Q4 2023 Valero Energy Corp Earnings Call
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Homer <unk>: It is now my pleasure to introduce your host Homer <unk>, Vice President Investor Relations and finance. Thank you you may begin.
Homer <unk>: Good morning, everyone and welcome to Valero Energy Corporation's fourth quarter 2023 earnings Conference call.
Speaker Change: With me today are lane Riggs, our CEO and President Jason Frazier, our executive Vice President and CFO, Gary Simmons, our executive Vice President and CFO and several other members of <unk> Senior management team.
Gary Simmons: You have not received the earnings release and would like a copy you can find one on our website at Investor Valero Dot com.
Gary Simmons: Also attached to the earnings release are tables that provide additional financial information on our business segments, and reconciliations and disclosures for adjusted financial metrics mentioned on this call.
Gary Simmons: If you have any questions. After reviewing these tables, please feel free to contact our investor relations team after the call.
Gary Simmons: 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.
Gary Simmons: Federal Securities laws.
Gary Simmons: There are many factors that could cause actual results to differ from our expectations, including those we've described in our earnings release and filings with the SEC.
Gary Simmons: Now I'll turn the call over to lane for opening remarks.
Thank you Homer and good morning, everyone. We're pleased to report strong financial results for the fourth quarter and the full year with the exception of our 2022 results. We delivered the highest fourth quarter and full year adjusted earnings in company's history in 2023.
Gary Simmons: Demonstrating the earnings capability of our portfolio.
Lane: Our refining system achieved 97, 4% mechanical availability in 2023, which was our best ever.
Gary Simmons: We also set a record for environmental performance and matched our previous record for process safety illustrating the benefit from our long standing commitment to safe reliable and environmentally responsible operations.
Gary Simmons: And through organic growth of our wholesale system, we set an annual record for sales volume in 2023 of approximately 1 million barrels per day.
Gary Simmons: Australia, and the strength of our branded and wholesale marketing network.
Gary Simmons: We continue to pursue strategic projects that enhance the earnings capability of our business and expand our long term competitive advantage the DGB sustainable aviation fuel or SaaS project at Port Arthur remains on schedule with completion expected in the first quarter of 2025 for a total of $315 million.
Half of that attributable to Valero with the completion of this project Bvd is expected to become one of the largest manufacturers of SaaS in the world and.
Gary Simmons: In addition, we are pursuing shorter cash cycle projects that optimize and capitalize on opportunities to improve margins around our existing refining assets.
Gary Simmons: On the financial side, we continue to honor our commitment to shareholders.
Gary Simmons: We returned 72% of adjusted net cash provided by operating activities to shareholders through dividends and share repurchases in the fourth quarter <unk>.
Gary Simmons: Resulting in a 60% payout ratio for 2023 and last week, our board approved a 5% increase in the quarterly cash dividend.
Gary Simmons: Looking ahead, we expect refining margins to remain supported by tight product supply and demand balances.
Gary Simmons: In the near term product inventories ahead of the summer driving season are expected to be constrained with heavy industry wide turnaround activity in the first quarter, providing support to refining margins.
Gary Simmons: Long term, we expect global demand growth to exceed product supplied despite new refinery startups.
Gary Simmons: In closing our team simple strategy of pursuing excellence in operations return driven discipline on growth projects and a demonstrated commitment to shareholder returns has driven our success and positions us well for the future so with that Homer I'll hand, the call back to you.
Homer <unk>: Thanks Lynn.
Homer <unk>: For the fourth quarter of 2023 net income attributable to Valero stockholders was $1 2 billion or $3 55 per share compared to $3 1 billion or $8 15 per share for the fourth quarter of 2022.
Lynn: Fourth quarter 2022, adjusted net income attributable to Valero stockholders was $3 2 billion or $8 45 per share.
Homer <unk>: For 2023 net income attributable to Valero stockholders was $8 8 billion or $24 92 per share compared to $11 5 billion or $29 four per share in 2022.
2023, adjusted net income attributable to Valero stockholders was $8 8 billion or $24 90 per share compared to $11 6 billion or $29 16 per share in 2022.
Gary Simmons: The refining segment reported $1 6 billion of operating income for the fourth quarter of 2023 compared to $4 3 billion for the fourth quarter of 2022.
Gary Simmons: Refining throughput volumes in the fourth quarter of 2023 averaged 3 million barrels per day throughput capacity utilization was 94% in the fourth quarter of 2023.
Refining cash operating expenses were $4 99 per barrel in the fourth quarter of 2023 higher than guidance of $4 60, primarily due to an environmental regulatory reserve adjustment in the West coast.
Gary Simmons: Renewable diesel segment operating income was $84 million for the fourth quarter of 2023 compared to $261 million for the fourth quarter of 2022.
Gary Simmons: Renewable diesel sales volumes averaged $3 8 million gallons per day in the fourth quarter of 2023, which was $1 3 million gallons per day higher than the fourth quarter of 2020 to the.
Gary Simmons: The higher sales volumes in the fourth quarter of 2023 were due to the impact of additional volumes from the <unk> Port Arthur plant, which started up in the fourth quarter of 2022.
Gary Simmons: Operating income was lower than the fourth quarter of 2022 due to lower renewable diesel margin in the fourth quarter of 2023.
Gary Simmons: The ethanol segment reported $190 million of operating income for the fourth quarter of 2023 compared to $7 million for the fourth quarter of 2022.
Gary Simmons: Adjusted operating income was $205 million for the fourth quarter of 2023 compared to $69 million for the fourth quarter of 2022.
Gary Simmons: <unk> production volumes averaged $4 5 million gallons per day in the fourth quarter of 2023, which was 448000 gallons per day higher than the fourth quarter of 2022.
Gary Simmons: Adjusted operating income was higher than the fourth quarter of 2022, primarily as a result of higher production volumes and lower corn prices in the fourth quarter of 2023.
Gary Simmons: For the fourth quarter of 2023, G&A expenses were $295 million and net interest expense was $149 million.
Gary Simmons: G&A expenses were $998 million in 2023.
Gary Simmons: Depreciation and amortization expense was $690 million and income tax expense was $331 million for the fourth quarter of 2023 the.
Gary Simmons: The effective tax rate was 22% for 2023.
Gary Simmons: Okay.
Gary Simmons: Net cash provided by operating activities was $1 2 billion in the fourth quarter of 2023 included in this amount was a $631 million unfavorable impact from working capital and $65 million of adjusted net cash provided by operating activities associated with the other joint venture members share of DVD.
Gary Simmons: Excluding these items adjusted net cash provided by operating activities was $1 8 billion in the fourth quarter of 2023.
Gary Simmons: Net cash provided by operating activities in 2023 was $9 2 billion included in this amount was a $2 3 billion unfavorable impact from working capital and $512 million of adjusted net cash provided by operating activities associated with the other joint venture members share of DTD.
Gary Simmons: Excluding these items adjusted net cash provided by operating activities in 2023 was $11 billion.
Gary Simmons: Regarding investing activities, we made $540 million of capital investments in the fourth quarter of 2023 of which $460 million was for sustaining the business, including costs for turnarounds catalysts and regulatory compliance and the balance was for growing the business.
Gary Simmons: Excluding capital investments attributable to the other joint venture members share of DVD capital investments attributable to Valero were $506 million in the fourth quarter of 2023, and $1 8 billion for 2023.
Gary Simmons: Moving to financing activities, we returned $1 $3 billion to our stockholders in the fourth quarter of 2023 of which $346 million was paid as dividends and $966 million was for the purchase of approximately seven 5 million shares of common stock, resulting in a payout ratio of 73%.
Gary Simmons: For the quarter.
Gary Simmons: As Lynn mentioned this results in a payout ratio of 60% for the year.
Gary Simmons: Yes.
Gary Simmons: Through share repurchases, we reduced our share count by approximately 11% in 2023 and by 19% since year end 2021.
With respect to our balance sheet, we ended the quarter with $9 2 billion of total debt to $3 billion of finance lease obligations and $5 4 billion of cash and cash equivalents.
Gary Simmons: The debt to capitalization ratio net of cash and cash equivalents was 18% as of December 31 2023.
Gary Simmons: And we ended the quarter well capitalized with $5 3 billion of available liquidity excluding cash.
Gary Simmons: Turning to guidance, we expect capital investments attributable to Valero for 2024 to be approximately $2 billion, which includes expenditures for turnarounds catalysts and regulatory compliance and joint venture investments.
Gary Simmons: About $1 6 billion of that is allocated to sustaining the business and the balance to growth with approximately half of the growth capital towards our low carbon fuel businesses and half towards refining projects.
Gary Simmons: Our low carbon fuels growth capital is primarily for the SaaS project.
Gary Simmons: Our refining growth projects aimed to increase our crude flexibility in the Gulf coast extract more value out of some of our conversion unit capacity improve our access to some key product markets and improve our logistics into or out of our refineries.
Gary Simmons: All of these projects meet or exceed our minimum return threshold of 25% after tax IRR.
Gary Simmons: For modeling our first quarter operations, we expect refining throughput volumes to fall within the following ranges.
Gary Simmons: Gulf Coast at one five to $215 7 million barrels per day, which includes turnaround work on the legacy Coker at our Port Arthur refinery.
Gary Simmons: Mid continent at 415 to 435000 barrels per day.
Gary Simmons: West Coast at $235 to 255000 barrels per day, and North Atlantic at 435 to 455000 barrels per day.
We expect refining cash operating expenses in the first quarter to be approximately $5 10 per barrel, reflecting lower throughput due to turnaround activity across our system.
Gary Simmons: With respect to the renewable diesel segment, we expect sales volumes to be approximately $1 2 billion gallons in 2024.
