Q1 2024 Valero Energy Corp Earnings Call
Operator: Greetings and welcome to the Valero Energy Corp. first quarter 2024 earnings conference. At this time, all participants are in 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 Bhullar, Vice President, Investor Relations and Finance. Thank you. Please go ahead.
Greetings and welcome to the Valero Energy Corp, first quarter 2024 earnings conference.
At this time all participants are in a listen only mode.
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 Homopolar, Vice President Investor Relations and finance. Thank you. Please go ahead.
Homer Bhullar: Good morning, everyone, and welcome to Valero Energy Corporation's first quarter 2024 earnings conference call. With me today are Lane Riggs, our CEO and President, Jason Fraser, our Executive Vice President and CFO, Gary Simmons, our Executive Vice President and COO, and several other members of Valero's senior management team.
Homopolar: Good morning, everyone and welcome to Valero Energy Corporation's first quarter 'twenty 'twenty four earnings conference call.
Homopolar: With me today are lane Riggs, our CEO and President Jason Fraser, Our executive Vice President and CFO, Gary Simmons, our executive Vice President and CFO and several other members of Valero Senior management team.
Homer Bhullar: 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 financial 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.
Homopolar: If you have not received the earnings release and would like a copy you can find one on our website at Investor Valero Dot com.
Homopolar: 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.
Homopolar: If you have any questions. After reviewing these tables, please feel free to contact our investor relations team after the call.
Homopolar: I would now like to direct your attention to the forward looking statement disclaimer contained in the press release and.
Homer Bhullar: In summary, it says that statements in the press release and on this conference call that state the company's or management's expectations or predictions of the future are forward-looking statements intended to be covered by the safe harbor provisions under federal securities laws. There are many factors that could cause actual results to differ from our expectations, including those we've described in our earnings release and filings with the SEC.
Homopolar: In summary, it says that statements in the press release and on this conference call that state the company's or management's expectations or predictions of the future are forward looking statements intended to be covered by the safe Harbor provisions under federal Securities laws.
Homopolar: There are many factors that could cause actual results to differ from our expectations, including goes we've described in our earnings release and filings with the SEC.
Homer Bhullar: Now, I'll turn the call over to Lane for his opening remarks.
Homopolar: Now I'll turn the call over to lane for opening remarks.
Lane Riggs: Thank you, Homer, and good morning, everyone. We are pleased to report strong financial results for the first quarter despite heavy planned maintenance across our refining system. Our team's ability to optimize and maximize throughput while undertaking maintenance activities illustrates the benefits from our longstanding commitment to safe and reliable operations. Refining margins remain supported by tight product balances, with supply constrained by seasonally heavy refining turnarounds and geopolitical events. Product demand was strong across our wholesale system, with diesel demand higher and gasoline demand about the same as last year.
Lane Riggs: Thank you Homer and good morning, everyone.
Lane Riggs: We were pleased to report strong financial results for the first quarter, despite heavy planned maintenance across our refining system.
Lane: Our team's ability to optimize or maximize throughput while undertaking maintenance activities illustrates the benefit from our long standing commitment to safe and reliable operations.
Lane: Finding margins remain supported by tight product balances will supply constrained by seasonally heavy refining turnarounds and geopolitical events.
Lane: Demand was strong across our wholesale system with diesel demand higher than gasoline demand about the same as last year.
Lane Riggs: We continue to execute strategic projects and enhance earnings capability of our business and expand our long-term competitive advantage. DGD's Sustainable Aviation Fuel, or SAF, project at Port Arthur is progressing ahead of schedule and is now expected to be operational in the fourth quarter of 2024. With the completion of this project, Diamond Green Diesel is expected to become one of the largest manufacturers of SAF in the world.
Lane: We continue to execute strategic projects and enhance earnings capability of our business and expand our long term competitive advantage.
Lane: D G D sustainable aviation fuel or SaaS project at.
Lane: At Port Arthur is progressing ahead of schedule and is now expected to be operational in the fourth quarter of 2024 with.
Lane: With the completion of this project Diamond Green diesel is expected to become one of the largest manufacturers of SaaS in the world.
Lane Riggs: In addition, we are pursuing shorter cash cycle projects that optimize and capitalize on opportunities and improve margins around our existing refining assets. These projects are focused on increasing feedstock flexibility, optimizing the value of our product mix, and Maximizing Utilization of Existing Conversion Capacity. On the financial side, we were paid the $167 million outstanding principal amount of our 1.2% senior notes that matured on March 15. And in January, we increased the quarterly cash dividend on our common stock from $1.02 per share to $1.07 per share.
Lane: In addition, we are pursuing shorter cash cycle projects that optimize and capitalize on opportunities to improve margins around our existing refining assets. These.
Lane: These projects are focused on increasing feedstock flexibility optimizing the value of our product mix.
Lane: And maximizing the utilization of existing conversion capacity.
Lane: Yeah.
Lane: On the financial side, we repaid the $167 million outstanding principal amount of our one 2% senior notes matured on March 15th and in January we increased the quarterly cash dividend on our common stock from $1 two per share to $1 seven per share.
Lane Riggs: Looking ahead, we expect refining margins to remain supported by a tight product balance, and seasonably low product inventories ahead of the driving season. Longer term, product demand is expected to exceed supply, even with the startup of new refineries this year and the limited announced capacity additions beyond 2025, and clothing. We remain focused on things that have been a hallmark of our strategy, maintaining operating excellence and executing our projects well. Discipline around our capital investments and our commitments to shareholder returns.
Lane: Looking ahead, we expect refining margins to remain supported by tight product balances unseasonably low product inventories ahead of the driving season.
Lane: Longer term product demand is expected to exceed supply even with the startup of new refineries this year and the limited.
Lane: Capacity additions beyond 2025 and.
Lane: In clothing.
Lane: We remain focused on things that have been a hallmark of our strategy maintaining operating excellence.
Lane: Executing our projects well.
Lane: Discipline around our capital investments and our commitment to shareholder returns.
Lane Riggs: So with that Homer, I'll hand the call back to you.
Lane: So with that Homer I'll hand, the call back to you.
Lane: Yeah.
Homer Bhullar: For the first quarter of 2024, net income attributable to Valero stockholders was $1.2 billion, or $3.75 per share, compared to $3.1 billion, or $8.29 per share for the first quarter of 2023. For the first quarter of 2024, adjusted net income attributable to Valero stockholders was $1.3 billion, or $3.82 per share, compared to $3.1 billion, or $8.27 per share for The refining segment reported $1.7 billion of operating income for the first quarter of 2024 compared to $4.1 billion for the first quarter of 2023. Refining throughput volumes in the first quarter of 2024 averaged 2.8 million barrels per day. Throughput capacity utilization was 87% in the first quarter of 2024.
Homer: Thanks, Blayne for the first quarter of 2024 net income attributable to Valero stockholders was $1 2 billion or $3 75 per share compared to $3 1 billion or $8 29 per share for the first quarter of 2023.
Homer: First quarter 2024, adjusted net income attributable to Valero stockholders was $1 3 billion or $3 82 per share compared to $3 1 billion or $8 27 per share for the first quarter of 2023.
Homer: The refining segment reported $1 7 billion of operating income for the first quarter of 2024 compared to $4 1 billion for the first quarter of 2023.
Homer: Refining throughput volumes in the first quarter of 2024 averaged two 8 million barrels per day throughput capacity utilization was 87% in the first quarter of 2024.
