Valero Energy Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
April 27, 2023

There are 18 speakers on the call.

Operator

Greetings, and welcome to the Valero First Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Homer Bhullar, Vice President of Investor Relations.

Operator

Thank you. You may begin.

Speaker 1

Good morning, everyone, and welcome to Valero Energy Corporation's Q1 2023 Earnings Conference Call. With me today are Joe Gorder, our Chairman and CEO Lane Riggs, our President and COO Jason Fraser, our Executive Vice President and CFO Gary Simmons, our Executive Vice President and Chief Commercial Officer and several other members of Valero's senior management team. If you have not received the earnings release and would like a copy, you can find 1 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 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 All predictions of the future are forward looking statements intended to be covered by Safe Harbor provisions under federal securities laws.

Speaker 1

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 Joe for opening remarks.

Speaker 2

Thanks, Homer, and good morning, everyone. We had another strong quarter with all of our segments performing well. Our refineries operated at 93% capacity utilization rate Despite planned maintenance at several facilities, our ability to optimize and maximize system throughput While undertaking maintenance activities illustrates the benefits from our long standing commitment to operational excellence. Refining margins were supported by lower industry refining capacity and a backdrop of strong product demand. I'm also proud to report that the Port Arthur Coker project was completed in March and successfully started up in early April, which is a testament to the strength of our engineering and operations teams.

Speaker 2

The project is expected to increase the refinery's throughput capacity And ability to process incremental volumes of sour crude oils in residual feedstocks, while also improving turnaround efficiency. Our Renewable Diesel segment set another sales volume record in the Q1 with the continued ramp up of DGD Port Arthur, Which was started up in November 2022. In January, we announced that DGD approved a sustainable aviation project at Port Arthur, Texas. The DGD Port Arthur plant will have the capability to upgrade approximately 50% of its current 470,000,000 gallon annual renewable diesel production capacity to sustainable aviation fuel or SAF. The project is expected to be completed in 2025 and is estimated to cost approximately $315,000,000 with half of that attributable to Valero.

Speaker 2

With the completion of this project, DGD is expected to be one of the largest manufacturers of SAF In the ethanol segment, BlackRock and Navigator's carbon sequestration project is progressing and they expect to begin start up activities in late 2024. We expect to be the anchor shipper with 8 of our ethanol plants connected to this system, which will allow us to produce a lower carbon intensity ethanol product and significantly improve the margin profile and Competitive positioning of our ethanol business. And we continue to advance other low carbon opportunities such as renewable hydrogen, Alcohol to jet and additional renewable naphtha and carbon sequestration projects. All of our projects must meet a minimum return threshold to continue to progress through our gated review process. On the financial side, we continue to strengthen our balance sheet, reducing debt $199,000,000 in the Q1 and ending the quarter with a net debt to capitalization ratio of 18%.

Speaker 2

In January, we announced an increase in our quarterly dividend on our common stock from $0.98 per share to $1.02 per share, demonstrating our long standing commitment to stockholder returns. Looking ahead, we expect refining fundamentals to remain supported By low global light product inventories, tight product supply and demand balances and continued increase in product demand as we approach peak air Travel and summer driving season. In closing, our team continues to successfully execute a strategy that enables us to meet the challenge of supplying the world's need for reliable and affordable energy in an environmentally responsible manner. The tenets of our strategy underpinned by operational excellence, deploying capital with an uncompromising focus on returns And honoring our commitment to stockholders have been in place for nearly a decade and continue to position us well for the future. So with that, Homer, I'll hand the call back to you.

Speaker 1

Thanks, Joe. For the Q1 of 2023, Net income attributable to Valero stockholders was $3,100,000,000 or $8.29 per share compared to $905,000,000 or $2.21 per share for the Q1 of 2022. Q1 2023 adjusted net income attributable to Valero stockholders was $3,100,000,000 or $8.27 per share, compared to $944,000,000 or $2.31 per share for the Q1 of 2022. For reconciliations to adjusted amounts, Please refer to the earnings release and the accompanying earnings release tables. The refining segment reported $4,100,000,000 of operating income for the first Quarter of 2023 compared to $1,500,000,000 for the Q1 of 2022.

