Valero Energy Corporation

Greetings and welcome to Valero's second quarter 2022 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, you may press star 1 on your telephone keypad. If anyone should require operator assistance during the conference, please press star 0 on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Homer Bowler, Vice President, Investor Relations. Thank you. Please go ahead.

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

Thanks, Homer, and good morning, everyone. I'm pleased to report that our team maximized refining run rates in the second quarter while executing our long-standing commitment to safe, reliable, and environmentally responsible operations. In fact, we've been increasing throughput since 2020 as demand recovered along with the easing of COVID-19 pandemic restrictions. Our refinery utilization rate increased from the pandemic low of 74% in the second quarter of 2020 to 94% in the second quarter of 2022. Refining margins in the second quarter were supported by continued strength in product demand, coupled with low product inventories and continued energy cost advantage for U.S. refineries compared to global competitors. Product supply is constrained as a result of significant refinery capacity rationalization that was triggered by the COVID-19 pandemic, driving the shutdown of marginal refineries and conversion of several refineries to produce low-carbon fuels. In addition, the Russia-Ukraine conflict intensified the supply tightness with less Russian products in the global market. However, product demand has been strong due to the summer driving season and pent-up demand for travel. Valero continues to maximize refinery throughput to help supply the market at this time when global product inventories are at historically low levels. Our low-carbon renewable diesel and ethanol segments also performed well in the quarter. The renewable diesel segment had record production volumes as the DGD expansion, DGD2, ramped up to full capacity. On the strategic front, we remain on track with our growth projects that reduce cost and improve margin capture. The Port Arthur Coker project, which is expected to increase the refinery's throughput capacity while also improving turnaround efficiency, is expected to be completed in the first half of 2023. As for low carbon projects, the DGD3 renewable diesel project located next to our Port Arthur refinery is expected to be operational in the fourth quarter of 2022. The completion of this 470 million gallon per year plant is expected to nearly double DGD's total annual capacity to approximately 1.2 billion gallons of renewable diesel and 50 million gallons of renewable naphtha. BlackRock and Navigator's carbon sequestration project is progressing on schedule and is expected to begin startup activities in late 2024. We are expected to be the anchor shipper with eight of our ethanol plants connected to this system, which should provide a lower carbon intensity ethanol product and generate higher product margins. And we continue to evaluate other low-carbon opportunities, such as sustainable aviation fuel, renewable hydrogen, and additional renewable naphtha in carbon sequestration projects. 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 incurred $4 billion of incremental debt in 2020 during the low margin environment resulting from the pandemic. Since then, we've reduced our debt by $2.3 billion, including a $300 million reduction in June. And we'll evaluate further deleveraging opportunities going forward. In summary, we remain focused on safe, reliable, and environmentally responsible operations and on maximizing system throughput to provide the essential products that the world needs. And we continue to strengthen our long-term competitive advantage through refining optimization projects and to grow our business through innovative low-carbon fuels that enhance the margin capability of our portfolio. So with that, Homer, I'll hand the call back to you.