Ashley M. Smith – Vice President-Investor Relations William R. Klesse – Chairman & Chief Executive Officer Joseph W. Gorder – President & Chief Operating Officer R. Lane Riggs – Senior Vice President-Refining Operations Michael S.

Ciskowski – Chief Financial Officer & Executive Vice President Gary Simmons – Vice President-Crude, Feedstock, Supply & Trading.

Paul Cheng – Barclays Capital, Inc. Roger D. Read – Wells Fargo Securities LLC Evan Calio – Morgan Stanley & Co. LLC Edward Westlake – Credit Suisse Jeff A. Dietert – Simmons & Co. International Paul I. Sankey – Wolfe Research LLC Faisel H. Khan – Citigroup Global Markets Inc.

Doug Leggate – Bank of America Merrill Lynch Sam Margolin – Cowen and Company Blake Fernandez – Howard Weil Chi Chow – Macquarie Capital, Inc. Cory J. Garcia – Raymond James & Associates, Inc. .

Welcome to the Valero Energy Corporation Reports 2014 First Quarter Results. My name is Bakiba and I'll be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded. I will now turn the call over to Mr. Ashley Smith. Mr.

Ashley Smith, you may begin..

Thank you, Bakiba. Good morning, welcome to our call. With me today are Bill Klesse, our Chairman and CEO, who will step down from the CEO position this Thursday; Joe Gorder, President and COO, who will become the CEO this Thursday; Mike Ciskowski, our CFO; Gene Edwards; 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. Now, I would 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. As noted in the release, we reported first quarter 2014 earnings of $828 million, or $1.54 per share.

First quarter 2014 operating income improved over first quarter 2013, with gains in the refining and ethanol segments partly offset by a decrease in our former retail segment due to the spinoff of CST Brands in May 2013.

The refining segment throughput margin in the first quarter of 2014 was $10.90 per barrel, which is an increase of $0.31 per barrel versus the first quarter of 2013.

Decreases in gasoline and distillate margins in most regions and WTI discounts in the Mid-Continent relative to Brent were more than offset by increases in light sweet and sour crude oil discounts in the U.S. Gulf Coast.

Also contributing to the higher throughput margin was our Quebec City refinery’s increased consumption of cost-advantaged North American crude’s in the first quarter. North American grades comprised 45% of the refinery’s feedstock diet, up from 28% in the fourth quarter of 2013 and zero in the first quarter of 2013.

This shows execution of our strategy to process more volumes of cost-advantaged North American crude. For color on crude pricing, the shifting of U.S. Mid-Continent crude supplies from Cushing to the U.S.

Gulf Coast as pipeline flow rates ramped up in the first quarter drove WTI discounts versus Brent to narrow by $9.15 per barrel, while LLS discounts to Brent widened by $5.39 per barrel as crude inventories built in the U.S. Gulf Coast between the first quarter of 2013 and the first quarter of 2014.

Gulf Coast sour crude oil differentials to Brent also widened from the first quarter of 2013 to the first quarter of 2014 in response to the increasing supply of light sweet crude. The discounts for Mars and Maya relative to Brent increased by $4.10 per barrel and $8.76 per barrel, respectively.

Refining throughput volumes averaged 2.7 million barrels per day in the first quarter of 2014, which is an increase of 135,000 barrels per day versus the first quarter of 2013. Refining volumes were higher primarily due to less maintenance activity, which enabled the refineries to run at higher rates and capture margin.

Refining cash operating expenses in the first quarter of 2014 were $4.00 per barrel, which is $0.21 per barrel higher than the first quarter of 2013, due primarily to increased energy costs on higher natural gas prices. I’d like to highlight another item in our operations during the first quarter of 2014. The new hydrocrackers at Port Arthur and St.

Charles ran well and at a combined feed rate of about 120,000 barrels per day, which is their stated capacity. The new hydrocrackers also contributed to an increase in yields of gasoline and distillates and a reduction in the yields of other lower-value products.

The ethanol segment delivered record first quarter earnings, generating $243 million of operating income versus $14 million of operating income in the first quarter of 2013.

Increased gross margin was driven by weather-related supply disruptions, low industry ethanol inventories, low ethanol imports, and lower corn costs relative to the first quarter of 2013.

Ethanol production volumes averaged 3.1 million gallons per day in the first quarter of 2014, which is higher than first quarter 2013 but lower versus the fourth quarter of 2013 due to production slowdowns caused by weather-related rail congestion.

As noted in the earnings release, we acquired an idled 110 million gallon per year ethanol plant in Mount Vernon, Indiana, for $34 million in March. Efforts are underway to restart the facility, and production is expected to resume in the third quarter of this year.

Given the favorable ethanol margin environment, we like the returns potential for this new facility. General and administrative expenses, excluding corporate depreciation, were $160 million in the first quarter of 2014. Net interest expense was $100 million, and total depreciation and amortization expense was $421 million.

