Valero Energy Corp. (NYSE: VLO) Q4 2019 Earnings Call Transcript

Valero Energy Corp. (NYSE: VLO) Q4 2019 Earnings Conference Call

January 30, 2020 

Corporate Participants:

Homer Bhullar — Vice President – Investor Relations

Joe Gorder — Chairman and Chief Executive Officer

Gary Simmons — Executive Vice President and Chief Commercial Officer

Donna Titzman — Executive Vice President and Chief Financial Officer

Martin Parrish — Senior Vice President – Alternative Fuels

Lane Riggs — President and Chief Operating Officer

Jason Fraser — Executive Vice President and General Counsel

Rich Lashway — Senior Vice President – Corporate Development and Midstream Operations 

Analysts:

Phil Gresh — JPMorgan — Analyst

Manav Gupta — Credit Suisse — Analyst 

Doug Leggate — Bank of America — Analyst

Paul Sankey — Mizuho Securities — Analyst

Sam Margolin — Wolfe Research — Analyst

Paul Chen — Scotiabank — Analyst

Neil Mehta — Goldman Sachs — Analyst

Theresa Chen — Barclays — Analyst

Benny Wong — Morgan Stanley — Analyst

Roger Read — Wells Fargo — Analyst

Brad Heffern — RBC — Analyst

Jason Gabelman — Cowen — Analyst

Matthew Blair — Tudor, Pickering, Holt & Co. — Analyst

Christopher Sighinolfi — Jefferies — Analyst

Presentation:

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Valero Energy Corporation’s Fourth Quarter 2019 Earnings Conference Call. At this time, all participant lines are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to your speaker today, Homer Bhullar. Thank you. Please go ahead, sir.

Homer Bhullar — Vice President – Investor Relations

Good morning everyone and welcome to Valero Energy Corporation’s Fourth Quarter 2019 Earnings Conference Call. With me today are Joe Gorder, our Chairman and Chief Executive Officer; Donna Titzman, our Executive Vice President and CFO; Lane Riggs, our President and COO; Jason Fraser, our Executive Vice President and General Counsel; 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 one on our website at valero.com. Also attached to the earnings release are tables that provide additional financial information on our business segments. If you have any questions after reviewing these tables, please feel free to contact our Investor Relations team after the call.

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 or predictions of the future are forward-looking statements intended to be covered by the Safe Harbor provisions under federal securities laws. There are many factors that could cause actual results to differ from our expectations including those we’ve described in our filings with the SEC. Now, I’ll turn the call over to Joe for opening remarks.

Joe Gorder — Chairman and Chief Executive Officer

Thanks, Homer and good morning everyone. We are pleased to report that we had a good quarter delivering solid financial results. Our refineries operated well at 96% utilization, allowing us to take advantage of wider sour crude oil differentials and weakness in high sulfur residual feedstocks.

Overall, 2019 was a challenging environment for the refining business. We started the year with gasoline inventories at record highs and gasoline cracks at historic lows. We were also faced with narrow sour crude oil differentials for most of the year, primarily due to sanctions on Venezuela and Iran in addition to OPEC and Canadian crude oil production curtailments and differentials on inland sweet crude oils narrowed in the second half of the year with the start up of multiple new crude pipelines from the Permian Basin to the Gulf Coast.

Despite this challenging backdrop, our team demonstrated the strength of our assets and prior investments to improve our feedstock and product flexibility, allowing us to deliver another year of steady earnings and free cash flow. We demonstrated our crude supply flexibility by processing an annual record of 1.4 million barrels per day of North American sweet crude oil as well as a record of approximately 180,000 barrels per day of Canadian heavy crude oil in 2019. We also achieved another milestone by delivering the best ever year on employee safety performance and the lowest number of environmental events in company history, demonstrating our strong commitment to safety, reliability, and environmental stewardship. We continue to invest in projects that enhance the flexibility and margin capability of our portfolio. In 2019, we successfully started up the Houston Alkylation Unit and completed the Central Texas Pipelines and Terminals project and we have several growth projects that will be completed this year including the Pasadena Terminal, St. Charles Alkylation Unit and the Pembroke Cogeneration Unit. Looking further out, the Diamond Pipeline expansion should be completed in 2021 and the Diamond Green Diesel and the Port Arthur Coker projects are still on track to be completed in 2021 and 2022 respectively.

We also continue to explore growth opportunities in our renewable fuels business, which is already the largest in North America. As we previously announced, the Diamond Green Diesel joint venture is in the advanced engineering review phase for a new renewable diesel plant at our Port Arthur, Texas facility. If the project is approved, operations are expected to commence in 2024, which would result in Diamond Green Diesel’s renewable fuels production capacity increasing to over 1.1 billion gallons annually or over 70,000 barrels per day.

We remain disciplined in our allocation of capital, a constant in our strategy for several years, which prioritizes our investment grade credit rating, sustaining investments and maintaining a sustainable and growing dividend. We expect our annual capex for 2020 to be approximately $2.5 billion, which is consistent with our average annual spend over the last six years with approximately $1 billion allocated for high return growth projects that are focused on market expansion and margin improvement and the balance allocated to maintain safe, reliable and environmentally responsible operations. And you should continue to expect incremental discretionary cash flow to compete with other discretionary uses including organic growth investments, M&A, and cash returns to our investors.

Looking ahead, we have a favorable outlook for refining margins with the IMO 2020 low sulfur fuel oil regulation, which just took effect on January 1st. High sulfur crude oils are expected to be more discounted due to lower demand as less complex refineries switch to sweeter crude oils. Valero’s complex refining system is well positioned to take advantage of the discounted high sulfur crudes and fuel oils as feedstocks and our growing renewable diesel segment continues to generate strong results due to the high demand for renewable fuels.

In closing, our incredible teams relentless focus on operational excellence, a steady pipeline of high return organic growth projects, and a demonstrated commitment to shareholder returns should continue to position Valero well. So with that, Homer, I’ll hand the call back to you.

Homer Bhullar — Vice President – Investor Relations

Thanks, Joe. For the fourth quarter of 2019, net income attributable to Valero stockholders was $1.1 billion or $2.58 per share compared to $952 million or $2.24 per share in the fourth quarter of 2018. Fourth quarter 2019 adjusted net income attributable to Valero stockholders was $873 million or $2.13 per share compared to $932 million or $2.19 per share for the fourth quarter of 2018. For 2019, net income attributable to Valero stockholders was $2.4 billion or $5.84 per share compared to $3.1 billion or $7.29 per share in 2018. 2019 adjusted net income attributable to Valero stockholders was $2.4 billion or $5.70 per share compared to $3.2 billion or $7.55 per share in 2018. The 2018 and 2019 adjusted results exclude several items reflected in the financial tables that accompany the earnings release. For reconciliations of actual to adjusted amounts, please refer to those financial tables.