Homer Bhullar: Refining cash operating expenses were $4.71 per barrel in the first quarter of 2024, lower than guidance of $5.10 per barrel primarily attributed to lower energy costs and higher throughput. Renewable diesel segment operating income was $190 million for the first quarter of 2024 compared to $205 million for the first quarter of 2023. Renewable diesel sales volumes averaged 3.7 million gallons per day in the first quarter of 2024, which was 741,000 gallons per day higher than the first quarter of 2023.
Homer: Refining cash operating expenses of $4 71 per barrel in the first quarter of 2024 lower than guidance of $5 10 per barrel, primarily attributed to lower energy costs and higher throughput.
Homer: Renewable diesel segment operating income was $190 million for the first quarter of 2024 compared to $205 million for the first quarter of 2023.
Homer: Renewable diesel sales volumes averaged $3 7 million gallons per day in the first quarter of 2024, which was 741000 gallons per day higher than the first quarter of 2023.
Homer Bhullar: The higher sales volumes in the first quarter of 2024 were due to the impact of additional volumes from the DGD Port Arthur plant, which started up in the fourth quarter of 2022 and was in the process of ramping up rates in the first quarter of 2023.
Homer: The higher sales volumes in the first quarter of 2024 were due to the impact of additional volumes from the <unk> Port Arthur plant, which started up in the fourth quarter of 2022 and was in the process of ramping up rates in the first quarter of 2023.
Homer Bhullar: Operating income was lower than the first quarter of 2023 due to lower renewable diesel margin in the first quarter of 2024. The ethanol segment reported $10 million of operating income for the first quarter of 2024 compared to $39 million for the first quarter of 2023. Adjusted operating income was $39 million for the first quarter of 2024. Ethanol production volumes averaged 4.5 million gallons per day in the first quarter of 2024, which was 283,000 gallons per day higher than the first quarter of 2023. For the first quarter of 2024, G&A expenses were $258 million, net interest expense was $140 million, depreciation and amortization expense was $695 million, and income tax expense was $353 million. The defective tax rate was 21%.
Homer: Operating income was lower than the first quarter of 2023 due to lower renewable diesel margin in the first quarter of 2024.
Homer: The ethanol segment reported $10 million of operating income for the first quarter of 2024 compared to $39 million for the first quarter of 2023.
Homer: Adjusted operating income was $39 million for the first quarter of 2024.
Homer: Ethanol production volumes averaged $4 5 million gallons per day in the first quarter of 2024, which was 283000 gallons per day higher than the first quarter of 2023.
Homer: For the first quarter of 2020 for G&A expenses were $258 million net interest expense was $140 million depreciation and amortization expense was $695 million and income tax expense was 353 million the effective tax rate was 21%.
Homer: Net cash provided by operating activities was $1 8 billion in the first quarter of 2024 included in this amount was $160 million unfavorable impact from working capital and $122 million of adjusted net cash provided by operating activities associated with the other joint venture members share of <unk>.
Homer: <unk>.
Homer: Excluding these items adjusted net cash provided by operating activities was $1 9 billion in the first quarter of 2024.
Homer Bhullar: Net cash provided by operating activities was $1.8 billion in the first quarter of 2024. Included in this amount was $160 million of unfavorable impact from working capital and $122 million of adjusted net cash provided by operating activities associated with the other joint venture member share of DGD. Excluding these items, adjusted net cash provided by operating activities was $1.9 billion in the first quarter of 2024. Regarding investing activities, we made $661 million of capital investments in the first quarter of 2024, of which $563 million was for sustaining the business, including costs for turnarounds, catalysts, and regulatory compliance, and the balance was for growing the business.
Homer: Regarding investing activities, we made $661 million of capital investments in the first quarter of 2024 of which 563 million was for sustaining the business, including costs for turnarounds catalysts and regulatory compliance and the balance was for growing the business.
Homer: Excluding capital investments attributable to the other joint venture members share of DVD and other variable interest entities capital investments attributable to Valero were $619 million in the first quarter of 2024.
Homer: Moving to financing activities, we returned $1 $4 billion to our stockholders in the first quarter of 2024 of which $356 million was paid as dividends and $1 billion was for the purchase of approximately $6 6 million shares of common stock, resulting in a payout ratio of 74% for the quarter.
Homer: Through share repurchases, we have reduced our share count by over 20% since year end 2021.
Homer Bhullar: Excluding capital investments attributable to the other joint venture member share of DGD and other variable interest entities, capital investments attributable to Valero were $619 million in the first quarter of 2024. Moving to financing activities, we returned $1.4 billion to our stockholders in the first quarter of 2024, of which $356 million was paid as dividends, and $1 billion was for the purchase of approximately 6.6 million shares of common stock, resulting in a payout ratio of 74% for the quarter.
Homer: With respect to our balance sheet as Lynn mentioned, we repaid the $167 million outstanding principal amount of our one 2% senior notes that matured on March 15.
Homer: We ended the quarter with $8 5 billion of total debt to $4 billion of finance lease obligations and $4 9 billion of cash and cash equivalents the.
Homer: The debt to capitalization ratio net of cash and cash equivalents was 17% as of March 31 2024.
Homer: And we ended the quarter well capitalized with $5 3 billion of available liquidity excluding cash.
Homer: Turning to guidance, we still 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.
Homer Bhullar: Through share repurchases, we have reduced our share count by over 20% since year-end 2021. With respect to our balance sheet, as Lane mentioned, we repaid the $167 million outstanding principal amount of our 1.2% senior notes that matured on March 15.
Homer: 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 fuels businesses and half towards refining projects.
Homer Bhullar: We ended the quarter with $8.5 billion of total debt, $2.4 billion of finance lease obligations, and $4.9 billion of cash and cash equivalents. The debt to capitalization ratio, net of cash and cash equivalents, was 17% as of March 31, 2024. And we ended the quarter well capitalized with $5.3 billion of available liquidity excluding cash. Turning to guidance, we still expect capital investments attributable to Valero for 2024 to be approximately $2 billion, which includes expenditures for turnarounds, catalysts, regulatory compliance, and joint venture investment.
Homer: For modeling our second quarter operations, we expect refining throughput volumes to fall within the following ranges.
Homer: Gulf Coast at 179% to $1 84 million barrels per day.
Homer: Mid continent at 410 to 430000 barrels per day.
Homer: West Coast at $245 to 265000 barrels per day, and North Atlantic at 430 to 450000 barrels per day.
Homer: We expect refining cash operating expenses in the second quarter to be approximately $4 55 per barrel.
Homer: With respect to the renewable diesel segment, we expect sales volumes to be approximately $1 2 billion gallons in 2020 for operating expenses in 2024 should be <unk> 45 per gallon, which includes 18 per gallon for noncash costs, such as depreciation and amortization.
Homer Bhullar: About $1.6 billion of that is allocated to sustaining the business and the balance to growth, with approximately half of the growth capital allocated to our low carbon fuels businesses and half towards refining projects. For modeling our second quarter operations, we expect refining throughput volumes to fall within the following ranges. Gulf Coast at 1.79 to 1.84 million barrels per day, and Mid-continent at 410,000 to 430,000 barrels per day. West Coast at 245,000 to 265,000 barrels per day and the North Atlantic at 430,000 to 450,000 barrels per day.
Homer: Our ethanol segment is expected to produce $4 5 million gallons per day in the second quarter operating expenses should average 38 cents per gallon, which includes <unk> <unk> per gallon for noncash costs, such as depreciation and amortization.