Speaker 1

Refining throughput volumes in the Q1 of 2020 Pre averaged 2,900,000 barrels per day, which was 130,000 barrels per day higher than the Q1 of 2022. Throughput capacity utilization was 93% in the Q1 of 2023 compared to 89% in the Q1 of 2022. Refining cash operating expenses were $4.78 per barrel in the Q1 of 2023, Lower than guidance of $495,000,000 primarily attributed to higher throughput and lower natural gas prices. Renewable diesel segment operating income was $205,000,000 for the Q1 of 2023 compared to $149,000,000 for the Q1 of 2022. Renewable diesel sales volumes averaged 3,000,000 gallons per day in the Q1 of 2023, which was 1,300,000 gallons per day higher than the Q1 of 2022.

Speaker 1

The higher sales volumes in the Q1 2023 were due to the impact of additional volumes from the start up of the DGD Port Arthur plant in the Q4 of 2022. The ethanol segment reported $39,000,000 of operating income for the Q1 of 2023 compared to $1,000,000 for the Q1 of 2022. Ethanol production volumes averaged 4,200,000 gallons per day in the Q1 of 2023, which was 138,000 gallons per day higher than the Q1 of 2022. For the Q1 of 20 23 G and A expenses were $244,000,000 and net interest expense was 146,000,000 Depreciation and amortization expense was $660,000,000 and income tax expense was $880,000,000 for the Quarter of 2023. The effective tax rate was 22%.

Speaker 1

Net cash Provided by operating activities was $3,200,000,000 in the Q1 of 2023. Excluding the unfavorable change in working capital of 5 $34,000,000 in the Q1 and the other joint venture members share of DGD's net cash provided by operating activities, Excluding changes in DGD's working capital, adjusted net cash provided by operating activities was 3,600,000,000. Regarding investing activities, we made $524,000,000 of capital investments in the Q1 of 2023, of which $341,000,000 was for sustaining the business, including costs for turnarounds, catalysts and regulatory compliance And $183,000,000 was for growing the business. Excluding capital investments attributable to the other joint Your member share of DGD, capital investments attributable to Valero were $467,000,000 in the Q1 of 2023. Moving to financing activities, we returned over $1,800,000,000 to our stockholders in the Q1 of 2023, Of which $379,000,000 was paid as dividends and $1,500,000,000 was for the purchase of approximately 11,000,000 shares of common stock, resulting in a payout ratio of 52% of adjusted net cash provided by operating activities.

Speaker 1

With respect to our balance sheet, as Joe mentioned, we completed additional debt reduction transactions in the Q1 that We ended the quarter with $9,000,000,000 of total debt, dollars 2,400,000,000 of finance lease obligations and $5,500,000,000 of cash and cash equivalents. The debt to capitalization ratio net of cash and cash equivalents was 18% as of March 31, 2023. And we ended the quarter well capitalized with $5,400,000,000 of available liquidity, excluding cash. Turning to guidance, we expect capital investments attributable to Valero for 2023 to be approximately CAD 2,000,000,000 which includes expenditures for turnarounds, catalysts and joint venture investments. About CAD1.5 billion of that is allocated to sustaining the business For modeling our 2nd quarter operations, we expect refining throughput volumes to fall within the following ranges: Gulf Coast at 1,730,000 to 1,780,000 barrels per day Mid Continent at 405,000 to 425 1,000 barrels per day, West Coast at 250,000 to 270,000 barrels per day And North Atlantic at 450,000 to 470,000 barrels per day.

Speaker 1

We expect refining cash Operating expenses in the 2nd quarter to be approximately $4.60 per barrel. With respect to the Renewable Diesel segment, we expect sales volumes to be approximately 1,200,000,000 gallons in 2023. Operating expenses in 2023 should be $0.49 per gallon, which includes 0 point Our ethanol segment is expected to produce 4,200,000 gallons per day in the 2nd quarter. Operating expenses should average $0.40 per gallon, which includes $0.05 per gallon for non cash costs such as depreciation and amortization. For the Q2, net interest expense should be about $145,000,000 and total depreciation and amortization expense should Including corporate depreciation to be approximately $925,000,000 That concludes our opening remarks.

