Valero Energy Corporation

Greetings. Welcome to Valero Energy Corporation's first quarter 2022 earnings call. At this time, all participants are in listen-only mode. In question and answer session, we'll follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero from your telephone keypad. Please note, this conference is being recorded. At this time, I'll now turn the conference over to Homer Buller, Vice President, Investor Relations and Finance. Mr. Buller, you may now begin.

Good morning, everyone, and welcome to Valero Energy Corporation's first quarter 2022 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 InvestorVolero.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 Jill for opening remarks.

Thanks, Homer, and good morning, everyone. I'm pleased to report that today we delivered solid financial results for the first quarter, led by a continued recovery in our refining segment. Refining margins were supported by strong product demand coupled with very low product inventories globally. Refinery capacity rationalizations that have taken place in the last couple of years continue to contribute to the supply tightness. In addition, high natural gas prices in Europe are supporting product cracks to compensate for the higher operating cost. This in turn provides a structural margin advantage for U.S. refineries. particularly those located in the Gulf Coast, where natural gas costs are significantly lower than in Europe. Turning to our low-carbon segments, the ethanol business generated positive operating income despite a weak margin environment, and our growing renewable diesel business continues to generate good results with high demand for renewable diesel. We expect low carbon fuel policies to continue to expand globally and drive demand for low carbon fuels. And with that view, we're leveraging our operational and technical expertise to steadily expand our competitive advantage. The DGD3 renewable diesel project located next to our Port Arthur refinery is now expected to be operational in the fourth quarter of 2022. With the completion of this 470 million gallon per year plant, DGD's total annual capacity is expected to be approximately 1.2 billion gallons of renewable diesel and 50 million gallons of renewable naphtha. BlackRock and Navigator's large-scale carbon sequestration project is progressing on schedule and is 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 lower carbon intensity ethanol product and result in higher product margins. We continue to evaluate other low carbon opportunities, such as sustainable aviation fuel, renewable hydrogen, and additional renewable naphtha and carbon sequestration projects. And in refining, the Port Arthur Coker project, which is expected to increase the refinery's utilization rate and improve turnaround efficiency, is still expected to be completed in the first half of 2023. On the financial side, we remain committed to our capital allocation framework, which prioritizes a strong balance sheet and an investment-grade credit rating. We further reduced our long-term debt by $750 million in February through debt reduction and refinancing transactions, bringing our total long-term debt reduction to $2 billion in six months. And we continue to honor our commitment to stockholder returns with an annual target payout ratio of 40 to 50%. We restarted stock buybacks in the first quarter, which combined with our dividend returned $545 million to our stockholders. Looking ahead, the fundamentals that drove strong results in the first quarter, particularly in March, continue to provide a positive backdrop for the refining segment. We expect product demand to remain healthy with light products demand near pre-pandemic levels and the pent-up desire to travel and take vacations should drive incremental demand for transportation fuels as we head into the summer. Global product inventories remain low, particularly for diesel, and there's less refining capacity available to replenish inventories. In addition, natural gas price disparity between the U.S. and Europe should provide a structural margin advantage for U.S. refiners, especially for assets located in the Gulf Coast. In closing, we're encouraged by the refining outlook, which coupled with our growth strategy and low-carbon fuels should further strengthen our long-term competitive advantage and drive long-term stockholder returns. So with that, Homer, I'll hand the call back to you.