The effective tax rate was 33.9%. With respect to our balance sheet at quarter-end, total debt was $6.6 billion and cash and temporary cash investments were $3.6 billion of which $384 million was held by Valero Energy Partners LP. Valero’s debt to capitalization ratio net of cash was 14.3% excluding cash held by Valero Energy Partners.

Valero had approximately $5.4 billion and Valero Energy Partners had $300 million of available liquidity in addition to cash. Given our financial strength and favorable outlook for refining margin conditions last week S&P affirmed our BBB investment credit rating and raised our outlook from negative to stable.

Cash flows in the first quarter included $517 million of capital expenditures, which included $129 million for turn arounds and catalyst. In the first quarter, we return $359 million in cash to our stockholders by paying $133 million dividend and by purchasing approximately $4.3 million shares of Valero common stock for $226 million.

For 2014, we maintain our guidance for capital expenditures including turnaround and catalyst at approximately $3 billion.

We expect stay-in business capital to account for approximately 50% of total spending and for the reminder to be allocated to strategic growth investments, which are primarily for logistics and light crude oil process and projects.

For modeling, our second quarter operations you should expect refinery group of volumes to fall with in the following ranges. U.S. Gulf Coast at 1.42 million to 1.47 million barrels per day, U.S. mid-continent at 370,000 to 390,000 barrels per day, U.S.

West Coast at 260,00 to 280,00 barrels per day and North Atlantic at 420,000 to 440,000 barrels per day.

We expect refining cash operating expenses in the second quarter to be around $4.20 per barrel, for our ethanol operations in the second quarter, we expect total production volumes of $3.5 million gallons per day and operating expenses should average $0.40 per gallon which includes $0.04 per gallon for non-cash cost such as depreciation and amortization.

We expect G&A expense excluding depreciation for the second quarter to be around $160 million and net interest expense should be around $95 million. Total depreciation and amortization expense in the second quarter should be approximately $410 million and our effective tax rate should be around 35%. Okay Bakiba, we have concluded our opening remarks.

In a moment we’ll open the call to questions. Just want to remind our callers that during this segment we would like to limit you each turn to questions. You can always jump back into the queue for additional questions. Okay Bakiba, we’re ready..

Thank you. We will now begin the question-and-answer session (Operator Instructions). And our first question is going to come from Paul Cheng from Barclays. Please go ahead your line is open..

Hey guys, good morning..

Good morning Paul..

When I looking at your buyback into first quarter is $226 million, in January from your last conference call you said $204 million.

So when we looking at say in February and March, the decision that to slowdown the buyback, most there, can you help us understand what is the thinking? What is the criteria, when you determine that, how much you want to buyback?.

So this is Clark. We were basically out of the market in February, and March because of our pending management change, which our legal advice was we could not be up buying our stock and then in March because of the earnings, the whole period of February, March and then in the April here with the earnings.

So we've really just been, in a way, blacked out or locked out of the market. There's no change in our strategy here. Returning cash to the shareholders, and our dividend, which we raised in January, and then buying our shares..

Second question (indiscernible) that I mean how fast do you guys want to grow the LP EBITDA or distribution growth you want to talk about during the initial year.

I think that's two school of thought amongst some of your peers, one is that want to grow the LP as quickly as they could so that they would get to a size they can use their own balance sheet to raise that to fund future growth. The other school is that they want to be just in the high teen what is the school of thought that you guys belong..

Hey, Paul, this is Joe. If you look at our peer group in this, and we're really talking about the sponsored MLP's, we consider Phillips and Marathon to be the two, and you know, Phillips has said publicly they're going to grow their distribution to 20% to 25% range.

Marathon is at a range slightly below that, we understand, and we tend to focus on the higher end of the range, so we're targeting 20%, 22%, 23%, distribution growth, annually going forward.

And our approach will be do it, initially with drop down assets that are same type of assets that we did, when we did the initial assets in, which are those with very gradable, stable cash flows, based on fee based income. So we're going to target the timing for our first drop to be early part of the second half of this year.

And then I would think, although we can't give that kind of direction, it should increase cash flows, and distribution increases should follow..

Joe, can we still assume that the MLP assets sitting in the C Corp.

today is somewhere in the $300 million to $400 million for you?.

Paul, the range that we talk about is actually higher than that. I would say we're in the $800 million EBITDA range that we believe we could drop..

Thank you. And before I finish that Gene and Bill congratulation on the retirement thank you for all the years of your insight, we appreciate. And best of luck, and have a lot of fun. But don’t spend too much time in the (indiscernible)..

Thanks Paul. .

Thank you. And our next question on the call from Roger Read from Wells Fargo. Please go ahead your line is open..

Hi, good morning..

Good morning, Roger. .

