Q4 2024 Valero Energy Corp Earnings Call
Greetings and welcome to Valero Energy Corp. 4th Quarter 2024 Earnings Conference Call.
At this time, all participants are on a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone requires operator assistance during the conference, please press star 0 on your telephone keypad. As a reminder, this conference is being recorded.
Speaker Change: It is now my pleasure to introduce your host, Homer Bhullar, Vice President of Investor Relations and Finance. Thank you. You may begin.
Homer Bhullar: Good morning, everyone, and welcome to Valero Energy Corporation's fourth quarter 2024 earnings conference call.
Speaker Change: With me today are Lane Riggs, our Chairman, CEO, and President, Jason Frazier, our Executive Vice President and CFO, Gary Simmons, our Executive Vice President and COO, and several other members of Valero's Senior Management Team.
Speaker Change: If you have not received the earnings release and would like a copy, you can find one on our website at InvestorVolero.com.
Speaker Change: I would now like to direct your attention to the forward-looking statement disclaimer contained in the press release. In summary, it says that statements in the press release and on this conference call that state the company's or management's expectations or predictions of the future are forward-looking statements intended to be covered by the safe harbor provisions under federal securities laws.
Speaker Change: 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.
Now I'll turn the call over to Lane for
Lane Riggs: Thank you, Homer, and good morning, everyone. I would like to start by highlighting some of our team's accomplishments last year.
Lane Riggs: 2024 was our best year for personnel and process safety and one of our best years for environmental performance. Safe and reliable operations drive overall performance and disciplined operations.
Lane Riggs: In refining, we process a record volume of heavy sour crude in the fourth quarter. This demonstrates our refining system's flexibility and highlights the capability of our commercial and operations teams to be able to secure and process the most economic crude oils.
Lane Riggs: Finally, we set a record for ethanol production with the expansion of the Charles City plant and process optimization at other sites.
Lane Riggs: Our team's relentless focus on operational excellence and low-cost operations enabled us to deliver positive results in the fourth quarter in an otherwise weak margin environment. On the strategic front, we continue to deliver on our commitment to grow Valero's earnings capacity through organic investments.
Lane Riggs: The DGD sustainable aviation fuel project was successfully started up in the fourth quarter and is now fully operational.
Lane Riggs: Looking ahead, we are progressing with an SEC unit optimization project at St. Charles that will enable the refinery to increase the yield of high-value products.
Lane Riggs: including high-octane outlet. The project is estimated to cost $230 million and expected to start up in 2026. And we continue to pursue other short cycle high return optimization projects around our existing refining assets.
Lane Riggs: On the financial side, we continue to honor our commitment to shareholder returns with a strong payout ratio of 78% for the year. And earlier this month, our board approved a 6% increase in the quarterly cash dividend, further demonstrating our strong financial position.
Lane Riggs: Looking ahead, refining margins should be supported by low-light product inventories ahead of the driving season. In the longer term, we still expect product demand to exceed supply with the announced refinery shutdowns this year and the limited capacity additions beyond 2025, supporting long-term refining fundamentals.
So with that, Homer, I'll hand it back to you.
Homer Bhullar: Thanks, Lane. For the fourth quarter of 2024, net income attributable to Valero stockholders was 281 million or 88 cents per share compared to 1.2 billion or $3.55 per share for the fourth quarter of 2023.
Homer Bhullar: Excluding the adjustments in the earnings release tables, adjusted net income attributable to Valero stockholders was $207 million or 64 cents per share for the fourth quarter of 2024.
Homer Bhullar: compared to $1.2 billion or $3.57 per share for the fourth quarter of 2023.
Homer Bhullar: For 2024, net income attributable to Valero stockholders was $2.8 billion or $8.58 per share compared to $8.8 billion or $24.92 per share in 2023.
Homer Bhullar: 2024 adjusted net income attributable to Valero stockholders was $2.7 billion or $8.48 for share compared to $8.9 billion or $24.96 for share in 2023.
Homer Bhullar: The refining segment reported $437 million of operating income for the fourth quarter of 2024 compared to $1.6 billion for the fourth quarter of 2023.
