.