Homer: For the second quarter net interest expense should be about $140 million and total depreciation and amortization expense should be approximately $710 million.
Homer: For 2024, we expect G&A expenses to be approximately $975 million.
Speaker Change: That concludes our opening remarks before we open the call to questions. Please limit each turn into the Q&A to two questions. If you have more than two questions. Please rejoin the queue as time permits to ensure other callers have time to ask their questions.
Homer Bhullar: We expect refining cash operating expenses in the second quarter to be approximately $4.55 per barrel. With respect to the renewable diesel segment, we expect sales volumes to be approximately 1.2 billion gallons in 2024. Operating expenses in 2024 should be $0.45 per gallon, which includes $0.18 per gallon for non-cash costs such as depreciation and amortization. Our ethanol segment is expected to produce 4.5 million gallons per day in the second quarter. Operating expenses should average $0.38 per gallon, which includes $0.05 per gallon for non-cash costs such as depreciation and amortization. For the second quarter, net interest expense should be about $140 million, and total depreciation and amortization expense should be approximately $710 million. For 2024, we expect G&A expenses to be approximately $975 million.
Speaker Change: 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.
Homer: Formation tone will indicate your line is in the question queue.
Homer: You May press star two if he would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up the handset before pressing the star keys.
Homer: Again, Thats Star one to register your questions at this time.
Homer: Today's first question is coming from Theresa Chen of Barclays. Please go ahead.
Theresa Chen: Good morning.
Theresa Chen: Love to get a sense of your product lines, and then look from here, maybe <unk> or <unk>.
Theresa Chen: <unk>.
Theresa Chen: Typically what is happening with respect to diesel and jet margins and that we can back and where do you think will go from here.
Theresa Chen: Hey, good morning, curious H, Gary I can I'll give you some insight as to what we're seeing in the market today and then some thoughts on your final question.
Gary K. Simmons: Overall, we continue to see strong light product demand in our system, we've seen gasoline sales trending at levels equal to last year diesel sales in our system are actually trending about 2% higher than last year. So I think when we look at all the data we would expect gasoline demand to be flat to slightly up from last year vehicle.
Homer Bhullar: That concludes our opening remarks. Before we open the call to questions, please limit each turn in the Q&A to two questions. 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 K. Simmons: Miles traveled data is encouraging would indicate we could see some gasoline demand surprised to the upside diesel demand flat to slightly down compared to last year. However, again some of the freight and indices appear to be turning and indicate we could start seeing better demand and then jet fuel demand.
Operator: Ladies and gentlemen, the floor is now open to questions. If you would like to ask a question, please press star 1 on your telephone keypad at this time. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star key. Again, that's star one to register questions at this time. Today's first question is coming from Theresa Chen of Barclays. Please go ahead.
Gary K. Simmons: On a year over year, I think that isn't really consistent with the sell off in distillates like Youre seeing and I think some of that is just attributable to the fact that the.
Gary K. Simmons: The market appears to be reacting to headlines. So in particular, you know you had the drone attacks in Russia diesel gets very strong, but then there's a lag in the supply chain to the physical markets arent really seeing that interruption in diesel in fact.
Gary K. Simmons: Russian exports following the drone attacks was actually higher and so now we're finally getting to the point, where Russian exports are starting to fall off but the markets have kind of dismiss that and we've sold off pretty hard I think diesels two week and the two things I would point to on diesel being too weak hydro skimming margins in Europe are negative.
Theresa Chen: Good morning. Let's get a sense of your product supply and demand outlook from here, maybe turn on Lane's earlier comments. And specifically, what is happening with respect to diesel and jet margins from the recent pullback? And where do you think we'll go from here?
Gary K. Simmons: Cracking margins in Singapore are negative.
Gary K. Simmons: Hey, good morning, Theresa. It's Gary.
Gary K. Simmons: Less something significant has happened on the demand side that we don't see we need that capacity to run which would indicate margins are going to have to get stronger from here on.
Gary K. Simmons: I can, you know, give you some insight just into what we're seeing in the market today, and then I'll give you some thoughts on your final question. Overall, you know, we continue to see strong light product demand in our system, and we've seen gasoline sales trending at levels equal to last year. Diesel sales in our system are actually trending about two percent higher than last year. So I think when we look at all the data, we would expect gasoline demand to be flat to slightly higher from last year. Vehicle miles traveled data is encouraging, and it would indicate we could see some gasoline demand surprise to the upside, with diesel demand flat to slightly down compared to last year.
Speaker Change: Really helpful. Thank you, Gary and maybe following up on that point about Russia, and appreciate you going through.
Speaker Change: The dynamics on <unk>.
Speaker Change: Exports as such and maybe looking at the NAFTA side of things. So if theyre naphtha starts to fall off as well.
Speaker Change: But imply for octane economics.
Speaker Change: In light of maybe more naphtha from some of the new refining capacity added like what is the net impact.
Speaker Change: And the translation to gasoline margins as a result.
Speaker Change: Yes, so I think in order to see any meaningful changes in the price of naphtha or discount to gasoline you really need to see pet chem demand pick back up for NAFTA and a lot of that is just tied to crude flat price as long as crude flat prices high it's hard for naphtha to compete as a feedstock into <unk> and so when that happens.
Gary K. Simmons: However, again, some of the freight indices appear to be turning and indicate we could start seeing better demand. And then jet fuel demand is up, you know, year over year. I think, you know, that isn't really consistent with the sell-off and distillates that you're seeing. And I think some of that's just attributable to the fact that the market appears to be reacting to headlines. So in particular, you know, you have the drone attacks in Russia.
Speaker Change: And nap is trying to find a home in the gasoline, which creates strong obtained in order to be able to get it blended into the gasoline pool.
Speaker Change: Thank you.
Speaker Change: Thank you. The next question is coming from Neil Mehta of Goldman Sachs. Please go ahead.
Neil Singhvi Mehta: Good morning team, another really strong quarter.
Gary K. Simmons: Diesel gets very strong, but then there's a lag in the supply chain. So the physical markets aren't really seeing that interruption in diesel. In fact, you know, Russian exports following the drone attacks were actually higher. And so now we're finally getting to the point where Russian exports are starting to fall off. But the markets have kind of dismissed that, and we've sold off pretty hard. I think diesel's too weak. You know, and the two things I would point to on diesel being too weak are hydro skimming margins in Europe are negative.
Neil Singhvi Mehta: And I want to ask about the cash flow payout.
Neil Singhvi Mehta: Were well above the numbers that you've targeted as the floor and so I guess the $1 billion of repurchase level do we view that as a sustainable run rate and how do you think about.
Speaker Change: How do you think about how investors should anchor.
Speaker Change: Two two a payout guidance.
Speaker Change: Good morning, Neil This is Jason.
Jason W. Fraser: At home or to address that question.
Jason W. Fraser: Yes, Neil I think given the strength of our balance sheet in the first quarter and the fact that we're not really looking to build more cash we had a pretty strong payout at 74%.
Gary K. Simmons: Cracking margins in Singapore are negative. And, you know, unless something significant has happened on the demand side that we don't see, we need that capacity to run, which would indicate margins are going to have to get stronger from here on.
Jason W. Fraser: And you'll remember last quarter was 73%, which ended the year at 60%. So I think you can think of the 40% to 50% range as a long term through cycle commitment, but in periods, where fundamentals are strong balance sheet is good like it is now and sustaining growth capex and the dividend has come.