Homer Bhullar: Refining throughput volumes in the fourth quarter of 2024 averaged 3 million barrels per day or 94% throughput capacity utilization.
Homer Bhullar: Refining cash operating expenses were $4.67 per barrel in the fourth quarter of 2024.
Homer Bhullar: Renewable diesel segment operating income was $170 million for the fourth quarter of 2024 compared to $84 million for the fourth quarter of 2023. Renewable diesel sales volumes averaged 3.4 million gallons per day in the fourth quarter of 2024.
Homer Bhullar: The ethanol segment reported $20 million of operating income for the fourth quarter of 2024, compared to $190 million for the fourth quarter of 2023.
Homer Bhullar: Ethanol production volumes averaged 4.6 million gallons per day in the fourth quarter of 2024.
Homer Bhullar: Depreciation and amortization expense was $698 million, net interest expense was $135 million, and income tax benefit was $34 million for the fourth quarter of 2024. The effective tax rate was 19% for 2024.
Homer Bhullar: Net cash provided by operating activities was 1.1 billion in the fourth quarter of 2024.
Homer Bhullar: Included in this amount was $119 million of adjusted net cash provided by operating activities associated with the other joint venture member share of DGD. Excluding this item, adjusted net cash provided by operating activities was $951 million in the fourth quarter of 2024.
Homer Bhullar: Net cash provided by operating activities in 2024 was $6.7 billion. Included in this amount was a $795 million favorable change in working capital and $371 million of adjusted net cash provided by operating activities associated with the other joint venture member share of DGD.
Homer Bhullar: Regarding investing activities, we made 547 million of capital investments in the fourth quarter of 2024, of which 452 million was for sustaining the business, including costs for turnarounds, catalysts, and regulatory compliance, and the balance was for growing the business.
Homer Bhullar: In fact, since the start of 2021, our total cash flow from operations have exceeded our total uses of cash over this period, including capital investments.
Homer Bhullar: Through share repurchases, we reduced our share count by approximately 6% in 2024 and by 23% since year-end 2021.
Homer Bhullar: With respect to our balance sheet, we ended the quarter with $8.1 billion of total debt, $2.4 billion of finance lease obligations, and $4.7 billion of cash and cash equivalents.
Homer Bhullar: debt-to-capitalization ratio net of cash and cash equivalents was 17% as of December 31st 2024 and we ended the quarter well capitalized with 5.3 billion of available liquidity excluding cash
Homer Bhullar: Turning to guidance, we expect capital investments attributable to Valero for 2025 to be approximately $2 billion, which includes expenditures for turnarounds, catalysts, regulatory compliance, and joint venture investments. About $1.6 billion of that is allocated to sustaining the business and the balance to growth.
Homer Bhullar: For modeling our first quarter operations, we expect refining throughput volumes to fall within the following ranges.
Gulf Coast at 1.72 to 1.77 million barrels per day.
Homer Bhullar: Mid-continent at 415,000 to 435,000 barrels per day. West Coast at 190,000 to 210,000 barrels per day. And North Atlantic at 455,000 to 475,000 barrels per day.
Homer Bhullar: We expect refining cash operating expenses in the first quarter to be approximately $4.95 per barrel.
Homer Bhullar: With respect to the renewable diesel segment, we expect sales volumes to be approximately 1.2 billion gallons in 2025.
Homer Bhullar: Operating expenses in 2025 should be 51 cents per gallon, which includes 22 cents per gallon for non-cash costs such as depreciation and amortization.
Homer Bhullar: Our ethanol segment is expected to produce 4.6 million gallons per day in the first quarter. Operating expenses should average 41 cents per gallon which includes 5 cents per gallon for non-cash costs such as depreciation and amortization.
Homer Bhullar: For 2025, we expect G&A expenses to be approximately $985 million.
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.
Homer Bhullar: Thank you. The floor is now open for questions. If you would like to ask a question, please press star 1 on your telephone keypad at this time.
Homer Bhullar: 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 keys. Again, that's star 1 to register a question at this time.
