Valero Energy Corporation

Greetings and welcome to the Valero's fourth quarter 2022 earnings conference call. At this time, all participants are on a listen-only mode. A brief 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. It is now my pleasure to introduce your host, Homer Buller, Vice President, Investor Relations. Thank you, Mr. Bowler. You may begin.

Good morning, everyone, and welcome to Valero Energy Corporation's fourth quarter 2022 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 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 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 finished the year strong with our refineries operating at 97% capacity utilization in a favorable refining margin environment. In fact, this is the highest refinery utilization for our refining system since 2018. I'm also proud to share that 2022 was the best year ever for combined employee and contractor safety, which is a testament to our longstanding commitment to safe, reliable, and environmentally responsible operations. As we saw during most of 2022, refining margins were supported by low product inventories, which resulted from the significant permanent global refinery shutdowns and the continued recovery in product demand. Our refining system also benefited from heavily discounted sour crude oils and fuel oils. These discounts were driven by increased sour crude oil supply, high freight rates, and the impact from the IMO 2020 regulation for lower sulfur marine fuels. Also, high natural gas prices in Europe incentivized European refiners to process sweet crude oils in lieu of sour crude oils, adding further pressure on sour crude oils. And our refining projects that are focused on reducing cost and improving margin capture remain on track. The Port Arthur Coker project is expected to be completed in the second quarter of 2023 and will increase the refinery's throughput capacity and ability to process incremental volumes of sour crude oils and residual feedstocks, while also improving turnaround efficiency. In our renewable diesel segment, we continue to expand operations and we set another sales volume record in the fourth quarter with the successful commissioning and startup of the new DGD Port Arthur Renewable Diesel Plant in November. That project was completed under budget and ahead of schedule and brings DGD's annual production capacity to approximately 1.2 billion gallons of renewable diesel and 50 million gallons of renewable naphtha. In the ethanol segment, BlackRock and Navigator's carbon sequestration project is still progressing on schedule and is expected to begin startup activities in late 2024. We expect to be the anchor shipper with eight of our ethanol plants connected to this system, which is expected to result in the production of a lower carbon intensity ethanol product that should significantly improve the margin profile and competitive positioning of the business. And we continue to advance other low carbon opportunities, such as sustainable aviation fuel, renewable hydrogen, and additional renewable naphtha and carbon sequestration projects. Our gated process helps ensure these projects meet our minimum return threshold. On the financial side, we continue to strengthen our balance sheet, paying off all of the incremental debt incurred during the pandemic and ending the year with a net debt-to-capitalization ratio of 21%. Looking ahead, we expect low product inventories and continued increase in product demand to support margins, particularly for U.S. coastal refiners that have crude oil supply and natural gas advantages relative to global refiners. And we continue to see large discounts for heavy sour crude oils and fuel oils that we can process in our system. The startup of the Port Arthur Coker is also expected to have a significant earnings contribution in the back half of 2023, supported by wide sour crude oil differentials and strong diesel margins. In closing, we're encouraged by the refining outlook, which coupled with the contribution from our strategic growth projects in refining and renewable fuels should continue to strengthen our long-term competitive advantage and shareholder returns. So with that, Homer, I'll hand the call back to you.