Operating income for the refining segment in the fourth quarter of 2019 was $1.4 billion compared to $1.5 billion for the fourth quarter of 2018. Refining throughput volumes averaged 3 million barrels per day, which was in line with the fourth quarter of 2018. Throughput capacity utilization was 96% in the fourth quarter of 2019. Refining cash operating expenses of $3.93 per barrel were in line with the fourth quarter of 2018. The ethanol segment generated $36 million of operating income in the fourth quarter of 2019 compared to a $27 million operating loss in the fourth quarter of 2018. The increase from the fourth quarter of 2018 was primarily due to higher margins resulting from higher ethanol prices. Ethanol production volumes averaged 4.3 million gallons per day in the fourth quarter of 2019. Operating income for the renewable diesel segment was $541 million in the fourth quarter of 2019 compared to $101 million for the fourth quarter of 2018. After adjusting for the retroactive blender’s tax credit recorded in the fourth quarter of 2019, adjusted renewable diesel operating income was $187 million in the fourth quarter of 2019, compared to $167 million for the fourth quarter of 2018. The increase in operating income was primarily due to higher sales volume. Renewable diesel sales volumes averaged 844,000 gallons per day in the fourth quarter of 2019, an increase of 124,000 gallons per day versus the fourth quarter of 2018.

For the fourth quarter of 2019, general and administrative expenses were $243 million and net interest expense was $119 million. General and administrative expenses for 2019 of $868 million were lower than 2018 mainly due to adjustments to our environmental liabilities in 2018. For the fourth quarter of 2019, depreciation and amortization expense was $571 [Phonetic] million and income tax expense was $326 million. The effective tax rate was 20% for 2019. Net cash provided by operating activities was $1.7 billion in the fourth quarter of 2019. Excluding the unfavorable impact from the change in working capital of $434 million and our joint venture partners 50% share of Diamond Green Diesel’s net cash provided by operating activities excluding changing in its working capital, adjusted net cash provided by operating activities was $1.9 billion.

With regard to investing activities, we made $722 million of capital investments in the fourth quarter of 2019, of which approximately $445 million was for sustaining the business including costs for turnarounds, catalysts and regulatory compliance. For 2019, we invested $2.7 billion, which includes all of Diamond Green Diesel’s capital investments of $160 million. Excluding our partners 50% share of Diamond Green Diesel’s capital investments, Valero’s capital investments for 2019 were approximately $2.6 billion with approximately $1 billion of the total for growing the business.

Moving to financing activities, we returned $591 million to our stockholders in the fourth quarter. $369 million was paid as dividends with the balance used to purchase 2.3 million shares of Valero common stock. This brings our 2019 return to stockholders to $2.3 billion and the total payout ratio to 47% of adjusted net cash provided by operating activities. As of December 31st, we had approximately $1.5 million [Phonetic] of share repurchase authorization remaining and last week, our Board of Directors approved a 9% increase in the regular quarterly dividend to $0.98 per share or $3.92 per share annually, further demonstrating our commitment to return cash to our investors. With respect to our balance sheet at quarter end, total debt was $9.7 billion and cash and cash equivalents were $2.6 billion. Valero’s debt to capitalization ratio, net of $2 billion in cash, was 26%. At the end of December, we had $5.3 billion of available liquidity excluding cash.

Turning to guidance, we continue to expect annual capital investments for 2020 to be approximately $2.5 billion with approximately 60% allocated to sustaining the business and approximately 40% to growth. The $2.5 billion includes expenditures for turnarounds, catalysts and joint venture investments. For modeling our first quarter operations, we expect refining throughput volumes to fall within the following ranges: U.S. Gulf Coast at 1.63 million barrels per day to 1.68 million barrels per day; U.S. Mid-Continent at 410 barrels per day to 430,000 barrels per day; U.S. West Coast at 230,000 barrels per day to 250,000 barrels per day; and North Atlantic at 470,000 barrels per day to 490,000 barrels per day. We expect refining cash operating expenses in the first quarter to be approximately $4.15 per barrel. Our ethanol segment is expected to produce a total of 4.2 million gallons per day in the first quarter. Operating expenses should average $0.37 per gallon, which includes $0.05 per gallon for non-cash costs such as depreciation and amortization. With respect to renewable diesel segment, we expect sales volumes to be 750,000 gallons per day in 2020. Operating expenses in 2020 should be $0.50 per gallon, which includes $0.20 per gallon for non-cash costs such as depreciation and amortization. For the first quarter, net interest expense should be about $113 million and total depreciation and amortization expense should be approximately $560 million. For 2020, we expect G&A expenses excluding corporate depreciation to be approximately $860 million. The annual effective tax rate is estimated at 22%. Lastly, we expect RIN’s expense for the year to be between $300 million and $400 million.

That concludes our opening remarks. Before we open the call to questions, we again respectfully request that callers adhere to our protocol of limiting each turn in the Q&A to two questions. If you have more than two questions, please rejoin the queue as time permits. This helps us ensure other callers have time to ask their questions.

Questions and Answers:

Operator

[Operator Instructions] And our first question comes from the line of Phil Gresh from JPMorgan. Your line is now open.

Phil Gresh — JPMorgan — Analyst

Hey, good morning.

Joe Gorder — Chairman and Chief Executive Officer

Good morning, Phil.

Phil Gresh — JPMorgan — Analyst

So first question, two-part question. I was wondering if you could discuss in the fourth quarter what incremental actions Valero took in order to run more fuel oil as a feedstock across the portfolio and how much of that you’re actually able to capture in the quarter as well as why you think the high sulfur fuel oil prices have started to strengthen here in the beginning of 2020?

Joe Gorder — Chairman and Chief Executive Officer

I’ll start with the — in terms of how we’ve maybe looked at our operating conditions and our operating envelope. I mean, Gary, can sort of finish up with the market. On the operating conditions, we widened our window — our operating window to try to reach out and get more challenging high sulfur resid. We always — we’ve for years and years and years, really for the decade, we’ve been somebody who buys a lot of high sulfur resid and to run them, but we opened up the market — now look as we — we believe the idea was is as the market changed and try to conform or at least to the IMO 2020, some of these high sulfur resids would free up in the marketplace and so we want to get at the resid before it gets blended into the high sulfur fuel oil market because of the quality reasons. So that’s really what we did, we reached out and ran quite a few high sulfur resid that we have not historically ran.