Gary Simmons: Operating expenses in 2024 should be 45 per gallon, which includes <unk> 18 per gallon for noncash costs, such as depreciation and amortization.
Gary Simmons: Our ethanol segment is expected to produce $4 5 million gallons per day in the first quarter operating expenses should average 37 per gallon, which includes <unk> <unk> per gallon for noncash costs, such as depreciation and amortization.
Gary Simmons: For the first quarter net interest expense should be about $150 million and total depreciation and amortization expense should be approximately $700 million.
Gary Simmons: For 2024, we expect G&A expenses to be approximately $975 million.
Gary Simmons: That concludes our opening remarks before we open the call to questions. Please adhere to our protocol of limiting each turn in the Q&A to two questions.
Gary Simmons: If you have more than two questions. Please rejoin the queue as time permits to ensure other callers have time to ask their questions.
Gary Simmons: Thank you ladies and gentlemen, the floor is now open for questions. If you would like to ask a question. Please press star one on your telephone keypad at this time.
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Gary Simmons: For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys.
Gary Simmons: Our first question today is coming from John Royall of Jpmorgan. Please go ahead.
Gary Simmons: Yeah.
John Royall: Hey, good morning, Thanks for taking my question.
John Royall: So my first my first question is on the macro side just on weight heavies.
John Royall: <unk>.
John Royall: Has risen all the way to around $10 from about six beginning the quarter, yet we still have OPEC being restricted in terms of production.
John Royall: Can you talk about the drivers of the widening of coastal heavy dips and how do you see them progressing from here.
John Royall: Sure. This is Gary I think a number of factors contributed to that you did see production in Western Canada tick up a little bit in the fourth quarter, we're seeing a few more Venezuelan barrels make their way into the U S. Gulf coast, So a little more supply on the market, but probably the bigger factor is you know as you got late in the fourth quarter and early this quarter youre starting to see the.
Gary Simmons: Impact of turnarounds decrease in demand for some of those especially the heavy sour barrels.
Gary Simmons: In addition to those factors you had the typical seasonality and high sulfur fuel oil with lower high sulfur fuel oil demand for power generation kind of weighing on the heavy sour discounts as well. So our view is that through the first quarter through the refinery maintenance season, you'll continue to see a little bit wider heavy sour discounts, but then youll start to see those come in and really for any.
Gary Simmons: Full impact sustainable impact for the quality dis, we need more OPEC production on the market. If you look at the consultant forecast it looks like that could happen probably third quarter of this year.
Gary Simmons: Yeah.
Great. Thanks, Gerry and then my second question is on return of capital So.
Gerry: Your number for the quarter was very strong have you finished the year at 60% of CFO.
Gerry: I know you've talked about how you tend to come in above the range when cracks are strong.
Gerry: Four ends up being kind of a more of a mid cycle type year or even below how should we think about where you might fall in that 40% to 50% range. This year.
Gerry: Good morning, This is Jason and I have got a bit of a cold if I talk too much I'll go into a coughing fit in so I'm going to ask <unk> to respond.
John Royall: Yes, John I mean, our approach to shareholder returns was driven by our annual target of 40% to 50% of adjusted net cash from operations and obviously that includes the dividend, which we consider non discretionary and buybacks, which are considered the flywheel supplementing our dividend to hit our target and given.
John Royall: To strengthen our balance sheet in the fourth quarter as we highlighted we had a 73% payout which resulted in a 60% payout for the year.
John Royall: And as you touched on since 2014, we've regularly paid above our target and in fact, the average payout for the five years, leading into Covid was around 57%. So I think in short in periods when the balance sheet as strong as it is now and sustaining capex the dividend and strategic Capex is covered you can reasonably think.
John Royall: Of our 40% to 50% target as a floor and expect any excess cash to go towards buybacks.
John Royall: Thank you.
John Royall: Okay.
John Royall: Thank you. The next question is coming from Theresa Chen of Barclays. Please go ahead.
John Royall: Good morning would you mind, giving us an update on your clean products supply and demand outlook from here taking into account the recent inventory as well as additional refining capacity ramping up internationally at some utilization, even if not fully running and what Youre also seeing in terms of <unk>.
John Royall: <unk> please.
Gary Simmons: Sure Theresa this is Gary it's always difficult to assess the markets. This early kind of the holidays and weather tend to have a big impact on on road transportation fuel demand and then fog in the Gulf kind of tends to limit exports, but.
Domestically I can tell you demand for gasoline appears to be following typical seasonal patterns looks normal for this time of year and in line with where we were last year I will tell you a gasoline volumes through our wholesale channel of trade are down a few percent year over year, we're not really concerned about that because you can see it's in regions that were really impacted by weather.
And as the weather cleared we're starting to see the volumes recover nicely.
Gary Simmons: European gasoline markets are relatively strong as kept the trans Atlantic Arb closed and then market structure doesn't really incentivize, making summer grade gasoline and putting it into storage.
Gasoline exports into Mexico, and Latin America remained steady so all of this really has us pretty optimistic on gasoline cracks cracks once we move into spring and gasoline demand per improves with driving season.
Gary Simmons: On the diesel side demand in our system is up about 7% compared to last year, probably seen more heating oil demand with a little bit colder weather.
Gary Simmons: Inventory remains at the bottom of the five year average range. So good demand combined with low inventory continues to support the diesel cracks.
Gary Simmons: Exports in our system were down a little in the fourth quarter, the Russian barrels, making their way into South America have caused some changes in trade flow with more of our barrels going to Europe, and Europe warm weather tended to keep their demand down a little bit, but I can tell you. Thus far in the first quarter, we're seeing much stronger European demand with the colder weather hitting there.
Gary Simmons: We believe the diesel cracks continue to get support from increased jet demand.
John Royall: Kerosene gets pulled out of the diesel pool as we continue to recover from Covid jet demand last year was still down about 10, 5% from pre COVID-19 levels. Most forecasts show is closing about half that gap this year.
John Royall: And then expectations for a little better for diesel demand with slightly colder weather and freight picking back up as well.
John Royall: So overall, it's back to your question on new capacity, it looks like to us somewhere about $1 million five barrels a day of new capacity coming online.
John Royall: Year over year growth in demand looks to be slightly over 1 million barrels a day.
John Royall: So supply demand balances are really fairly close to what we saw last year. The question really becomes timing of when that new capacity comes on our view is that it will take longer for those new refineries to startup and you don't really see an impact.
John Royall: On supply until later in the year and if that holds then you know you have relatively tight supply demand balances with really the only difference being we're starting from a different inventory position as you've already mentioned.
In our mind on that we do expect to see inventory draws over the next several weeks.
John Royall: Cold weather had some impact on refinery operations, and then youll start to get into turnaround season, which we would expect total light product inventory to begin to draw.
John Royall: Thank you for that detailed answer.
John Royall: And then maybe just looking within the U S. What are your views on the divergence in product margins across regions. What do you think is causing the weakness in benchmark cracks in the mid Con particular juxtaposed with the strength in the Gulf Coast.
Yes. So historically, we have seen that the mid con is short product in the summer and long product in the winter and I think we're seeing that this year. The market is just long and especially the weather's tended to hit that region more and so we did see demand off in that region, but I think once you start to see the weather cleared you get back into.
John Royall: A driving season, the mid continental recover seeing the same thing kind of on the west coast, whether it's tended to impact demand on the west coast and so we've seen that market a little bit softer than maybe you would typically see for this time of year.
John Royall: Thank you.
John Royall: Thank you. The next question is coming from Neil Mehta of Goldman Sachs. Please go ahead.
Neil Mehta: Yes, congrats on great results and one of the things that stood out to us with the capture rates continue to be very good and I recognize some of that is operational performance, but some of that is commercial and.
Neil Mehta: Elaine guarantee I know, there's some sensitivities around that but a lot of your competitors spend a lot of time talking about what they are doing on the commercial side. So just be curious if anything you can share about how you're optimizing what continues to be a very dynamic environment.
Neil Mehta: Hi, Neil Lane.
Elaine: I'll start by saying, Thank you and I will say that I wouldn't trade our commercial team for any of the other team in the industry have sort of spoke about this in the past.
Elaine: One in our company understands what position they play I think sometimes some have been in organizations, where that's not really clear and you can get a lot of interference running between the supply chain thats not true of Alero, everybody hasnt position, they play and they understand how to do it well refining focuses on reliability and operating envelopes and expenses are paying a coordinated between the groups.
Neil Lane: Make the signals in our refining and commercial groups execute the signals and it's pretty clear on how all of that is supposed to work.
Neil Lane: And so I would tell you that thats really the key to our execution.
Neil Lane: And then of course finally, everybody in the Corporation's incentivized with the same goals, we don't have different groups, having their own sort of incentives. So that's how we get alignment all the way through so.
Neil Lane: Glad to have them.
Neil Lane: Yes, no. It shows up so thank you then.
Neil Lane: Follow up just on North Atlantic It was particularly strong this quarter relative to the benchmark benchmark I think was 16 bucks in the realized gross margin was well above that so just curious if there's anything you'd call out.
Neil Lane: <unk> U K that drove the strength there.
Greg: Hey, Neil this is Greg so we saw crude cost improve in that region.
Greg: Primarily in Canada, as we solve that S curve more than you did in the in Pembroke.
Greg: And then you brought up commercial margins they were very strong for the quarter as well for that region and then some of the compliance cost for the programs over their costs were lower than we've seen in prior periods and all those things combined to drive up that that capture rate in the north Atlantic.
Neil Mehta: And I'll, just add syn crude trading at $7 below Brent.
Neil Mehta: A discount to that to Brent with a high distillate yield crude is a real benefit to our systems.
Neil Mehta: Yes that makes sense thanks, guys.
Thanks.
Thank you. The next question is coming from Doug Leggate of Bank of America. Please go ahead.