Could we talk a little bit about Gulf Coast volumes here in the second quarter and then within that broader kind of expectation, generally speaking, volume has been better in the last two quarters, then I think kind of or at the higher end of the range of expectations, can you walk us through what's happening in the Gulf Coast and then maybe what could push that to the higher end of the range again.

.

This is Lane Riggs, are you asking in terms of our performance or the overall industries of Gulf Coast. .

Specific to you..

Specific to us, when you look at sort of quarter-to-quarter and year-over-year, our turn around activity was lower, in the first quarter we set little bit higher in the second quarter. In terms of our volumes, that you'll see our second quarter volumes will be a little bit lower in terms of Gulf Coast, that we have a bigger turn around period.

In terms of North American crude, the light crude processing that we have versus our capacity. We still have about a 165 a day versus our capacity that we could have run, and this was largely due that we have, you know, medium sour and heavy sour looks still quite competitive in the first quarter versus our capacity that we just still run about 165.

Other than that, we are signaled to run forward or near sort of full as our availability would allow..

Okay.

Could you walk us through what the turnarounds are in the Gulf Coast in Q2 to the extent that you want to the specific units or type of work that’s being done?.

We choose not to disclose that until after the turnarounds, until the following quarter when the turnarounds are complete. The numbers are in terms of the overall volume metric they were actually the initial comments in terms of the guidance on the volume..

So what happened here is this is all legal advice and some of things that have happened in the markets. We’ve changed our policy on this. I think some of you have noticed, so we no longer announce our turnarounds ahead of time. And so you just have to rely on the guidance that Ashley gives you as the volumes we’re looking at..

Okay. Well as long as we know who to blame if it doesn't go other way it was supposed to go..

Well, blame Ashley..

There you go. Just a last question here that, condensate we’re hearing to lot more about that becoming a bigger and bigger issue and even in some parts of West Texas where it's being rejected. I was wondering, what are you seeing along the Gulf Coast or any other part of your operations, in terms of condensate.

Are you having any rejection issues, in terms of what's being delivered to the units and then what your thoughts are on, how Valero may deal with the condensate issue not worrying so much about, you know, the industry with condensate splitters, et cetera..

Hey, Roger, this is Gary Simmons. I would say in the Gulf we haven't had too much of an issue with getting light material to our crude units. We have taken a hard look at the condensate. We don't really see that the discounts are wide enough to really warrant a capital investment to be able to run a lot larger volumes of condensates in the Gulf Coast.

We are taking a heavy look at this in the Permian basin in some regions and kind of getting with producers and seeing where they're seeing the production to see if there is some opportunity, but right now we don't have anything planned..

Okay, thank you..

Thank you. And then our next question is going to come from Evan Calio from Morgan Stanley. Please go ahead your line is open..

Hey, good morning guys. And firstly congratulate to Bill and Eugene and your careers and retirement to Joe and the new role to come May. My first question really for Bill, and it's obviously more general and somewhat reflective question.

I mean as you think about your 40 plus year career with Valero, and it’s predecessors and lot has changed and how do you think about the current Valero and how it stacks up, relative to your history, and just your outlook today for the company versus other periods of time?.

Okay. Well, the independents are a bigger segment of the business today than it used to be for sure, and I think that will continue. So that's one of the major changes in refining is that the independent segment has far more weight, and I think we react quicker to market influences.

But Valero, we’re a company that’s put together bunch of assets and a bunch of people. Some of those assets were under invested in some were operated very poorly. But we come together with one culture and we have one goal, and it’s really to perform with excellence.

We’ve improved our operations tremendously over the last few years, we’re a for more reliable operators are much, much better operator, in that thanks goes to our people being very focused on excellence, respect for each other, hard work, safety, and teamwork.

Valero is one company and you knowing our history, all the acquisitions, but we’re one company.

This business, though, far it's going to continue to be volatile, it will be seasonal, but it’s made up a very hard working people and I always like the point this out to people, this industry pays taxes and we give a product to society that makes peoples lives better.

The world needs the oil and gas for regardless of the rhetoric that people talk about. Oil and gas is inexpensive, and it, I mean, frankly, the developing world has have oil and gas.

All the alternatives, and we know them all and we know all the cost structures, and except for ethanol, that has been able to work into the fuel mix all the rest of these alternatives are too expensive, inefficient, and will do absolutely nothing to improve the environment. And it's a waste of money.

Well, I think we're very competitive very well, competitively positioned, and we had value to society, and Valero has a very bright future and no question that the crude oil and natural gas that’s happening in North America is the biggest thing in my career, and I'm sure in Gene's as well, and its having a tremendous influence on all manufacturing in the United States that people thought was really last forever because the jobs in our industry really do allow people to on their own educate their kids and retire with benefits..

That’s great. I have a second question. There is a current debate regarding the impact of current battery, crude inventories are well above five year highs and a continuing heavy turnaround through the second quarter of this year and just how fold the system might be as it relates to Gulf Coast crude differentials.

