VALERO ENERGY CORP/TX Q4 FY2024 earnings call

• Safety and environmental: 2024 was the best year for personnel and process safety and one of the best for environmental performance. - Refining: Recorded processing of heavy sour crude in Q4, showcasing system flexibility. - Ethanol: Set record production with Charles City plant expansion and process optimization. - Strategic investments: DGD Sustainable Aviation Fuel project started up, FCC Unit Optimization project at St. Charles estimated $230M, starting 2026. - Financials: 78% payout ratio in 2024, Board approved 6% dividend increase; refining margins supported by low light product inventories, long-term demand expected to exceed supply.

Refining segment: Fourth quarter 2024 operating income was $437 million, with refining throughput volumes averaging 3 million barrels per day (94% utilization) and cash operating expenses of $4.67 per barrel. Renewable Diesel segment: Operating income was $170 million, with sales volumes averaging 3.4 million gallons per day. Ethanol segment: Operating income was $20 million, with production volumes averaging 4.6 million gallons per day. Revenue contributions: Refining, Renewable Diesel, and Ethanol segments each contributed to the overall financial performance as detailed above.

• 2025 capital investments attributable to Valero ~$2B, ~$1.6B for sustaining. - First quarter 2025 refining throughput: Gulf Coast 1.72-1.77M bbl/day, Mid Continent 415,000-435,000 bbl/day, West Coast 190,000-210,000 bbl/day, North Atlantic 455,000-475,000 bbl/day. - Refining cash operating expenses ~$4.95/bbl in Q1 2025. - Renewable Diesel sales volumes ~1.2 billion gallons in 2025, operating expenses $0.51/gallon. - Ethanol production ~4.6 million gallons/day in Q1 2025, operating expenses ~$0.41/gallon.

• Tariffs on Canada and potential impacts on heavy oil supply, feedstock availability, and utilization. - Uncertainty around policy changes affecting biofuel markets, such as the shift from PTC to 45Z and its impact on biodiesel production margins. - Weather-related impacts on product demand and refinery operations.

Q: Good morning. Thanks for taking my question. So, my first question is maybe to Gary, just broadly on market color. You’ve always given us a good view of the fundamental picture in the sector. How do you view the supply demand balances today for products and the outlook for cracks for this year? And, what do you think are the key things we should look out for in terms of just any early indicators of when this market might turn back up?

A: Yes John, it’s always difficult to get much of a read on the market this early. I’ll tell you that we typically see our sales through our wholesale channel dip fairly significantly through the holiday season, kind of goes through the first couple of weeks of the year then starts to recover. We saw that same dynamic this year, sales kind of dipped to about 85% of average. The last couple of weeks we’ve seen a nice recovery back to kind of, a 1 million barrels a day level that we typically see. I think yesterday we did 1,040,000 barrels a day. Gasoline sales in our system year-to-date are slightly down year-over-year. I think when you look at the concentration of our marketing this makes sense. The snow in the south and southeast kept people off the road and then the Colonial Pipeline outage limited our volumes we had available to sell in some markets. For that window the pipeline was down. Our current 7-day average data shows gasoline sales up 2% year-over-year. Overall what we can see is gasoline demand looks good and we expect gasoline demand in the United States to be fairly flat to last year. Diesel sales year-to-date in our system are also off a few percent. This was a little more surprising to me mainly because of the cold weather that we’ve seen. But, I think if you look into the data a little bit more it makes sense. We had about 10,000 barrels a day of Renewable Diesel from Port Arthur that was going to our wholesale channel that we were selling. That material is now going to produce sustainable aviation fuel. So, that’s a chunk in the year-over-year decline in diesel sales. In addition to that, we saw the same dynamic on diesel with some of the snow impacting on-road diesel demand. And then, I think if you look at Valero, we don’t have a big marketing presence in the markets where you see high heating oil demand. So, we don’t really see that big uplift from the cold weather that you may see. We definitely get that on the bulk side but not through wholesale. 7-day average shows diesel sales are up about 1% and that’s kind of what we expect for the year about a 1% increase in diesel demand in the United States. Most consultants I’ve read are showing about a 250,000 barrel a day increase in diesel demand just due to cold weather in the North Atlantic Basin. Not only do we expect diesel demand to be better but we expect a greater percentage of that to be supplied by refinery derived diesel. Last year we had the big wave of bio and renewable diesel projects hitting the market. We don’t see that same dynamic this year. So, I think overall things are shaping up pretty nicely. We’re at total light product inventory 9 million, 10 million barrels below where we were last year at this time. So, inventory is in good place. I think at the beginning of the year the supply demand balances look similar to last year, but as you progress through the year you’ll see gradual tightening of supply demand balances.

Q: Thank you. The next question is coming from Doug Leggate of Wolfe Research. Please go ahead.

A: Thank you. Thanks guys. I think Gary, you might be the most popular man in the call today, Lane, I apologize, but there is obviously a lot going on. Lane Riggs: That’s okay, with me Doug. Doug Leggate: So, I got to try just a couple of, someone has got to do it. I am going to try a couple of high-level ones if I may. The headlines I saw just a couple of hours ago was that Trump is still going to go ahead with tariffs on Canada. And, I seem to recall that the last time there were problems with heavy oil supply at Canada, there was a second order effect that everyone seems to have forgotten about. And, I wanted to run this past year and just get your perspective on it. And that is that, if you need to find a substitute for that much heavy oil, you’re going to have run cuts, you’re going to have utilization yield issues funding your system and so on. And, I wanted to see if you guys thought there was any sense to that in the context of actually became a thing as it relates to the substitution of lighter crude and some heavy grades. What would you guys do? Gary Simmons: Yes, so Doug this is Gary. And, I can tell you we’ve been aware of this for a couple of months and so our commercial teams and optimization teams have been working hard to develop every possible scenario we can think of and how we would respond to that. Of course it’s why we like our position on the U.S. Gulf Coast because you can source feedstocks from anywhere around the world and where we also like our feedstock flexibility. But yes, there is a point where if heavy feedstocks become limited, it affects rate and production of clean products certainly from our assets and we’d expect industry-wide.