Gary Simmons — Executive Vice President and Chief Commercial Officer

Yeah, so the second part of that in terms of I guess where — how much of it showed up in the fourth quarter, we ran a lot of high sulfur resids, but we really didn’t see the discounted barrels coming in until about mid-December, so it didn’t have a real significant impact on fourth quarter results and you’ll see that more going forward, but in terms of high sulfur fuel oil getting more expensive, you know, it’s — we’re still in the very early phase of what’s a significant transition in our industry as we respond to the IMO bunker sulfur spec change and so with the change of the magnitude, you would expect it to create some volatility in the markets and it will take some time for the markets to reach equilibrium. So we certainly see that there’s not a lot of liquidity in the physical fuel oil markets, there is a lot more liquidity in the paper markets. If you look at the forward curve, steeply backwardated and kind of showing fuel oil gets back to 60%, 65% of Brent, which is kind of more where we think it will be. So our view really in respect to high sulfur fuel oil and the crude oil quality discounts hasn’t changed. As the markets normalize, we expect to see the discount widen back out as the forward curve reflects and as high sulfur fuel blend stocks have to compete for space with heavy sour crudes and complex refining capacity like we have in the Gulf Coast.

Phil Gresh — JPMorgan — Analyst

Okay, got it. Thank you. The second question just on the capital allocation side of things. You continue to keep capital spending flattish here in 2020 and you had a really healthy dividend increase that you announced, which looks pretty well covered by cash flow. So just curious how you’re thinking about this increase in the dividend and is it just a shift from the dividend to the buyback and you’re sticking with the same constructs that you’ve had, 40% to 50% of cash flow and obviously the buyback will reduce the dividend burden over time, but just curious how you’re thinking about all this today? Thanks.

Donna Titzman — Executive Vice President and Chief Financial Officer

No, we haven’t changed our policy and it continues to be that we want to return 40% to 50% of the cash flow from operations to the shareholders. The dividend increase is just a part of that payout. We don’t have anything in particular in mind in regards to a dividend-only payout, it’s just part of the overall cash return. You might see that — the dividend as a percentage of the total vary each year as our cash flow varies, but buybacks will continue to fill in the balance of that return.

Phil Gresh — JPMorgan — Analyst

Okay, great. Thank you.

Operator

Thank you. Our next question comes from the line of Manav Gupta from Credit Suisse. Your line is now open.

Manav Gupta — Credit Suisse — Analyst

Joe, could you talk a little bit about the Gulf Coast operating results. You were almost up 75% on operating income on the Gulf Coast and the context I’m trying to understand this is like you have global majors, one of which indicated that downstream earnings could be down 80% quarter-over-quarter, another one reported today downstream earnings down 36%. How is Valero in an alternate universe where you are so much better than others?

Joe Gorder — Chairman and Chief Executive Officer

Manav, that’s a really good question and I’d love to give you an intelligent answer, but why don’t I let one of these guys cover it here. Gary or Lane?

Gary Simmons — Executive Vice President and Chief Commercial Officer

Yeah, so hey, so Manav, which — I mean, first of all, we did see higher — higher discounts — crude oil discounts and obviously the resid discounts in the fourth quarter. So if you’re comparing third quarter to fourth quarter, that’s part of the answer. The second part of the answer is we got better naphtha netbacks because naphtha prices improved over the quarter. And again, we also had butane. For butane, we — when you compare fourth quarter to third quarter, its our ability to run cheaper butane or at least blend it obviously helped us with our capture rates when compared to the third quarter.

Manav Gupta — Credit Suisse — Analyst

A quick follow-up on the renewable diesel and the expansion of — targeted for late 2021. You guys have indicated a normalized margin of only 125 [Phonetic] versus a 180 [Phonetic] or something you realized in this quarter without BTC, but if you put the basic even 125 [Phonetic], you could get like $250 million EBITDA on the base margin and then about another $140 million. So you’re looking at a return of like $390 million of EBITDA on this project. So, from your capital expenditure point of 550 [Phonetic], it looks like a two-year payback on this entire project, like is the math’s right or is something off here?

Martin Parrish — Senior Vice President – Alternative Fuels

Well, we feel pretty good about it, Manav, this is Martin Parrish. We still feel good about the pro forma guidance as 126 [Phonetic] that excludes the blender’s tax credit. So that puts you at $2.26 [Phonetic] per gallon EBITDA. I think that kind of checks out with what you’re saying.

Manav Gupta — Credit Suisse — Analyst

Thanks guys. Thank you.

Joe Gorder — Chairman and Chief Executive Officer

So yes, Manav, agree with you, you’re very close.

Manav Gupta — Credit Suisse — Analyst

Thank you, sir.

Joe Gorder — Chairman and Chief Executive Officer

You bet. Take care.

Operator

Thank you. Our next question comes from the line of Doug Leggate from Bank of America. Your line is now open.

Doug Leggate — Bank of America — Analyst

Hey, good morning guys. Joe, I think it’s the first time we’ve spoken this year. So, happy New Year.

Joe Gorder — Chairman and Chief Executive Officer

Thank you. Same to you, Doug.

Doug Leggate — Bank of America — Analyst

Joe, I got one on the market and one on the letter [Phonetic], let’s go with the letter [Phonetic] first. Maybe Donna wants to take this, but Phil already asked about the payout, you know, the 40%, 50% of your cash flow payout. I guess I’m more curious on the mix with the dividend. I mean you were very early to get on this train of returning a significant amount of cash to shareholders and its paid, pardon the pun, but it has paid dividends in both the credibility of the business model as well as the relative performance of the stock, but why not more dividends over buybacks. I’m just curious how you think about that?

Joe Gorder — Chairman and Chief Executive Officer

Do you want to take a crack at it?

Donna Titzman — Executive Vice President and Chief Financial Officer

So look, we have told — we’ve explained to the market that we do consider that dividend to be part of the non-discretionary piece of our capital allocation. So when we look at that, we look at it in the context of it being competitive to the market with our peers in the market in general, but also more importantly sustainable through market cycles. So again, we regularly review that with those objectives in mind.

Joe Gorder — Chairman and Chief Executive Officer

You know, Doug, what I would — and Donna is exactly right, what I would add to what she said, you’ve got the sustainability aspect in a down market cycle, which is something that we spend a lot of time looking at to be sure that we don’t find ourselves cutting that dividend and you reinforce that by having a very strong balance sheet, but if I think about it longer term, okay and this is really where my brain goes, it goes to the sustainability of the growth of the dividend going forward and we want to continue to be able to grow, we want to give our owners more every year and the way that you go about doing that is tempering it a little bit. I think we started talking last year about moderating the dividend a little bit more, which I think you saw we did this year and the other thing that’s really encouraging from my perspective is that we’ve got these capital projects that are coming on stream, they are providing significant future earnings potential and some of them are longer cash flow cycles, which we haven’t done a lot of over the last bunch of years, but I mean we got another renewable diesel plant, we’ve got the coker and then if we end up doing the Port Arthur renewable diesel plant in the future, these are huge EBITDA producing projects which are going to really reinforce our ability to go ahead and continue to deliver dividend growth going forward. Now, I’m not making you a promise because Lord only knows what might happen, but that would be our objective and that’s kind of the way we’re looking at investing our capital. The component part, the percentage of the total payout that’s made up of the dividend, that the dividend comprises, that’s not formulaic. It’s more us looking at all of the factors involved and there is a lot of sausage making that takes place there that we won’t get into here, but I always want to be in a position when we do something like this to let you know that we feel fairly assured that this isn’t going to be an issue going forward.