Speaker 1

Before we open the call to questions, please adhere to our protocol of limiting each turn in the Q and A to 2 questions.

Operator

Thank you. The confirmation tone will indicate that your line is in the question Our first question is coming from the line of Manav Gupta with UBS. Please proceed with your question.

Speaker 3

Congrats on a very good result. I'm not sure if there are many other refiners out there who can show this kind of capture with Such heavy turnaround. So congrats on that. I have 2 quick questions and I'll ask them upfront. We keep seeing DOE data, which is Prone to revisions, which sometimes doesn't actually make too much sense.

Speaker 3

So Joe, in your system across various products, What are you seeing in terms of demand for various products in your system? And the second and related question is, Help us understand a little bit what's going on in the diesel market. Are we suddenly oversupplied? Is the demand weak? If you could just talk through those diesel dynamics.

Speaker 3

Thank you.

Speaker 4

No, Manav. We're happy to do that and thanks for your comments. Gary, you want to give them some insight?

Speaker 5

Yes, sure. So, so far, Our 7 day average in our wholesale system, our gasoline sales are up 16% year over year. Our diesel volumes are up 25% year over year. So our wholesale team continues to do a great job. In March, we set a record at 998,000 barrels a day.

Speaker 5

In April, the volumes are trending right along those levels. So demand seems very, very strong in our system. And even the DTN data For the wholesale racks across the industry is very strong as well. In terms of your question on diesel weakness, we're just not seeing it. I can tell you in addition to the wholesale volumes, today there's domestic arbs that are open from PADD 3 into PADD 2 as we're seeing a Surge in agricultural demand that's going along with planting season.

Speaker 5

You also have a domestic arb open to ship from PADD III to PADD I. We see strong War born premiums go to Latin America. The transatlantic arb is open to Europe. And so for us, distillate fundamentals look pretty good.

Speaker 3

Thank you for taking my questions.

Operator

Thank you. Our next Question is coming from the line of Theresa Chen with Barclays. Please proceed with your question.

Speaker 6

Good morning. Can you comment on your outlook for Gulf Coast capture from here? Clearly, the start up of the Port Arthur Coker should be a tailwind, but we've also seen Differentials come in. Net net, how do you view the profitability of your Gulf Coast system, both in near term and longer term?

Speaker 7

Yes. So, Theresa, this is Lane. I'll take some general comments about capture rates. If you sort of compare our Q1 capture rate to a Q2 capture rate, holding all things equal, We'll blend less butane. So everything holding everything equal, our capture rates will actually fall just due to butane.

Speaker 7

And then as you alluded to, you look Feedstocks, what's the trajectory of feedstocks? They're lower. On the other side of it, we're seeing big RBOB premiums versus CBOB. So to the That's not captured in our capture rate, that's actually a positive. So there are several things you just got to look at and what you got to focus on are the some of the drivers that may I'll be in our formula for our crack attainment and how those change relative to things that are sort of tied to.

Speaker 7

An example would be Maya versus WCS or like I said RBOB versus CBOB. Those are the things you guys kind of key on and try to predict maybe how our crack

Speaker 6

Thank you. And on a related note, how do you see the BGO In terms of your Gulf Coast consumption as well as the global supply following the EU embargo on Russian products as well as the Saudi's exporting less after Gison brought on its conversion unit.

Speaker 7

Well, I'll start on At least our system and let Gary kind of look at talk about the supply. The start up of our Port Arthur Coker goes a long way to Shoring up our VGO position, essentially that's what it is. It's taking resid and heavier crews and cracking into sort of In the distillate and essentially a VGO boiling range of material, so it allows us to sort of our requirement for importing VGOs fallen post The new coker startup. In terms of supply, I think we were concerned that the ramp up

Speaker 5

in sanctions against Russia would limit VGO exports and cause VGO tightness. So far, it looks like the Russian barrels are continuing to flow. And so we're not nearly as concerned about VGO supply as we were earlier in the year.

