VLO
#Well, thanks, <UNK>, and good morning, everyone
We're pleased to report that we completed another quarter where we ran our refineries very well at high rates, and also delivered good financial results
Our low cash operating cost and highly reliable operations, combined with our advantage footprint focused on the U.S
Gulf Coast and the Mid-Continent, enabled us to achieve positive earnings and free cash flow generation, despite the choppy margin environment
As always, our team's primary focus is on safety and reliability, and we continue to deliver distinctive operating performance, but remain committed to improvement
As such, we're extending our participation in OSHA's Voluntary Protection Program to more of our facilities
Moving on to the refined products markets, we're pleased to see a rebound in distillate demand, in addition to the strong gasoline pull by domestic and export customers
Downward trends and product inventories and structural shortages in the primary export markets for the U.S
Gulf Coast provide an encouraging backdrop as we move into the second half of the year
On the crude supply side, we're seeing the impact of the OPEC cuts on the medium and heavy sour discounts, but increased U.S
drilling activity and crude production have supported attractive domestic sweet crude discounts relative to Brent in the second quarter
As a result, we switched our refining system to a maximum light crude slate in June
With current market conditions, operating a system with flexibility to process a broad range of feedstocks is very beneficial
Turning to capital allocation, we continued to execute very well on our capital program during the quarter
The Diamond Pipeline and Wilmington cogeneration plant are both on track for completion this year
Construction is continuing as planned on the Diamond Green Diesel expansion and the Houston alkylation unit, and we're looking forward to seeing the additional earnings contribution from all of these projects once they're complete
We continued demonstrating our commitment to stockholders by returning $658 million through dividends and stock buybacks in the second quarter
At this pace, we believe we're well positioned to exceed our payout target for the year
Lastly, on the topic of public policy, we get a lot of questions seeking our perspective on the many initiatives being worked on by the Trump administration
While it's difficult for us to speculate on the range or probability of potential outcomes, we're pleased with the emphasis that President Trump and his administration have placed on the energy sector, and their willingness to discuss the issues
So, with that, <UNK>, I'll hand the call back to you
Morning, Phil
Yes, we are
Thanks, Phil
<UNK>, last year, at our strategic planning session, we met with the board and talked about the long-term viability of fossil fuels
So, the products that we produce
And every analyst that we read believes that, and people are doing 20-year outlooks, they all stated that we were going to see continued demand for gasoline and diesel fuel into the extended future
This news, I believe that you're talking about, I guess, we saw it a couple of days ago, yesterday or day before, on the EU moving away from fossil fuel vehicles by 2040. And it's not a surprise that things like that get proposed
But it's so far out on the horizon and so many things change that it's not something that we would change our strategy today to try to deal with
<UNK>, is there anything that you'd add to that?
So, <UNK>, just to summarize, I think it's not an issue that we believe is material enough right now that it's something that we need to alter strategy or visit with the board extensively about
Boy, that's really a great question
Why not let <UNK> take a crack at this, and then we'll see if there's anything to add
We have been continuing to work this very actively, and really the administration has been very receptive to conversations around this
They are trying to do what's right and to fix broken processes
And so, we remain hopeful that point of obligation is dealt with properly, and we also are hopeful that the EPA uses its authority to adjust the RBOs to be sure that the blend wall doesn't become a chronic problem going forward
Morning, Brad
Well, I mean, that's a good question, too
We are producing significant amounts of free cash flow, and we've been consistent in using the capital allocation framework that we've got in place to help guide our use of cash
The one thing that we've shared is that we don't have an intention to continue to build huge stockpiles of cash, because Mike's got the balance sheet in a place where with our low debt to cap, if we wanted to do something we could do it
So, I think you should anticipate that we're going to continue to execute similarly to what we've done in the last several quarters
We always evaluate share repurchase versus dividends, and we would like to be in a position to continue to increase the dividend going forward
But to the extent that we have free cash, we're going to use it
Mike, anything you'd add to that?
Thanks, Brad
You bet, <UNK>, and I'll let <UNK> take a crack at this
Yeah, <UNK>, I think we said, we look at both, right? We use the 75% of net income as the target, just because it's such a transparent metric
But when Mike and <UNK> are looking at our repurchase strategy, and really the use of cash in general, in setting that target, he looks at multiple metrics, right
Thanks, <UNK>
Yeah, I think that's fair to say, <UNK>
<UNK>, you were listening, you missed the tax guidance
But we've been so accurate
And Doug, just on the capital piece of this
So, we are working projects aggressively that facilitate our ability to be very efficient in the export of products
And it's just, unfortunately, a little bit premature for us to give you any insight into that
But I think that you should expect there to be more communications on this over the next several weeks, as we firm up some of the things that we're working on
Well, I mean, <UNK>, it's a good question
And it doesn't change our strategy
We've talked in the past about a petrochemical strategy, and it's it really not as dramatic or as significant as you might be thinking
Currently, we produce a number of petrochemical streams
Products like propylene and BTX
And the strategy that we're talking about here is really to capture more of the margin available from those petrochemical stream where it makes economic sense to do so
The investments associated would be related to any additional processing, and then logistics to store and transport these products
We have no plans to deviate from our capital allocation framework, and decisions to allocate capital to these projects will be based on the expected project returns within our notional capital budget
So, although these guys are investing in these major petchem projects, that's really not our plan or our focus
And we do continue to have a focus on improving our refinery operations
We have a focus on integrating from the wellhead into the refineries, and from the refineries out, so that the margin that's captured in the movement of products and crude is something that we capture rather than paying to somebody else
And so, I don't think that you should worry that you're going to wake up one day and we're going to be announcing that we're investing in a mega billion dollar petchem complex
It's just not on the radar screen for us
They're still in development, and we've got placeholders for them
So, again, I don't think you should expect that we're going to deviate materially from this 2.5 to 2.7 number, going forward
Yeah, I think if you're going to buy assets, you're going to have to be prepared to pay a higher multiple
I mean, that's just where the market seems to be today
And, so, building them has really been where we've had a great deal of focus
I mean, we're looking at assets that are in the market for sale today, but we always compare it to the alternative uses for cash
Relative to exports, Rich, you want to give any update?
Yeah, but, <UNK>, we really like the idea of the organic growth projects, where we have a great deal of control over the investment profile and the project execution
You bet
Good morning, <UNK>
<UNK>, the way, and <UNK> can talk in more detail about this, but the way that we work our projects, we look at the target for the year
And we've got a fairly dynamic approach to doing this, where <UNK>'s engineering staff will work the projects, and then we review them periodically to see which ones we want to continue to proceed forward and to invest capital in
And so, it's not like we look at everything in the first quarter, second quarter, third quarter
We're looking at them throughout the year
Any color you want to add to that?
Yeah, so the way that we've talked about this, is we wanted to illustrate the fact that we did have attractive growth projects in place
And so, half of that capital is deemed to be refining projects, which have the higher 25% return threshold
Could be 24%, could be 28%
But they're typically in that range or better
And, on the logistics side, we know that those tend to be lower-risk projects, and so they tend to have lower return thresholds
And so that's where we use kind of a 12% to 15% threshold for
And that capital is split 50/50 between those two categories
And if you just extrapolate out where that would take you, you get to your $1 billion to a $1.2 billion of incremental EBITDA resulting from a capital program that would be executed every year for the next five years
Thanks, <UNK>
Morning, <UNK>
Thanks, <UNK>