Speaker Change: Today's first question is coming from John Royal of J.P. Morgan. Please go ahead.
John Royal: Hi, good morning, thanks for taking my question. So my first question is maybe to Gary just broadly on market color. You've always given us
John Royal: A good view of the fundamental picture in the sector. How do you view the supply-demand balances today for products and the outlook for cracks for this year? And what do you think are the key things we should look out for in terms of, you know, just any early indicators of when this market might turn back up?
John Royal: Yeah John, you know it's always difficult to get much of a read on the market this early. I'll tell you that we typically see our
John Royal: goes through the first couple of weeks of the year, then starts to recover.
John Royal: million barrels a day level that we typically see. I think yesterday we did 1,040,000 barrels a day.
John Royal: Gasoline sales in our system year-to-date are slightly down year-over-year. I think when you look at the concentration of our marketing, this makes sense. You know, the snow in the south and southeast kept people off the road.
John Royal: And then the Colonial Pipeline outage limited our volumes we had available to sell in some markets. For that window, the pipeline was down.
John Royal: Our current 7-day average data shows gasoline sales up 2% year-over-year. Overall, what we can see is gasoline demand looks good, and we expect gasoline demand in the United States to be fairly flat to last year. Diesel sales, year-to-date in our system, are also off a few percent.
John Royal: This was a little more surprising to me, mainly because of the cold weather that we've seen.
John Royal: But I think if you look into the data a little bit more, it makes sense. You know, we had about 10,000 barrels a day of renewable diesel from Port Arthur that was going to our wholesale channel that we were selling. That material is now going to produce sustainable aviation fuel.
John Royal: So that's a chunk in the year-over-year decline in diesel sales. In addition to that, we saw the same dynamic on diesel with some of the snow impacting on-road diesel demand. And then I think if you look at Valero, we don't have a big marketing presence in the markets where you see high heating oil demand.
John Royal: We don't really see that big uplift from the cold weather that you may see. We definitely get that on the bulk side, but not through wholesale. Seven-day average shows diesel sales are up about 1%, and that's kind of what we expect for the year, about a 1% increase in diesel demand in the United States.
John Royal: Most consultants I've read are showing about a 250,000 barrel a day increase in diesel demand just due to cold weather in the North Atlantic Basin.
John Royal: Not only do we expect diesel demand to be better, but we expect a greater percentage of that to be supplied by refinery-derived diesel. You know, last year we had the big wave of bio and renewable diesel projects hitting the market. We don't see that same dynamic this year.
John Royal: I think overall, things are shaping up pretty nicely. You know, we're at total light product inventory, 9 million, 10 million barrels below where we were last year at this time, so inventory's in good place. I think at the beginning of the year, the supply-demand balances look similar to last year, but as you progress through the year, you'll see gradual tightening of supply-demand balances.
Jason Frazier: Morning John, this is Jason. I'm going to ask Homer to give you a little more detail on that.
Jason Frazier: We would have built almost $1.7 billion of cash for the year. Even if you excluded the $795 million of positive impact for working capital for the year,
Jason Frazier: Even if you look at the low-margin environment in the fourth quarter, we still would have been able to honor our minimum payout commitment of 40 to 50 percent without leaning into the balance sheet or drawing down cash. So hopefully this gives you some context.
Jason Frazier: of the earnings capacity of the portfolio, even in a low-margin environment, and our ability to invest capital, obviously honor our shareholder commitment and flexibility with debt in our balance sheet.
Thank you.
Speaker Change: Thank you. The next question is coming from Doug Leggett of Wolf Research. Please go ahead.
Speaker Change: Well thank you, thanks guys. I think Gary might be the most popular man on the call today, Lane. I apologize, but there's obviously a lot going on. It's okay with me, Doug. So I'm going to try just a couple, someone's got to do it. I'm going to try a couple of high-level ones if I may. The headlines I saw just a couple of hours ago
Speaker Change: was that Trump is still going to go ahead with Parish on Canada and
Speaker Change: with Heavy Old Supply at Canada. There was a second order effect that everyone seems to have forgotten about and I wanted to run this past you and just get your perspective on it and that is that
Speaker Change: And I wanted to see if you guys thought there was any sense to that in the context, if it actually became a thing as it relates to the substitution of lighter crudes for the heavy grains. What would you guys do?