Neil Mehta: Hey, guys. Good morning, Thanks for taking my questions.
Neil Mehta: I'm not sure who wants to take this one win but I wanted to ask perhaps an obvious question, but shifting disruptions on what it means for <unk>.
Doug Leggate: Perhaps notes Valero, specifically, but just on a more macro sense how do.
Doug Leggate: The situation with the Red Sea bidding up.
By distillate yield crude is a real benefit to our systems.
Doug Leggate: Clean tanker rates and so on what does that do to the movement of product from the implications for.
Yes that makes sense thanks, guys.
Thanks.
Neil Mehta: Our system, which is perhaps more dependent on imports and a husband anytime at least since I've covered the sector.
Thank you. The next question is coming from Doug Leggate of Bank of America. Please go ahead.
Doug Leggate: Hey, guys. Good morning, Thanks for taking my questions.
Neil Mehta: Yes, so we're not really running crude from that region. So it hasnt really had an impact to us in terms of supply of crude but the big impact, especially on the crude side of the business has just been freight rates.
Doug Leggate: I'm not sure who wants to take this one lane, but I wanted to ask a perhaps an obvious question about shipping disruptions on what it means for <unk>.
Doug Leggate: Perhaps notes Valero, specifically, but just on a more macro sense, how do you know the situation with the Red Sea bidding up.
Neil Mehta: We had a period of time, where you could export from the U S Gulf Coast and northwest Europe crude.
Neil Mehta: The low $2 a barrel range.
Neil Mehta: That spike to $6, a barrel and you could see that in Brent Ti. So I would tell you probably for our system and that is an advantage because it gives us the crude cost advantage versus our global competitors.
Doug Leggate: A clean tanker rates and so on what what is that due to the movement of product from the implications for.
Doug Leggate: Our system, which is perhaps more dependent on imports and a husband anytime at least since I've covered the sector.
Neil Mehta: Okay, I realize its kind of hard to quantify so we will continue towards but thanks for the answer.
Doug Leggate: Yes.
Not really running crude from that region. So it hasn't really had an impact to us in terms of supply of crude but the big impact, especially on the crude side of the business has just been freight rates. You know, we we had a period of time, where you could export from the U S Gulf Coast and northwest Europe crude you know in the in.
Neil Mehta: And my follow up is for you or maybe for Jason given it's cold, but some.
Neil Mehta: 40% to 50% payout.
Neil Mehta: It seems that at least on our numbers you are easily able to sustain the payout at the <unk>.
Neil Mehta: Higher level, especially now that you've restated your $2 billion Capex plans. So I'm just curious what's the what's the reticence to to kind of reset that range that your system clearly is capable of supporting in terms of the payout.
In the low $2 a barrel range.
Doug Leggate: That spike to $6, a barrel and you could see that in Brent Ti. So you know I would tell you it probably for our system and that is an advantage because it gives us a crude cost advantage versus our global competitors.
Neil Mehta: Hey, I'm going to let Homer answer that Hey, Doug I mean, I think our obviously our target is set on a long term range right and so the $4, 54% to 50% think of it as like a long term target, but to your point and as I mentioned earlier, we've consistently come in above that and again I think when you have a strong balance sheet.
Okay, I realize its kind of hard to quantify so we will continue to watch the thanks for that answer my follow up is for you or maybe for Jason given this cold but some.
Doug Leggate: 40% to 50% payout.
Doug Leggate: It seems at least on our numbers you are easily able to sustain the payout.
Homer <unk>: It is right now we're not going to build cash. So I think you should reasonably expect.
Jason: Higher level, especially now that you've restated your $2 billion Capex one so I'm just curious what what's the what's the reticence to to kind of reset that range that your system clearly is capable of supporting in terms of the payout.
Homer <unk>: Shareholder returns to come in above that target.
Doug Leggate: So we expect thanks, so much I appreciate you taking my questions guys.
Doug Leggate: Thank you. The next question is coming from Manav Gupta of UBS. Please go ahead.
Doug Leggate: Hey, I'm, all at home or answer that Hey, Doug I mean, I think our obviously our target is set on a long term range right and so the 40 50, 40% to 50% think of it as like a long term target, but to your point and as I mentioned earlier, we've consistently come in above that and again I think when you have a strong balance sheet as it as it is right.
Doug Leggate: So I wanted to ask about renewable diesel side of the business.
Doug Leggate: The capture on the DVD dropped to 49% and now <unk> has done a very good job of explaining to the market. How the lag works. So if we add back that lag effect and that 64%. The absolute captured would have hit something like 93%. So when we look past <unk> the margin is up.
Doug Leggate: Now, we're not going to build cash so I think you should reasonably expect.
Doug Leggate: Shareholder returns to come in above that target.
Manav Gupta: Materially and if we assume an EP, 90% capture ignoring the lag would that imply that first quarter in terms of renewable diesel margin would be much stronger than the earnings that gain for the fourth quarter.
Doug Leggate: So we expect thanks, so much I appreciate you taking my questions guys.
Doug Leggate: Yeah.
Doug Leggate: Thank you. The next question is coming from Manav Gupta of UBS. Please go ahead.
Manav Gupta: So I wanted to ask about the renewable diesel side of the business the.
Eric: Hey, Manav this is Eric and I would just say yes.
Manav Gupta: Yeah, that's a very good yes, we see a lot of the same.
Manav Gupta: The capture on the DVD dropped to 49% and our home and have done a very good job of explaining to the market. How the lag works. So if we add back that lag effect and that 64%. The actual captured would have hit something like 93%. So when we look past <unk> the margin is up.
Manav Gupta: The same curve that you described and really the change for renewable diesel for Valero as with the first full year of <unk> three in operation.
Manav Gupta: We run a lot higher percentage of foreign feedstocks and that supply chain is just naturally longer. So the most attractive lowest ci feedstocks are coming from foreign imports and I think that's that's.
Manav Gupta: Materially and if he is human EP, 90% capture ignoring the lag would that imply that first quarter in terms of renewable diesel margin would be much stronger than the earnings that came in for the fourth quarter.
Manav Gupta: Creating this longer lag than we've seen in.
Eric: Hey, Manav. This is Eric I would just say yes.
Manav Gupta: D. G D. Historically, so so your analysis I think is correct.
Manav: Yeah, that's a very good yes, we see a lot of the same.
Manav Gupta: Perfect. Thank you just a quick follow up here is last year.
Manav Gupta: The same curve that you described and really the change for renewable diesel for Valero as with the first full year of <unk> three in operation.
Manav Gupta: We had an abnormally warm winter now when we look at this first quarter. As you guys have mentioned industry is taking a heavier turnaround versus last year and then you could have.
Manav Gupta: We run a lot higher percentage of foreign feedstocks and that supply chain is just naturally longer. So the most attractive lowest ci feedstocks are coming from foreign imports and I think that's that's.
Manav Gupta: Much called out about that out as we're all seeing deck, so year on year comp for the fourth quarter again could be better than even last year and I'm just trying to understand the dynamics versus last year versus this as it relates to you know the.
Doug Leggate: Creating this longer lag than we've seen in.
Manav Gupta: The heating oil demand.
Doug Leggate: D. G D. Historically, so so your analysis I think is correct.
Manav Gupta: Yes, that's kind of the way we see it the big difference between last year and this year, we had the winter storm early in the quarter last year, which took refining capacity offline kind of created the big inventory reset you didn't have that this year, but then in our mind youll see more of a draw as we get into February and March with the turnaround activity and a little colder.
Perfect. Thank you just a quick follow up here is last year.
Doug Leggate: We had an abnormally warm winter now when we look at this first quarter. As you guys have mentioned industry is taking a heavier turnaround versus last year and then you could have.
Neil Mehta: Other than as January yes.
Neil Mehta: So you'll have to go where it's still the possibility of cold weather.
Manav Gupta: Much colder weather out as we're all seeing there so year on year comp for the fourth quarter again could be better than even last year and I'm just trying to understand the dynamics versus last year versus this as it relates to you know the.
Weather hitting the Gulf coast.
Neil Mehta: Yeah.
Neil Mehta: Thanks, guys.
Neil Mehta: Thank you. The next question is coming from Sam Margolin of Wolfe Research. Please go ahead.
Doug Leggate: Heating oil demand.
Speaker Change: Hi, good morning, everybody. Thanks for taking the question.
Doug Leggate: Yeah, that's kind of the way we see it you know the big difference between last year and this year, we had the winter storm early in the quarter last year, which took refining capacity offline kind of created the big inventory reset you didn't have that this year, but then in our mind, you'll see more of a draw as we get into February and March with the turnaround activity and a little colder.
Speaker Change: Ma'am.
Sam Margolin: I had a question on the gasoline market.
Sam Margolin: I think the capture rate in <unk> may have benefited from butane economics, and so correspondingly if there was a.
Sam Margolin: Hi incentives.
Sam Margolin: Blend as much winter greatest possible there may have been a low incentive to make in store summer grade and Theres, just a lot of NGL supply that.
Whether it's January yes.
Doug Leggate: So you'll have to go where it's still the possibility of cold weather hitting the Gulf coast.
Sam Margolin: Is kind of making its way into stockpiles.
Doug Leggate: Thanks, guys.
Sam Margolin: Across the different across a number of categories and so I want to know if it makes sense to think about as we enter into driving season.
Doug Leggate: Thank you. The next question is coming from Sam Margolin of Wolfe Research. Please go ahead.
Sam Margolin: Total gasoline inventories are maybe overstated.
Doug Leggate: Hi, good morning, everybody. Thanks for taking the question.
Sam Margolin: Just given the quantity of maybe maybe butane and that in that number.
Doug Leggate: Hey, Matt.
Sam Margolin: I had a question on the gasoline market.