I know batteries are big place, I was wondering if you comment on what you’re seeing in the physical inventory market. I know you have talked on the conversation side, but how many tank tops are general inventory levels that you’re seeing in various Gulf Coast storage reasons, I'll leave it at that. Thanks..

David this is Gary Simmons. If you look at the BOE stats from last week, we’re 209 million when we combined the refinery tankage with third-party terminals we would say that the working capacity in the Gulf is somewhere in the 2.75 range so that puts you about 76% of overall working capacity that’s being utilized today.

We’re not seeing problems in the Gulf and there are some areas that it does appears starting to get pretty full with the SPR release loop seems pretty full, one of the things that we’re seeing is our barrels are showing up faster than they used to. So the third-party terminal operators aren’t sitting on inventory.

They’re turning those barrels pretty fast, and they’re showing up it our refineries sites a little bit faster than what we’ve seen in the past, but no real issues that we’ve seen thus far..

Great, I appreciate it guys..

Thanks Evan..

Thank you, and then our next question is going to come from Edward Westlake from Credit-Suisse. Please go ahead, your line is open..

Yes and let me also say congratulations, 650 I think is the EPS consensus not quite the $8 you guys did in the boom times, but certainly Valero looks like in good shape, just a follow on question on the MLP. I mean, obviously it’s a great currency as well not just for what you can drop down into it, trading at a 2% yield.

Maybe think a little bit more broadly about talking to us about what you envisage the MLP to allow you to do over the next several years, potentially external M&A as well as the drop down. Thank you..

Yes. Okay, this is Joe. It’s a good question. I mean, obviously the drop downs are the primary focus for the strategy in the short-term, but we do realize that we’ve got a very competitive currency to use to do other transactions.

You know, I think if you look at the logistics investment that Valero is making this year, and it will continue to make next year. In docks, we even have the rails, we’ve got pipe investments that we’re making and looking at.

We’re going to continue to build the logistics portfolio at Valero Energy that will allow us to look to drop for an extended period of time, which really just eliminates the need to go into the market to pay a premium for assets.

So we find that to be a great benefit to us, but we would not hesitate to look at what’s available in the marketplace, and to consider those assets and to use the currency to acquire those assets, but we felt that they fit into the system, and they were really assets that Valero Energy felt good about being able to make commitments to provide in that ratable, cash flow stream going forward..

Okay.

And then a specific question on – and condensate has been team so far this call, but say you look at your sort of more mid-continent refineries Ardmore and Mckee, as you look at the crude that’s coming into those refineries, presume say it’s, WTI mix a lot of refineries are starting to complain that WTI isn’t the same WTI used to be, because obviously condensates are spiked into it.

Do you have any color on o how the sort of gravity of that WTI has changed over time or where we are against the sort of 42 API speck.

Yes. I would say both Ardmore and Mckee, we definitely see a trend toward the crude getting lighter and it has caused some operating issues for us, some constraints where we have to cut rates, because the gravity of the crude is getting higher.

So we try to control at the best we can with working with producers to control the quality of the barrels that we’re getting, but we have seen issues with the barrels getting lighter..

I mean, I guess I’ll ask the direct I should have asked, which is do you think there will be a point where the really light crude will need its own infrastructure rather than being blended into the TI stream..

Yes, I do I think ultimately we’ll have to do that because the refineries just can reject the light ends..

But how that structure comes out remains to be seen, I’m not necessarily sure you’re going to see a gathering system, but you may see some type of fractionation that occurs that allows it to move from the field economically into these hubs and then get address that hub before it then moves to the refiners.

There’s a lot, but just think that there is - you wouldn't necessarily think you're going to have a whole pipeline network to handle this, but you may have fractionation occur at different places in the system, including at the refinery..

Yes.

Which would be an opportunity for you guys in the MLP?.

That’s right..

Okay. Thank you..

Thank you. And then our next question comes from Jeff Dietert from Simmons. Please go ahead. You line is open..

Good morning. It’s Jeff Dietert..

Good morning, Jeff..

Good morning. My congratulations to Bill and Gene and appreciate all you education and knowledge and being an industry statement for the last many years. I’d like to focus on some of the medium sour crudes on the Gulf Coast. I think there have been a lot of discussion about light crudes coming in and more competition between light and medium.

Yet, when you look at the Ed Mars, it's trading 5.5 under LLS, which is wider than average over the last 18 months. And you look at Thunder Horse, Southern Green Canyon some of that medium sours and trading at nice discounts as well.

Obviously, the 700 a day keystone south pipeline is started up and we have got SPR putting medium crude into the market. Could you talk about how significant of these factors are and maybe other considerations you believe are driving the wide discounts from medium crudes in the Gulf Coast, and maybe how sustainable that weakness will be..

