Valero Energy Corporation

Ladies and gentlemen, thank you for standing by, and welcome to Valero Energy Corporation's third quarter 2019 earnings conference call. At this time, all participant lines are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star, then 1 on your telephone. Please be advised that today's conference may be recorded. If you require any further assistance, please press star, then 0. I'd now like to hand the conference over to your speaker today, Mr. Homer Buller, Vice President, Investor Relations. Please go ahead, sir.

Good morning, everyone, and welcome to Valero Energy Corporation's third 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 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 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 Joe for opening remarks.

Thanks, Homer, and good morning, everyone. We're pleased to report that we delivered solid financial results despite challenging market conditions again this quarter. Although gasoline cracks held steady and diesel cracks improved from the previous quarter, heavy and medium-sour crude oil discounts to Brent crude oil remained narrow as supply was constrained by geopolitical events. Also, the startup of new pipelines from the Permian Basin to the Gulf Coast tightened the WTI Midland to Cushing crude oil differential. Despite these headwinds, we generated $1.4 billion in operating cash flow, once again demonstrating the flexibility and strength of our assets to deliver steady earnings and free cash flow. During the quarter, we began to enjoy the benefits of our investments in the new Houston Alkalation Unit that was commissioned in June and from the recently completed Central Texas Pipelines and Terminals Project. The Alkalation Unit upgrades lower-value natural gas liquids and refinery olefins to a premium high-octane alkylate product. and the Central Texas pipelines and terminals reduce secondary costs and extends our supply chain from the Gulf Coast to a growing inland market. Other strategic growth projects in execution remain on target. The Pasadena Terminal, St. Charles Alkalation Unit, and Pembroke Cogeneration Unit are expected to be completed next year. with the Diamond Green Diesel expansion expected to be completed in 2021 and the Port Arthur Coker in 2022. In September, our Diamond Green Diesel joint venture initiated an advanced engineering and development cost review for a new renewable diesel plant at our Port Arthur, Texas facility. If the project's approved, construction could begin in 2021, with operations expected to commence in 2024. This would result in Diamond Green diesel production capacity increasing to over 1.1 billion gallons annually. The guiding framework underpinning our capital allocation strategy remains unchanged. We continue to expect our annual CapEx for both 2019 and 2020 to be approximately 2.5 billion, with a billion allocated for projects with high returns that are focused on market expansion and margin improvement. During the third quarter, we returned $679 million to stockholders, which represents a payout ratio of 61% of adjusted net cash provided by operating activities. We continue to target an annual payout ratio of 40% to 50%. Looking forward, we're encouraged. Fourth quarter, market conditions are favorable. Distillate and gasoline margins are significantly higher than last quarter and this time last year, supported by strong fundamentals, good demand, and wider medium and heavy sour crude oil discounts. In closing, our team's simple strategy of striving for operational excellence, investing to drive earnings growth with lower volatility, and maintaining capital discipline with an uncompromising focus on shareholder returns has proven to be successful and positions us well for any market environment. So with that, Homer, I'll hand the call back to you.