Joseph Laetsch

Joseph Laetsch asked about the drivers behind the strong performance of Valero's ethanol segment and the potential impact and probability of nationwide E15. He also inquired about the fuel oil market dynamics, recent crack spreads, and the outlook as it relates to coker economics.

Answer

Eric Fisher (EVP and CCO, Valero Energy Corporation) attributed strong ethanol performance to good corn crops (cheap feedstock), growing export demand for octane, and low-carbon programs. He noted Valero's E15 readiness but slow customer acceptance, linking E15's future to RVO policy clarification and SRE reconciliation. Richard Walsh (EVP and General Counsel, Valero Energy Corporation) added that the E15 waiver is tied to the SRE issue. R. Lane Riggs (Chairman, CEO and President, Valero Energy Corporation) observed weak fuel oil cracks due to more heavy crude, Venezuelan fuel offers to the U.S., higher runs from Mexico, and high freight costs pushing discounts.

Joseph Gregory Laetsch shifted to the refining side, asking for Valero's perspective on the fuel oil market, recent crack dynamics driven by more Venezuela crude, and the outlook for fuel oil as it relates to coker economics.

Answer

R. Lane Riggs, Chairman, CEO, and President, described the fuel oil market as very weak, with high-sulfur fuel oil hitting 79% on paper. He attributed this to more heavy crude in the market, Venezuelan fuel being offered to the U.S., higher runs from Mexico (making incremental fuel), and high freight costs pushing discounts in the West.

Joseph Laetsch of Morgan Stanley asked for Valero's perspective on the PADD V market following refinery closures and inquired about the dynamics and outlook for the ethanol segment.

Answer

Gary Simmons, EVP and COO, projected that California will likely be short on gasoline for several years, leading to increased market volatility. Eric Fisher, EVP of Commercial, described the ethanol segment's outlook as 'mid-cycle,' supported by advantageous feedstock costs, with performance tied to gasoline demand and exports.

Joseph Laetsch asked for Valero's perspective on the PADD V market dynamics following upcoming refinery closures and inquired about the outlook for the ethanol segment.

Answer

Gary Simmons, EVP and COO, stated that California will likely be short gasoline for several years, leading to higher import needs and increased market volatility, though the diesel market appears well-supplied. Eric Fisher, an executive, described the ethanol outlook as 'mid-cycle,' supported by low corn and natural gas prices but dependent on gasoline demand. He noted that Valero plans to run its ethanol plants at maximum production given the current economics.

Joseph Laetsch asked for the specific drivers of the strong performance in the Mid-Continent region and weaker results on the West Coast during the quarter. He also inquired about the outlook for the ethanol market and the potential for year-round E15.

Answer

Greg Bram, an executive, attributed the West Coast's weaker capture to maintenance at the Benicia refinery, while the Mid-Con benefited from strong demand, higher throughput, and favorable crude structure. Eric Fisher, an executive, described the ethanol market as challenged by high inventories and production, and noted that while E15 has policy support, logistical hurdles are slowing its adoption in the U.S.

Joseph Laetsch of Morgan Stanley inquired about the outlook for Renewable Diesel (RD) profitability in 2025, focusing on credits and feedstock costs, and asked about the market for naphtha.

Answer

Executive Eric Fisher outlined multiple 2025 tailwinds for RD, including California LCFS changes, European SAF mandates, and the IRA's shift to a production tax credit that favors low-CI producers like DGD and excludes importers. EVP and COO Gary Simmons attributed recent naphtha strength to lower supply from hydroskimmer run cuts and a pickup in petrochemical demand, which is driving export opportunities.

Joseph Laetsch from Morgan Stanley inquired about the progress on the sum-of-the-parts strategy, asking for details on the recent intercompany transactions, and about the current M&A landscape for midstream assets.

Answer

President and CEO Avigal Soreq and CFO Mark Hobbs responded. Soreq reiterated that deconsolidation is a top priority and is actively occurring, evidenced by DK's reduced ownership of DKL and DKL's increased third-party EBITDA. Hobbs explained the latest transactions were a 'clean-up' to align assets correctly, which also unlocked $250 million in liquidity. On M&A, Soreq stated the focus is on value-accretive deals, using the right tool—buy, sell, or build—for each opportunity.

Joseph Laetsch requested clarification on the path to achieving the $550 million mid-cycle refining EBITDA shown on Slide 8, particularly the implied throughput uplift. He also asked what steps remain to reach the $5.50 per barrel OpEx target at the Big Spring refinery.

Answer

President and CEO Avigal Soreq stated the mid-cycle slide demonstrates DK's standalone cash flow potential, with the market-agnostic Enterprise Optimization Plan (EOP) being a key driver. EVP of Operations Joseph Israel confirmed that Big Spring's operating expenses are trending toward the $5.50 per barrel target for Q4, and the focus is now on ensuring the sustainability of these improvements.

Joseph Laetsch asked for an update on the CARB gasoline project at Puget Sound and the company's leverage to the West Coast market. He also questioned the drivers of the strong Marketing segment results and if the annual EBITDA guidance had changed.

Answer

Executive Steven Ledbetter confirmed the CARB gasoline project tanks are coming online soon, enhancing flexibility in a tightening PADD 5 market. On Marketing, he attributed the record quarter to portfolio high-grading and brand optimization. Both Ledbetter and CEO Timothy Go reiterated the annual EBITDA guidance of $75 million to $85 million, with Go noting that the strong Q1 performance is considered sustainable and driven by strategic store growth.

Joseph Laetsch asked about the potential for inorganic growth in the fragmented lubricants market, inquiring if HF Sinclair is considering acquisitions in that segment.

Answer

SVP of Lubricants & Specialties Matt Joyce and CEO Timothy Go confirmed that inorganic growth is a possibility. After spending the last few years focusing on internal integration and building a solid operational foundation, they are now actively looking for potential bolt-on acquisitions that could enhance their lubricants portfolio and would consider them for future growth.

Joseph Laetsch inquired about the balance between dividend increases and share buybacks, given the stock's high yield. He also asked if the lower-than-guided Q1 refining utilization was due to economic factors or was part of the plan.

Answer

Kevin Mitchell, CFO, explained that the dividend policy is to be 'secure, competitive, and growing' to appeal to dividend-focused investors, but the primary vehicle for shareholder return upside is share repurchases, which scale with operating cash flow. Rich Harbison, EVP of Refining, clarified that the Q1 utilization was predominantly impacted by planned heavy turnaround activity, with only minor market-driven adjustments early in the quarter contributing about 1-1.5 percentage points to the downturn.

Joseph Laetsch of Morgan Stanley asked about current demand trends for transportation fuels and the commercial demand for Sustainable Aviation Fuel (SAF) from the Rodeo facility.

Answer

Brian Mandell of Marketing and Commercial provided a detailed demand update, noting modest global growth in gasoline and jet fuel, with some weakness in distillate. He and Rich Harbison of Refining confirmed they see a premium for SAF and successfully produced it in September, with plans to be a steady supplier starting in Q1 2025 after a brief Q4 pause.

Joseph Laetsch asked for more detail on the capital requirements for the energy reduction portion of the $200 million cost savings plan and inquired about the performance of the St. Bernard Renewables (SBR) asset relative to expectations since its launch.

Answer

President and CEO Matthew Lucey clarified that the energy savings are expected from a combination of small maintenance and capital projects, along with increased governance and optimization, not large capital outlays. Regarding SBR, Lucey acknowledged the market has been challenging and catalyst performance has been below original expectations, requiring shorter cycles. However, he expressed confidence in the asset's long-term competitive position, its partnership with E&I, and its value as a hedge against RIN prices.