Yes. So I think we’ve been fairly consistent in our view that’s you know the medium sours and the heavy sours are going to have to trade at a quality adjusted differentials to the light sweet and as the light sweets are pressured down, the medium sours and the heavy sours are going to have to follow.

I agree with your comments certainly in the short-term, the medium sours followed with the SBR release pressured the medium sours down in the Gulf a little bit more than what we had seen especially in the first quarter. But overall, I think we'll see that trend continued..

And your LP's are viewing that you should run near maximum rates, given where discounts are, and crack spreads are and just looking at the high levels of inventory reasonable U.S.

demand and increasing product exports?.

Yes, I think as Lane commented, the LP's are really pushing toward maximum utilization across the system..

Thanks for your comments..

Thanks, Jeff..

Thank you. And then our next question is on the call from Paul Sankey from Wolfe Research. Please go ahead Paul. Your line is open..

Hi, good morning everyone..

Good morning, Paul..

Bill and Joe congratulations indeed to both of you, and again as always I said, thanks for being so much fun to deal with over the years and so interesting to deal with.

Could we just talk a bit about Gulf Coast again sorry to go back to this, but the throughput number could you just remind me what that was in terms of what you expected to be in the second quarter could you just repeat for to make it easier what you did in the first quarter and then could you also talk about what your capacity is now on the Gulf Coast, what you think your refining throughput capacity is overall.

Thanks. .

Yes, Paul. In the first quarter our throughput was 1.585 billion barrels per day. Our guidance was one for the second quarter is 1.42 million to 1.47 million barrels per day. And I'm going to get an updated capacity. Capacities is around a total throughput, just over 1.6 million barrels per day..

Yeah. Okay, so I’ve got that 1.6 and then I think it was officially 1.54 last year and then so it’s to be so detailed here, but then I think you gave a light weep throughput capacity as well for that system..

Yes. This is Lane Riggs. Just in the Gulf Coast it’s about 480,000 barrels a day..

For you guys?.

Yes. .

Yes, okay that’s interesting. The outlook for that as we move forward. Firstly, I guess that’s a turn around number in Q4 that’s the reason why you are so much lower, but then I suppose that we are going to go back up to much higher level of utilization through the rest of the year Q3, Q4.

And then when we move forward beyond that, is your capacity going to increase let’s say into 2015 or do you think you’ve reached a steady state. Firstly for the overall capacity, second for the light sweep? Thanks. Sorry to miss the detail..

Yes, Paul this is Lane again, we have the two crude unit project. So everything you said is true. But in terms of project we have in terms of our pipeline of project is our crude expansion for both Corpus Christi and Houston both of which will be somewhat finished towards the end of next year.

So the capacity of those 90,000 barrels a day at Houston and 70,000 barrels of day in Corpus in terms of our additional capacity in the Gulf Coast were on light sweep..

And that would be at the end of 2015?.

Yes, we’re calling kind of early 2016. So when those are operating..

Okay, great. And then the other question I have here is just related to the further outlet light sweep crude in terms of exports, can you just, again on a look forward basis talk about how much more oil you guys would be using in Canada and there is some line reversal stories as well as some shipping stories, thanks..

Yeah, so what we said is our Canadian refinery should be at a 100% domestic light sweep by the end of the year, we’re still on pace to complete that, we’re a little bit ahead of schedule, I would probably have about a 130,000 barrels a day of capacity that we haven’t utilized yet for the domestic light sweet.

So if you take Lane’s number in the gulf of 165 in the gulf plus 138 back here in this 295 range of capacity that we still have to absorb light sweet crude absence the capital program that we have..

Well, understood.

And is that the limit on what you can do absent the capital program I mean the only crew that you’ll take up that is for your own use and your own refinery?.

So I guess I don’t understand which you are asking?.

Well you may and we can ship out there and sell it to one of the other refineries in Canada?.

Yeah, exactly whether….

Our permit allows us to ship it to all four, I think of the company arriving and compensate with somebody else, I think it’s four anyway..

Okay, great. And I guess additional final one and Bill, because it’s presumably your last call, if you want to talk about how things have changed and or you think the outlook is in Washington D.C.

Particularly I’m wondering if you think will be able to export, condensate in relatively short order and then longer term, whether you feel that in due course potentially if prices in the U.S. get very low, we maybe exporting crude as well and any other thoughts you have on what’s going on in Washington? Thanks..

Well I do accept that the ground work is being laid for condensates to be an issue and that’s all definition of what crude oil is and then the question was asked earlier about infrastructure, which is absolutely correct. So condensates may need to get addressed at some point.

As far as exporting of crude, though, the industry is running the oil, the discounts we have in the marketplace today are really because of logistics in many of these markets.

And we’re doing things and I’m sure everyone of our peer group are doing things to be able to run more oil, and then we support the free markets, but you need to remember that this business isn't very free. There’s a lots of restrictions from the Jones Act and the cartels, to everything else that goes with it.

