Valero Energy Corporation

Greetings and welcome to the Valero's fourth quarter 2021 earnings conference call. At this time, all participants are on a listen-only mode. A question and answer session will follow the formal presentation. If you would like to ask a question, please press star one on your telephone keypad. 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. It is now my pleasure to introduce your host, Homer Bowler, Vice President, Investor Relations and Finances. Thank you. Please go ahead.

Good morning, everyone, and welcome to Valero Energy Corporation's fourth quarter 2021 earnings conference call. With me today are Joe 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 and reconciliations and disclosures for adjusted metrics mentioned on this call. 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 saw continued improvement in our business during the fourth quarter with refining margins supported by strong product demand. In our system, we ended the year with gasoline demand at pre-pandemic levels and demand for diesel actually higher than pre-pandemic levels. We also saw significant jet fuel recovery as domestic and international travel opened up, increasing from approximately 60% of pre-pandemic levels at the beginning of the year to approximately 80% at the end of the year. Product inventories were low as a result of the refining capacity rationalization that's taken place in the last two years and weather-related impacts from winter storm Uri and Hurricane Ida. On the crude oil side, OPEC Plus increased production throughout the year with improving demand, supplying the market primarily with sour crude oils, resulting in wider sour crude oil discounts to Brent crude oil. As a result of all these dynamics, we saw a steady recovery in margins throughout the year, particularly for our complex refining system. In regards to our ethanol segment, ethanol prices were near record highs in the quarter, supported by strong demand and low inventories. Strong margins, coupled with solid operational performance across all of our segments, generated record quarterly operating income for our ethanol segment and record overall fourth quarter earnings for Valero. I am proud to say that 2021 was our best year ever for employee and process safety. In fact, we've set records for process safety for three consecutive years. These milestones are a testament to our longstanding commitment to safe, reliable, and environmentally responsible operations. And despite the pandemic and weather-related challenges in 2021, our growth projects remained on track. We started up the Pembroke Cogeneration Unit in the third quarter of 21, which provides an efficient and reliable source of electricity and steam and enhances the refinery's competitiveness. In addition, the Diamond Green Diesel Expansion Project, DGD2, commenced operations in the fourth quarter, on budget and ahead of schedule. The expansion has since demonstrated production capacity of 410 million gallons per year of renewable diesel as a result of process optimization above the initial nameplate design capacity of 400 million gallons per year. This expansion brings DGD's total annual renewable diesel capacity to 700 million gallons. Looking ahead, the DGD-3 project at our Port Arthur refinery is progressing ahead of schedule and is now expected to be operational in the first quarter of 2023. With the completion of this 470 million gallon per year plant, DGD's total annual capacity is expected to be 1.2 billion gallons of renewable diesel and 50 million gallons of renewable naphtha. BlackRock and Navigator's large-scale carbon sequestration project is also progressing on schedule and is still expected to begin startup activities in late 2024. Valero is expected to be the anchor shipper with eight ethanol plants connected to this system, which should provide a higher ethanol product margin. The Port Arthur Coker project, which is expected to increase the refinery's utilization rate and improve turnaround efficiency, is expected to be completed in the first half of 2023. On the financial side, the guiding framework underpinning our capital allocation strategy remains unchanged. We remain disciplined in our allocation of capital, which prioritizes a strong balance sheet and an investment-grade credit rating. In 2021, we took measures to reduce Valero's long-term debt by approximately $1.3 billion. We ended the year well capitalized with $4.1 billion of cash and $5.2 billion of available liquidity, excluding cash. And our net debt to capitalization was 33%. We continue to honor our commitment to stockholders, defending the dividend across margin cycles and delivering a payout ratio of 50% in 2021. And as recently announced, the Board of Directors has approved a quarterly dividend of 98 cents per share for the first quarter of 2022. Looking ahead, we remain optimistic on refining margins with low global light product inventories, strong product demand, global supply tightness due to significant refining capacity rationalization, and wider sour crude oil differentials. We also remain optimistic on our low carbon businesses, which we continue to expand with the growing global demand for lower carbon intensity products. We've been leaders in the growth of these businesses and maintain a competitive advantage with our operational and technical expertise. In closing, our team's simple strategy of pursuing excellence in operations, deploying capital with an uncompromising focus on returns, and honoring our commitment to stockholders has driven our success and positions us well. So with that, Homer, I'll hand the call back to you.