Doug Leggate — Bank of America — Analyst

I appreciate the lengthy answer guys. My follow-up, Joe, I don’t know if you want to sort this to one of the guys and I mean I also offer my congratulations to the new officer titles in the team, but maybe Lane wants to take this, but there was a lot of chatter about new capacity coming online at the back end of this year and maybe for the next couple of years. Obviously, things are kind of soft it seems on the demand side given what’s going on with China, but I’m just wondering how you see the prognosis for the short term, IMO tailwinds transitioning maybe into a more challenging refining environment longer term, how are you guys thinking about that? And I’ll leave it there. Thanks.

Joe Gorder — Chairman and Chief Executive Officer

Thanks, Doug.

Lane Riggs — President and Chief Operating Officer

Yeah, so I think for at least for the next year to two years, we see global oil demand growth kind of keeping pace with the capacity additions and we still think we have favorable balances between production and consumption, but then, yes, we start to show two years to three years out that capacity additions start to outpace global oil demand growth and at that time, we would expect to see some rationalization in the industry.

Doug Leggate — Bank of America — Analyst

So the next couple of years, you’re not concerned about. I mean obviously Aramco has got a bunch of stuff coming online and then Asia kicks up ’21, ’22 [Phonetic]. So you’re not concerned about the short term — that kind of medium-term outlook then?

Lane Riggs — President and Chief Operating Officer

No, we still show that oil demand growth outpaces capacity addition for the short term.

Doug Leggate — Bank of America — Analyst

Okay, will watch with interest. Guys, I’m looking forward to seeing you in March at our conference. Thanks.

Joe Gorder — Chairman and Chief Executive Officer

Thanks, Doug.

Operator

Thank you. Our next question comes from the line of Paul Sankey from Mizuho. Your line is now open.

Paul Sankey — Mizuho Securities — Analyst

Morning all, if I could also follow up on that. Hi guys. Joe you ran higher than we expected in every region. Could you talk about then that’s obviously versus your guidance, could you talk about the pattern of higher volume. I don’t know if there’s a volume mass issue there, but certainly your capture suggests that’s not the right direction to be looking in, and furthermore, once you’ve hopefully helped explain how come you’re running at the levels that you are right across the system, could you and this is the follow-up to the previous question, could you talk about any expectations you have for shutdowns in refining if margins stay extremely weak and potentially get worse with this whole situation in China. Thanks.

Joe Gorder — Chairman and Chief Executive Officer

Okay, so Paul, we’ll — we’re kind of looking at each other. Let us give — take a crack at this and then we’ll give you the opportunity if we’re not answering your question to follow up, okay? [Speech Overlap].

Lane Riggs — President and Chief Operating Officer

Yeah, hey, Paul, this is Lane, I’ll start. We’ve had a long strategy really dating back to 2011 to work in a very organized way on our reliability projects and what we’ve seen is our refining system has gone from say 95% to 96% availability, all the way up to sort of over 97% availability and that’s helped us — we’re available in the market is right and been able to perform better. And in addition to that, we do believe that we’re the best in the industry in terms of understanding what feedstocks go where in the systems that we’re in and we’re highly adaptable to that. So I think that helps us versus some other people in terms of our capture rates.

Paul Sankey — Mizuho Securities — Analyst

Lane, could you just dig in a little bit on that better than anyone else argument because to an extent I guess the computer programs commoditized or not, if you could just go a bit down that rabbit hole, I’d be grateful, thanks.

Lane Riggs — President and Chief Operating Officer

You know it’s interesting you would say they are commoditized because everybody has tools, everybody believes that they are all implementing these tools to some degree or another, I would say that I believe we are more integrated and more aligned on making sure that our tools have characterized the feeds and we understand our units very well. It’s one thing to have the tools, sometimes people have tools, but they don’t use the tools. We have a world-class planning and economics group and they do a fantastic job coordinating with our refineries in terms of having those sub models very well understood and therefore, we understand the operating envelopes and how those feedstocks are characterizing our systems.

Paul Sankey — Mizuho Securities — Analyst

Yeah, I mean I guess further to a previous, previous question, we’ve seen big mega oils you would think have a similar structure in terms of their refining footprint to you guys, wildly underperforming against what you guys are achieving. So it’s just interesting trying to establish what the competitive advantage is.

Joe Gorder — Chairman and Chief Executive Officer

Well, we appreciate you saying that, Paul.

Lane Riggs — President and Chief Operating Officer

Yes, thank you.

Joe Gorder — Chairman and Chief Executive Officer

And then the follow-up question was on capacity?

Lane Riggs — President and Chief Operating Officer

Yeah, so I think the situation in the Far East is just developing and it’s really too early for us to be able to judge the magnitude of the impact that’s going to have and whether it leads to refineries shutting down or not.

Joe Gorder — Chairman and Chief Executive Officer

You know, the reality of it is we’ve got capacity coming on stream, we’ve also got capacity that isn’t running well and that in the foreseeable future probably won’t be able to run well and so, and Paul, if you assume at some point, it’s a zero-sum game, there is going to be a lot of capacity that shouldn’t run, certainly in a post IMO world, it’s going to have an effect on that. And so if you got poorly performing assets today, turning them around is a lengthy process and then if you’ve got a marginal asset due to economics, you’re going to be the guy that has to bow out at some point in time. So that’s why we look at it. I mean frankly our tendency is to focus a whole lot more on our business and what we can do to make it better and more efficient than kind of what’s happening more broadly.

Paul Sankey — Mizuho Securities — Analyst

Yeah, got it. If I could just ask a very specific follow-up. If we assume that there was extreme weakness in jet fuel demand, what would that mean for you and the global industry and I’ll leave it there. Thank you.

Joe Gorder — Chairman and Chief Executive Officer

Okay, thanks.

Gary Simmons — Executive Vice President and Chief Commercial Officer

Well, our jet yield is about 8% and as we make 200,000 barrels a day, 250,000 barrels a day of jet, some of that is contract demand and inland demand, which is going to stay, but a lot of it in our Gulf Coast refineries we have the ability to put that into diesel if jet demand got soft and I suspect that’s what would happen.

Paul Sankey — Mizuho Securities — Analyst

Thank you.

Joe Gorder — Chairman and Chief Executive Officer

Thanks.

Operator

Thank you. Our next question comes from the line of Sam Margolin from Wolfe Research. Your line is now open.

Sam Margolin — Wolfe Research — Analyst

Hello, how are you?

Joe Gorder — Chairman and Chief Executive Officer

Hi, Sam.

Sam Margolin — Wolfe Research — Analyst

I know you just said you focus on your own business and not the market, but I have a market question to start, so sorry.

Joe Gorder — Chairman and Chief Executive Officer

Oh, I didn’t say we don’t focus on the market.