Sam Margolin: Yes, certainly in our system when you look at the cost to produce a summer grade gasoline Theres no economics at all to be making summer grade gasoline and putting it into storage.
Sam Margolin: I think capture rate in <unk> may have benefited from butane economics, and so correspondingly if there was a.
Sam Margolin: Hi incentives.
Sam Margolin: I think the only people that could be storing barrels at all it would be high octane components and they're really just speculating that octane is going to get stronger, but but we certainly see it that way that the barrels that are in storage today are largely winter grade.
Sam Margolin: To blend as much winter greatest possible there may have been a low incentive to make in store summer grade and Theres just a lot of NGL supply that is.
Sam Margolin: It's kind of making its way into stockpiles.
Sam Margolin: Across the different across a number of categories and so I want to know if it makes sense to think about as we enter into driving season.
Sam Margolin: Yes.
Sam Margolin: Great and thanks, Mike.
Sam Margolin: Non follow up second question is about SaaS.
Sam Margolin: Total gasoline inventories are maybe overstated.
Sam Margolin: And.
Sam Margolin: Just given the quantity of maybe maybe butane and that in that number.
Sam Margolin: I was just wondering how that market is developing for you commercially as we get closer to.
Sam Margolin: Yes, certainly in our system when you look at the cost to produce a summer grade gasoline Theres no economics at all to be making summer grade gasoline and putting it into storage.
Sam Margolin: To the SaaS unit coming on I think there's a view that the SaaS market could take on.
Sam Margolin: Contracted longer term kind of cost plus characteristics because airlines have levers to pass it through that are sort of outside of the policy regime, but.
I think the only people that that could be storing barrels at all it would be high octane components and they're really just speculating that octane is going to get stronger, but but we certainly see it that way that the barrels that are in storage today are largely winter grade.
Sam Margolin: Would love your thoughts on how commercially SAP is developing as you as you get closer to production.
Yeah, Sam I think you've said it well we are we continue to talk to all the airlines in cargo carriers a lot of their models are going to be based on a more of a voluntary approach.
Sam Margolin: Yeah.
Sam Margolin: Great and thanks, Mike My non follow up second question is about SaaS.
Sam Margolin: And.
Sam Margolin: I was just wondering how that market is developing for you commercially as we get closer to.
Sam Margolin: Sort of a jet plus.
Sam Margolin: Basis that goes into a pass through to customers that want to offset their carbon footprint through their travel.
Mike My: To the SaaS unit coming on I think there's a view that the SaaS market could take on some contracted longer term kind of cost plus characteristics because airlines have levers to pass it through that or sort of outside of the policy regime, but.
Sam Margolin: Through their travel budgets and so we continue to have a lot of those conversations I think we're very close on having several contracts done with airlines going into our early production.
Mike My: Would love your thoughts on how commercially SAP is developing as you as you get closer to production.
Neil Mehta: <unk> from our projects so.
Neil Mehta: That continues to be progressing very very well so.
Yes, Sam I think you said it well we are we continue to talk to all the airlines in cargo carriers a lot of their models are going to be based on a more of a voluntary approach and sort of a jet plus.
Neil Mehta: We don't see that we're going to have a problem.
Moving all of the volume out of out of this project.
Neil Mehta: Awesome. Thank you so much.
Neil Mehta: Okay.
Sam Margolin: Basis that goes into a pass through to customers that want to offset their carbon footprint through their travel.
Neil Mehta: Thank you. The next question is coming from Paul Sankey of Penske.
Paul Sankey: <unk> research. Please go ahead.
Paul Sankey: Good morning, I was going to ask about international shipping, but you've dealt with the Red Sea. So.
Sam Margolin: Through their travel budgets and so we continue to have a lot of those conversations I think we're very close on having several contracts dawn with airlines going into our.
Paul Sankey: Could you just talk a bit about Russia.
Paul Sankey: Russia, there was big headlines about port explosion, there I was wondering how much distillate.
Sam Margolin: Early production from our projects so.
Paul Sankey: And other product, you're seeing coming out of Russia, as we start the year.
Manav Gupta: That continues to be progressing very very well so we.
Paul Sankey: Secondly, I think you benefited a lot from Venezuela and incremental Venezuelan crude what's your outlook. There and then finally, what are you seeing from Mexico with the new Big refinery starting in Nigeria, maybe with the refinery stuffing. Thanks.
Manav Gupta: We don't see but we're going to have a problem.
Manav Gupta: Moving all of the volume out of out of this project.
Manav Gupta: Awesome. Thank you so much.
Manav Gupta: Thank you. The next question is coming from Paul Sankey of Penske.
Neil Mehta: Okay, Yeah, I'll start with Russia, I think you know the drone attack that occurred last night, you know probably the biggest market impact we are seeing so far as you've seen a reaction in the NAFTA market that refinery supplied a lot of naphtha to the far east and so there is concern that that flow may may be gone and so the naphtha market has tightened up I think.
Paul Sankey: <unk> research. Please go ahead.
Paul Sankey: Oh, I was going to ask about international shipping, but you've dealt with the Red Sea. So.
Paul Sankey: Could you just talk a bit about the rush.
Paul Sankey: Russia, there was big headlines about a port explosion. There I was wondering how much distillate.
Speaker Change: Although the product youre seeing coming out of Russia, as we start the year.
Neil Mehta: You do see distillates, starting to fall and some of what we're seeing is that.
Speaker Change: Secondly, I think you benefited a lot from Venezuela incremental Venezuelan crude what's your outlook. There and then finally, what are you seeing from Mexico with the new Big refinery starting in Nigeria, maybe with the refinery stuffing. Thanks.
Neil Mehta: As the refineries experienced some issues they are having trouble getting support from the west that they typically wouldn't even for things like spare parts and those types of things. So we do see that may be distillate starts to trend off a little bit due to those issues.
Speaker Change: Okay, Yeah, I'll start with Russia, I think you know the the drone attack that occurred last night, you know probably the biggest market impact we're seeing so far as you've seen a reaction in the NAFTA market that refinery supplied a lot of naphtha to the far east and so there is concern that that flow may may be gone and so the naphtha market tightened up.
Neil Mehta: The middle part of the question was.
Neil Mehta: Venezuela benefited as Laila. Okay. Yes, we have continued to ramp up our volume of Venezuelan crude I think the lifting of sanctions more than additional volume into our system, probably had more of a price impact.
Manav Gupta: You do see distillates, starting to fall and some of what we're seeing is that you know.
Neil Mehta: So we did see a little bit more value in the fourth quarter on the Venezuelan barrels that that we're running.
Doug Leggate: As the refineries experienced some issues they are having trouble getting support from the west that they typically wouldn't even for things like spare parts and those types of things. So we do see that may be distillate starts to trend off a little bit due to those issues.
Neil Mehta: As a result of further reducing some of the sanctions that they have on Venezuela.
Neil Mehta: Mexico refinery stuffing.
Neil Mehta: Yes, so we're not seeing any impact as of yet from the Mexico refineries you know when we talk.
Neil Mehta: When we talk about crude supply there is always the discussion that we may see some falloff in our in our supply of Maya.
Doug Leggate: <unk>.
Doug Leggate: The middle part of the question was.
Venezuela benefited as Laila, Okay, yes, so we continue to ramp up our volume of Venezuelan crude I think the lifting of sanctions more than additional volume into our system, probably had more of a price impact.
Neil Mehta: But that really hasnt impacted us yet and we don't see any any delta on the product side of the business yet either.
Neil Mehta: And I guess that would then apply to Nigeria as well right.
Neil Mehta: Yes same thing we think are in our mind, it's going to take us to take a while for that refinery to ramp up it's just a big refinery thats not going to be easy to bring online.
Doug Leggate: So we did see a little bit more value in the fourth quarter on the Venezuelan barrels that that we're running.
Doug Leggate: As a result of <unk>.
Doug Leggate: Further reducing some of the sanctions that they have on Venezuela.
Neil Mehta: Great and then just a follow up second question here.
Doug Leggate: Mexico refineries dosing, yes.
Neil Mehta:
Doug Leggate: So we're not seeing any impact as of yet from the Mexico refineries you know when we talk.
Neil Mehta: You said that you don't anticipate.
Neil Mehta: This change in greatly.
Neil Mehta: With the change that we saw last year and see if you're taking the leadership can you just update just given the.
Doug Leggate: When we talk about crude supply there is always the discussion that we may see some falloff in our in our supply of Maya.
Neil Mehta: The number of assets that are on the market and perhaps if you want to add anything on California, where results last week for the quarter and you know you've expressed dismay of policies that.
Doug Leggate: But that really hasn't impacted us yet and we don't see any any delta on the product side of the business yet either.
Doug Leggate: And I guess that would then apply to Nigeria as well right yeah.
Neil Mehta: I'll leave at that.
Doug Leggate: Yes same thing we think are in our mind, it's going to take us take a while for that refinery to ramp up it's just a big refinery, that's not going to be easy to bring online.
Neil Mehta: Yes.
Neil Mehta: <unk> been pretty consistent as a leadership team we've been predicting system, we look at everything that comes onto the market.
Neil Mehta: Structurally our view really is.
Doug Leggate: Great and then just a follow up second question here.
Neil Mehta: Whether its policies in Europe, and Canada, and the United States in terms of the desire to try to move away from fossil fuels and the difficulty of it and the difficulty to us to make investments, we foresee transportation fuels being structurally short. So we do look through that land when we look at asset to come on we also sterrett.
Doug Leggate:
You said that you don't anticipate.
Doug Leggate: Is it based changing greatly.
Doug Leggate: With the change that we saw last year and see yoga, if you're taking the leadership can you just update us given the.
Doug Leggate: The number of assets that are on the market and perhaps if you want to add anything on California, where results last week for the quarter and you know you've expressed dismay at policy stuff. Thanks I'll.