Theresa Chen: That's really helpful. Thank you, Gary.
Gary K. Simmons: And maybe following up on the point about Russia, and I appreciate you going through the dynamics of diesel exports and such. Maybe looking at the NAFTA side of things. So if, you know, their NAFTA starts to fall off as well, what does that imply for octane economics? And, you know, in light of maybe more NAFTA from some of the new refining capacity added, what is the net impact? And the translation to gasoline margins as a result? Yes, I think, you know, in order to
Jason W. Fraser: You can think of that as a floor. So the 40% to 50% as a floor and I think reasonably expect any excess cash flow to continue to go towards buybacks.
Speaker Change: Okay. That's helpful. Homer and then follow up is just on DTD. There was a pull forward of the <unk>.
Speaker Change: That project so it looks like project is tracking tracking well.
Gary K. Simmons: Yes, I think, you know, in order to see any meaningful changes in the price of NAPDA or the discount to gasoline, you really need to see PetCam demand pick back up for NAPDA. And a lot of that is just tied to the crude flat price. As long as the crude flat price is high, it's hard for NAPDA to compete as a feedstock for PetCams. And so when that happens, then NAPDA is trying to find a home in gasoline, which creates, you know, strong octane in order to be able to get it blended into the gasoline pool.
Speaker Change: For 2000 and for startup so just once it comes into service with the back of the envelope of how we should think about the incremental economics and what type of premium margins do you think you can sustain.
Speaker Change: On on SaaS barrels.
Speaker Change: Yes. This is Eric the the project like you said the project construction is going well startup will be in the fourth quarter as far as what we see an uplift.
Eric: I think if you look to see what the state and federal tax program benefits are theres a lot of credits that have been stated in the IRA, whether it's 45 Z or or BTC or PTC.
Operator: Thank you. The next question is coming from Neil Mehta of Goldman Sachs. Please go ahead.
Neil Singhvi Mehta: Good morning, team. Another really strong quarter.
Eric: And in Europe, you've got the Argus quote that all kind of give you a good feel of what that product is going to be worth we've got strong interest and sales and we do not see a problem moving it at.
Neil Singhvi Mehta: And I want to ask about the cash flow payout. As you were well above the numbers that you've targeted as the floor, and so I guess the billion dollar repurchase level, do we view that as a sustainable run rate? And how do you think about how investors should anchor to the payout guidance?
Eric: At returns that are going to meet our project return threshold.
Eric: Thank you. The next question is coming from Roger read of Wells Fargo. Please go ahead.
Jason W. Fraser: Mort and Neil, this is Jason. I'm going to ask Homer to address that question.
Homer Bhullar: Yeah, Neil, I think given the strength of our balance sheet, you know, in the first quarter and the fact that we're not really looking to build more cash, we had a pretty strong payout at 74%. And, you know, last quarter was 73%, which ended the year at 60%. So I think, you know, you can think of the 40 to 50% range as a long-term through-cycle commitment, but in periods where fundamentals are strong, the balance sheet is good like it is now, and sustaining growth capex and the dividend is covered, you can think of that as a floor. So the 40 to 50% is a floor, and I think reasonably expect any excess cash flow to continue to go towards buyback.
Roger David Read: Yes, Thank you and good morning.
Roger David Read: Probably to come back on some of the macro stuff here.
Roger David Read: Crude differentials we've got some.
Roger David Read: I guess discipline out of OPEC, we got <unk>, starting up I guess almost any day now we have some tightness from some other places that typically have exported heavier crudes to the Gulf coast. So just curious what you're seeing on the crude call. It availability front end expectations on differentials.
Roger David Read: Yeah. Roger This is Gary I think we saw crude differentials move a little bit wider in the first quarter, which we expected and that was mainly just driven by demand with heavy turnaround season in the U S. Gulf Coast demand was off a little bit and allowed the differentials to widen but we believe that the differentials will be relatively tight.
Neil Singhvi Mehta: And that's helpful, Homer. And the follow-up is just on DGD, there was a pull forward on the SAS project. So it looks like the project is tracking well for 24 startups. So just how, once it comes into service, what's the back of the envelope of how we should think about the incremental economics? What type of premium margin? Yeah, this is Eric. The project, like you said, the project construction
Roger David Read: Through most of the year until you get the OPEC production back on the market.
Speaker Change: At least the consultant supply demand balances would indicate maybe third or third or fourth quarter of this year Youll start to see OPEC production ramp back up I would tell you we're not having any.
Speaker Change: Any trouble in terms of availability of feedstock, it's just more narrow differentials and what we would like.
Speaker Change: Fair enough and then to follow up on your earlier comments about the structure of the diesel market the need for cracks to go up this time last year, we saw gasoline for a little while move above gasoline cracks move above diesel cracks, we have that seasonally again, but is there any reason.
Eric Fisher: Yeah, this is Eric. The project, like you said, the project construction is going well. Startup will be in the fourth quarter. As far as what we see in Uplift, I think if you look to see what the state and federal tax program benefits are, there are a lot of credits that have been stated in the IRA, whether it's 45Z or BTC or PTC. And then in Europe, you've got the Argus quote that kind of gives you a good feel for what that product's going to be worth. We've got a strong interest in sales, and we do not see a problem moving it at returns that are going to meet our project return threshold.
Roger David Read: You would lean into a max gasoline over.
Roger David Read: Max diesel or a blended sort of outlook relative to what you've been doing.
Roger David Read: Over the last couple of years here.
Speaker Change: No I think a lot of that gets driven by availability of intermediate feedstocks biggio on a tightened VGL market and Youre kind of force more to to swing either gasoline or diesel so far availability of <unk> been been okay. We've been able to fill all the conversion units, but we'll have to see how that goes moving forward.
Operator: Thank you. The next question is coming from Roger Read of Wells Fargo. Please go ahead.
Roger David Read: Yeah, thank you. Good morning. Um, probably to come back on some of the macro stuff here, crude differentials, you know, we've got some, I guess, discipline out of OPEC, we've got TMX, you know, starting up, I guess, almost any day now, we have some tightness from some other places that typically have exported heavier crudes to the Gulf Coast. So just curious what you're seeing on the crude, you know, call it the availability front and expectations on the differential.
Speaker Change: Okay. Thank you.
Speaker Change: Thank you. The next question is coming from Manav Gupta of UBS. Please go ahead.
Manav Gupta: Congrats on a strong quarter again, guys and my first question here is you know the.
Manav Gupta: The bare thesis on refining some there was <unk> and it looks like it's not played out these assets for from what we read in here one of them doesn't have enough hydrogen and that doesn't even have an FCC that they've so most likely will not be providing products to the market, maybe even <unk> at 2020 forward, but my point is even if they do.
Gary K. Simmons: Yeah, Roger, this is Gary. I think, you know, we saw crude differentials move a little bit wider in the first quarter, which we expected. And that was mainly just driven by demand. With the heavy turnaround season in the U.S. Gulf Coast, demand was off a little bit and allowed the differentials to widen. But we believe that the differentials will be relatively tight through most of the year until you get OPEC production back on the market.
Roger David Read: Start providing more products to the market somewhere in 2025.
Speaker Change: Are these the last two ones that you are aware off or there is a big leap coming after this I'm trying to understand is even if these do come on they don't really change the global supply dynamic. So after this again because the market's tightening up again, if you could help us out there.