Sam Margolin — Wolfe Research — Analyst

So a lot of attention is being paid to this collapse in diesel cracks, part of the reason that the drop has been so pronounced is because the peak that it started from was so high and at the time when we were at that peak, it seemed obvious why, but in retrospect, IMO is having more of a feedstock effect than a product effect. So do you have any updated thoughts about that period just three months ago when diesel cracks were peaking in retrospect what was really driving that and maybe that will help inform how we can escape this headwind in the intermediate term?

Lane Riggs — President and Chief Operating Officer

Yes, Sam. So I think you know as we got to the back half of the fourth quarter obviously round season, wind it down and we started to see refinery utilization ramp up and with higher refinery utilization, of course, distillate production increased and then overall demand has been weaker than what we anticipated. So a lot of that has been due to warmer weather. The warmer weather has somewhat offset a lot of the demand increase we thought we would get as a result of IMO. In addition to that, certainly in the U.S. Gulf Coast, we’ve had very heavy fog which has limited our ability to export the diesel to some of the export markets. In addition to that, we’ve had very high freight rates which again hinder our ability to export. Of course, South America is a big export market for us. They’ve had a lot of rain in South America, which has delayed the harvest. So again, having a hit to demand and then I think you know the final thing is there was a lot of pre-stocking of very low sulfur fuel oil that happened in the industry. And so, so far it’s muted the impact that IMO will have. We certainly are confident that that demand will show up, but it may be more of a second quarter type demand increase than what we’re seeing so far in the first quarter.

Sam Margolin — Wolfe Research — Analyst

Okay, thanks. And my follow-up is on renewable diesel. You know it’s been said on this call already, the economics are really strong, it scales very accretively. On the feedstock side, are there any constraints as you imagine this business getting bigger. There was another operator in the business who recently pivoted a little bit on the feedstock side and said tightening was possible in the future, do you see any of that or is does the strength of your partnership with Diamond kind of help you avoid that friction?

Joe Gorder — Chairman and Chief Executive Officer

Well, definitely the strength of our partnership with Darling helps us. They process 10% of the world’s meat byproducts. So we’re in a unique position with the JV we have. This feedstock is tied to GDP growth per capita and that’s growing in the world. So it’s going to tighten up some, but we still feel good about being able to source and we don’t see that as a constraint with what we have on what we’ve talked about so far.

Sam Margolin — Wolfe Research — Analyst

All right, thanks so much. Thank you. Our next question comes from the line of Paul Chen from Scotiabank. Your line is now open.

Paul Chen — Scotiabank — Analyst

Hi, good morning guys.

Joe Gorder — Chairman and Chief Executive Officer

Good morning, Paul.

Paul Chen — Scotiabank — Analyst

I think that the first one is probably either for Lane or for Gary. You guys historically won the M100 I suppose that’s directly for the crew unit. Have you test or whether that you will be, have the configuration to one, the high sulfur fuel directly through the coker and that if you do that — how big is that capacity you may be able to do. And also whether you have export any low sulfur VGO in the fourth quarter?

Lane Riggs — President and Chief Operating Officer

Hey, Paul. This is Lane. I’ll start and Gary can round you out. As you’ve alluded to, we have a history of running M100, but not all M100s are created equal, there’s varying qualities. We had what we would consider to be a quality window that we historically ran. We’ve widened that. We do run that — we run those types of long resids. They’ll obviously have a little bit of cutter stock in it and we typically run them in our crude supply and so as we raise the percentages of them, you think about, well, what we’re doing is we’re running those to fill to destroy the resid and obviously it makes — it builds out the bottom of the refinery and then we’re running light sweet crude as a supplement to that because that’s been an advantaged crude really for the past year. So it’s really over time, we’re optimizing by looking at all — the domestic light sweet with these resids opening the operating envelope for all the resids that we can find in the world and then we are constantly optimizing that versus the heavy sour crude availability and that’s kind of how we always run, we’ve just — we’ve worked really hard to characterize some of these that are new to the market and are trying to run more of them. What was your second question?

Paul Chen — Scotiabank — Analyst

No, in the first one, have you export any low sulfur VGO?

Lane Riggs — President and Chief Operating Officer

Right, so our economic signals have been pull low sulfur VGO out of the cat crackers and we did sell quite a bit of it in the fourth quarter and so far in the first quarter, we’re seeing the same economic signals.

Joe Gorder — Chairman and Chief Executive Officer

Well in addition to that we’re — so, Paul, in addition to that, we’re also exporting a lot of low sulfur ATV that we normally run in RTFCs as well.

Paul Chen — Scotiabank — Analyst

What kind of economic and how much you have export? I mean, is that part of the reason why your margin has been perhaps better than people thought?

Joe Gorder — Chairman and Chief Executive Officer

Yes, I mean we were, we were export — we were selling those particularly low sulfur ATVs in some of the other hydroprocess resids quite a bit above what they historically have been worth.

Paul Chen — Scotiabank — Analyst

Yeah and is there a volume that you can share? Is it say 50,000 barrel per day, 100,000 barrel per day. Any kind of rough number?

Joe Gorder — Chairman and Chief Executive Officer

No, we probably don’t really want to share that.

Paul Chen — Scotiabank — Analyst

Final one, 180,000 barrel per day of the WCS. Is there any more room that you would be able to expand that?

Gary Simmons — Executive Vice President and Chief Commercial Officer

Yes, there is. So we have — you know, we primarily run the Canadian and Port Arthur in Texas City we can also take it to St. Charles and we have plenty of capacity to run more Canadian.

Paul Chen — Scotiabank — Analyst

How about supply, can you get it there?

Lane Riggs — President and Chief Operating Officer

Yes we can. So today, a lot of the problem is certainly pipelines coming out of Western Canada are full but we buy up the pipeline and we also continue to take volume by rail. So I think in the fourth quarter, we did a little below 38,000 barrels a day of heavy Canadian by rail. We’re seeing those volumes ramp up in the first quarter and expect them to ramp up even more in the second quarter.

Paul Chen — Scotiabank — Analyst

Perfect. Thank you.

Joe Gorder — Chairman and Chief Executive Officer

Thanks, Paul.

Operator

Thank you. Our next question comes from the line of Neil Mehta from Goldman Sachs. Your line is now open.

Neil Mehta — Goldman Sachs — Analyst

Good morning and let me add my congrats to Lane and Gary here on the promotion. I guess my first question is, we’ve spent a lot more time than we ever have with investors on the issue of sustainability and carbon intensity and it’s really the E side of the ESG and Joe maybe you could just talk high level how you think about Valero’s framework for talking to investors about ESG and carbon intensity. Do you feel like you are there where you want to be on carbon target and disclosures and then I would think the renewable diesel business becomes a big part of the narrative as to how you can respond to any questions that might emerge around that?

