The operator introduces the Valero Energy Corp.'s Second Quarter 2024 Earnings Call and announces that a question-and-answer session will follow. Homer Bhullar, Vice President of Investor Relations and Finance, welcomes participants and introduces the CEO, President, CFO, COO, and other senior management team members. He directs attention to the forward-looking statement disclaimer and turns the call over to CEO Lane Riggs for opening remarks. Riggs reports strong financial results for the second quarter.

Valero's refineries performed well in the second quarter of 2024, with a 94% throughput capacity utilization and strong sales in the U.S. wholesale system. The company also saw good contributions from their renewable diesel and ethanol segments. Their growth projects are on track and they continue to pursue short-term projects to optimize their existing assets. Valero remains committed to shareholder returns, with a year-to-date payout of 80% and a recently announced quarterly cash dividend. Looking ahead, limited capacity additions beyond 2025 should support long-term refining fundamentals. Overall, Valero's strategy of operational excellence, disciplined growth, and commitment to shareholders has led to their success and positions them well for the future.

In the second quarter of 2024, Valero's Renewable Diesel segment had an operating income of $112 million, lower than the previous year due to lower sales volumes and margins. The Ethanol segment had an operating income of $105 million, with higher production volumes. G&A expenses were $203 million, net interest expense was $140 million, and depreciation and amortization expense was $696 million. Net cash provided by operating activities was $2.5 billion, with $789 million from a favorable change in working capital and $83 million from other joint ventures. The company made $420 million in capital investments, with $329 million for sustaining the business and $91 million for growth. Valero's share of capital investments was $360 million.

In the second quarter of 2024, the company returned $1.4 billion to stockholders, with a payout ratio of 87%. Year-to-date, they have returned $2.8 billion, exceeding their minimum commitment. The company ended the quarter with $8.4 billion of debt and $5.2 billion of cash. They expect capital investments of $2 billion for the year, with half allocated to low carbon fuels and half to refining projects. For the third quarter, they expect refining throughput volumes in a certain range and refining cash operating expenses of $4.70 per barrel. In 2024, they expect sales volumes of 1.2 billion gallons for the Renewable Diesel segment.

The company predicts that operating expenses in 2024 will be $0.45 per gallon, including non-cash costs. The Ethanol segment is expected to produce 4.6 million gallons per day in the third quarter with average operating expenses of $0.40 per gallon. Net interest expense is estimated to be $140 million, and total depreciation and amortization expense to be $690 million for the third quarter. G&A expenses for 2024 are expected to be $975 million. The company believes the U.S. economy is resilient and gasoline demand is stable, with a slight increase in demand for gasoline compared to the previous year.

The paragraph discusses the current state of diesel sales and demand in the U.S. and the North Atlantic Basin. While there has been a 10% increase in diesel sales in the company's system, overall diesel demand has declined due to weaker freight numbers and less demand from the upstream sector. This has been partially offset by an increase in jet demand. In the North Atlantic Basin, slowing economic activity has negatively impacted diesel demand, while an increase in refinery runs in the Middle East has led to an oversupply of product in Europe. Refinery margins have weakened as a result. The potential for a major weather event, such as a hurricane, could also impact refinery capacity.

The North Atlantic basin has seen an increase in refinery runs and a decrease in diesel demand, resulting in a restocking of light product inventory. As inventory levels approach the five-year average, margins are expected to return to a mid-cycle level. Recent data suggests that the market has reached a bottom, indicating a potentially bullish outlook for refining. In the third quarter, there may be lower utilization due to turnarounds, but demand is expected to pick up in the second half of the year. There are also no major new refining capacity additions, which could lead to bullish margins in the long-term. The company has had strong capital returns in the past quarter and will continue to consider buybacks and maintaining a strong balance sheet.

Homer Bhullar, Senior Vice President of ExxonMobil, explains that the company has been able to fund all of its cash needs, including capital investments, debt repayment, and shareholder returns, through cash flow from operations. With a strong balance sheet and current cash position, the company plans to continue leaning into share buybacks, with a payout ratio of 87% for the second quarter and 80% year-to-date. In response to a question about the global surplus of refinery additions, CEO Gary Simmons acknowledges the potential for increased economic activity and diesel demand, but also suggests that some closures may be necessary to balance the market.

The speaker discusses the impact of Dangote and [Despoc] on the market, as well as the potential closure of 600,000 barrels a day of refineries. They mention that this could tighten up supply-demand balances in the long term. The speaker also addresses the West Coast dynamics and notes that it is the highest cost region to operate in. They mention that it is a harder place to operate and could potentially see refinery closures.