So I think it remains to be seen, but under the law, there's a lot of flexibility. You can re-export Canadian crude, you can get licenses for that, as Gary just spoke, you have licenses to send U.S.

domestic crude to Canada, there is also possibilities of exchanges, if it becomes so much, but the thing I think that people need to remember is this is a windfall for the North America and the United States as far as manufacturing, whether it's natural gas liquids, natural gas or crude oil, and we can have a manufacturing boom, the petrochemical industry can boom, where do you build petrochemical plants.

Resource advantage, consumer advantage the U.S. is now resource advantaged. So this is a huge opportunity for jobs. We have a lot of rhetoric about jobs. Here is a real area for jobs. Job training, huge opportunities for welders, pipe fitters, instrument techs, operators, that was not here just five years ago.

So this question of exports, and how our country should conduct themselves especially when you see the turmoil in the world, that we have going on, I think should take a lot of stuff. And I think it will..

Great, thanks for your thoughts. Thank you guys..

Thanks, Paul..

Thank you, and then our next question is going to come from Faisel Kahn from Citigroup. Please go ahead, your line is open..

Thanks. Hi, good morning guys. I’m Faisel from Citi.

If I could ask a question on the heavy oil sort of consumption in the Gulf Coast, just with all the things going on in Venezuela, what are the risks to you guys the volumes into your facilities, from heavy crude, you're taking from Venezuela and then to sort of counter that can you give us an update on how much heavy crude you're bringing down from Canada specifically through the pipeline into Port Arthur as well..

Yes, our heavy sour volumes were fairly consistent from the fourth quarter to the first quarter. You brought up Venezuela, we did choose to allow our heavy sours inventories to creep up a little bit in the first quarter. In case we had a supply disruption from Venezuela.

But we haven't seen any changes that would indicate that we would have a risk of supply loss from Venezuela. The Canadian values – Canadian volumes were down in the first quarter and that was mainly just a matter of pricing.

The Canadian production – the heavy Canadian production was down somewhat due to weather and then demand was also a little higher with BP Whiting’s coker coming online. So we didn’t see the economic incentive to run the Canadians in the first quarter that we have seen in the fourth quarter and early.

That incentive is starting to come back and so we are ramping the Canadians back into Port Arthur here in April..

Its okay, understood.

And can you also give us an update on what your strategic thinking is with the California assets, has that changed at all, and here what’s the – process going on or, how are you guys thinking about those particular assets?.

Well. In California obviously our financial performance is not that great. It is our weakest group of assets now financially, operationally though it’s excellent. We have a very solid asset, they are operated very well. We continue to make improvements on those assets.

And so when you look at the basic issue of supply demand where demand has not really recovered out there at all from pretty great recession, although we're starting to some improving economy and some optic in demand.

To focus that we have is to work on our crude costs and to continue to work on the operating costs and of course, adjusting our yields to fit the market. So we view it as some of our competitors publicly stated that in a way, it's an option value out there. It's a huge market.

The LA basin is still absolutely a huge gasoline market, and so the markets there, we just needed to show a little bit of growth back to levels it was before..

Okay, understood. And then last question for me.

Can you give us an update on the methanol plan to alkylation unit projects and sort of when you might think of sort of sanctioning those projects?.

Hi, this is Lane Riggs, where we are – we're in the Phase II and Phase III process in terms of working on ethanol, which means were doing a more detailed engineering to get a better cost of fine tuner economics, we will bring the project forward for a Phase III review, around November this year, and we'll probably have sort no go on the project at that time, but so far the project looks very, very favorable until there is no show stopper at this point time with respect to that project.

Okay, great. I appreciate the time guys..

Hey thanks Faisel..

Thank you. And then our next question is from the Doug Leggate from Bank of America Merrill Lynch. Please go ahead. Your line is open..

Thanks. Good morning, everybody, Bill, Joe and everybody congratulations. It’s you have been agree educator build for the industry and will miss you at the grantee for sure. But good luck to all of you.

My two questions if I may, first of all on the Gulf Coast, I think Lane made a comment earlier, but well refinery utilization, but I don’t would like to go to the industry utilization.

We have seen the big build in inventories, but we have also seen our step changing utilization rates and as I look at it, if you want to characterize it, our supply days of crude on the Gulf Coast, are actually near the lowest level seasonally, that we have seen in quite some times. And this one if you guys could comment on that.

And what it means for working capital for the industry and for Valero specifically as you move through utilization rates higher on the Gulf Coast. I got have follow-up.

Please?.

Well. This is Lane. And I will take a little bit of short at as days of supply I will differ to my friend list, but in terms of we absolutely had a, if you look at our crude margins, from the LP guide.