Joe Gorder — Chairman and Chief Executive Officer

Yeah, no, Neil, that’s a really good question and you are right, we do spend a lot of time on this, and frankly I think Valero has got a great story. Jason is responsible. He and John are jointly responsible for our efforts around this and we’ve made a lot of progress. So I want to let those two guys speak to this in some detail.

Jason Fraser — Executive Vice President and General Counsel

Yes, this is Jason. Neil, I’ll be glad to talk to you a little bit about it and as you — the points you made about strategy is of course correct. Two of our three segments are now renewable. We’re the largest renewable diesel producer in the U.S. through DGD, second largest producer of ethanol and we continue to look at that area and expand it as we’ve discussed and we’re also looking at other low carbon fuels and ways to lower our carbon intensity in our existing business. So just as a business footprint, I think we’ve been evolving as the market expectations have changed. I think we’ve done a good job on that side. And on the environment side, we’re very mindful about environmental impact. We’ve always been proud of our record. In 2019, we had our best ever performance on environmental scorecard events. It’s the lowest number we’ve ever had and safety has always been a big focus of ours. In 2019, our refining employee injury rate was our best ever and the combined employee contractor rate was our second lowest in company history. We think we have a good governance structure. 10 of our 11 directors are independent. We have substantial diversity. It’s something we’re always working on. We have really good risk oversight, risk management within our governance structure. And then on the disclosure area, which is one of the things you asked about. We’ve definitely beefed it up here in the last couple of years as we put more focus in the ES&G area. In September of 2018, we published our report on climate related risks and opportunities and we prepared that in alignment with the TCFD recommendations, which seems to be more and more — our investors seem to be coalescing around that as being the standard they want. There are a lot of competing regimes out there. So it’s good to see some standardization kind of come into play and we also put out a stewardship and responsibility report annually where we talk about — some about the carbon stuff, but also about other sustainability oriented areas and we’re continuing to work on that every year and try to make it better and I know there has been some large investors focusing on safety [Phonetic] as being maybe the standard and once again outside of carbon, there has been a lot of variability and different disclosure structures on what people they want. So we’re taking a hard look at safety [Phonetic] this year and comparing to what we’re doing to see if we would need to tweak some things there. We’re always looking to improve.

Neil Mehta — Goldman Sachs — Analyst

I appreciate it. And as a follow-up question actually relates to RINs which I know it’s collectively our least favorite topic, but there were some headlines recently around a court case around RINs injections and a small waiver. The waiver is for some of the smaller refiners from couple of years ago. Do you see any risk that this becomes an issue that could put upward price pressure on RINs again?

Jason Fraser — Executive Vice President and General Counsel

Okay, yeah, this is Jason again, we did see that 10th Circuit case out of Denver last week and what it did was vacated SREs for three refineries, two of HollyFrontier’s and one of CVRs and the EPA has several options including appeal. Expect they probably will appeal like neither appeal and have the 10th Circuit hear the case as a whole or go straight to the Supreme Court and we know they’re evaluating their options to see. The court took a reading of the statute a fairly constrained view that as far as I know has been done by a court in the past, but it is definitely not in keeping with the view the EPA has had, the way they have interpreted this statute in the past. So we really have to see what the EPA does when it gets an idea of how impactful this is. One important point is, because it was at the 10th Circuit instead of the DC Circuit, which is a decision the plaintiffs made and when they filed it, it only has legal effect within the 10th Circuit. So it only binds the EPA within those six states that are covered by the 10th Circuit. So let’s see how it evolves.

Joe Gorder — Chairman and Chief Executive Officer

Yeah, we’ll see how it plays out. I think it’s probably too early to give a market signal on RINs prices as a result of this case really.

Neil Mehta — Goldman Sachs — Analyst

Great guys, thank you.

Operator

Thank you. Our next question comes from the line of Theresa Chen from Barclays. Your line is now open.

Theresa Chen — Barclays — Analyst

Good morning. Joe, I’d like to touch on your comments earlier about permanent types of Gulf Coast and narrowing of inland and as far as developments at Corpus Christi goes there has been continued discussion on potential dock constraints in the area and based on one of your competitors’ releases yesterday, it seems that one of the bigger dock projects may be delayed a bit. What is your current outlook on the possibility that we might have a glut of crude at Corpus, which I’m sure would benefit your facilities there and if there are indeed dock constraints, would this effect MEH first since there is no public Corpus price and then affect Midland if things really get backed up or how should we think about that?

Joe Gorder — Chairman and Chief Executive Officer

Yes, Theresa, that’s a good question, Gary is close to this. Let’s let him talk about it for a minute.

Gary Simmons — Executive Vice President and Chief Commercial Officer

Yes, so we are, when we look at this, it looks like there that there will be plenty of dock capacity available, but there is some periods of time where it could get very tight and so our focus really has been to make sure that we’re connected to all of these lines coming out of the Permian and we can take barrels to Corpus or Three Rivers and then we’ve also put effort into expanding our dock capacity from our Corpus Christi refinery. So part of that project is completed. By early second quarter, we’ll have that project 100% completed and essentially double our export capacity that we’ll be able to put through our system. The second part of your question, yes, I would expect it to really affect the MEH posting first and then, yes, it will probably work its way back into the Permian as time goes on.

Theresa Chen — Barclays — Analyst

Got it and switching gears a bit, so the natural gas pricing outlook seems pretty depressed. Can you talk about how much of a tailwind this could be for your business this year?

Lane Riggs — President and Chief Operating Officer

Well, it is Lane. So obviously energy is a big part of the cost structure in our business and it’s been depressed for a while. So it obviously it works not only to our advantage, but really the industry’s advantage to compete in the world. I mean natural gas is how we run these refineries largely and it’s a big advantage for the U.S. refining in general.

Joe Gorder — Chairman and Chief Executive Officer

Yeah, really all industrial activity.

Theresa Chen — Barclays — Analyst

Thank you very much.

Operator

Thank you. Our next question comes from the line of Benny Wong from Morgan Stanley. Your line is now open.

Benny Wong — Morgan Stanley — Analyst

Hey, good morning guys. Thanks for taking my question. I just kind of want to follow up on Paul’s question around the Canadian barrels. There is more talk up North about building diluent recovery units. Just wanted to get your perspective on that if that’s kind of a viable path for more Canadian barrels to reach the U.S. Gulf Coast. And just curious have you kind of tested any of these unblended bitumen in your facilities and if they are really the more desirable type of feedstock that’s what’s being toted as.

Gary Simmons — Executive Vice President and Chief Commercial Officer

Yes. So, this is Gary. And yes, we took bitumen directly from Western Canada and ran it at our refinery at St. Charles and have ongoing discussions with several producers. You can just move a lot more by rail if you take the undiluted barrel and it would fit well into our system and we have plenty of capacity to be able to run it.