Gary K. Simmons: At least the consultant, you know, supply-demand balances would indicate maybe the third or fourth quarter of this year you'll start to see OPEC production ramp back up. I would tell you we're not having, you know, any trouble in terms of availability of feedstock. It's just more narrow differentials than we would like.
Speaker Change: Yes, so we see it exactly like you described the end of this year was the year, where you had kind of a peak in terms of new capacity additions and then from this point forward you get to where global petroleum demand outpaces, new refinery capacity additions significantly and we see several years of tightness.
Roger David Read: Fair enough. And then to follow up on your earlier comments about the structure of the diesel market, the need for cracks to go up, this time last year we saw gasoline, you know, for a little while move above diesel cracks. We have that seasonalally again. But is there any reason that you would lean into a max gasoline over a max diesel or blended sort of outlook relative to what you've been doing, you know, over the last couple years here? Now, I think, you know, a lot of that gets lost.
Speaker Change: Perfect. The other point is that we generally see big projects get delayed cost overruns.
Roger David Read: Their unique projects get announced and the actual Scott keeps moving forward from the announcement.
Speaker Change: Absolutely unique to you and I am just trying to understand like how.
Speaker Change: How are you doing this and I am hoping I get an answer which is more than we.
Speaker Change: We have the best people, because we already know that.
Speaker Change: Thanks.
Gary K. Simmons: No, I think, you know, a lot of that gets driven by the availability of intermediate feedstocks, VGO. In a tight VGO market, then you're kind of forced more to use either gasoline or diesel. So far, availability of VGO has been okay. We've been able to fill all the conversion units, but we'll have to see how that goes moving forward.
Speaker Change: Are you pulling forward projects.
Speaker Change: Well, Hey, Manav, it's Linda.
Linda: I was going to say, but.
Speaker Change: Sure.
Linda: It speaks to the culture, our culture is very much about high discipline.
Linda: Accountability and teamwork, we make sure we get the right people in the right jobs and hold them accountable and making sure that they're in what I would say the right people. They have to be people, who are a competent and b. They are willing to work with the other team members, who may not necessarily be under them are adjacent to them and ultimately.
Operator: Thank you. The next question is coming from Manav Gupta of UBS. Please go ahead.
Speaker Change: Working on behalf of Valero.
Manav Gupta: Congratulations on a strong quarter again, guys. And my first question here is, you know, the bare thesis on refining somewhere was Dos Pogos and then Gote. And it looks like it's not playing out. These assets, from what we read and hear, one of them doesn't have enough hydrogen; the other doesn't even have an FCC residue. So, most likely, they will not be providing products to the market, maybe even here in 2024. But my point is, even if they do start providing products to the market somewhere in 2025, are these the last two ones that you are aware of?
Manav Gupta: And we have a high level of visibility with upper level management, because we're a pretty flat organization. So we all know the status of the projects. We all understand where we are in the development cycle and one of the projects start I mean, it's not like there's.
Speaker Change: Ultimately, it's about alignment competency and accountability.
Speaker Change: That's really the secret sauce, you just got to execute.
Speaker Change: Thank you Sir.
Manav Gupta: Yeah.
Speaker Change: Thank you. The next question is coming from Ryan Todd of Piper Sandler. Please go ahead.
Speaker Change: Thanks.
Ryan M. Todd: Maybe a follow up a little bit on some of the crude mix.
Manav Gupta: Questions from earlier.
Ryan M. Todd: With <unk> there is a lot of a lot of focus on what the impact is going to be particularly on complex midcon refineries that are going to have to run more light sweet crude going forward.
Manav Gupta: Or is there a big wave coming after this? So I'm trying to understand this. Even if these two come on, they don't really change the global supply dynamics. So after this, we could see the markets tightening up again. So if you could help us out there, that would be great.
Ryan M. Todd: But in some ways is similar to what's happened across the broader refining system thats been running more and more light crude.
Manav Gupta: Across the system, that's not always optimize for this I mean can you talk about what you think.
Gary K. Simmons: Yeah, so we see it exactly like you've described it. This year was the year where you had kind of a peak in terms of new capacity additions. And then from this point forward, you get to where global petroleum demand outpaces new refinery capacity additions significantly, and we see several years of tightening.
Ryan M. Todd: This might mean for the optimization of the global refining system.
Ryan M. Todd: With more light sweet crude what sort of impact of this have on utilization or optimization, our general supply as we think about broader broader market.
Gary K. Simmons: Yes. So this is Gary so globally Tms doesn't have that much of an impact is just rebalancing of barrels I think you see some of the heavier barrels from South America that were going to the west coast won't travel there and they'll probably go more to the far east and some more Tms barrels starting to go to the west coast. So globally, not a big impact we definitely see.
Manav Gupta: The other point is that we generally see big projects get delayed and have cost overruns. You're somewhere unique, your projects get announced, and the actual start date keeps moving forward from the announcement, which is absolutely unique to you. And I'm just trying to understand, like, how are you doing this? And I'm hoping I get an answer, which is more than, you know, we have the best people, because we already know that. So help us understand how you are pulling forward your projects. Well, hey Manav, it's Lane. That's why I was...
Lane Riggs: That hardest see differentials will come in because for a period of time here, we will have the logistics to completely clear western Canadian production.
Homer Bhullar: And that could cause some some switching of mid continent refiners that they back off on some of the heavies and go to a lighter diet and yes two year.
Lane Riggs: Basically to your comment certainly in the Gulf Coast as we tried to run a lighter diet, which resulted in lower overall utilization because we hit light engine limits on the crude units.
Speaker Change: Okay. Thanks, Ed.
Lane Riggs: Well, hey Manav, it's Lane. That's what I was going to say, but it speaks to the culture. Our culture is very much about high discipline, high accountability, and teamwork. We make sure we get the right people into the right jobs and hold them accountable. And when I say the right people, they have to be people who are A, competent, and B, who are willing to work with other team members who may not necessarily be under them or adjacent to them and, ultimately, work on behalf of Valero.
Manav Gupta: That is probably something that's happening on a broader sense across the system with general global crude mix being lighter right.
Lane Riggs: Yes, I think overall the average crude gravity is up about one five numbers, which certainly result in lower utilization, because especially most new capacity always designed for medium and heavy sour crudes.
Speaker Change: Great. Thanks, maybe.
Speaker Change: Switching gears.
Lane Riggs: Diamond Green diesel.
Ryan M. Todd: When you think about the broader obviously, we've been through a soft spot here on renewable diesel margin with Brent and I will say thats, probably the same low.
Lane Riggs: And we have a high level of visibility with upper-level management because we're a pretty flat organization. So we all know the status of the project. We all understand where we are in the development cycle. And once the project starts, I mean, it's not like... Ultimately, it's about alignment, competency, and accountability, and that's really the secret sauce. You just got to execute.
Speaker Change: As you think about the outlook into the back part of this year and into 2025 can you maybe walk through how you view some of the moving moving pieces that could tighten up that market.
Lane Riggs: And improve kind of the.
Speaker Change: The relative profitability of.
Lane Riggs: Whether it's renewable diesel or a better eventually staff into 2025.
Lane Riggs: Yes, I think the rest of this year, it's really going to be a question of.
Lane Riggs: What some of the other startups looked like we've seen in the news a lot of announcements of slowdowns project delays, even some shutdowns.
Operator: Thank you. The next question is coming from Ryan Todd of Piper Sandler. Please go ahead.
Speaker Change: As that capacity comes offline or slows down.