Speaker Change: Yeah, so Doug, this is Gary, and I can tell you we've been aware of this for a couple of months, and so our commercial teams and optimization teams have been working hard to develop every possible scenario we can think of and how we would respond to that.
Speaker Change: and where we also like our feedstock flexibility. But yes, there is a point where if heavy feedstocks become limited, it affects rate.
Speaker Change: and production of clean products, certainly from our assets, and we'd expect industry-wide.
Speaker Change: Assuming this is transitory, it's not a big deal, but if it did drag on for an extended period of time, particularly as we switch into summer grade, could it be meaningful or is that a rounding error?
Speaker Change: All right. I want to start, you know, meaningful enough when you're...
Speaker Change: So, obviously everyone's focused on, whether it's Das Bocas or Lyondell Closing or Grangemouth or whatever it happens to be.
But it seems to me that, coming out of COVID,
and the concentration of great maintenance meant everybody ran well.
Speaker Change: given the backdrop we've had and the fact that we're down 10% in the last three weeks in utilization.
Speaker Change: at higher utilization rates, and when you have run cuts, they occur elsewhere in the world where they don't have the natural resources advantages that we have.
Speaker Change: I think I was thinking more about the reliability aspect as opposed to the cost advantage aspect.
Speaker Change: Yeah, and I'm sure, you know, we've certainly seen an improvement in our system on mechanical availability, and I suspect our peers have as well, and it's something we always strive to get better and better at.
Speaker Change: All right guys, sorry for the high level questions but I've had my two so I'll leave it there. Thanks so much.
Thank you.
Speaker Change: Thank you. The next question is coming from Neil Maida of Goldman Sachs. Please go ahead.
Speaker Change: Yeah, this is Eric. I think there was a one-time benefit with some inventory optimization at the end of the year that was the bulk of that higher-than-expected performance.
Speaker Change: There is a little bit of sap in that, but I would...
optimization we did at the end of the year.
Speaker Change: All of that is advantageous to Diamond Green Diesel and our platform because, like the refining platform, our feedstock flexibility, our ability to export to any of the other markets.
Speaker Change: We do also expect you're going to see some correction in production that will eventually start to pull those credit banks down throughout the year.
Speaker Change: to run over 600,000 barrels a day of heavy sour oil. So can you just talk about how you were able to do that and the commercial approach to maximizing heavy in a time when fuel oil is pretty tight?
Speaker Change: which continued to show some good value. So that's why you see that shift towards more heavy sour crude. You'll also notice a reduction on the heavy resid feed stocks that we've processed as well.
Speaker Change: And that's kind of how we got to the high level of heavy crude processing. Also keep in mind, you know, we've got the Port Arthur-Cokeron line that shifts us to a bit of a heavier feed slate as well, so that's part of what you see in that number as well.
Would you like to move on to the next question?
Yes, please.
Speaker Change: Thank you. The next question is coming from Theresa Chen of Barclays. Please go ahead.
Speaker Change: But as we think about the tariff on Canada, Mexico, incremental sanctions, potentially on Venezuela, how are you thinking about life-heavy differentials as we move through the year?
Speaker Change: Yeah, Theresa, this is Gary. I think, you know, I'll start with kind of fundamentals, but then cut to really what's driving the market. And certainly on the fundamental side, typically this time of year you see less buying of medium and heavy sours just due to turnaround activity. In addition to that, Lyondell coming down, you know, puts another 200,000 barrels a day of heavy on the market.
Speaker Change: You know, calls for OPEC crude, second quarter 2025, 180,000 barrels a day of medium sour crude. So all those things.
Speaker Change: would be supportive of wider quality differentials. But in reality, the discussions on sanctions and tariffs are really what's driving the market. And until we see some resolution to that, I don't expect any meaningful moves in the quality differentials.
