VLO
#<UNK>, this is <UNK>.
Our unscheduled downtime during the third quarter cost us about $116 million, with the big event being the lightning strike knocked out our substation in Texas city.
I quantified the impact on our results.
I'm not going to comment on the impact that might have had on the market, if that is what you are looking for.
I'm just saying, I'm giving you what happened to us.
Yes, <UNK>, this is <UNK>.
At least my view is, it is more structural in nature.
We did have some refinery downtime, but I don't think that was the key driver.
I think that as the Gulf Coast refineries are running lighter crude diets, that we were out of reforming capacity.
You become long naphtha.
And as long as you have a strong gasoline market there is an incentive to blend that naphtha into the gasoline [cool].
And to do that it takes high octane blend components.
In addition to that, some of the big growing export markets have specifications that require high alkylate blends, not necessarily even for octane.
And then, finally, I think one of the things that we have seen this year, is with where aromatic pricings have been, both toluene and xylene have been under their blend value which has allowed both of those components to be in the gasoline pool.
Assuming we have some strengthening in the aromatics pricing moving forward, you could see that both of those high octane blend components actually get pulled out of the pool, and octane premiums remain strong.
No, we don't.
We are not prepared today to give the payout target for 2016.
But I would anticipate that we will do that early next year.
That is a good question, <UNK>.
Let me let <UNK> fire away first and then if there is anything to add.
Obviously, the capital market tapped in very volatile.
We continue to market that.
But our plan is to continue to execute upon our previously communicated drop-down guidance for 2016.
And that's around $1 billion of assets.
<UNK>, we are in a volatile business, right.
And whether you use net income or cash flow, I think you just pick one.
And we picked net income.
It was one that is very easy for everybody to look at and identify the number.
So, it seemed to provide the most transparency, from our perspective.
I think you could probably assume that is the case.
<UNK>, I think we did it at your conference last year, right.
That is where we laid out the 50% targeted payout ratio.
It is our objective to have a stated payout ratio.
Again, this is the first year we did it.
We set one out there.
We viewed it as a target that we wanted to hit.
Things went well this year.
We were able to raise that target.
So, philosophically, I think we are going to always look at our cash flows and our free cash flow and decide what to do with it.
And certainly we've set our priorities with the dividend now and with the share buyback program and we will continue to pursue it.
<UNK>, this is <UNK> again.
The way we are viewing the distillate markets, we have seen six straight weeks of draws in the stats here domestically.
Export demand remains very robust.
You have some seasonal maintenance that is coming in.
So, I think the combination of seasonal maintenance and exports will keep the domestic inventories in check.
And then, really, the wild card is what happens with the weather and heating oil demand.
As you look globally, I think a lot is being made of the stocks in the ARA, and there is just not a lot of tankage over there.
So, when we talk about inventory being very high, it is 8 million barrels above where it was last year.
I think some of the things that we are seeing is that the Rhine river levels are low and hindering some of the typical demand pulls we see out of the ARA.
So, to some degree I think we feel like some of the inventory in Europe may be understated or overstated.
But we continue to see very good demands, both Latin America and Europe for our diesel, and feel pretty good about those markets.
Sure, this is <UNK>.
Gasoline, we did 89,000 barrels a day of export, primarily in Mexico and Latin America.
And then on the diesel side we did 241,000 barrels a day of export.
It was a 65/35 split between Latin America and Europe.
On the distillate, if you include kerosene, it brought us to about 285,000 barrels a day of total distillate.
<UNK>, that is a good question, and it is one that we continue to wrestle with as we look at the strategy going forward.
It is hard to really understand what drives the multiple.
We look at some of the parts and clearly our portfolio is more levered towards refining perhaps than the peers.
So, clearly, a more diversified set of earnings streams for the Company would be something that might lift that multiple.
The other thing that we really couldn't factor in entirely is where, having a payout ratio, certainly the dividend that was below the peers, might affect us from a multiple perspective.
You address what you can in a timely manner.
And we have addressed now the fact that we have lagged on the payout in the dividend.
And we are continuing to look for the opportunities to grow different earnings streams within the business.
The drops from Valero to VLP clearly is targeted at trying to do this.
And then we will continue to look for projects to grow the refining business, the renewables business, and then we'll look for other business lines that we might be able to get into.
The objective would be to do it with a stronger currency.
We continue to have this as a major point of focus.
But I just don't know that there is a silver bullet that you could fire that is going to immediately get the stock re-rated and have you up to where your peers are.
But we are taking the actions that we can that we think will help drive that way.
No, I think, you really hit the nail on the head.
We have a combination of overbuilt logistics, in light of flat to declining domestic crude production.
With the current market, the US Gulf Coast bound pipeline from Mid-Continent have tariffs that are greater than where actually the market is today.
So, you're just seeing people with take or pays going ahead to ship even though it doesn't look like they have economics on paper, and that is what is really driving the differentials.
I think, the tariff and the midstream situation is here until we get some recovery in production.
I would tell you on the imports, that is more the volatility between grades.
I think what we saw is that as people started to see that production was falling, it was very supportive of the domestic light sweet pricing.