Operator: How does that balance versus some of the projects that are starting up in the overall do for RIN balance at the end of the year, it's a little difficult to throw a dart and know exactly how that's going to and what we can see is veg oil whether it's BD. Our Rd is negative AG products, all look very long right now.
Ryan M. Todd: Thanks. Um, maybe a little bit on some of the crude mix questions from earlier. I mean, with TMX, there's a lot of focus on what the impact is going to be, particularly on complex mid-con refineries that are going to have to run more light sweet crude going forward. But in some ways, it's similar to what's happened across the broader refining system that's been running more and more light crude across the system that's not always optimized for this.
Ryan M. Todd: We do see we were expecting more competition on waste oils, we haven't seen as much of that is as we thought we would considering the announced startups. So how all that balances out for the rest of the year. The thing. There is we don't see any change in the RVO obligations. So it's still a question of how much capacity is going into <unk>.
Ryan M. Todd: I mean, can you talk about what you think this might mean for the optimization of the global refining system, is, you know, with more light sweet crude, what sort of impact does this have on utilization or optimization or general supply, as we think about the broader, broader market?
Ryan M. Todd: Fixed credit bank.
Ryan M. Todd: In our fixed obligation and so.
Ryan M. Todd: Longer term if you look at 25.
Ryan M. Todd: The long term outlook of Rd is still positive because.
Gary K. Simmons: Yeah, so this is Gary. So globally, you know, TMX doesn't have that much of an impact. It's just rebalancing the barrels. I think you will see some of the heavier barrels from South America that were going to the West Coast won't travel there. And they'll probably go more to the Far East, and some more TMX barrels are starting to go to the West Coast. So globally, not a big impact. We definitely see that hard-to-see differentials will come in because, you know, for a period of time here, we'll have the logistics to completely clear Western Canadian production.
Gary K. Simmons: You look at the number of <unk> programs that are still being contemplated by legislation this year.
Gary K. Simmons: The ramps in Canada, the U K continue to be strong the.
Gary K. Simmons: The SaaS mandates that are kicking in in 2025 in Europe, and the U K are going to create demand for us.
Gary K. Simmons: Diversification of your product away from California.
Gary K. Simmons: And your ability to diversify your product slate into SaaS are going to be very beneficial to DVD. So I still like the the longer term outlook of 25 and beyond 'twenty.
Gary K. Simmons: <unk> 24 is a little hard to predict.
Gary K. Simmons: I think it's still probably still stays.
Gary K. Simmons: And that could cause some switching by mid-continent refiners to back off on some of the heavies and go to a lighter diet. And yes, to your, you know, basically to your comment, certainly in the Gulf Coast, as we tried to run a lighter diet, it's resulted in lower overall utilization because we hit light engine limits on the crude.
Gary K. Simmons: Long and the <unk> net net.
Gary K. Simmons: Might be continue to be sort of a tough year, we think the second quarter from a margin standpoint looks a little better from price lag.
Gary K. Simmons: Standpoint, but.
Gary K. Simmons: The back half is still hard to tell with all the moving pieces, but long term I think you still you still see a positive outlook sort of 25 and beyond.
Speaker Change: Okay. Thank you.
Gary K. Simmons: Thank you. The next question is coming from John <unk> of Jpmorgan. Please go ahead.
Ryan M. Todd: Thanks. And that's probably something that's happening in a broader sense across the system with the general global crude mix being lighter, right?
Speaker Change: Hi, good morning, Thanks for taking my question.
Speaker Change: My first question is on turnaround I guess for Valero and maybe in terms of expectations for the broader industry.
Gary K. Simmons: Yeah, I think, overall, the average crude gravity is up about one and a half numbers, which certainly results in lower utilization because, especially, most new capacity was designed for medium and heavy sour crude.
Gary K. Simmons: Given you and others had a heavy turnaround quarter in the spring, but should we expect a lighter fall season, and maybe the global supply won't come on as expected, but we couldnt be more supply.
Ryan M. Todd: Thanks, maybe switching gears to Diamond Green Diesel. I mean, as you think about the broader, obviously, we've been through a soft spot here on the renewable diesel margin, you know, with RIMS and LCFS pricing low. As you think about the outlook into the back part of this year and into 2025, can you maybe walk through how you view some of the moving, moving pieces that could tighten up that market and improve the relative profitability of whether it's renewable diesel or that eventually happens in 2025. Yeah, I think so.
Gary K. Simmons: In the second half coming out of the U S.
Gary K. Simmons: Turnaround the unusual.
Ryan M. Todd: Hey, John This is Greg <unk>, who will talk about our turnaround activity, particularly in the first quarter, we had a pretty heavy turnaround load you can really see that when you look at our throughput, particularly the Gulf coast throughput.
Ryan M. Todd: Being much lower it's just reflective of the work that we had going on.
Ryan M. Todd: Looking forward as you know, we've always got that turnaround activity going on in our system to varying degrees. The first quarter tends to be the heaviest period other.
Ryan M. Todd: There are periods of the year will be lighter.
Ryan M. Todd: That's just kind of driven by what we see from a margin standpoint is there are certain times of the year like the holiday season, where youre tending not to try to go into that kind of work that is very intensive as far as.
Gary K. Simmons: Yeah, I think the rest of this year is really going to be a question of, you know, what some of the other startups look like. We've seen in the news, a lot of announcements of slowdowns, project delays, even some shutdowns. Is that capacity going offline or slows down? How does that balance versus some of the projects that are starting up in the overall D4 RIN balance at the end of the year? It's a little difficult to throw a dart and know exactly how that's going to end.
Gary K. Simmons: Different periods of time, you won't see so much to our plans we have the same information others see about industry turnarounds. It looks like the fourth quarter will be kind of more in the typical range of outages, but it's early to tell a lot of things will change between now and when we get to the fall season, and so we will see where that lands, but people at least are.
Gary K. Simmons: <unk> something that looks like the more typical turnaround the level of activity.
Speaker Change: Great. Thanks, Greg and then I just had a follow up on Neil's question on returns of capital.
Gary K. Simmons: What we can see is vegetable oil, whether it's BD or RD, is negative. Ag products all look very long right now. We do see We were expecting more competition on waste oils, but we haven't seen as much of that as we thought we would, considering the announced startups. How all that balances out for the rest of the year, the thing there is we don't see any change in the RVO obligations, so it's still a question of how much capacity is going into a fixed credit bank as a fixed obligation.
Speaker Change: Probably for Jason or Homer.
Gary K. Simmons: Youre essentially at a full free cash flow payout now that's what we see.
Gary K. Simmons: So in the first quarter and homeless comments suggested that that's the expectation going forward I know you've characterized the 40% to 50% of the floor, but is there any thought to changing that framework given that you'll have your balance sheet, where you wanted and you seem to be kind of in this new era on returns of capital.
Gary K. Simmons: Longer term, if you look at 25... I would think the long-term outlook for RD is still positive because you look at the number of LCFS programs that are still being contemplated by legislation this year. The ramps in Canada and the U.K. continue to be strong. The SAF mandates that are kicking in in 2025 in Europe and the U.K. are going to create demand. Diversification of your product away from California and your ability to diversify your product slate into SAF are going to be very beneficial to DGD.
Gary K. Simmons: It seems to be kind of peeling back to the old way of looking at things.
Gary K. Simmons: Well this is Jason Yadkin.
Speaker Change: Can take a stab at that.