Benny Wong — Morgan Stanley — Analyst

Thanks, Gary. Appreciate that. And my follow-up is more on the RFS program and maybe Jason can chime in on this is, there seems to be more focus in DC about what that program will look like after it sunsets in 2020 and it seems like the thought of setting a higher octane gasoline standard is alive again. Just wanted to get your thoughts on that and if there is really a path for it this time or — and I guess how you think about that program beyond 2022? Thanks.

Jason Fraser — Executive Vice President and General Counsel

Sure, yeah and this is Jason and you’re right gives us tables that set the volumes expire in 2020 and the program falls back in the hands of the EPA to set the volumes using certain standards as guides and it’s still open. They hadn’t signaled a lot about what they’re going to do, but we would like the higher octane fuels to be part of the solution. We think that’s a great answer, it’s great for the autos. It enables them to meet their CAFE, its great for us, it keeps the internal combustion engine more viable in this lower carbon world and more vibrant competitor and it is great for the ethanol guys because there is a good choice of low cost octane. So really it’s a win-win-win solution that we would like to see get traction and we definitely are talking it up. We think it’s a great solution for the country.

Benny Wong — Morgan Stanley — Analyst

Great, thanks guys.

Joe Gorder — Chairman and Chief Executive Officer

Thanks, Benny.

Operator

Thank you. Our next question comes from the line of Roger Read from Wells Fargo. Your line is now open.

Roger Read — Wells Fargo — Analyst

Hi thanks, good morning everybody.

Joe Gorder — Chairman and Chief Executive Officer

Hey Roger, good morning.

Roger Read — Wells Fargo — Analyst

A lot of the good stuff has already been hit here, but maybe just to dig in a little bit more on sort of the, let’s call it the North American performance versus the global performance. You’ve mentioned some benefits from naphtha, some benefits from natural gas and from butane, but there were also in the last couple of months issues with tanker rates and things like that. So as those events, let’s call it normalize or in this business where everybody takes advantage of them pretty quickly, we arb away those advantages. What looks more sustainable for you here in the next few months versus what looks transitory, not just worried so much, you’re thinking, hey, we’re going to go to summer grade gasoline, which has its own benefits. Just curious there what you’re seeing?

Gary Simmons — Executive Vice President and Chief Commercial Officer

Yeah. So I think overall, you know, as long as the U.S. production is having to clear to the export markets despite where freight rates go, we’ll see good advantage running domestic light sweet crude at many of our assets. We also see that running the heavy sour and the high sulfur fuel blend stocks into our high complexity assets looks to be very favorable for the foreseeable future as well as a result of the IMO bunker spec change. Outside of that, I don’t know what else I would add.

Lane Riggs — President and Chief Operating Officer

Roger, I want add — this is Lane. I’ll just add one thing. What you’re really seeing is as we alluded to, we are marketing low sulfur VGO and low sulfur ATV into the low sulfur fuel oil market and what that does is that really is constructive for SEC — for gasoline because SEC is going to be cut and we prefer — talked about it over the past, really for the last two years when we were talking about IMO and that part of it is certainly playing out. I mean, you will see as the gasoline season rolls in, you’ll get and essentially that market is going to have to compete for feed that’s into the gasoline market. So it should be supportive of both really sort of both gasoline and diesel.

Roger Read — Wells Fargo — Analyst

Okay, that’s helpful. And then maybe back to Theresa’s question about natural gas. Obviously, cash opex guidance up over 4 [Phonetic] is kind of higher than what we’ve seen over the last few years, and I know there has been some changes in the consolidation of VLP and all that, but I’m just curious, is that something that can be a help on the opex side that we should see or there other things moving around here that are going to keep opex on the upper end.

Lane Riggs — President and Chief Operating Officer

So, hey Roger. If you look — this is Lane again. So if you compare our guidance to last basically fourth — third quarter ’20 to first quarter ’19, it is pretty much flat. That’s sort of our large turnaround time frame and so I would just sort of say it’s flat year-over-year, but when you look at to the longer term, certainly we’ve had realignment reporting structures. We’ve moved the renewable — the Diamond Green Diesel out and we’ve taken all of the MLP stuff, which would have been in our sort of cost of goods and it came into our opex and so as we realigned all that stuff, it sort of resulted in a little bit in terms of our opex, a little bit higher and then overall, there are obviously there are some inflationary pressures in the world when — again when you compare our overall cash opex performance on a sort of what we would call a follow-on [Phonetic] basis, we are by far in the first quarter, so which means we are the pace setters in the industry when it comes to costs.

Roger Read — Wells Fargo — Analyst

Well, that pretty well answers it. Thanks guys.

Operator

Thank you. Our next question comes from the line of Brad Heffern from RBC. Your line is now open.

Brad Heffern — RBC — Analyst

Hi everyone, a question maybe for Lane on throughput. So this quarter, there was almost 1.7 million barrels a day as we — I think you guys have quoted the capacity historically as more like 1.6 million barrels a day. So is there something that’s changed, is that something that running the resid is allowing you to do and then how should we think about that going forward with some of the diffs, like Mia widening out.

Joe Gorder — Chairman and Chief Executive Officer

So what you’re — and I kind of touched on it a little bit earlier, as we’re running more and more resid, the resid doesn’t really have that much light in components. So as it substitutes and sort of moves out either heavy really the real thing that we’re backing out if you look at year-over-year is medium sour. So what’s happening is we’re running more and more light sweet which and that’s what that’s doing is it’s sort of it’s substituting for medium sour which does have some light into it. So that’s a journey we’re on, we’ve been signaling Max light sweet crude and Max heavy and we optimize between heavy sour crudes and resid and so I don’t know that we can go a whole lot higher, but we’ll just see quarter-to-quarter and see how much higher we can go.

Brad Heffern — RBC — Analyst

Okay, thanks for that. And then, Joe, in your prepared comments you were talking about sort of the different things competing for capital and you mentioned M&A as you have in the past. I know you haven’t done a whole bunch recently, you’ve done some ethanol deals, there was the terminals acquisition, I guess, can you just put any meat on that in terms of what you would potentially be interested in on the M&A front?

Joe Gorder — Chairman and Chief Executive Officer

Yeah. Why don’t we let Rich, talk about that.

Rich Lashway — Senior Vice President – Corporate Development and Midstream Operations

Sure, this is Rich, hey Brad. So yeah, we continue to look at the opportunities as they arise. A lot of this stuff tends to be in niche markets and we’re focused on the Gulf Coast and just haven’t seen a lot of things arise there, that’s where we would capture the synergies and where we would have the advantage. So I mean we look at everything as it comes up, but we don’t see any opportunities that compete against the pipeline of organic projects that we have.

Joe Gorder — Chairman and Chief Executive Officer

[Speech Overlap] Yeah, that’s right.

Brad Heffern — RBC — Analyst

Okay, appreciate it.

Operator

Thank you. Our next question comes from the line of Jason Gabelman from Cowen. Your line is now open.

