Valero Energy Corporation

Good day, ladies and gentlemen, and welcome to Valero Energy Corporation's second quarter 2019 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. If anyone should require operator assistance, please press the star, then the zero key on your touchtone telephone. As a reminder, this call will be recorded. I would now like to introduce your host for today's conference, Mr. Homer Bowler, Vice President of Investor Relations. You may begin.

Good morning, everyone, and welcome to Valero Energy Corporation's second 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 team. 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. We're pleased to report that we had good operating performance in the second quarter, despite having major turnarounds at our Houston, Memphis, and Benicia refineries. We ran reliably during the quarter with very limited unplanned downtime. Gasoline cracks improved significantly in the second quarter relative to the first quarter in all regions, boosting refining margins. However, the supplies of medium and heavy sour crude oils remained limited due to continued Venezuelan and Iranian sanctions and OPEC production curtailments, resulting in narrower crude discounts for those grades relative to Brent crude oil. As a result, we optimized our system with additional domestic light sweet, Canadian heavy, and Latin American crude oils. In fact, we set another record for Canadian heavy crude oil runs this quarter with over 190,000 barrels per day. Turning to our renewable segments, the ethanol business generated positive operating income despite a weak margin environment. And our growing renewable diesel business continues to generate strong results due to the high demand for renewable diesel. We continue to deliver on our commitment to grow Valero's earnings capability through organic growth investments. We successfully completed the Houston Alkalation Unit project in the second quarter as scheduled and on budget. This project is now allowing us to upgrade low-cost and abundant natural gas liquids and refinery olefins to produce a premium alkali product. And we continue to make progress on the Central Texas Pipelines and Terminals Project, which remains on track to be fully operational in the third quarter of this year. Looking at organic growth beyond this year, we have a steady pipeline of projects to enhance the margin profitability of our portfolio. The Pasadena Terminal, St. Charles Alkalation Unit, and Pembroke Cogeneration Unit are expected to be completed in 2020. And the Diamond Green Diesel Expansion in Port Arthur Coker are expected to be completed in late 2021 and 2022, respectively. our capital allocation strategy remains unchanged with an annual CapEx for both 2019 and 2020 at approximately $2.5 billion, with growth capital targeting projects with high returns that are focused on operating cost control, market expansion, and margin improvement. With respect to cash returns to stockholders, we continue to target an annual payout ratio of 40% to 50%. In the second quarter, we paid out $588 million to stockholders, bringing the year-to-date total payout ratio to 50% of adjusted net cash provided by operating activities. Looking ahead, we're optimistic for the balance of the year with fundamentals supporting continued healthy product demand. Vehicle miles traveled continues to increase year-over-year. and we expect positive market impacts from the IMO 2020 implementation as bunker fuel terminals transition to lower sulfur fuel oil. With our high-complexity refineries, we believe that we're well-positioned to take advantage of the expected wider differentials for heavy crude oils and higher product cracks. Lastly, we remain committed to disciplined growth and to delivering long-term value to our stockholders through exceptional and environmentally responsible operations. So, with that, Homer, I'll hand the call back to you.