Gary K. Simmons: I mean, we do think about that and really we'd ask you to look more at our actions rather than that statement and because we've been above it and the majority of time over the past several years.
Gary K. Simmons: We also view that more as a long term indication through the cycle I know, we talk about sometimes as a target and it is but.
Gary K. Simmons: We don't see any problem with being above it over a consistent period of time and you should expect us to kind of behave as you say it. The last couple of quarters are probably the best indication of the future.
Gary K. Simmons: So I still like the longer-term outlook of 25 and beyond, although 24 is a little hard to predict. I think it probably still stays. Long in the D4s, net net. So it might continue to be sort of a tough year. We think the second quarter, you know, from a margin standpoint, looks a little better from a price lag standpoint, but the back half is still hard to tell with all the moving pieces. But long-term, I think you still see a positive outlook, sort of 25 and beyond.
Gary K. Simmons: Is how we're going to behave with regard to cash.
Speaker Change: Okay fair enough. Thank you.
Speaker Change: Thank you. The next question is coming from.
Gary K. Simmons: We live in.
Speaker Change: Hey, Donna you still I'm, sorry, yes, I'm sorry. The next question is coming from Joe <unk> of Morgan Stanley. Please go ahead.
Speaker Change: Hey, al Good morning, and thanks for taking my questions and congrats on the strong quarter.
Speaker Change: So I wanted to.
Gary K. Simmons: Good luck to SaaS.
Operator: Thank you. The next question is coming from John Royall of J.P. Morgan. Please go ahead.
Gary K. Simmons: Are you seeing enough demand from customers to potentially support an additional project and then if so would this would any potential announcements.
John Macalister Royall: Hi, good morning; thanks for taking my question. So my first question is on turnaround, I guess for Valero, and maybe in terms of expectations for the broader industry, given you and others had a heavy turnaround quarter in the spring, should we expect a lighter fall season, and maybe that global supply won't come on as expected, but we could see more supply in the second half coming out of the US because just a lower turnaround than usual.
John Macalister Royall: After the first facility is online just trying to think about timing overall.
Speaker Change: Yes, I think the.
John Macalister Royall: What we're seeing in terms of the commercial interest exceeds our current.
John Macalister Royall: Capacity with the first project.
John Macalister Royall: As we've said we were doing engineering on the second project in terms of timing.
Greg Bram: Hey John, this is Greg Bram. I'll talk about our turnaround activity. Particularly in the first quarter, you know, we had a pretty heavy turnaround load. You can really see that when you look at our throughput, particularly the Gulf Coast throughput being much lower.
Speaker Change: That's always for us Thats always an issue that we're not going to talk about that until we've decided internally.
Greg Bram: Committing to that but what.
Greg Bram: What I would say from a macro view you could clearly the units are cookie cutters of each other the project is nearly identical the.
Greg Bram: The execution time, and all of that is going to be very similar so it's not a technically challenging project or something that would be difficult to fund its the question of.
Greg Bram: It's just reflective of the work that we had going on. Looking forward, as you know, we've always got turnaround activity going on in our system to varying degrees. The first quarter tends to be the heaviest period. Other periods of the year will be lighter, and that's just kind of driven by what we see from a margin standpoint. There are certain times of the year, like the holiday season, where you're tending not to try to go into that kind of work that's very intensive.
Greg Bram: We see this market developed and then when we.
Greg Bram: <unk> made internally is when we would say something externally.
Speaker Change: Great Yeah that makes sense and then I was hoping to go back and dig into that to your comments on Asia refining dynamics earlier, just given the decline in margins that we've seen over the past couple of months.
Greg Bram: We're close to a floor over there and then we've also seen China exports ticked up in recent months, how do you think that's been impacting U S margins.
Greg Bram: As far as, you know, different periods of time, it won't speak so much to our plans. We have the same information others see about industry turnarounds. It looks like the fourth quarter will be kind of more in the typical range of outages, but it's early to tell. A lot of things will change between now and when we get to the fall season, and so we'll see where that lands. But people are at least indicating something that looks like the more typical turnaround level of activity.
Speaker Change: Yes, So I think my comment there when you have cracking margins in Singapore negative and you have hydro skimming margins in Europe negative. It kind of tells you we've hit a floor, we need the capacity to run and I think youll see margin start to tick back up.
Speaker Change: Great. Thank you all.
Greg Bram: Yeah.
Greg Bram: Thank you. The next question is coming from Paul Cheng of Scotia. Please go ahead.
Speaker Change: Hey, guys good morning.
John Macalister Royall: Great. Thanks, Greg.
Speaker Change: Good morning, Paul first question. Good morning. The first question I think is neither form.
John Macalister Royall: And then I just had a follow-up question on Neil's question on returns on capital and, probably, for Jason or Homer. You're essentially at a full free cash flow payout now. That's what we saw in the first quarter, and Homer's comment suggested that that's the expectation going forward. I know you've characterized the 40 to 50 percent of the floor, but is there any thought to changing that framework, given that, you know, you have your balance sheet where you want it, and you seem to be kind of in this new era on returns of capital that don't seem to be kind of peeling back to the old way of looking at Well, this is Jason. Yeah, I can.
John Macalister Royall: One lane.
John Macalister Royall: <unk> start up and so that's going to bring.
John Macalister Royall: Yes, which is mostly men mixing I think that'd be really happy broadcom and a lower.
John Macalister Royall: <unk> in the middle.
John Macalister Royall: So when that happens when your system be able to corn, which all your.
John Macalister Royall: Appliances can you assist them convert all your FTE will take in the medium to using it.
John Macalister Royall: <unk> combines the PUC.
John Macalister Royall: Yes.
John Macalister Royall: Some light barrel or that is not simple and also with that the industry will be able to eliminate.
Jason W. Fraser: Well, this is Jason. Yeah, I can. I can take a stab at that. I mean, we do think about that. And really, we ask you to look more at our actions rather than that statement because we've been above it most of the time over the past several years. But we also view that more as a long-term indication through the cycle. I know we talk about sometimes that's a target, and it is, but we don't see any problem with being above it over a consistent period of time. And you should expect us to kind of behave, as you said in the last couple of quarters, is how we're going to behave with regard to cash. Fair enough, thank you.
John Macalister Royall: Eliminate or their imports.
Jason W. Fraser: The heavy barrel.
Jason W. Fraser: Net and more of them.
Jason W. Fraser: We're pacing that might stop.
Jason W. Fraser: Yes.
Speaker Change: That's the first question.
Jason W. Fraser: Yes, Paul This is Gary I think what we anticipate there is a lot of coking capacity on the West Coast I'll just use our benicia refinery as an example, you know benicia was really designed to run and we think with the barrels that are coming off <unk>, both the heavies and the lights youll be able to blend those together to form something that looks at.
Jason W. Fraser: Like <unk> and we would expect most west coast refiners will be just doing something similar to that.
Jason W. Fraser: Okay.
Speaker Change: And second question that Gary can you give us some.
Jason W. Fraser: Maybe youll Cutler is that what you're seeing in the Mexico Mexican market for both gasoline and diesel.
Operator: Thank you. The next question is coming from...
Operator: Hey, Donna, are you still there? I'm sorry. Yes, I'm sorry. The next question is coming from Joe Latch of Morgan Stanley. Please go ahead.
Speaker Change: Yes, so our sales in Mexico have been consistent with historic levels were selling just over 100000 barrels a day, we expect demand in Mexico remains very strong.