Speaker Change: Understood, and related to the St. Charles FCC project, would you be able to provide a little bit more color on this, what the optimization means in terms of incremental improvement in the yield of high value products?
Speaker Change: the production of light olefin product out of the FCC and what that really means is that's additional feedstock we can use to fill the alkylation capacity we have downstream of the FCC there. You might remember we started up a C5 alkylation unit at St. Charles back in late 2020.
Speaker Change: We've got some spare capacity in the alky, and with this project, you will increase high-octane alkylate production by something on the order of 6,000 to 7,000 barrels a day.
Speaker Change: That's one of the key outcomes and things that drive the value. It's really a good example of identifying some key equipment constraints within the operation that when we modify those.
Speaker Change: Those constraints of that equipment it allows us to take full advantage of the capability not only of the SEC unit in this case but Other equipment and other units in the refinery and again in this case the alky and that's how we generate a good return from the project
Thank you very much.
Speaker Change: Thank you. The next question is coming from Manav Gupta of UBS. Please go ahead.
Good morning. I wanted some additional it put in this.
Speaker Change: That gives us a bit of a bump in capture as that adds value into the gasoline pool.
Speaker Change: In both those regions as well, you had good contributions from the wholesale side of the business, the commercial part, so we saw some benefit from that.
Speaker Change: On the Gulf Coast, the other notable item would really be
Speaker Change: If you look at Maya relative to the Canadian grades that we used for the benchmark, Maya was a bit more discounted, certainly when you look at it quarter over quarter, and so that helped to improve the crude costs that we saw for the heavy crudes into the Gulf Coast.
Speaker Change: A quick follow-up here is, we are seeing a very strong diesel margin and slightly weaker gasoline, and I know Valero can move the yield around a lot, so are you already operating in max diesel mode, or how much more can you swing the yield more towards diesel, or do you think this is very temporary, like once you come February and March, the gasoline demand will improve and the cracks will start to balance out each other?
Speaker Change: This is Greg. We are definitely in max diesel mode. As you mentioned, the cracks would drive us in that direction. We'll see as we get into gasoline season whether the gas crack shifts enough to push us the other way.
Thank you for taking my questions.
Speaker Change: Thank you. The next question is coming from Paul Sankey of Sankey Research. Please go ahead.
Speaker Change: the major new Nigerian refinery There's been a lot of action in the dollar versus the euro
for the coming year. Thanks a lot. Tough question.
Speaker Change: offering out the fuel or the resid that we were buying from them, we also see less imports of gasoline into West Africa, which is all consistent with Dangote continuing to ramp up. With that though, however, you know what we've seen is that generally tends to impact Europe more than it does the U.S.
Speaker Change: gasoline that was going to West Africa gets backed into Europe. We haven't really seen much of an impact from that.
Speaker Change: You know, we're already seeing an open ARB to export back from the U.S. to Europe. So nothing too abnormal on trade flows. I think, by and large, what you've seen is that
Speaker Change: The Dangote start-up in the North Atlantic Basin has been largely offset with Lyondell coming down and Grangemouth coming down, and they're kind of counterbalancing each other and keeping trade flows about what we've seen historically.
Speaker Change: That's brilliant, thanks very much. And just if I could follow up, thinking about the reality of tariffs, could you describe maybe a situation of how they would work? I mean, what happens? Do you just suddenly have to start paying it overnight, or how does it work? If you've got any ideas, I'd be grateful. Thanks.
Speaker Change: You know, without having really any clarity on what's going to happen, there's no reason for us, there's no way we can really speculate on how we deal with it. We're just going to have to deal with it.
Speaker Change: Depending on what you know how that refiner is configured and what their alternatives are and then we'll just have to see how long it lasts, you know, so
Speaker Change: Got it. Have there been examples of it happening in the past that you can think of where you suddenly have to pay 25% more for a given crew?
No, and I've been around a long time.
Speaker Change: Thank you. The next question is coming from Roger Reed of Wells Fargo. Please go ahead.
Roger Reed: All right, Lane, I'm still chuckling from you've been around a long time answer there.
Roger Reed: crude availability, let's leave the tariff thing aside, and maybe how that's playing out along the Gulf Coast.