We have had a huge incentive, to run through all the first quarter and fully with the margin refineries exist today so if you want turnaround or if you are having issues, you're trying to run crude, and you are not only trying to crude and crude still for example we are running crude in some of our SPC's, two or three of our SPC's where we have the ability to run resin, we are running crude in all of that so the industry is doing quite a bit in terms of trying to run more crude, because that’s where the economic people’s are telling us the range and I don’t know if you want to talk on employees..

Yes, so the days is hard working capital in general – we generally see our domestic refineries that are taking ratable pipeline deliveries require less working capital than some of our Gulf Coast assets and our view was as we switch to more domestic barrels that would drive down working capital, I’m not sure I think it’s a little too early to tell that, and some of its just we're not sure what our pipeline line fill capacities are going to be on some of these new lines to be able to really give you guidance on that at this time..

I guess sort on what I’m really trying to figure out is I mean – but all looking at the differential on the Gulf Coast there has been obviously a consensus expectation that was going to blow out again probably for all of us and it hasn’t at least in the magnitude in prior quarters we’ve had down time.

And I guess what I’m really trying to understand is are you guys seeing the same sort of indications that we are, which is that days of supply for the system as a whole, is actually still quite tight given the higher utilization rates or are you not seeing that at all?.

It appears to me that the market in the Gulf is well supplied today. So I don’t know that I have actually looked at it in terms of days of supply, but the market seems well supplied..

Okay. My follow-up really hopefully quick, one more Valero specific. The comment you made earlier about you are seeing a lightening of the crude slate or for WTI specifically and that's becoming more problematic I guess in terms of filling up some of your secondary units.

Can you talk about what that's doing to you’re capture rates relative to the legacy capture rate of the system.

I guess what I’m really trying to get to is, we’ve seen capture rates drift a little bit lower versus indicators and I’m just wondering if that’s got something to do with it in terms of incremental challenges you are having on running those crudes and I’ll leave it there..

It’s difficult for me to comment exactly with that does in terms of running lighter in terms of where the capture rates go we could look at that in more detail..

I’ll take it off-line thanks guys..

Thanks Doug..

Thank you, and then our next question is going to come from Sam Margolin from Cowen and Company. Please go ahead, your line is open..

Thanks, good morning everybody. I’ll just echo the congrats to Bill, Gene and Joe not a whole lot I could add, but I would be remised if I didn’t say thanks and I think its going to continue to be….

Hey, Sam. You may have to rejoin because we are hearing some weird feedback coming through..

Is it better now?.

Every time you do it, it sounds like you are playing a videogame..

Really?.

Yeah, yeah. You might have to rejoin we’ll wait for you..

Okay, thanks..

And our next question is going to come from Blake Fernandez from Howard Weil. Please go ahead your line is open..

Guys, good morning hopefully you can hear me a little bit better..

It sounds good Blake..

Okay good. Congrats also to Bill, Gene and Joe, its great working with all you guys. Two quick ones for you. One, you mentioned the Quebec refinery and potential reversals of line nine, of course I know you are barging Eagle Ford crude up there as well.

I’m just curious if you could talk abut how you see the economics unfolding, I guess I always viewed pipeline as more efficient than barging crude, although I believe you kind of outlined about $2 cost of barging on a non-Jones Act vessel. So I’m just curious once the.

line comes on, do you think we'll start or maybe reduce the amount of the Eagle Ford barge crude up there?.

Yes. This is Gary Simmons. I guess the way we would see it is that the pipeline delivery would be the most advantaged and then second to that would be the barrels that we get over the water, and then finally would be the tranche that were currently taking by rail.

So if barrels starts to drop off it would probably be the rail volume that you would see fall off before the volume that we are taking over the water..

Okay, great.

The second one for you quickly there is some press reports out there that the Milford Haven refinery will be closed next month, obviously you’ll get a direct benefit of Pembroke with those volumes being offline, but I’m just curious if there is any opportunity to maybe buy some units or specific assets from that facility that would enhance Pembroke’s performance?.

Well, this is Klesse, we’re fully aware of what’s going on there and we are not sure how this is all going to work out and if there is an opportunity for us to improve our situation at Pembroke will take a look at it, but as of today we don’t have anything moving on direct..

Okay, fair enough. Thank you..

Thanks, Blake..

Thank you. And our next question comes from Chi Chow for Macquarie Capital. Please go ahead, your line is open..

Okay, thank you. I want to go back to the Canadian strategy, and it’s been reported you’ve got this application for re-export license of Canadian crude.

And first have you receive that permit yet and then secondly can you just discuss the strategy with the permit and what’s the strategy on moving volumes out to either backup by if I guess to Québec or out of Pembroke from what I understand that’s part of permit as well..

Yes, this is Gary Simmons, we do have the permit in place, some of that why we went out and got that, actually when we are having the weather problems moving the Canadian barrels by rail to Québec, we wanted to be able to shift that volume and move the rail volume to the gulf and then be able to bring it up over the water to Québec, and weren’t allow to do that.