Joseph Gregory Laetsch: Hey, all, good morning, and thanks for taking my questions and congrats on a strong quarter. So I wanted to go back to the staff.
Speaker Change: We would expect to see that kind of ramp up later this year, when we get our marine terminal in Altamira up and running that'll.
Joseph Gregory Laetsch: That will make us more competitive in the north and allow us to continue to grow volumes in Mexico.
Joseph Gregory Laetsch: Are you seeing enough demand from customers to potentially support an additional project? And then, if so, would this potential announcement come after the first facility is online? Just trying to think about timing overall.
Joseph Gregory Laetsch: Hey, Gary do you have a spot number you can share.
Joseph Gregory Laetsch: Excellent first quarter.
Speaker Change: Yes, yes.
Speaker Change: Thanks, Bob.
Speaker Change: Yes, so we did a 103000 barrels a day of gasoline exports. We did 153000 barrels of diesel exports and 25000 barrels a day of jet exports. The diesel number on the first quarter was down year over year quarter over quarter, and I wouldn't read that as lack of demand that was really a result of the <unk>.
Unknown Executive: Yeah, I think what we're seeing in terms of commercial interest exceeds our current capacity with the first project. As we've said, we're doing engineering on the second project. In terms of timing, for us, that's always an issue that we're not going to talk about until we've decided internally to commit to that.
Unknown Executive: <unk> turnaround activity and just we didn't have barrels available for export.
Speaker Change: Thank you.
Unknown Executive: Thank you. The next question is coming from Matthew Blair of Tudor Pickering Holt. Please go ahead.
Speaker Change: Hey, good morning could you talk about your M&A appetite for refining assets I think it's been about a decade. Since you did a major deal has anything changed regarding your overall outlook on M&A.
Unknown Executive: But what I'd say from a macro view, the units are cookie cutters of each other. The project is nearly identical. The execution time, and all of that is going to be very similar. So it's not a technically challenging project or something that would be difficult to fund. It's a question of how we see this market developing, and when we decide to commit internally, is when we would say something external.
Unknown Executive: Hi, This is lane and not really I mean, we always look at everything I mean, if you look at the <unk> prompt sort of big deal its out there.
Unknown Executive: Disorder.
Speaker Change: Corporation decided not to engage in that.
Unknown Executive: If for whatever reason whoever the successful buyer if they can.
Joseph Gregory Laetsch: Gary or Ling. TMX starts up, and so that's going to bring the WCS, which is mostly the man-mix in ethical heavy oil with really heavy bottom and a lot of light barrel but no middle. So when that happens, will your system be able to convert all your, if the price is right, can your system convert all your heavy intake and the medium intake into using some form of combination of WCS plus some light barrel, or is that not as simple, and also whether the industry will be able to eliminate all their imports from the heavy barrel from say NetM or from the middle use with pacing like WCS?
Unknown Executive: Sort of everything.
Joseph Gregory Laetsch: Once to liquidate some of the assets, we'll certainly look at them at that time in terms of philosophy, we look at everything but we also as a company because we have been so much bye.
Joseph Gregory Laetsch: Buying refineries emerging in acquiring we understand the full cost to make the refinery run it certainly at the level that we expect and so.
Joseph Gregory Laetsch: When we have that goes into the through our valuation models.
Speaker Change: Sounds good I'll leave it there thanks.
Joseph Gregory Laetsch: Thank you. The next question is coming from Jason <unk> of TD Cowen. Please go ahead.
Speaker Change: Hey, good morning.
Joseph Gregory Laetsch: Two market based questions.
Speaker Change: First just wanted to get a sense of what youre seeing on the west coast as we move into the summer.
Joseph Gregory Laetsch: Now that another asset will be permanently shut down there.
Gary K. Simmons: Okay, and second question: Gary, can you give us some, maybe, your cut list of what you see in the Mexican market for both gasoline and diesel?
Joseph Gregory Laetsch: Are you seeing ratable.
Gary K. Simmons: Exports coming from overseas.
Gary K. Simmons: <unk> wise into that market.
Gary K. Simmons: Or do you expect kind of heightened volatility.
Gary K. Simmons: Yeah, so our sales in Mexico have been consistent with historic levels. We're selling just over 100,000 barrels a day. We expect demand in Mexico to remain very strong. We would expect to see that kind of ramp-up later this year when we get our marine terminal in Altamira up and running. You know, that'll make us more competitive in the north and allow us to continue to grow volumes in Mexico.
Gary K. Simmons: And elevated prices there.
Gary K. Simmons: Yeah. So this is Gary I would tell you.
Gary K. Simmons: First quarter, we saw a little lower demand at least in our system in California for gasoline, which I think was related to weather we've.
Gary K. Simmons: We've seen demand kind of returned to normal patterns and it's very difficult to just speculate and put barrels on the water. It important to California market. So we don't think a lot of people are doing that and you need to see the market react before you would go ahead put barrels on the water for import into California. So we think there will be a lot of <unk>.
Lane Riggs: This is Lane. Not really. We always look at everything. I mean, if you look at the most recent sort of big deal that's out there at CITCO, we've sort of got it.
Unknown Caller: Hey morning. I had two market-based questions. The first was just wanted to get a sense of what you're seeing on the West Coast as we move into the summer. Now that another asset will be permanently shut down there, are you seeing rateable exports coming from overseas product wise into that market? Or do you expect kind of heightened volatility and elevator prices there?
Lane Riggs: <unk> and it really is all dependent on how refineries on the west coast run throughout the driving season.
Unknown Caller: Got it and then my second question, just going back to the commentary around the global lightening crude slate and you had previously you made a comment that crude gravity over the past few years has gone up.
Unknown Caller: Three to four points and Thats may be reduced.
Unknown Caller: Global capacity available by three to four percentage points.
Gary K. Simmons: Yeah, so this is Gary. I would tell you, you know, in the first quarter, we saw a little lower demand, at least in our system, in California, for gasoline, which I think was related to weather. We've seen demand kind of return to normal patterns, and it's very difficult to just speculate and put barrels on the water to import the California market. So we don't think a lot of people are doing that, and you need to see the market react before you would go ahead and put barrels of water on the market for import into California. So we think there will be a lot of volatility, and it really is all dependent on how refineries on the West Coast run throughout the driving season.
Speaker Change: Can you just comment on on on that.
Gary K. Simmons: Dynamic.
Speaker Change: I don't know that I can quantify that.
Gary K. Simmons: Certainly that is our view that as the crude gravity goes higher.
Gary K. Simmons: There's a lot of refining capacity around the world that was designed for a heavier gravity crude diet. It causes some day rate crude units, but quantifying it I don't know that I can do that I don't know Greg if you have.
Speaker Change: I don't have any rules of thumb either.
Speaker Change: Okay I'll leave it there thanks.
Speaker Change: Thank you at this time I would like to turn the floor back over to Mr. <unk> for closing comments.
Donna: Thank you, Donna. I appreciate everyone joining us. Obviously, please feel free to contact the IR team if you have any follow-up questions. Thank you, everyone, and have a great day.
Speaker Change: Thank you Donna I appreciate everyone. Joining us obviously, please feel free to contact the IR team. If you have any follow up questions. Thank you, everyone and have a great day.
Speaker Change: Ladies and gentlemen, thank you for your participation. This concludes today's event you may disconnect. Your lines at this time or log off the webcast and enjoy the rest of your day.
Donna: [music].
Donna: Okay.
Donna: [music].
Donna: Okay.