Roger Reed: Yeah, so I think the only thing we can see is, you know, you've definitely seen the dynamic in the market of Lyondell stopping to buy, you know, and they were buying a lot of, especially a lot of Canadian. And so we've seen more of those barrels become available to us as they backed off the market.
Roger Reed: Does that materially change price or is it just an availability question? It's so difficult to tell because it's been, you know, going along at the same time with all these tariffs and sanctions discussions. So it's kind of those discussions have muted any market impact there would be of Lyondell pushing the barrels back so far.
Roger Reed: on a year-over-year change of U.S. inventories, whether you look at crude alone or crude plus products or just products, all are down year-over-year, a little more severe on the crude side than on the product side, but it would imply a lot of tightness.
Roger Reed: And if you can't, I say if you can't, if the industry cannot maintain these levels of utilization, it would imply either much lower inventories or lower exports, but is there anything I'm missing in that general thought process?
Roger Reed: Similar supply-demand balance as the last year and gradually tightening is the fact that the industry at a high actual utilization is going to go up to meet demand.
Roger Reed: Especially on the diesel side, we're within 10% on inventory of where we were in 2023. In 2023, we had a $45 diesel crack versus where it is today. I mean, the inventory position is not significantly different, yet the margin environment is fairly significantly different, and it can change in a hurry.
Appreciate that. Thank you
Roger Reed: Thank you. The next question is coming from Ryan Todd of Piper Sandler. Please go ahead.
Speaker Change: Thanks. Maybe a couple follow-ups on the battlefield side. I mean, you talked some about your, like, the broader 2025 outlook with all the moving pieces there. As we think about the early part of this year, like first quarter in particular, BTC goes away December 31st.
Speaker Change: You know, a risk that economics kind of fall off the table in the first quarter as this stuff gets sorted before it reaches kind of a better equilibrium later on in the year.
Speaker Change: Yeah I think if you look at the conversion of the BTC where everyone got a dollar to now this carbon intensity based
Speaker Change: Credit, you know, we've run the U.S. Greek model that was just released. You know, for veg oils, it's zero for canola oil. It's 16 cents for soybean oil. And waste oils are in the 50 to 60 cents per gallon range.
Speaker Change: At the end of the day, that is all less than a dollar, so if you needed that dollar to break even and now you're getting 16 cents, it's a fairly negative margin environment for non-waste oils. I think everyone can see that. I think there's growing recognition that this is...
Speaker Change: It's going to be very difficult to see a lot of the biodiesel side and the veg oil side operate at these lower incentives. How that plays out in terms of
Speaker Change: as you go through the first quarter and see some of these early reports coming in on what are we seeing in terms of generation of credits. Again, I think being a waste oil unit on the Gulf Coast, we're the most advantaged in terms of generating credits.
Speaker Change: How we can react to these things and it's still mostly favors waste oils, which is what our platform is based on So I think we're still in a good position versus our Competitors it's just but there's no doubt overall. There's lower incentive for all of this in in this PTC world
Speaker Change: and how you think about the contribution of SAC economics here in 2025?
Speaker Change: Yeah, so I, you know, Wayne mentioned this in his opening comments. The project started up in the fourth quarter. Again, credit to our project team on finishing ahead of schedule and under budget. We had a flawless startup. It started up on spec.
Speaker Change: We spent most of the time in the fourth quarter doing test runs and initial fills on tanks, but throughout all our test run trials, we showed a very wide range of operability, all of which...
Speaker Change: Traceability and accreditation flow all the way from production to neat staff to blended staff to delivery to final customer. And so we spent a lot of time in the fourth quarter just sort of proving the system out.
Speaker Change: that we've set up with the original project. But if you look at, say, the Argus market in the EU and the UK, right now you see HBO at or better than SAF. So we have flexibility.
Speaker Change: to make either barrel into the European market. And so really what we're doing now is just tuning that optimization as we see SAF customers really starting up in the first quarter because of the 2% mandate that you see in the EU and UK.
Great, thank you.