Neil Mehta: During the two thousands we were the biggest consolidator in the industry. So we know what it takes to do this and we're very good at it and so we our eyes are wide open when we look at all these assets and they come on in.
Doug Leggate: I'll leave it there thanks.
Doug Leggate: Yes.
Neil Mehta: And we understand the forecast and we compare that with organic growth when we compare that to buying back shares and so it's all in that same framework.
Doug Leggate: <unk> been pretty consistent as a leadership team we've been pretty consistent when we look at everything that comes onto the market.
Doug Leggate: Think structurally verbal our view really is.
Neil Mehta: We do like our asset base, clearly, California is a tough place.
Manav Gupta: Whether its policies in Europe, and Canada, and the United States in terms of the desire to try to move away from fossil fuel and difficulty of it and the difficulty it is to make investments, we sort of see transportation fuels being structurally short. So we do look through that lens. When we look at assets that come on we also there.
Neil Mehta: To operate and probably getting tougher.
So.
Neil Mehta: Really all I wanted to say about that part but.
Neil Mehta: I also want to say is we're not yet.
Neil Mehta: Again, we look at everything and we look.
Neil Mehta: We'll look at we continue to look at refineries as well.
Neil Mehta: Okay.
Manav Gupta: During the 2000, we were the biggest consolidator in the industry. So we know what it takes to do this and we're very good at it and so we our eyes are wide open when we look at all these assets when they come on in.
Neil Mehta: Thank you. The next question is coming from Roger read of Wells Fargo. Please go ahead.
Manav Gupta: And we understand the forecast and we compare that with organic growth when we compare that to buying back shares and so it's all in that same framework.
Roger Read: Yes, good morning.
Gary Simmons: My follow up Gary with you on the.
Manav Gupta: We do like our asset base, clearly, California is a tough place.
Roger Read: Summer grade gasoline like I know you said whats in the inventories isn't that much but what are the incentives look like at this point.
Manav Gupta: To operate and probably getting tougher.
Manav Gupta: So.
Manav Gupta: Really all I want to say about that part, but you know.
Roger Read: Or are we so close to the conversion in March.
Manav Gupta: I also want to say is we're not.
Roger Read: No.
Manav Gupta: Again, we look at everything and we.
Roger Read: The seasonality of gasoline is already set up that way I'm just trying to understand.
We will look at we continue to look at refineries as well.
Roger Read: <unk>.
Manav Gupta: Yes.
How the market is going to thread the needle between heavy maintenance and the current conditions in the market.
Thank you. The next question is coming from Roger read of Wells Fargo. Please go ahead.
Roger Read: Yes, our view Roger you look and there is about 10% to carry to the March April screen.
Manav Gupta: Yes, good morning.
Neil Mehta: I would tell you the cost to produce with butane being cheap is closer to 2000, and so certainly no economic incentive at all to store gas.
Like follow up Gary with you on the.
Gary: Summer grade gasoline like I know you said, what's in the inventories isn't that much but what are the incentives look like at this point or are we so close to the conversion in March that you know.
Neil Mehta: Gasoline.
Neil Mehta: A lot of what we think happened in terms of the inventory build is that you had a lot of things happened in December, especially in the Gulf Coast Colonial was allocated the economics to ship on each floor into the mid continent that arb was closed due to the mid continent being weak you had some Jones act freight after market in dry dock that limited some move.
Gary: Okay.
Gary: The seasonality of gasoline is already set up that way I'm, just trying to understand what how the market is going to thread the needle between heavy maintenance and the current conditions in the market.
<unk> there and then a lot of volatility in the freight market has really impacted exports late and so what you saw us Gulf coast inventories draw.
Gary: Yes, so our view Roger you know you'd look and Theres about 10 cents of carry to the March April screen.
Neil Mehta: And in our mind, the Gulf Coast basis got weak enough that although there wasn't carry on the screen to keep gasoline inventory I think we saw a lot of refiners choosing to hold inventory just because U S. Gulf coast basis was so weak and they choose to store barrels that they would go ahead, and then consumed during their own maintenance periods, rather than going out and covering and saw better.
Gary: We would tell you the cost to produce with butane being cheap is closer to 20, So certainly no economic incentive at all to store.
Gary: Gasoline.
Gary: A lot of what we think happened in terms of the inventory build is that you had a lot of things happened in December, especially in the Gulf Coast Colonial was allocated the economics to ship on explorer into the mid continent that Arb was closed due to the mid continent being weak you had some Jones act freight off the market in dry dock that limited to move.
Neil Mehta: You to do that so if that's the case then you should see this inventory work off over the next couple of months.
Neil Mehta: Great that's helpful and then.
Neil Mehta: The other thing obviously in renewable diesel dealing with.
Gary: It's there and then a lot of volatility in the freight market has really impacted exports late and so what you saw us Gulf coast inventories draw.
Neil Mehta: Some feedstock issues this quarter, but also theres a lot of new capacity coming in I'm. Just curious how you look at or how you would.
And in our mind, the Gulf Coast basis got weak enough that although there wasn't carry on the screen to keep gasoline inventory I think we saw a lot of refiners choosing to hold inventory just because the U S. Gulf coast basis was so weak.
Neil Mehta: Ask us to think about margin potential in this business sort of assuming either forward curve at this point or just where we are today in terms of market structure. If it holds.
Gary: As to store barrels that they would go ahead, and then consume during their own maintenance periods, rather than going out and covering and saw better value to do that so if that's the case then you should see this inventory work off over the next couple of months.
Neil Mehta: How we should think about the moving pieces here because it's.
Neil Mehta: It's a little more opaque to us the feedstocks coming in and the timing of that relative to.
Gary: Great that's helpful and then.
Neil Mehta: Just matching in the market on a daily basis.
Gary: The other thing obviously in renewable diesel dealing with.
Neil Mehta: Yes, I would say the outlook for renewable diesel.
Gary: Some feedstock issues this quarter, but also there's a lot of new capacity coming in just curious how you look at or how you would.
Neil Mehta: It's difficult to predict exactly how it will play out because you do have additional capacity coming online and into fixed credit banks for both Rins Enel CFS that would naturally say that those credit value should come down with additional capacity, which would narrow our D margins that being said, we also see that feedstock prices.
Ask us to think about margin potential in this business sort of assuming either.
Gary: Foreign curve at this point or just where we are today in terms of market structure. If it holds.
Gary: How we should think about the moving pieces here because it's.
Neil Mehta: You need to come down.
Neil Mehta: Both waste oil and veg oil.
Gary: It's a little more opaque to us the feedstocks coming in and the timing of that relative to.
Neil Mehta: So then you get into the waste oils will always structurally have a lower ci advantage over veg oil, so where visual oils will be long.
Gary: Just matching in the market on a daily basis.
Gary: Yes, I would say the bill.
Neil Mehta: They still won't be competitive to waste oils and into compliance markets. So it goes back to the core of the DVD.
Gary: Outlook for renewable diesel it's it is difficult to predict exactly how it will play out because you do have additional capacity coming online and into fixed credit banks for both <unk> and <unk> that would naturally say that those credit value should come down with additional capacity, which would narrow rd margins.
Neil Mehta: The business, which is.
Neil Mehta: Low cost producer waste oils access to markets Besides California.
Neil Mehta: And so we still see that will be competitively advantage, both from an opex and feedstock standpoint, but overall the outlook I would say is we expect that credit prices will continue to narrow and it's a question of how.
Gary: That being said, we also see that feedstock prices continue to come down.
Gary: Both waste oil and veg oil.
Gary: So then you get into the waste oils will always structurally have a lower ci advantage over veg oils, so where veg oils will be long.
How feedstock prices will keep up with that and so and then the last thing besides diversifying.
Gary: They still won't be competitive to waste oils and into compliance markets. So it goes back to the core of the DVD.
Neil Mehta: Sales away from California's obviously with our project will be diversifying.
Neil Mehta: In the SaaS, which takes.
Neil Mehta: It takes some of our product out of this R&D market. So so we think both of those things make us still.
Gary: Business, which is low cost producer waste oils access to markets, Besides California, and so we still see that will be competitively advantaged, both from an opex and feedstock standpoint.
Neil Mehta: The most competitive and advantaged platform in R&D, even in a tightening market.
Neil Mehta: So is it fair to summarize that is theres, probably a lot more clarity on let's call. It the supply side of R&D This year and a lot less clarity on the feedstock side in other words, where we shouldn't look for relative opportunity is probably on your feedstock rather.
Gary: But overall the outlook I would say is we expect that credit prices will continue to narrow and it's a question of <unk>.
Gary: How feedstock prices.
Gary: We will keep up with that and so and then the last thing besides diversifying.
Gary: Sales away from California's obviously with our project will be diversifying.
Neil Mehta: Got it.
Neil Mehta: The sales price already.
Neil Mehta: Alrighty.
Gary: In the SaaS, which takes.
Neil Mehta: Yeah, I think that'd be fair to say that.
Gary: It takes some of our product out of this R&D market. So so we think both of those things make us still the most competitive and advantaged platform in R&D, even in a tightening market.
Most of that's still being a ci advantage in waste oils over over vegetable oils.
Neil Mehta: Right right. Okay I appreciate it thank you.
Gary: So is it fair to summarize that is theres, probably a lot more clarity on let's call. It the supply side of R&D This year and a lot less clarity on the feedstock side in other words, where we shouldn't look for relative opportunity is probably on your feedstock rather than.
Speaker Change: Thank you. The next question is coming from Ryan Todd of Piper Sandler. Please go ahead.
Okay. Thanks.
Speaker Change: Maybe a question on turnaround activity looks relatively heavy in the first quarter.
Ryan Todd: Is that indicative of what we should expect to be.
