Valero Energy Corporation

Ladies and gentlemen, thank you for standing by and welcome to the Valero Energy Corporation's fourth 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 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Homer Buller. Thank you. Please go ahead, sir.

Good morning, everyone, and welcome to Valero Energy Corporation's fourth quarter 2019 earnings conference call. With me today are Joe Gorder, our Chairman and Chief Executive Officer, Donna Tietzman, our Executive Vice President and CFO, Lane Riggs, our President and COO, Jason Frazier, our Executive Vice President and General Counsel, Gary Simmons, our Executive Vice President and Chief Commercial Officer, 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 had a good quarter, delivering solid financial results. Our refineries operated well at 96% utilization, allowing us to take advantage of wider sour crude oil differentials and weakness in high sulfur residual feedstocks. Overall, 2019 was a challenging environment for the refining business. We started the year with gasoline inventories at record highs and gasoline cracks at historic lows. We were also faced with narrow sour crude oil differentials for most of the year, primarily due to sanctions on Venezuela and Iran, in addition to OPEC and Canadian crude oil production curtailments. And differentials on inland sweet crude oils narrowed in the second half of the year, with the startup of multiple new crude pipelines from the Permian Basin to the Gulf Coast. Despite this challenging backdrop, our team demonstrated the strength of our assets and prior investments to improve our feedstock and product flexibility, allowing us to deliver another year of steady earnings and free cash flow. We demonstrated our crude supply flexibility by processing an annual record of 1.4 million barrels per day of North American sweet crude oil, as well as a record of approximately 180,000 barrels per day of Canadian heavy crude oil in 2019. We also achieved another milestone by delivering the best-ever year on employee safety performance and the lowest number of environmental events in company history, demonstrating our strong commitment to safety, reliability, and environmental stewardship. We continue to invest in projects that enhance the flexibility and margin capability of our portfolio. In 2019, we successfully started up the Houston Alkalation Unit and completed the Central Texas Pipelines and Terminals Project. And we have several growth projects that will be completed this year, including the Pasadena Terminal, the St. Charles Alkalation Unit, and the Pembroke Cogeneration Unit. Looking further out, the Diamond Pipeline expansion should be completed in 2021, and the Diamond Green Diesel and the Port Arthur Coker projects are still on track to be completed in 2021 and 2022, respectively. We also continue to explore growth opportunities in our renewable fuels business, which is already the largest in North America. As we previously announced, the Diamond Green Diesel joint venture is in the advanced engineering review phase for a new renewable diesel plant at our Port Arthur, Texas, facility. If the project is approved, operations are expected to commence in 2024, which would result in Diamond Green Diesel's renewable fuels production capacity increasing to over 1.1 billion gallons annually, or over 70,000 barrels per day. We remain disciplined in our allocation of capital, a constant in our strategy for several years, which prioritizes our investment-grade credit rating, sustaining investments, and maintaining a sustainable and growing dividend. We expect our annual CapEx for 2020 to be approximately $2.5 billion, which is consistent with our average annual spend over the last six years, with approximately $1 billion allocated for high-return growth projects that are focused on market expansion and margin improvement, and the balance allocated to maintain safe, reliable, and environmentally responsible operations. And you should continue to expect incremental discretionary cash flow to compete with other discretionary uses, including organic growth investments, M&A, and cash returns to our investors. Looking ahead, we have a favorable outlook for refining margins with the IMO 2020 Low Sulfur Fuel Oil Regulation, which just took effect on January 1st. High sulfur crude oils are expected to be more discounted due to lower demand as less complex refineries switch to sweeter crude oils. Valero's complex refining system is well positioned to take advantage of the discounted high sulfur crudes and fuel oils as feedstocks. And our growing renewable diesel segment continues to generate strong results due to the high demand for renewable fuels. In closing, our incredible team's relentless focus on operational excellence, a steady pipeline of high-return organic growth projects, and a demonstrated commitment to shareholder returns should continue to position Valero well. So with that, Homer, I'll hand the call back to you.