Speaker Change: Thank you. The next question is coming from Paul Chang of Scotiabank. Please go ahead.
Hey guys, good morning.
Good morning.
I want to go back to Karen.
Speaker Change: In your gross margin, the BTC is also that you will drop by a dollar per gallon, but you're not going to record any benefit or that you will...
Speaker Change: put some kind of provisional and think that it would just come through.
Speaker Change: And also whether that you can share how much is the fourth quarter.
Speaker Change: inventory benefit or optimization benefit that you are referring to earlier.
That's the first question.
Speaker Change: The same question, maybe for Ling. U.S. natural gas price looks like it's going to be higher. So if we look at your system...
Speaker Change: difficult and will be too expensive if you're trying to have any meaningful reduction in the energy cost from the current level.
Speaker Change: Okay, so I'll start on the margin indicator. We had the same discussion that our margin indicator still includes the dollar BTC in the calculation.
One of the challenges in this...
base, that will vary with our feedstock slate.
And so, we haven't had enough run time.
Speaker Change: because we can think of scenarios where certain feedstocks get very cheap that might have a higher CI, or we'll continue to see the incentive to run the lowest CI feedstocks, and those will obviously have higher benefits in the PTC. So it's a little hard to nail down the...
Speaker Change: the how we want to adjust the margin indicator. So our decision, we're going to keep it the same for now until we see a little more development on how we're going to be running in this new
policy environment.
Speaker Change: Do some provisional estimate of what your DGD results should be under the PTC as you understand.
Lane Riggs: Hey Paul, this is Lane. The way we do our financials, particularly on that side, it's really on the act. There won't be a provisional, like, hey, we think the PTC benefit's going to ultimately be this. If we don't have clear policy in the first quarter, it'll be whatever it is.
Speaker Change: Okay, so we will just take out the PTC benefit but not including any estimate for the PTC for you guys.
Correct.
Speaker Change: Okay and how about in terms of, Eric can you share what is the inventory benefit in the fourth quarter?
Speaker Change: You know, I don't think we're going to give that level of detail out but it was it was just an end-of-year optimization that we did at both units.
All right, so how about Ling about the
Speaker Change: Hey, I'm going to at least initially pitch this over to Greg. Go ahead, Greg. Hey, Paul. So, you know, with low energy costs and a lot of that meaning low natural gas and low cost for power for our plants in North America.
Speaker Change: You don't see a lot of incentive to try to do a project to further reduce your energy consumption. There's just not a lot of opportunity there from a value standpoint.
Speaker Change: We do see opportunities in Pembroke. We've done some things at the refinery there.
Speaker Change: to improve energy efficiency because their costs are quite a bit higher. So I would say, in general, that's...
Speaker Change: Unless you see a marked change in the cost of natural gas or power, it's going to be hard to justify some kind of an improvement project. Always trying to be as efficient as we can be in the base operations. There's no change there, but in terms of some kind of investment to make a step change.
That's hard to do in the curtain environment.
Okay, thank you.
Speaker Change: Thank you. The next question is coming from Joe Latsch of Morgan Stanley. Please go ahead.
Joe Latsch: Great, thanks. Good morning, everyone. Thanks for taking my questions. So I wanted to ask a couple on the quarter. From our standpoint, it looked like the mid-con came in stronger on throughput and capture, while the West Coast remained a bit weaker, which I think was driven in part by maintenance.
Speaker Change: Could you just talk to any specific drivers during the quarter for the Mid-Colina West Coast in particular from a capture and throughput standpoint?
Yeah, Joe, this is Greg.
Speaker Change: West Coast is fairly simple and you hit on it. It was maintenance work primarily at Benicia that Impacted not so much throughput there, but it impacted
Speaker Change: the amount of transportation fuel we could make, and so that had an impact on the capture rate. In the mid-con, throughput was higher. We actually saw pretty good incentive to continue to maximize throughput there, good demand for products.
Speaker Change: and so we were able to push through a little bit higher than we had planned.
Speaker Change: And then on the capture side, one of the factors there, you saw crude market structure on WTI.