Gary: The sales price.
Ryan Todd: Higher level of overall maintenance for you in 2024, just front end loaded.
Gary: Alrighty.
Gary: Yeah, I think that'd be fair to say that.
Ryan Todd: And then maybe any thoughts in terms of what youre seeing for overall industry maintenance activity. The theaters should we expect this can be another relatively heavier.
Speaker Change: Most of that's still being ACI advantage in waste oils over over vegetable oils.
Speaker Change: Right right. Okay I appreciate it thank you.
Brian This is Greg normally we don't talk about our overall turnaround plans you can tell from the guidance a fair amount of activity for us in the first quarter I think when we get out to the rest of the year.
Speaker Change: Thank you. The next question is coming from Ryan Todd of Piper Sandler. Please go ahead.
Gary Simmons: We'll talk about those periods as we come up to them I think from an industry perspective, we are seeing a fair amount of turnaround activity across the industry in the first quarter. So again kind of to Gary's point it looks like it's going to be a heavy season for the industry in general a lot of it in the Gulf coast to a lot of focus there.
Speaker Change: Okay. Thanks.
Speaker Change: Maybe a question on turnaround activity in Jersey looks relatively heavy in the first quarter.
Speaker Change: Is that indicative of what we should expect to be at.
Our level of overall maintenance for you in 2024, just front end loaded.
Speaker Change: And then maybe any thoughts in terms of what you're seeing for overall industry maintenance activity. The theater is it should we expect this to be another relatively heavier.
Brian: And then the only other thing we may add is although you can see the throughput guidance, we don't really expect it to impact our capture rate that's right.
Speaker Change: Yeah.
Brian: Okay, great. Thank you.
Greg: Brian. This is Greg you know normally we don't talk about our overall turnaround plans you can tell from the guidance a fair amount of activity for us in the first quarter I think when we get out to the rest of the year.
Greg: And then maybe just.
Gary Simmons: Follow up question on.
Gary Simmons: On capital spend and growth capital spend I appreciate Omer you gave.
Greg: We'll talk about those periods as we come up to them I think.
Gary Simmons: A little bit of detail there in terms of some of the things that are competing for.
Greg: From an industry perspective, we are seeing a fair amount of turnaround activity.
Gary Simmons: For the words of growth capital within your budget I mean, most of your larger project driven work is either finished recently or.
Greg: Cross the industry in first quarter, so again kind of to Gary's point.
Looks like it's going to be a heavy season for the industry in general a lot of it in the Gulf coast to a lot of focus there.
Gary Simmons: Project, which isn't really all that large.
Gary Simmons: As you look forward on the horizon.
Greg: And the only other thing we may add is although you can see the throughput guidance, we don't really expect it to impact our capture rate that's right.
Gary Simmons: Are there are there any other meaningful environmental regulatory driven capital things that we should be keeping our eyes on over the next couple of years.
Greg: Okay, great. Thank you.
Gary Simmons: Could draw the more capital that way.
Greg: And then maybe just a follow up question on.
Gary Simmons: Or what types of things make or should we expect more of these kind of small little of that back.
Greg: On capital spend and growth capital spend I appreciate Homer you gave.
Gary Simmons: Driven projects across the refining side over the next few years.
Greg: A little bit of detail there in terms of some of the things that are competing for.
Gary Simmons: Hey, Ryan its way the way I would think about this is if you go back.
For the wedge of growth capital within your budget I mean, most of your larger project driven work is either finished recently or you know you've got a SaaS project, which isn't really all that large.
Gary Simmons: Historically, we used to sort of spin also we said $1 billion five available capital that we would actually include regulatory capital I mean, thats, how we frame it at sort of maintain our assets to generate the earnings as opposed to and try to work try to work you or your sustained up your regulatory capital.
Greg: Quarter on the horizon.
Greg: Are there are are there any other meaningful environmental regulatory driven capital things that we should be keeping our eyes on over the next couple of years that could draw some more capital that way.
Ryan Todd: Albeit it will be lumpy and so youre going to average around that number for us how we think about the regulatory side of it I don't really foresee at least right now that we have a large regulatory spend clearly that could always change in terms of.
Greg: Or what types of things make or should we expect just more of these kind of small little of that back.
Greg: Driven projects across the refining side over the next few years.
Ryan Todd: In terms of our strategic capital historically, we were around $1 billion as an organization. We felt like we feel like we can execute a $1 billion pretty well and we have some experience over the project.
Greg: Hey, Ryan.
Greg: The way I would think about this as you know you could.
Greg: Go back because when we historically, we used to sort of spend I would say, we've got 1 billion and a half available capital that would actually include regulatory capital I mean, thats, how we frame and it sort of maintain our asset to generate the earnings as opposed to and try to work try to work your youre sustain of your regulatory capital in our albeit it will be lumpy.
Ryan Todd: 10, 11 years ago, where we spent more on strategic capital in it.
Ryan Todd: Difficult to manage and so we as an organization when you thought that we will live within a sort of a $1 billion on the outside of the strategic capital since Covid, we've been at about a half a billion and Thats our guidance right now.
Greg: And so youre going to average around that number for us how we think about the regulatory thought of it I don't really foresee at least right now that we have a large regulatory spend that we were that can always change in terms of.
Ryan Todd: We feel like that's a pretty good number here in the near out that we're going to steward around that will there'll be enough projects, whether they're in refining or transportation or our renewable platforms that will meet and worked through our gated process to meet our return thresholds.
Greg: Some of our strategic capital historically, we were around 1 billion, we as an organization. We felt like we feel like we can execute $1 billion pretty well and then we have some experience over probably.
Ryan Todd: Great. Thanks, Mike.
Greg: 10, 11 years ago, where we spent more on strategic capital in that and it was both.
Ryan Todd: Thank you. The next question is coming from Paul Cheng of Scotia Bank. Please go ahead.
Greg: Difficult to manage and so we as an organization when you thought that we're going to live within a sort of a $1 billion on the upside of strategic capital since Covid, we've been at about a half a billion and Thats our guidance right now and we feel like that's a pretty good number year in and you're out that we're gonna Stuart around the wheel there there'll be enough projects, whether they are in refining or transportation.
Paul Cheng: Hey, guys good morning.
Paul Cheng: Good morning.
Paul Cheng: I just don't know what that is would it be laying off Gary.
Paul Cheng: If we're looking at a pain last year that was very strong.
Paul Cheng: If this year that I think a lot of people expect because after last year's global gasoline demand globally puppy was slow down China is definitely slowing down and I think you asked me even go into a structure with you if that will be the case.
Greg: Our our renewable platform, but that all me and worked through our gated process to meet our return thresholds.
Mike My: Great. Thanks, Mike.
Paul Cheng: How you expect the octane Randy is going to look like and what the how.
Mike My: Thank you. The next question is coming from Paul Cheng of Scotiabank. Please go ahead.
Paul Cheng: That impact or what kind of impact is on your financial result will be.
Paul Cheng: That's the first question.
Mike My: Hey, guys good morning.
Mike My: Good morning.
Paul Cheng: Okay, Yeah, So I would say a couple of things on octane certainly the incremental crude barrel, but thats been coming onto the market has been a light sweet barrel, which has created more naphtha yield coming onto the market and the pet chem demand being somewhat down.
Paul Y. Cheng: I just don't know what that is we're building or Gary.
Paul Y. Cheng: If we're looking at a pain last year that was very strong.
Paul Y. Cheng: If this year that I think a lot of people expect because I've lost yet global gasoline demand globally puppy with slowdown China is definitely slowing down and I think you asked me even go into a structure that will be the case.
Paul Cheng: That incremental barrel of naphtha, that's being produced is trying to find its way into the gasoline pool and so what that does is it really causes at Haynes in NAFTA is to traded an inverse when naphtha gets long naphtha gets weak and then obtain starts traded a premium. So you can try to blend that that naphtha barrel into the gasoline pool.
How you expect the octane Randy if he is going to look like and what the how.
Paul Y. Cheng: That impact or what kind of impact is on your financial result will be.
Paul Cheng: I don't know that we see that being significantly different this year.
Paul Y. Cheng: That's the first question.
Paul Y. Cheng: Okay, Yes, so I would say you know a couple of things on our paying you know certainly the incremental crude barrel, but thats been coming onto the market has been a light sweet barrel, which has created more naphtha yield coming onto the market and with pet chem demand being somewhat down.
Paul Cheng: The one thing I would tell that I've already mentioned, if theres a prolonged.
Paul Cheng: If theres a prolonged outage in Russia at the refinery that was hit by the drone attack and Theres less napped out on the market that could tell you that octane Trenton tend to be a little bit weaker this year, but absent that I don't see any fundamental differences in the NAFTA, where octane markets. Greg I don't know if you have any I agree.
Paul Y. Cheng: That incremental barrel of naphtha, that's being produced is trying to find its way into the gasoline pool and so what that does is it really causes at Haynes in NAFTA is to traded an inverse win when NAFTA gets long naphtha gets weak and then op pain starts traded a premium. So you can try to blend that that naphtha barrel into the gasoline pool.
Paul Cheng: And Gary you guys net logo apartments on octane.
Paul Cheng: It varies I would I would say, we're fairly balanced on octane, where long naphtha. So you can always soak up octane that way.
Paul Y. Cheng: You know I don't know that we see that being significantly different this year.
Paul Y. Cheng: The one thing I would tell that I've already mentioned, if theres a prolonged.
Paul Cheng: But overall on octane I'd say fairly balanced.
Gary Simmons: Alright, and Gary and Great that you guys have a marketing operation.
Paul Y. Cheng: There is a prolonged outage in Russia at the refinery that was hit by the drone attack and Theres less napped out on the market that could tell you that octane strength tend to be a little bit weaker this year, but absent that I don't see any fundamental differences in the NAFTA, where octane markets. Greg I don't know if you have any no I agree.