The speaker discusses the recent decision by the Supreme Court to remove Chevron deference, which gave agencies complete deference in their interpretations of their own authority. They believe this will restore meaningful judicial review over the administrative state and could potentially impact policies related to CAFE standards and permit challenges for expansion projects.

The author discusses how judges are now required to use their own interpretation of statutes rather than deferring to agencies, leading to less agency overreach and political swings. This, combined with the major questions doctrine, puts policy back in the hands of Congress and has already affected ongoing litigations. The author mentions the administration's interpretation of mandating electrification of vehicles as an example of extreme interpretation that may not receive deference from the courts.

Roger Read asks Richard Walsh about the potential impact of upcoming legal cases on the refining industry. Walsh believes that changes will happen quicker than expected due to the number of cases already in progress. Ryan Todd asks about refining supply and demand, and Greg Bram explains that their throughput guidance considers planned maintenance activity and that they are optimizing their refineries in response to market conditions.

The speaker discusses the impact of planned maintenance on the global refining market and the potential for higher margins in the future. They also mention that some refineries are cutting production due to marginal economics. The next question is about the outlook for the Gulf Coast heavy sour differential, with OPEC expected to increase volumes and a major refinery closing down in 2025. The speaker believes that in the short-term, heavy sour differentials will widen.

A Mid-Continent refiner experienced a power outage which reduced the demand for Canadian heavy crude. This is expected to change in the third quarter due to turnaround activity and decreased demand. In order to see sustainable wider heavy sour differentials, more OPEC production needs to come back on the market, which is expected to happen late this year or early next year. Despite the current differentials, running heavy sour crudes in the second quarter resulted in a significant economic uplift. The company is not providing specific estimates for the uplift from their SAF unit completion, but it is expected to provide a margin stronger than RD due to premiums and various programs. The outlook for the project's economics is positive.

Gary Simmons, a representative from the company, explains that their wholesale team has been successful in growing their market share, partially due to refinery rationalization during the COVID period. Eric Fisher, another representative, discusses the uncertain outlook for renewable fuel economics, but notes that the RIN market still looks oversupplied and that they expect tailwinds for their company's platform in the next one to two years. They are also diversifying into SAF, which has a premium over RD.

The speaker discusses the potential transition from BTC to PTC on January 1 and how it may impact the market and biodiesel producers. They mention the relationship between BTC, PTC, and RIN and how it may affect the market. The next question asks about the impact of the TMX on the West Coast market and how it may have fully retracted in the past two months. They also ask about the impact of market normalization on the company's refining operations.

The speaker discusses the impact of the TMX start-up on ANS trading and September's performance relative to Brent. He also mentions that their focus remains on operational excellence and that they do not change their operations based on market conditions. The speaker then provides an update on their volumes to Mexico, stating that they were down in the second quarter but are expected to grow with the upcoming start-up of a new terminal.

The speaker is discussing the current state of the feedstock market for the company's refining division. They note that there is growing competition for waste oils and that domestic feedstocks are currently the most attractive from a cost standpoint. They also mention that feedstock prices have bottomed out in the second quarter and are starting to trend up in the third quarter due to new start-ups in California. The speaker is then asked about the coking market and they mention that they still see good value in coking margins, but do not expect any major changes going forward.

Gary and Neil discuss the current state of the oil market, with Gary mentioning the potential for increased value as more medium sour, heavy crude enters the market later in the year. They also touch on the softness in PADD 5 and Asian refining margins due to weaker Chinese demand. Jason asks about the consistent growth in the wholesale channel and Gary explains that it is due to positive netback for their Gulf Coast and U.S. systems.

The company's capture rates are expected to increase due to growth in the wholesale channel, with a 150,000 barrel per day increase in the last few years. Co-products were a headwind in the second quarter, but the exact amount is not known. There were some structural changes in the second quarter, including the seasonal RVP change in gasoline, which had a negative impact on margin capture.

In the second quarter, the crude market was in backwardation, resulting in a higher acquisition cost for crude. Opportunities to secure opportunity feedstocks were limited, which is unusual for the company. The recent uptick in ethanol margins is due to cheap natural gas and corn prices, and the upcoming harvest is expected to bring in another large inventory. The Summit carbon capture project is expected to start up soon, which will benefit the company's ethanol plants.

The speaker is positive about the outlook for ethanol for the rest of the year and into next year, but is unsure about the future beyond that. They mention a project with Summit and state that carbon sequestration is a supportive strategy for ethanol. However, they do not have much information about the project and will only connect to it once it is in place. The speaker thanks everyone for joining the call and invites them to contact the IR team for any further questions.

This summary was generated with AI and may contain some inaccuracies.