So this permit will allow us to do that, certainly at some point in time that we could also look at taking volume to Pembroke, but today we don’t have any plans to do that least in the short term..

Does the permit allow you specifically to move to Pembroke only or that open to destinations within Europe or the U.K.?.

I’m not sure on the specific for that..

I think in the permit, you actually identified and I believe or you have nine different places were allowed to take it in the permit and you actually have to specify and so you asked the philosophy or strategy question, the strategy is that flexibility. We have the assets going in place with rail and at the U.S.

gulf coast that allows us to keep the crude oil and that allow us to plan to go ahead and keep it segregated and then if the economics so there we have flexibility in our system..

Okay, Bill that the nine different places are they all with in your own facilities at Valero?.

No, there are not..

I’m just wondering is in our your best interest to keep as much crude in the gulf as possible and what point would you look to I guess execute on this part and moving the crude down?.

It’s all flexibility and this is about economics and we would do exactly what years have leading to is always in our self interest for our shareholder..

Okay, thanks. And then I guess second question, can you give us the product export volumes in the first quarter and what the capacity is for both gas and diesel at this point..

Sure, this is Gary Simmons again in the first quarter we exported 208,000 barrels of distillate.

We would say that our capacity the day is close to 325 and we have some capital projects in the work that will bring that up to 425 on the gasoline side we exported a 124,000 barrels a day of gasoline in the first quarter and that capacity is probably in the 225 range it will also go up to about 250 with some of the dock work we have going on..

Okay, thanks Gary, any timing on the increase in the capacity on both products..

Yes, so the dock work is probably a year to two years away from being complete..

Okay and then one final question on the exports have you noticed any impact from some of the new refineries that have coming to the market and most notably I guess that you’ve well planned in Saudi Arabia..

We’ll still see a margin today a good margin to export when you take the RIN into account and so we were finding plenty of homes to take the barrel. So I don’t say that, I can’t say that we’ve seen a big impact from that..

Okay, great, thanks a lot..

Thank you. And our next question is going to come from Sam Margolin Cowen & Company. Please go ahead your line is open..

Hey, coming through okay..

Sounds good..

Great..

Great, thanks for let me back I’ll keep it tight I wanted to, I think that was brought up earlier the connection between sort of utilization and capture rate I think one of the moving parts there might be intermediate feedstock costs, seems to be like one of the last remaining sort of structural challenges I bring it up because you guys are addressing it with crude units and I was just curious of if any of those economics are changing if there is an opportunity at this stage to make them bigger or add another one or even drop them down and put a toll on it because kind of the commodity structure is looking more favorable?.

Hi, Sam this is Lane Riggs so our both crude units, that we did we are big as – as large that could be in enter the green house gas. So we don’t really have the opportunity to make them larger at this point time about reporting without going through the process to getting the green house gas..

Okay, and then I guess I will just bring up Maya, Brent spreads have been pretty favorable I think some of that has to do with WTS and Midlands kind of I guess leakage of the price dislocations there and West pipelines the infrastructure start to come online at a West Texas and maybe Midland normalizers closer to, closer to other benchmarks and then WTS comes with it if you guys are expecting any kind of weird price action in Maya maybe in the third quarter and if there is something we should prepare or try to bake in ahead a time to our estimates..

Well, I think with the Maya formula there is always that risk that if Midland comes into Cushing that it can affect that Maya formula in the short-term but we believe they’re trying to price their crude so it can be competitive with Mars and so that even if Midland comes in they would eventually adjust the K to keep their crude competitive with a medium seller alternative..

Okay, thank you so much. Have a good one..

Thanks Sam..

Thank you. Then our next question is going to come from Cory Garcia from Raymond James. Please go ahead Cory your line is open..

Thanks good morning Bill, definitely want to echo everyone start and that’s what it is going forward for Bill and Gene. Most of my questions have already been answered.

But I guess as follow up to Faisel earlier Lane do you have any sort of no go, no go timeline on the Al key unit that you guys as talked about, obviously, a little bit lower stop in the scale of project, but just wondering if you have a similar sort of training for us to at least keep an eye out for..

It's on a similar time line. We'll have the same sort of base to review in the fourth quarter with management and then make to sort of the similar decision..

Okay, perfect. Thank you..

Thank you. And we have no further questions at this time. .

So listen, for those of you have a still on the call, and it was mentioned several times, this is Gene and my last call with you all. And I just wanted to Gene and I both wanted to tell you guys. Thank you very much for the interest you’ve shown in Valero and we wish all of you all the best going forward. So thank you very much for that..

Thank you, Bill. Thank you and we appreciate everyone calling in and listening to the call today have additional questions please contact our Investor Relations department. Thank you..

Thank you, ladies and gentlemen. This concludes today’s conference. Thank you for participating. You may now disconnect..