Gary Simmons: Mexico in there.
Gary Simmons: The Caribbean Mexico.
Gary Simmons: Any insight that house, the local demand look like.
Gary Simmons: Yes, so our business there continues to grow very very nicely year over year, our volumes were up 16% in Mexico.
Paul Y. Cheng: And Gary you guys net logo omics on octane.
Gary Simmons: We now have 250 branded sites, which was the largest growing brand in Mexico I think the big change for this year is in the second quarter of this year, we anticipate the terminal that we will use in northern Mexico, and Altamira will start up it will allow us to be more competitive in that region, which we would expect to then be able.
Paul Y. Cheng: <unk>.
You know it varies I would I would say, we're fairly balanced on octane, where long naphtha. So you can always soak up octane that way.
Paul Y. Cheng: But overall on octane I'd say fairly balanced.
Gary Smith: Alright, and Gary and Great that you guys have a marketing operation in <unk>.
Gary Simmons: To continue the growth that we've seen.
Gary Simmons: How about.
Gary Smith: Mexico.
Gary Smith: The Caribbean Mexico.
Our <unk> operation, but that the market as a whole do you see the gasoline market.
Speaker Change: Any insight that house the local team on the line.
Neil Mehta: Mexico is growing or that is <unk>.
Gary Smith: Yes, so our business there continues to grow very very nicely year over year, our volumes were up 16% in Mexico.
Maybe a little bit pullback.
Neil Mehta: Yes, So our view is Mexico basically recovered last year to pre COVID-19 levels and our expectation is youll see continue to see good growth in the gasoline market in Mexico.
Gary Smith: We now have 250 branded sites, which was the largest growing brand in Mexico I think the big change for this year is in the second quarter of this year, we anticipate the terminal that we will use in northern Mexico.
Neil Mehta: Okay. Thank you.
Neil Mehta: Yes.
Neil Mehta: Thank you. The next question is coming from Joe <unk> with Morgan Stanley. Please go ahead.
Gary Smith: Amira will start up it will allow us to be more competitive in that region, which we would expect to then be able to continue the growth that we've seen.
Neil Mehta: Hey, good morning, and thanks for taking my questions.
Gary Smith: How about.
Joe <unk>: So I wanted to start off going back to an earlier point that you'd mentioned some of the cold weather on the Gulf Coast. The past couple of weeks.
Gary Smith: Also on your operation, but that the Montana as a whole do you see the gasoline market.
Joe <unk>: Are there any material impacts to operations or crude and product price dislocations that we should be mindful of for the first quarter.
Gary Smith: Mexico is growing all of that is.
Maybe I'll leave they pulled back.
Gary Smith: Yes, So our view is Mexico basically recovered last year to pre COVID-19 levels and our expectation is youll see continue to see good growth in the gasoline market in Mexico.
No I would tell you you know we had some some small operational issues boiler trips heater trips, but nothing thats going to materially impact the quarter and we still feel like the throughput guidance that we've given holds.
Gary Smith: Okay. Thank you.
Thank you. The next question is coming from Joe Maxa with Morgan Stanley. Please go ahead.
Joe <unk>: Great. Thanks, and then shifting to renewable diesel so volumes averaged above nameplate capacity for the year, which is good to see it seems like a consistent theme of outperformance there.
Joe Gorder: Hey, Tim Good morning, and thanks for taking my questions.
Joe Gorder: So I wanted to just start off going back to an earlier point you mentioned some of the cold weather on the Gulf Coast. The past couple of weeks, where there any material impacts to operations or crude and product price dislocation that we should be mindful of for the first quarter.
Joe <unk>: Any reason why we shouldn't expect a similar level of outperformance in 2024, such as turnarounds or anything.
Joe <unk>: Yes, I think we kept the guidance at the $1 2 billion. We've got a couple of cat changes this year.
Tim Good: No I would tell you you know we had some some small operational issues you know boiler trips heater trips, but nothing thats going to materially impact the quarter and we still feel like the throughput guidance.
Neil Mehta: Obviously, when we convert to SaaS.
Neil Mehta: There is.
Neil Mehta: This could be a change in capacity because we do have to run the unit a little harder in that mode. So we're not sure what capacity will look like for that until we until we get the projects on the ground and started up so I think.
Given holds.
Tim Good: Great. Thanks, and then shifting to renewable diesel so volumes averaged above nameplate capacity for the year, which is good to see he seems like a consistent theme about performance. There any reason why we shouldnt expect a similar level of outperformance in 2024, such as turnarounds or anything.
Neil Mehta: At this time next year, we'll have a we'll have an outlook.
Neil Mehta: What our capacity guidance.
Neil Mehta: Will be.
Neil Mehta: Whether it's up or down.
Neil Mehta: Got it that makes sense. Thank you all.
Tim Good: Yes, I think we kept the guidance at the $1 2 billion. We've got a couple of cat changes this year and.
Neil Mehta: Thank you. The next question is coming from Jason <unk> of TD Cowen. Please go ahead.
Neil Mehta: Yes.
Tim Good: Obviously, when we convert to SaaS.
Neil Mehta: Yeah, Hi, good morning, Thanks for taking my questions.
Neil Mehta: The first one is on refining Opex and I think the market has been less focused on that metric in recent years, just given all of the strength in the margins.
Tim Good: There is.
Joe Gorder: There could be a change in capacity because we do have to run the unit a little harder in that mode. So we're not sure what capacity will look like that until we have until we get the projects on the ground and started up so I think.
Jason <unk>: Perhaps it becomes more of a focus is margins maybe normalized here to some extent then looking at your system I think historically you were at $3 50 per barrel.
Joe Gorder: At this time next year, we will have a 11 outlook.
Joe Gorder: What our capacity guidance.
Joe Gorder: We'll be.
Joe Gorder: Whether it's up or down.
Jason <unk>: Refining opex this year.
Joe Gorder: Got it that makes sense. Thank you all.
Jason <unk>: You were I think around $4 50.
Joe Gorder: Thank you. The next question is coming from Jason <unk> of PD Cowen. Please go ahead.
A barrel.
Jason <unk>: At a similar Henry hub price to historical levels. So just wondering what has been driving that higher opex this year versus kind of a pre COVID-19 level and if you expect it stay at this high rate or come back again.
Speaker Change: Yeah, Hey, good morning, Thanks for taking my questions.
Speaker Change: The first one is on refining Opex and I think the market's been less focused on that metric in recent years, just given all of the strength in the margins.
Greg: Hey, Jason This is Greg so one of the things Thats, probably most notable when you think over that period has been electricity prices.
Jason Gabelman: Perhaps it becomes a bit more of a focus on margins maybe normalized here to some extent then looking at your system I think historically you were at $3 50 per barrel.
Greg: So much natural gas, but on the power side a lot of other places where we operate have seen power cost, particularly in the summer be quite a bit higher than we had seen historically so that's a part of it the other part that.
Jason Gabelman: Refining Opex. This year you were you were I think around $4 50.
Greg: Thinking back over that timeframe, but also be more recently some cost inflation pressure and we've talked about that a few times before that seems to be easing. So that's something we're working on too to rein back in with our suppliers and.
A barrel.
Jason Gabelman: At a similar Henry hub price to historical levels. So just wondering what has been driving that higher opex this year versus kind of a pre COVID-19 level and if you.
Jason Gabelman: It does not.
Greg: And folks that we work with.
Jason Gabelman: And again.
Greg: Hey, Jason This is Greg so one of the things Thats, probably most notable when you think over that period has been electricity prices. So.
Bill: Got it is there, but I will say bill the lowest cost Guy and we work on the slide you cannot imagine you should.
Not so much natural gas, but on the power side a lot of the places where we operate have seen power cost, particularly in the summer be quite a bit higher than we had seen historically so that's a part of it the other part that.
Bill: You should know that as an organization, we're committed to making sure that we are the best in class of expenses.
Bill: Yeah, No we definitely said that is there.
Bill: Any expectation to get back down below $4 or is this kind of 450.
Greg: Thinking back over that timeframe would also be more recently some cost inflation pressure.
Bill: The range, we should think about moving forward.
Greg: Talked about that a few times before.
That seems to be easing. So that's something we're working on too to rein back in with our suppliers.
Bill: Thank you.
Bill: We will have to we'd have to look at them, where they look at the numbers and the part of the other thing that really drives us.
Greg: And folks that we worked with.
Bill: Throughput throughput, even though we have what we would characterize as the variable and fixed costs. If we run through our expenses. Most most refining expenses are in large part fix.
Greg: Got it is there.
Speaker Change: Bill the lowest cost Guy and we work on the slide you cannot imagine who you should.
Bill: More barrels we run the better the better that metric work and so you really got to and the best time of year to look at that.
Speaker Change: You should know that as an organization, we're committed to making sure that we are the best in class with expenses.
Bill: To really understand that as sort of.
Speaker Change: Yeah, No we definitely said that is there.
Bill: Third third quarter, essentially that's really when youre seeing the system normally we have signaled to run the higher.
Any expectation to get back down below $4 or is that kind of 450.
Bill: Both things are online and the cost structures, where they are flipped the best time.
Speaker Change: The range, we should think about moving forward.
Speaker Change: Thank you.
Bill: To get an understanding of worthy opted for the base opex for the system.
Speaker Change: It will have to we'd have to look at the look at the numbers and the part of the other thing that really drives your throughput.
Bill: Okay got it.
Bill: My other question is on the refining gross Capex and you rattled off a bunch of what seems like quick hit projects.
Speaker Change: Even though we have what we would characterize as the variable and fixed costs. If we run through our expenses. Most most refining expenses are in large parts fix for the more barrels we run the better the better that metric work and so you really got to the best time of year to look at that.