Speaker 6

Thank you.

Operator

Thank you. Our next question is coming from the line of Doug Leggate with Bank of America.

Speaker 8

This is Clay on for Doug. So thanks for taking the question. I've got a follow-up to Theresa's question and it really goes to the availability of heavy sours that are in the market. There is a perception that that length is getting shorter with the OPEC Cuts and then increased demand from new projects such as your coker and perhaps MPC's, Brazil Hydrocracker are Squeezing the market for those kinds of supplies, can you talk about what you guys are seeing and if the phase startups of the new refineries were not all the units or online Could it help alleviate that situation?

Speaker 5

Yes. So I'll go through. We have seen during the Q1, we saw the supply demand balances around heavy sour get Tighter, some of it supply. You also see saw Chinese refinery utilization ramp up, which put more demand But going forward, I think there are some bullish factors. Platts is reporting 500,000 barrels a day of Canadian crude production is offline due to maintenance.

Speaker 5

We'll get that Production back, Venezuelan production is forecasted to grow and our view is that more Chevron production from that region will make its way into the Gulf as we rest of the year. At some point in time, all indications are that the Lyondell refinery will come down, which will kick more heavy sour back to the market. And then if the demand the supply demand balances that are currently being forecasted are correct, at some point in time, you'll need that OPEC production back on the market, which again is

Speaker 8

Got it. And a quick follow-up to that. Can you talk about what you're seeing for new .:] Finding capacity that's supposed to come online like Dangote and Doge Focus in Mexico?

Speaker 5

Yes, I really can't make a lot of comments. We don't have a lot of insight into either one of those refineries.

Speaker 8

All right. I appreciate it, guys. Thanks for taking my questions.

Operator

Thank you. Our next question is coming from the line of John Royall with JPMorgan, please proceed with your question.

Speaker 9

Hey, guys. Good morning. Thanks for taking my question. So I just wanted to start on the return of capital side. You guys returned above your 40% to 50% range again this quarter, I think, 2nd quarter in a row.

Speaker 9

What's your latest thinking on where you want to be in that range of returns to shareholders, given your balance sheet is very strong, but fundamentals appear to be You can see that in your indicators.

Speaker 10

Yes. No, that's right. This is Jason. And you're right, our balance sheet is in Good shape right now. We've got up over $5,500,000,000 of cash.

Speaker 10

We feel pretty strong there. We've got our net debt to cap ratio down into a good spot around 18%, which Well, the end of our lower end of our range. So we feel like we're in a pretty good spot with regard to any potential recessionary conditions. And as far as our target for where we want to be in our range, we'll continue to target to 40% to 50% when We have strong results. Of course, we'll be looking at the upper end.

Speaker 10

That we ended at 45% last year, paid out 52% this quarter, Right. Actually, with the extra cash we had, we did kind of an all of the above strategy. We're able to build our cash by 600,000,000 Payout at 52% and also even payback a little more debt. So it will just depend on how the year plays out Where we fall in the range, right in the payout range.

Speaker 9

Great. Thank you. And then, I was hoping you could also touch on the regulatory changes out in California and how you expect those to play out and The potential impact on both your business and maybe just the broader refining market in California?

Speaker 11

This is Rich. I can start out with just sort of the California has always been a tough regulatory climate for operations. And so I'm assuming you're talking about the California SBX 12 rulemaking that's out there and what we would just say is that The bill does have some burdensome reporting requirements in it. And then obviously, it kicks basically a profit tax Over to this California Energy Commission to implement it. And so we'll stay active and engaged in that rule making process and watch what develops out of It's unclear what price cap, if any, they'll ultimately put in place.

Speaker 11

So I would point out that the rule making on that, The standard that the agency is supposed to use is they're supposed to determine that the benefits to consumers are outweighed by the potential cost to consumers. And It goes without saying that attempts by governments to artificially limit commodity prices has never been Really good for the economy and it ultimately ends up hurting consumers. So we'll just have to see how that all plays out.

Speaker 4

And John, this is Joe. Just let me bolt on something to what Rich said. So we have a great team operating both of our refineries on the West Those great teams are running those plants. And we have been very consistent and clear in our approach to the California business. And that is We aggressively manage the capital.