At the same time, medium sour production in the Gulf was growing and medium sour exports in the Middle East were increasing.
So, all of a sudden we saw a fairly wide differential between medium sour and light sweet.
And it incentivized us to bring in a lot of imports of medium sour into our system.
I think weak LLS market is actually supportive of the toppers.
Where we were, the economics for the toppers assumed LLS Brent flat.
So, as LLS has discounted to Brent, it actually improves the economics of those toppers fairly significantly.
Two things causing the LLS to WTI spread being where it is today.
One is it's overbuilt logistics and people shipping even though the economics don't appear to be supportive.
And then, secondly, we have a lot of imports coming into the Gulf.
So, ultimately you can't keep having these inventory builds of domestic light sweet.
We're going to have to see those differentials come off and incentivize refineries to go back to a lighter diet at some point in time.
Our plan was to self fund the drop.
With this particular drop, though, we are now at a debt to EBITDA of about 3.5 times.
We would likely not want to be longer than that on a long-term basis.
With the next acquisition, we are going to have to go get our investment grade credit rating, which our plan is to do that late this year or next year, have the ability to go to the debt and capital market.
And then with the ratio being 3.5, or approximately 3.5, the next acquisition also might require an equity component ---+ or will require an equity component.
So, from this point forward, I think you would anticipate capital markets.
Yes, we are using payout, that's correct.
Line 9 for us is primarily fed with Western Canadian light sweet and Bakken.
So, you are really looking at that spread and comparing it to a US Gulf Coast supply, or a foreign light sweet alternative.
I don't think we can talk about the tariff we are paying on Line 9.
<UNK>, we will let <UNK> speak to that.
<UNK>, I think the way we see it is there is just going to be a lot of volatility between grades.
And it certainly is an advantage for someone like us with the quality of refining assets that we have that can swing to a light diet, medium diet, and a heavy sour diet.
That's the way year shaped up and I don't think we see it much differently next year.
There's times when it's certainly been an advantage to run a very light diet, and then there's other times where we see very good value in Canadian heavies or heavies from Mexico or South America.
But speaking more broadly, <UNK>, I think if you look at Iranian crude coming into the market, mean obviously the more sour crudes that are in the market, I think it is certainly to Valero's advantage because we definitely have the ability to process it.
And as <UNK> is pointing out, we always are optimizing the sweet slate, <UNK>, as you know.
But having the more availability of sour crudes, whether they be mediums or heavies, is certainly to our advantage in the Gulf.
Yes, I think we definitely see the increased demand with the lower flat price.
Certainly there is seasonality to gasoline.
The gasoline cracks have remained stronger longer than they typically do.
But I think the things that we see in the market that are supportive of gasoline going forward is the price of gasoline in the Gulf now has opened up our exports.
Certainly in our system we are seeing a significant increase in the volumes we are exporting.
Imports to the New York harbor have fallen way off, which is supportive of gasoline.
Naphtha economics have changed to where, really, we are not putting naphtha into the gasoline pool now.
We are exporting naphtha to the Far East.
We have seen FCC margins fall off some, to where you will see some sparing of FCC capacity.
And then some seasonal maintenance.
So, I think all of those things, we feel like, are supportive of the gasoline markets going forward.
Certainly, if we run at very high utilization rates and aren't allowed to export, you could become long.
But I don't think we see that will happen.
<UNK>, we had free cash flow available, and we did what we said we were going to do.
It is what it is.
I think as we look at this going forward, we laid out a target, we are going to hit it.
We are not here to build cash.
We are here to grow our business and to reward our shareholders.
And we thought this was the right time to do it and it was the way to do it.
So, that is what led to the timing.
If we had reduced margins this year, you probably wouldn't have seen us step up the target.
But here again, we are owned by firms out there and individuals that are looking for return, and for us to use the cash prudently, and we think that's what we did.
For our capital expenditure guidance for 2015 we do remain unchanged at $2.65 billion.
Now, when we provide this guidance, just to clarify, we mean capital expenditures turnaround costs as well as investments in joint ventures.
September year to date, our total is $1.7 billion, so we are trending below the guidance.
However, as you all know, we have an option to become a 50% owner in the Diamond pipeline and we may exercise that option in this quarter.
We don't really give forward guidance on turnarounds but when we set the guidance volumes, we do take turnarounds into consideration.
I think if you look in the aggregate, the guidance for this quarter is similar to the fourth quarter last year.
I would say we've definitely seen greater variability of Canadian heavy in the Gulf.
We ran record volumes of Canadian heavy in the third quarter.
Really, the medium sour pricing, it seems to be what is setting the price of the heavy sours.
All of heavy sour producers know they have to compete with an [askey] or marked barrel in the Gulf so they price their barrels to be competitive on a quality-adjusted basis with that medium sour barrel in the Gulf.
And the Canadian is certainly that same way.
Each barrel presents their own operating challenges.
<UNK> may be better to answer that.
But there are certainly some challenges with Canadian that we don't see with some of the south American barrels that we run.
So I don't know.
<UNK>, do you want to add anything to that.
You did a fine job answering that.
(laughter)