Jason Gabelman — Cowen — Analyst

Yeah, hey guys, good morning. I’d like to ask a question about the ethanol and renewable diesel segment, it looks like the indicators have fallen quite a bit from 4Q to year-to-date. And I’m just wondering what’s going on in those twp markets and how you see that evolving throughout the course of the year and I have a follow-up, thanks.

Martin Parrish — Senior Vice President – Alternative Fuels

Okay, this is Martin. On the renewable diesel, the indicator drops because the — you have the blender’s tax credit in place now. So we gave up a little bit on the ran, feedstock cost got a little higher, but you need to add $1 a gallon to that indicator to get fairly where market is. So again we’re 126 [Phonetic] pro forma, but that’s really $226 [Phonetic] EBITDA per gallon. So that one is not concerning at all. Fourth quarter ethanol was $0.14 a gallon EBITDA was our performance. That’s come in and you’re correct there. January is always tough in the business. I mean domestic gasoline demand is low, ethanol inventories always build in January. Really what’s happened in the ethanol space we’ve been oversupplied in the U.S. for several years. Exports were growing at 30% CAGR up through ’18. In ’19, they took a breather and that was really due to low sugar prices in the world. So Brazil made more ethanol. Right now though, sugar prices are up 20% versus where they averaged 2019 at. Export demand is strong. We’re seeing really good numbers in December, January, February and March. So we still — ethanol is in the fuel mix to stay in the U.S., a little bit of incremental E15 and then hopefully this higher octane standard would really help the industry obviously. So we’re still optimistic about the future.

Jason Gabelman — Cowen — Analyst

Thanks. I appreciate those thoughts. And then if I could just go back to running resid high sulfur fuel oil. Can you just put some numbers around or discuss how much of those intermediates you’re running and backing out crude as a result and how much of that is incremental feedstocks and in addition to that, are there any type of indicative economics that you could give on running those barrels? I understand there is a lot of moving parts, but are we talking low-single digit dollar per barrel, high-single digit dollar per barrel, in the double-digit range just to give us a sense of what the uptick is? Thanks.

Lane Riggs — President and Chief Operating Officer

Hey, so this is Lane. We’re not going to share our detailed volumes in terms of how we do all that and obviously the relative margins are all a function of what the market is. They’re not fixed off one another. There is a dynamic market out there that’s a function of the crude market, the high sulfur fuel oil market, the low sulfur fuel oil market, the latter two of which are still trying to sort themselves out with respect to IMO 2020. So these things vary just like any other feedstock that we run. There is not a guaranteed margin relative to one another and they’re and as all the refining capacity looks at all this and optimizes and if they — the margins are going to be different over time. So there’s nothing that is — there is not anything we could communicate that you can hang your hat on per se.

Jason Gabelman — Cowen — Analyst

Okay, thanks.

Operator

Thank you. Our next question comes from the line of Matthew Blair from Tudor, Pickering, and Holt. Your line is now open.

Matthew Blair — Tudor, Pickering, Holt & Co. — Analyst

Hey, good morning everyone. I wanted to check in on asphalt and pet coke. I know it’s only about 3% of your product slate but how has pricing and realizations fared on these areas just given all the volatility on high sulfur fuel oil in the recent weakness?

Gary Simmons — Executive Vice President and Chief Commercial Officer

Yeah, so this is Gary. I think overall we’ve been surprised that asphalt margins has stayed relatively strong. We thought that there may be an attempt to push a lot of these high sulfur resids into the asphalt market and you would see weakness, but thus far asphalt margins in our system have remained strong and I wouldn’t say we’ve seen much of an impact at all on pet coke.

Matthew Blair — Tudor, Pickering, Holt & Co. — Analyst

Sounds good. And then the sales volumes in renewable diesel were quite strong in the fourth quarter. Just wanted to confirm, was that a result of selling down some inventory or is it the plan to actually run at those levels?

Gary Simmons — Executive Vice President and Chief Commercial Officer

We ran at those levels.

Matthew Blair — Tudor, Pickering, Holt & Co. — Analyst

Okay, thank you very much.

Operator

Thank you. Our next question comes from the line of Chris Sighinolfi from Jefferies. Your line is now open.

Christopher Sighinolfi — Jefferies — Analyst

Hi, Joe, everyone, thanks for taking my question.

Joe Gorder — Chairman and Chief Executive Officer

Hi Chris.

Christopher Sighinolfi — Jefferies — Analyst

I just wanted to follow up on Niel’s earlier sustainability question if I could and I just have two quick questions. I guess, first, Joe, have you looked at CCUS investments to capture incremental carbon off the facilities. I know some of your integrated peers are working on that specifically on ethanol facilities to use in some of their EOR operations. So I’m just wondering if it’s something you’ve looked at what the opportunity set might be?

Joe Gorder — Chairman and Chief Executive Officer

We are looking at it, yes and Martin and Rich, they got a team put together and we’re kind of down the road on this. I think you know, I guess the real question that we’re trying to — you always are wondering about is what’s the cost of carbon going to be, what are the economics going to look like on an investment for — in a project like this. So we are looking at it though.

Christopher Sighinolfi — Jefferies — Analyst

Okay and then I guess second in light of the BTC extension, DGD JV has clearly become more valuable. As noted, it’s a key pillar in your environment, both sustainability story, which is clearly set apart from your refining peers, but I’m just curious, do you think you get appropriate credit for that and the ethanol franchise within Valero and I guess what are any thoughts or internal evaluation about if or when those businesses might make more sense being independent?

Joe Gorder — Chairman and Chief Executive Officer

Yeah, well, those are two very different questions, one is do we think it matters from an ES&G perspective and I think it definitely does. We have a very clear view of what — where things are going and what the world’s demanding now and we really believe renewable fuel is a key component of that and the good news is that they both happen to be great businesses and we got great assets and good teams running them. So I think as time goes on, people will see that Valero is somewhat differentiated perhaps from others out there because of these investments. As far as separating them off, my view is they are producers of motor fuels and different types of motor fuels is very low carbon intensity motor fuels, but their motor fuels and Valero produces motor fuels. That’s what our business is and we do it really well and these are largely process operations and they integrate well, processes that we’ve implemented on the refining side are scalable to our ethanol plants and to the renewable diesel operations and so I think frankly being embedded in the company, it brings more value to Valero than it would to split it out.

Christopher Sighinolfi — Jefferies — Analyst

That’s perfect. Thanks a lot for the time. Appreciate it.

Joe Gorder — Chairman and Chief Executive Officer

You bet.

Operator

Thank you. At this time, I’m showing no further questions. I would like to turn the call back over to Homer Bhullar for closing remarks.

Homer Bhullar — Vice President – Investor Relations

Great, thank you. We appreciate everyone joining us today and if you have any follow-up questions, please feel free to reach out to the IR team. Thank you.

Operator

[Operator Closing Remarks]