Speaker 4

We invest to maintain safe and reliable operations out there, but we haven't invested Capital in growing that business for many years now. Now historically, California in a normal operating isn't a strong contributor to our earnings. We've always viewed it as an option on periodically strong margins. And if the margin caps are set at levels that remove the upside, the opportunity to earn a return isn't there the way it's been in the past and we'll have to evaluate our options. Right now, Rich and his team are communicating to the California Energy Commission and others the concerns that we have and we're We're going to have to wait and see what happens out there.

Speaker 4

So it is an environment that is a difficult operating environment. I would not even Take a shot at stating what might happen to the overall refining environment out there, but I can just tell you From our perspective we're just going to have to watch it and see and then we'll evaluate our options.

Speaker 9

Thank you very much.

Operator

Thank you. The next question is coming from the line of Paul Sankey with Sankey Research. Please proceed with your question.

Speaker 12

Hi, everyone. Could you repeat the wholesale sales demand number that you just gave and explain how come If I heard you right, that's growing so massively?

Speaker 5

Yes. So our wholesale on the gasoline side, we're up 16% year over year. On distillate, we're up 25% year over year. March, we set a sales volume record 998,000 barrels a day. And then April, the volumes are trending about like So certainly when you look at the broader DTN wholesale volume data, it's not as significant growth as what we're seeing.

Speaker 5

And so it indicates we're doing a good job Of capturing market share.

Speaker 12

So there's no structural change, it's just better wholesale performance? Yes. Okay. I'm not counting that as a question, Joe.

Speaker 4

Yes. Paul, we could talk all day, couldn't we?

Speaker 12

On the I'm in D. C. Actually. On the IRA, What's your latest thinking on how that could impact your business in terms of the regulatory environment? We've dealt with the California one, I think, on the call already, but if you've got any Latest thoughts on how things in Washington are shifting.

Speaker 12

The other one, I guess, is a big deal here obviously is carbon capture

Speaker 11

Well, this is Rich Walsh again. I guess I'll take An effort to respond on that in terms of, I think you're probably alluding to some negotiations that are going on right now. And just this morning, I think The Republican bill has been revised to include some of the credits to be back in They were proposing to pull out. So we're looking at the clean energy tax credits being put back in. And so the things that help us on our renewable side and We'll side and some of our sequestration projects back in.

Speaker 11

And they also have grandfathered those that have already made investment decisions on The decisions on these so while Saff is out, the projects that have been announced on Saff are back in. That means our projects would be still eligible for the proper treatments on that.

Speaker 12

Yes, got it. I think the SaaS is definitely a very interesting one. Okay. And then generally speaking, the market, we've seen margins come off an awful lot, which is a bit odd seasonally. Is there anything that you can observe about, Especially given what you're saying about your wholesale margins, your wholesale deliveries, the big sell off that we've seen here somehow Doesn't seem to be entirely supported by fundamentals.

Speaker 12

We had a great gasoline demand number, for example, this week in the DOE. Any thoughts on how Q2 is going to shape out? I'll leave it there. Thanks a lot guys.

Speaker 4

Thanks, Paul. Yes.

Speaker 5

Paul, our view is whenever inventory is as low as it is today, it just puts you way out on the margin curve where the Slope is really steep and any type of market news can have a significant impact on prices and margins. So early in the year, The market headlines were all about losing Russian supply with the ramp up in sanctions and it drove the market up. Today, I think people are generally comfortable that the Russian barrels will continue to flow and then a lot of concern on the economy and what happens with demand in the future. As I said, We're not seeing any indication of demand weakness today, but I think that's a concern is what happens in the future.

Speaker 12

Understood. Thank you all.

Speaker 4

Thank you.

Operator

Thank you. The next question is coming from the line of Roger Read with Wells Fargo. Please proceed with your question.

Speaker 13

Yes, thanks. Good morning.

Speaker 4

Good morning, Rod.