Less backward
Speaker Change: Great, thanks. That's helpful. And then I wanted to shift gears and ask about the the ethanol segment. So the indicator continues to grind to lower to start the year.
Speaker Change: Could you just talk to some of the puts and takes going on in the industry as well as your forward outlook? And then also the potential for year-round E15, which was included in the executive orders release last week. Thank you.
Speaker Change: The ethanol market has been challenged with high inventories and high production rates. I'll say surprisingly high production rates that have been sustained really for the third and fourth quarter and into the beginning this year. We have seen some weather related impacts.
Speaker Change: You know, as you know, we've continued to see E15 approved by emergency order every 20 days. We don't see a lot of E15 movements.
We don't see a lot of growth in that market.
Speaker Change: But overall, I mean, it's still something that certainly the ethanol and ag industry sees as a positive development for ethanol outlook.
Great. Thank you all.
Speaker Change: Thank you. The next question is coming from Matthew Blair of Tudor Pickering Holt. Please go ahead.
Matthew Blair: Good morning. Thanks for taking my question. Regarding the Canadian tariffs, you talked about some of the impacts on the crude side.
Speaker Change: How about the product side for Valero and especially in regards to your Quebec City plant?
Thank you.
Speaker Change: What kind of volumes does Quebec send to the New York Harbor and if there were tariffs imposed, you know, do you think it'd be pretty easy to ship those volumes to Latin America or Europe or would we expect to see lower operating rates at Quebec City? Thanks.
Speaker Change: One other impact is that RD from Foreign Yuko appears to no longer qualify for a credit. Is DGD a major importer of Foreign Yuko? And if so, how would you expect to replace those volumes?
Speaker Change: So the PTC doesn't really change what we were going to do strategically with that feedstock. And so that's our view, is we'll continue to run that into SAF, into the Europe and UK markets.
Great. Thank you.
Speaker Change: Thank you. The next question is coming from Jason Gabelman of TD Cowen. Please go ahead.
Yeah, hey morning. Thanks for taking my questions
Jason Gabelman: I wanted to ask first on the CapEx budget. I believe you said $1.6 billion of sustaining CapEx, which is about $300 million above the five-year average. It's the highest level since 2019. So I'm wondering if that is an indicator of above-average turnaround activity in your system for 2025, and if not, what's driving that higher sustaining spend?
Lane Riggs: Hey Jason, this is Lane. So if we nominally, we sort of talk about...
Jason Gabelman: our sustained capital in terms of sort of average, and so we average about, you know, we sort of think about it being $1.5 billion. That's inclusive, turnaround inclusive.
Jason Gabelman: of sort of, you know, CapEx for ongoing sort of sustaining operations and so if you sort of, and catalysts, so when you think in your mind, well if it's lumpy, if it gets lumpy on the higher side or the lower side, the only thing it can be is additional turnaround work.
Okay.
Speaker Change: Thanks, and my follow-up is just, sorry I'm going to ask another one on the Canadian tariffs. Valero, I believe, has a lot of its refineries...
Speaker Change: Do you think you would be able to, if the tariffs are implemented in a very direct way, you'd be able to sidestep those tariffs and also do you get any benefit now from operating in those foreign trade zones?
Speaker Change: Yeah, you know, this is Rich Walsh. You know, I would just say that you can't tell anything until you see what the program comes out with, right? You know, so it just depends on how this is all structured. So, you know, we also bring in a lot and export a lot. And so that's really what the Foreign Trade Zone helps with. And so I don't know that it's really trying to avoid domestic tariffs in any way along those lines. So, you know, until you see what they're proposing and how it's structured, you really can't tell whether there's going to be benefit or not.
Got it. Great. Thanks for the caller.
Speaker Change: Thank you. At this time I would like to turn the floor back over to Mr. Bhullar for closing comments.
Homer Bhullar: Thank you Donna. I appreciate everyone joining us today. Obviously feel free to contact the IR team if you have any additional questions. Have a great day everyone. Thank you.
Homer Bhullar: Ladies and gentlemen this concludes today's event. You may disconnect your lines or log off the webcast at this time and enjoy the rest of your day.