Valero Energy Corporation

Greetings and welcome to the Valero's third 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 do so by pressing 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, Homer Bowler, Vice President, Investor Relations and Finance. Thank you. Please go ahead.

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

Thanks Homer and good morning everyone. We're pleased to report strong financial results for the third quarter, credited to our safe and reliable operational performance and continued strength in refining fundamentals. Refining margins remain supported by strong product demand, low product inventories, and continued energy cost advantages for U.S. refineries compared to global competitors. Despite high refinery utilization rates, global product supply remains constrained due to roughly 4 million barrels per day of global refining capacity being taken permanently offline since 2020 for a variety of reasons, including unfavorable economics or as part of planned conversions to produce low-carbon fuels. Product demand across our system remains strong, with gasoline and diesel demand higher than pre-pandemic levels and jet fuel demand steadily approaching 2019 levels. Our refining utilization increased to 95% in the third quarter as we continue to maximize refining throughput. Our refining system also benefited from wider sour crude oil differentials to the Brent Light Sweet Crude Oil benchmark. The wider sour crude oil differentials are attributed to increased sour crude oil supply, the impact of the IMO 2020 regulation for lower sulfur marine fuels, and high natural gas prices in Europe that incentivize European refiners to process sweet crude oils in lieu of sour crude oils. And we remain on track with our refining 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. In our renewable diesel segment, we continue to optimize our operations, setting another sales volume record in the third quarter. The new DGD-3 renewable diesel plant, located next to our Port Arthur refinery, is currently in the startup process and is expected to be operational in November. The completion of this 470 million gallons per year plant is expected to increase DGD's total annual capacity to approximately 1.2 billion gallons of renewable diesel and 50 million gallons of renewable naphtha. And for our other low carbon fuel opportunities, the BlackRock and Navigators carbon sequestration pipeline project is progressing on schedule and is expected to begin startup activities in late 2024. We're expecting 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, our strong balance sheet remains the cornerstone of our capital allocation framework. In the third quarter, we reduced our debt by an additional $1.25 billion, bringing our total debt reduction to approximately $3.6 billion since incurring $4 billion of incremental debt during the height of the pandemic in 2020. And we will continue to further evaluate deleveraging opportunities going forward. Looking ahead, Refining fundamentals remain strong as global product supply remains constrained due to capacity reductions and high natural gas prices in Europe, which are setting a higher floor on margins. In addition, we continue to realize the benefit from discounted sour crude oil and fuel oil feedstocks in our system. While geopolitical and macroeconomic factors may drive volatility in the market, We remain focused on what we can control, maximizing refinery utilization in a safe, reliable and environmentally responsible manner to provide essential products. We also remain committed to advancing the growth of our low carbon fuels businesses to increase profitability and further strengthen our competitive advantage. So with that, Homer, I'll hand the call back to you.