Bill: Clearly your return hurdles.
Bill: Is there a way you could kind of frame. These projects together in terms of potential improvement capture and kind of whatever stable margin environment, you would evaluate that on.
Speaker Change: To really understand sort of.
Speaker Change: Third third quarter, essentially that's really when youre seeing the system normally as we have signaled to run the highest.
Bill: Or any type of way you could frame the potential upside.
Most things that are online and the cost structures are where they are flipped the best time to go.
Bill: Upside.
Bill: These projects here or is it alternatively just keeping.
Speaker Change: You get an understanding of where the opposite.
Speaker Change: The base Opex.
Bill: Capture maybe stable.
Speaker Change:
Speaker Change: Got it.
<unk>.
Bill: Enabling flexibility to keep capture stable. Thanks.
Speaker Change: My other question is on the refining gross Capex and you rattled off a bunch of what seems like quick hit projects.
Neil Mehta: Yes, so the way I would think about this is we're going to try to do a little more delineation in our IR deck to try to maybe demonstrate.
Speaker Change: That clear your return hurdles.
Speaker Change: Is there a way you could kind of frame. These projects together in terms of potential improvement capture and kind of whatever stable margin environment, you would evaluate that on or.
Neil Mehta: The success of a lot of our projects are getting process, but we're still we're still disciplined and that we don't want to have all of those forward looking conversation around projects, whether they're small or big or whatever what we do as we've done that we have demonstrated.
Speaker Change: Or any type of way you can frame that potential upside.
Neil Mehta: Hopefully to everyone that our process does generate returns in that.
Speaker Change: Upside.
Speaker Change: These projects are arisen Alternatively, just keeping.
Neil Mehta: We like I said earlier, we normally look today I think we have a half a billion dollars a year.
Speaker Change: Capture maybe stable.
Neil Mehta: Year of spend that will generate the returns that we think will make its way through the gated process.
Speaker Change: <unk>.
Speaker Change: Enabling flexibility to keep capture stable. Thanks.
Speaker Change: Yeah. So the way I would think about this is we're going to try to do a little more delineation in our IR deck to try to maybe demonstrate.
Neil Mehta: Understood. Thanks, guys.
Neil Mehta: Okay.
Thank you. The next question is coming from Matthew Blair of Tudor Pickering Holt. Please go ahead.
Manav Gupta: The success of a lot of our projects and we're getting process, but we're still we're still disciplined and that we don't want to have all of those forward looking conversation around projects, whether they're small or big or whatever what we do as we've done that we have demonstrated.
Neil Mehta: Hey, Thanks for the commentary on light heavy earlier I believe Valero runs about 200, a day of WCS at Houston and your Gulf Coast system.
Hopefully to everyone that our process does generate returns.
Neil Mehta: Is that correct.
Neil Mehta: Is there any risk that that availability with <unk> starting up soon.
Manav Gupta: We like I said earlier, we normally look today I think we have a half a billion dollars a year of spend that will generate the returns that we think will make its way through the gated process.
Neil Mehta: Yes so.
Neil Mehta: Our Canadian volumes vary.
Speaker Change: It depends on on total heavies, we're probably 600000 barrels a day great grandfather, 500, 600000 barrels a day and we have you know the ability to optimize between Mexican supplies for live for Venezuela in Canada. Our view of <unk> is that you'll still have the Gulf coast barrels coming.
Manav Gupta: Understood. Thanks, guys.
Yeah.
Manav Gupta: Thank you. The next question is coming from Matthew Blair of Tudor Pickering Holt. Please go ahead.
Manav Gupta: Hey, Thanks for the commentary on light heavy earlier I believe bolero runs about 200, a day of WCS at Houston and your Gulf Coast system.
Speaker Change: From Western Canada, and what it will really do is decreased exports from the U S. Gulf Coast, and we don't really think that our Gulf coast system will be materially impacted by <unk>.
Manav Gupta: Is that correct.
Manav Gupta: Is there any risks could that cause that availability with <unk> starting up soon.
Speaker Change: Great. Thank you.
Manav Gupta: Yes.
Neil Mehta: I had another question on capital returns so.
Manav Gupta: Our Canadian volumes vary.
Neil Mehta: Keeping in mind that the Q4 buybacks were quite strong payout ratio of 73% clearly impressive.
It depends on on total heavies, we're probably 600000 barrels a day Greg Greg.
Manav Gupta: 500, 600000 barrels a day and we have you know the ability to optimize between you know Mexican supply for lots of Venezuela in Canada. Our view of <unk> is that you'll still have the Gulf coast barrels coming.
Neil Mehta: We just sounded intriguing that your cash balance actually showed a build year over year in 2023.
Neil Mehta: You started the year with maybe $2 billion of excess cash ended the year with maybe $3 billion excess cash. So could you talk about why that happened where there any mechanical limits on buybacks or where you walked out of the market.
Manav Gupta: From Western Canada, and what it will really do is decreased exports from the U S. Gulf Coast, and we don't really think that our Gulf coast system will be materially impacted by <unk>.
Neil Mehta: And then and then of that $3 billion in excess cash you have now.
Neil Mehta: Do you have any sort of internal targets on you would look to pay down maybe one or $2 billion of that.
Manav Gupta: Great. Thank you.
Manav Gupta: And then I had another question on capital returns so keeping in mind that the Q4 buybacks were quite strong payout ratio of 73% clearly impressive.
Neil Mehta: In 2024.
Homer <unk>: Hey, Matthew it's Homer.
Homer <unk>: First of all we're comfortable with where we are from a cash balance perspective, but we've discussed in the past we like to stay above 4 billion now we had a very very strong.
We just found it intriguing that your cash balance actually showed a build year over year in 2023.
Manav Gupta: I'd say you started the year.
Homer <unk>: Payout right.
Manav Gupta: Maybe $2 billion of excess cash ended the year with maybe 3 billion of excess cash. So could you talk about why that happened where there any mechanical limits on buybacks or where you walked out of the market and then and then of that $3 billion in excess cash that you have now.
Homer <unk>: Particularly for the quarter, but then also also for the year in terms of paying down like for example, we look at that rate on the debt side, we proactively look at our portfolio through liability management lens and so given the strength of our balance sheet. We don't really currently have any pressing need to.
Manav Gupta: Do you have any sort of internal targets on you'd look to pay down maybe one or $2 billion of that in 2024.
Homer <unk>: Pay down debt with the net debt to cap ratio of 18%, but it's an ongoing evaluation and its something that that we look at.
Homer Bhullar: Hey, Matthew it's Homer.
Homer Bhullar: I think you know first of all we're comfortable with where we are from a cash balance perspective, but we've discussed in the past we like to stay above 4 billion now we had a very very strong.
Homer <unk>: And just to clarify you said your minimum cash balance of about $4 billion.
Homer <unk>: We'd like to stay above $4 billion.
Homer Bhullar: Payout right.
Homer <unk>: And so we changed that on a couple of years, it really coming out of COVID-19 going into Covid.
Homer Bhullar: Particularly for the quarter, but then also also for the year in terms of paying down like for example, we look at that right on the debt side, we proactively look at our portfolio through liability management lens and so given the strength of our balance sheet. We don't really currently have any pressing need to.
Homer <unk>: We've taken the most.
Homer <unk>: Strategy trying to push it all the way down to two and bound.
Homer <unk>: Bound going into Covid.
Homer <unk>: Our experience was that was probably too low.
Homer <unk>: So we've decided to bring to bring I'll go ahead and look at our minimum closer to for the good thing about being a four now versus two before is we actually do.
Homer Bhullar: Pay down debt with the net debt to cap ratio of 18%, but it's an ongoing evaluation and its something that that we look at.
Neil Mehta: Earn a return on that cash before it was <unk>.
<unk>.
Neil Mehta: But thats really due to our experience as we went through Covid.
Homer Bhullar: And just to clarify you said your minimum cash balance of about $4 billion.
Neil Mehta: Okay. That's helpful. Thank you.
Homer Bhullar: We like to stay above $4 billion.
And so we changed that I know a couple of years, it really coming out of COVID-19 going into Covid.
Thank you this brings us to the end of the question and answer session I would like to turn it back over to Mr. Fuller for closing comments.
Homer Bhullar: We've taken the.
Homer Bhullar: The strategy of trying to push it all the way down to two and five.
Donna: Thanks Donna.
Donna: That concludes our opening remarks.
Homer Bhullar: Found going into Covid.
Donna: I'm sorry, if you guys have any follow up questions, obviously feel free to paying us.
Homer Bhullar: Our experience was that was probably too low.
Homer Bhullar: So we've decided to bring to bring I'll go ahead and look at our minimum closer to four good thing about being a four now versus two before is we actually do Richard.
Donna: IR team, Thanks, again for joining us and have a wonderful week.
Donna: Ladies and gentlemen, thank you for your participation and interest in Valero you may disconnect. Your lines from block off the webcast at this time and enjoy the rest of your day.
Homer Bhullar: And a return on that cash before it was.
Homer Bhullar: Zero.
Homer Bhullar: But thats really due to our experience as we went through Covid.
Homer Bhullar: Okay. That's helpful. Thank you.
Homer Bhullar: Thank you this brings us to the end of the question and answer session I would like to turn it back over to Mr. Fuller for closing comments.
Homer Bhullar: Thanks, Donna so that concludes our opening remarks, Avi Im sorry, if.
Donna: If you guys have any follow up questions, obviously feel free to paying us.
Donna: The IR team, thanks, again for joining us and have a wonderful week.
Donna: Ladies and gentlemen, thank you for your participation and interest in Valero you may disconnect your lines log off the webcast at this time and enjoy the rest of your day.
Donna: [music].