Speaker 13

I guess I'd like to follow-up on the Comments or how you're looking at the diesel and gasoline markets. I mean, there's a ton of ways to track demand and shortfalls of supply, but one we pay is each end of the Colonial Pipeline and it shows clear stress in the gasoline market. So I guess I'd like to dig into maybe what you see in the Atlantic Basin, particularly between New York and Northwest Sure. In terms of just outright gasoline supply or is it a component issue or what exactly is going on there?

Speaker 5

Yes. So I think there's several factors that come into play there, Roger. Historically, we see an incentive to store summer grade gas component to New York Harbor. This winter, the market structure really made it to where it wasn't economic to do that. And so we didn't build inventory for that.

Speaker 5

And then again, typically in the Q1, you see a lot of volume going across the Atlantic from Europe into New York Harbor early in the year and the strikes that occurred in France kind of Minimize those volumes as well. So we've come into driving season with 10,000,000 barrels below where we were last year on gasoline inventory. So Especially summer grade gasoline is very tight and it is going to stress the Colonial system as we move into driving season.

Speaker 13

Yes, I mean, it's early in the quarter, but we really haven't seen the gap quite this large At this time of the year before, so definitely shows stress. Follow-up question, if I could, on the SAF. Obviously, you mentioned there are some opportunities in terms of what's moving forward legislatively. If you want to see, let's call it, fundamental support for SAF margins, Do you want to make SAF? I mean, what's the driver to do that versus renewable diesel, which obviously already enjoys Support as well as LCFS programs.

Speaker 14

Yes. Hey, Roger, this is Eric. I think we still see a big demand for SAF in the Future, the EU just talked about mandating it beginning in 2025 and at increasing percentages as you get to 2,030 and 2,050. The IRA isn't the only driver for SAF. I think between what we see in different Jurisdictions starting to obligate Jet and make it a mandatory requirement as well as Just the internal commitments that a lot of the airlines and cargo carriers have made from a corporate standpoint, we still see That SAF is going to be a strategic growth area for renewables.

Speaker 13

All right. I'll leave it there. Thank you.

Operator

Thank you. The next question is coming from the line of Ryan Todd with Piper Sandler. Please proceed with your question.

Speaker 15

Thanks. Good morning. Maybe I'll stick for one follow-up on the low carbon fuel side. Can you talk a little bit about a couple of low carbon possibilities that you mentioned earlier in the call? You mentioned renewable hydrogen and alcohol to jet.

Speaker 15

What would either of those projects look like in your current operations? And are there further changes in product prices or regulatory Support that would be required to make either

Speaker 12

of those businesses make sense?

Speaker 14

Well, I think, This is Eric again. In particular, say, we'll start with ethanol to jet. Assuming the Navigator project goes forward, that will lower the carbon intensity of our ethanol To a point where it will qualify as a feedstock into SAF. And so if you look at that as the precursor Project that would then enable an ethanol to jets SAF project, that's one of the things we're looking at. Now that's years out from Anything we would talk about in any sort of detail, but conceptually that's kind of what would line up that possibility from a project And then renewable hydrogen, that's another sort of horizon opportunity that as you look at your low carbon platforms, If you can make blue or green hydrogen, it's just another way to further lower your CIs on your low carbon operations.

Speaker 15

Great. Thanks. And then maybe just a quick follow-up on the Port Arthur Coker. Congratulations on getting that started up. Is there any sort of ramp associated With operations there, how should we expect kind of contributions from that in the second quarter?

Speaker 15

And any Kind of update your thought on what the what you think the annualized EBITDA contribution is in the current environment?

Speaker 7

Yes, this is Blaine. So we put we started up on April 5. I would say actually this week we've sort of ramped up most of the refinery To where we're running, we're close to fuel to full. We're so sort of from now through the rest of the quarter, you will see at least The benefit of being a Coker is a clean startup, as Joe alluded to earlier in his comments. It was done really well by our team.

Speaker 7

It's working just As we had indicated, in terms of the contribution on EBITDA, when you take sort

Speaker 15

of the

Speaker 7

current volume metrics And to use forward pricing on it, it's normally about $500,000,000 a year is the benefit.

