Valero Energy Corporation

Greetings and welcome to Valero Energy Corporation's first quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host. Homer Bular, Vice President, Investor Relations.

Good morning, everyone, and welcome to Valero Energy Corporation's first quarter 2021 earnings conference call. With me today are Joel Gorder, our Chairman and CEO, Lane Riggs, our President and COO, Jason Frazier, our Executive Vice President and CFO, 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 InvestorValero.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. The refining business saw a strong recovery in the first quarter as various pandemic-imposed restrictions were eased or withdrawn and as more and more people received vaccinations. However, Winter storm Yuri disrupted many U.S. Gulf Coast and mid-continent facilities in February due to the freeze and utilities curtailments. Although our refineries and plants in those regions were also impacted, they did not suffer any significant mechanical damage and were restarted within a short period after the storm. While we did incur extremely high energy costs, I'm very proud of the Valero team for safely managing the crisis by idling or shutting down the affected facilities and resuming operations without incident. With many of the country's Gulf Coast and mid-continent refineries offline due to the storm, there was a significant 60 million barrel drawdown of surplus product inventories in the U.S., bringing product inventories to normal levels. Lower product inventories, coupled with increasing product demand, improved refining margins significantly from the prior quarter. Crude oil discounts were also wider for Canadian Heavy and WTI in the first quarter relative to the fourth quarter of last year, providing additional support to refining margins. In addition, our renewable diesel segment continues to provide solid earnings and set records for operating income and renewable diesel product margin in the first quarter of 2021. Our wholesale operations also continue to see positive trends in US demand, And we expanded our supply into Mexico with current sales of over 60,000 barrels per day, which should continue to increase with the ramp up of supply through the Vera Cruz terminal. On the strategic front, we continue to evaluate and pursue economic projects that lower the carbon intensity of all of our products. In March, we announced that we were partnering with BlackRock and Navigator to develop a carbon capture system in the Midwest. allowing for connectivity of eight of our ethanol plants to the system. In addition to the tax credit benefit for CO2 capture and storage, Valero will also capture higher value for the lower carbon intensity ethanol product in low carbon fuel standard markets such as California. The system is expected to be capable of storing 5 million metric tons of CO2 per year. Our Diamond Green Diesel II project at St. Charles remains on budget and is now expected to be operational in the middle of the fourth quarter of this year. The expansion is expected to increase renewable diesel production capacity by 400 million gallons per year, bringing the total capacity at St. Charles to 690 million gallons per year. The expansion will also allow us to market 30 million gallons per year of renewable naphtha from DGD1 and DGD2 into low-carbon fuel markets. The Renewable Diesel Project at Port Arthur, or DGD3, continues to move forward as well and is expected to be operational in the second half of 2023. With the completion of this 470 million gallons per year capacity plant, DGD's combined annual capacity is expected to be 1.2 billion gallons of renewable diesel and 50 million gallons of renewable naphtha. With respect to our refinery optimization projects, we remain on track to complete the Pembroke Cogen project in the third quarter of this year, and the Port Arthur Coker project is expected to be completed in 2023. As we head into summer, we believe that there's a pent-up desire among much of the population to travel and take vacations, which should drive incremental demand for transportation fuels. We're already seeing a strong recovery in gasoline and diesel demand at 93% and 100% of pre-pandemic levels, respectively. Since March, air travel has also increased. as reflected in TSA data, which shows that passenger count is now nearly double of what it was in January. We're also seeing positive signs in the crude market, with wider discounts for sour crude oils and residual feedstocks relative to Brent as incremental crude oil from the Middle East comes to market. All these positive data points, coupled with less refining capacity as a result of refinery rationalizations, should lead to continued improvement in refining margins in the coming months. We've already seen the impacts of these improving market indicators, with Folero having positive operating income and operating cash flow in March. In closing, we're encouraged by the outlook on refining as product demand steadily improves towards pre-pandemic levels, which should continue to have a positive impact on refining margins. We believe these improvements, coupled with our growth strategy and low-carbon renewable fuels, will further strengthen our long-term competitive advantage. So with that, Homer, I'll hand the call back to you.