Speaker 15

Great. Thank you.

Operator

Thank you. Our next question is coming from the line of Jason Gabelman with TD Cowen, please proceed with your question.

Speaker 16

Hey, morning, everyone. Thanks for taking my questions. I wanted to ask one on market structure. I think there's some concern because there's headlines around Asia cutting refining runs because margins are low there and There's some concern that that could permeate into the U. S.

Speaker 16

And so the question is, how should the market kind of take that Indicators, should they think that while Asia margins are falling and so U. S. Will follow because there's global weakness Or conversely, because Asian margins are falling, U. S. Cracks are Around the levels they are probably closer to a floor because of the structural kind of tailwinds that are out there And Asia is kind of absorbing all of the throughput declines related to global demand issues.

Speaker 16

I know it's a bit of a complex question, but I guess give it a shot. Thanks. Yes.

Speaker 5

So I think the way we would view it is Much like you said, we would view it as it's kind of telling us that we're on the floor on margins. It's not just Asia, but in Europe hydro skimming margins are negative. And so a lot of that is the distillate weakness. We still see diesel inventories very, very low. And we view that some of that capacity should actually be running.

Speaker 5

And so it's kind of telling you where to floor on where margins are.

Speaker 16

Okay. Thanks. That's helpful. And then the follow-up on DGD. Where are we in terms of the DGD distribution?

Speaker 16

Have you received one yet? Is that coming soon? How are you thinking about that cash Being moved up to the partners moving forward? Thanks.

Speaker 14

Yes. We've looked at the DGD cash And we would still say we see a distribution in the back half of this year becoming an opportunity for the partners.

Speaker 16

Okay. Any idea around the quantity?

Speaker 5

No, we're not going to give

Speaker 14

a number like that out, but it does look positive through the end of the year.

Speaker 16

Okay. Thanks guys. Jason.

Operator

Thank you. Our next question is coming from the line of Matthew Blair with Tudor, Pickering, Holt. Please proceed with your question.

Speaker 17

Hey, good morning, everyone. Joe, could you help us understand The Q1 refining capture, the strong figure a little bit more. I think Lane mentioned butane blending was a tailwind. What else drove it up? And I guess specifically, were product exports more of a supporting factor than normal?

Speaker 17

And then also, was there any impact from turning in the 2021 RINs, like any sort of mark to market as you submitted the 2021 RINs In March of 'twenty three?

Speaker 7

So Matt, this is Lane. I'll start out with the first part of it. So the things that are contributing factors were We had backwardation sort of flattened out on the market on feedstock. That's always one you get. So market structure plays in the capture rates in Big way.

Speaker 7

So it's timed out some. We had wider differentials in the Q1 versus the Q4 on all the crudes that we run. And then finally, there were pretty good jet premiums versus distillate in the Q1. Those were the other things driving Our capture rates with respect to the other items you mentioned. I don't think the rent had anything to do with it.

Speaker 5

And I wouldn't say exports had any kind of material impact

Speaker 17

And then on the Q2 refining guidance, it looks like it implies about 90% to 93% utilization. You already did 93% in Q1. So I guess I'd be surprised If it ticks down, is that just should we think of that as just a conservative number? Or are there major turnarounds that we should be aware of that's pulling down your Q2 Expected run rates?

Speaker 7

Again, we sort of have a this is Lane. We have a policy of not really commenting directly on our turnaround activity. But I would just take the guidance to be kind of where we think it's going to be.

Speaker 4

And Matthew, I mean you know our history and our tendency. I mean, we're not going to oversell anything. So we'll just we'll see how the markets look and Lane's right, We'll operate as appropriate.

Speaker 17

Great. Thank you very much.

Operator

Thank you. We have no additional questions at this time. So I'll pass the floor over to management for any additional closing remarks.

Speaker 1

Thanks, Jesse. We appreciate everyone joining us today. Obviously, feel free to contact the IR team if you have any questions. Have a great week. Thank you, everyone.

Operator

Ladies and gentlemen, this does conclude our call and webcast. You may disconnect your lines at this time. We thank you for your participation.

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Valero Energy Q1 2023
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