John Locke - Executive Director, IR Joe Gorder - Chairman, President and Chief Executive Officer Michael Ciskowski - EVP and CFO Lane Riggs - EVP, Refining Operations and Engineering Gary Simmons - SVP, Supply, International Operations and Systems Optimization Martin Parrish - VP, Alternative Fuels.

Evan Calio - Morgan Stanley Neil Mehta - Goldman Sachs Edward Westlake - Credit Suisse Paul Cheng - Barclays Chi Chow - Tudor, Pickering, Holt Ryan Todd - Deutsche Bank Jeff Dietert - Simmons & Company Brad Heffern - RBC Capital Markets Doug Leggate - Bank of America Merrill Lynch Phil Gresh - JPMorgan Sam Margolin - Cowen & Company Roger Read - Wells Fargo Blake Fernandez - Howard Weil Paul Cheng - Barclays.

Welcome to the Valero Energy Corporation reports 2015 First Quarter Earnings Results Conference Call. My name is Christine and I will 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 John Locke. You may begin..

Thank you, Christine. Good morning and welcome to Valero Energy Corporation's first quarter 2015 earnings conference call.

With me today are Joe Gorder, our Chairman, President and Chief Executive Officer; Mike Ciskowski, our Executive Vice President and CFO; Lane Riggs, our Executive Vice President of Refining Operations and Engineering; Jay Browning, our Executive Vice President and General Counsel; 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 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 will turn the call over to Joe for a few opening remarks..

Well thanks, John and good morning everyone. As John will cover in more detail shortly, we reported record first quarter earnings per share. With great performance in a favorable margin environment we demonstrated Valero's earnings power in a heavy maintenance period.

The one thing that I'd like to reaffirm with you before we proceed is that our team remains focused on executing our strategies to improve our valuation through operations excellence, optimizing our business through disciplined capital allocation and unlocking asset value. With that John I'll hand it back over to you..

Gulf Coast at 1.55 million to 1.6 million barrels per day; Mid-Continent at 430,000 to 450,000 barrels per day; West Coast at 280,000 to 300,000 barrels per day; and North Atlantic at 460,000 to 480,000 barrels per day. We expect refining cash operating expenses in the second quarter to be around $3.90 per barrel.

Our Ethanol segment is expected to produce a total of 3.7 million gallons per day in the second quarter. Operating expenses should average $0.38 per gallon, which includes $0.04 per gallon for non-cash costs such as depreciation and amortization.

We expect G&A expense, excluding corporate depreciation for the second quarter to be around $175 million and net interest expense should be about $105 million. Total depreciation and amortization expense should be approximately $445 million and our effective tax rate is expected to be around 33%. Christine, we have concluded our opening remarks.

In a moment we will open the call to questions. During this segment we ask that our callers limit each turn to only two questions. Callers may rejoin the queue with additional questions as time permits..

Thank you. [Operator Instructions]. And our first question is from Evan Calio of Morgan Stanley. Please go ahead..

Good morning guys. My first question relates to cash distributions and unlocking value, cash returns averaging 7% yield year-to-date, you also built a billion in cash in the quarter, you’re now through the low end of your leverage guidance of 20% to 30%.

I know you mentioned target payout ratio, how do you determine the optimal cash positions that continues to build and determine when to increase distributions from current rates?.

Evan this is Mike. I do not have a precise number I can give you but what I can give you is that in our debt to cap ratio guidance, we reduced our debt by $2 billion [ph]. From there we would like to keep some cushion in our cash balance given the volatility of our business.

And then we look at the future capital and working capital requirement and then the payout of greater than 50% that we’ve already committed to you guys. But I would like to point out that excluding the debt issue that we had in the first quarter we actually had a decrease in cash about $300 million..

Right, as you say, there’s upside scope I guess from a $5 billion cash position to distribution, I guess would be my question..

Yeah, I mean I would just to add further, we had committed to the greater than 50% payout. As we move through the year and if burning some cash flow continue positive where they are we will assess this and consider increasing that payout number. Go ahead..

Yeah understood, that makes sense. And then my second question in more on the product demand side and global credit spreads have been higher than expected year-to-date, global demand estimates continue to rise in response to low commodity prices.

So is there any comments kind of what you’re seeing through the system on demand trends and what you might expect for summer driving season we may not have seen in quite some time? Thanks..

Yeah, Evan this is Gary, I think definitely we’ve been in a good credit spread environment. I would say early in the year it was probably driven from, we had some heavy turnaround maintenance, we find return on maintenance and that type of activity. Also I think the U.S.W Union negotiation came into the play then supported the credit spread.

That’s kind of behind it now and I think really the market is being driven up by demand. We’ve seen some pretty encouraging numbers thus far. We expect that, that trend will continue but I think it’s a little too early to tell what’s the magnitude of the demand response will be to the credit price..

Fair enough guys, thank you..

Thank you. Our next question is from Neil Mehta of Goldman Sachs. Please go ahead..

Good morning..

Good morning..

So my first question is just thoughts on spreads and particular Brent oil last which Brent WTI is healthy right now, LOS Brent looks little bit tighter, just any thoughts there in potential bottlenecks between Houston and St.

James?.

Yeah, this is Gary again. I think the LOS to Brent spread has been a little bit narrow than what we would expect. I think ultimately the Gulf Coast Sweet market has the price at the level that allows the East Coast refiners to be able to receive domestic light sweet crude by [indiscernible].

So that kind is healthy overtime that LOS should be around $2 discount to Brent as long as the standard transportation differentials are going to hold. I think on what you’re seeing today is the Houston market is bottlenecked with logistics getting the paid gains [ph] and so we’re seeing Houston trade at much wider discounts to St.

James than where it had been and so that’s going ahead, [indiscernible] that economics to hold but they’re right kind of breakeven and I would expect LOS to come off..

Okay, that’s very helpful and then on RINS, just any thoughts as we get into the second quarter here on where RINS prices are and how we should assess the impact on a go forward basis?.

This is Martin Parrish. So we think the RINS are just where they are, just waiting on the EPA announcement in June and just the uncertainty even though the EPA set it at the levels as everybody just waiting to see. So I think after June we'll see what happens then..

All right, very good. Thank you very much guys and talk soon..

Thanks Neil..

Thank you. Our next question is from Edward Westlake of Credit Suisse. Please go ahead..

Yes, good morning and I guess the first question still on the macro side. We are seeing a decent tanker [indiscernible] still from the Gulf of - Saudi are still pumping. I mean you drilled Mexico and Venezuela how would you characterize at the moment supply availability of water borne mediums inside into the system..

I feel very good. Like you said we actually in the first quarter ran more South American crudes than what we've historically run. The Saudi are committed to the U.S. market. So I don't know that we'll go back to levels of imports that we saw three years ago. But I definitely think that volumes into the US Gulf will be up from what we saw last year.

We're seen a lot more heavy Canadian than historical. So overall the Gulf Coast seems well supplied with all grades crudes..

Right, okay. And on the VLP, I mean obviously a great - in March, a $1 billion, clearly very easy to achieve. Any view of going faster or you just hoping that $1 billion which is obviously a still healthy pace is the right pace going forward..

No, and this is Joe. And we're very comfortable with the $1 billion pace this year and so that would imply that we're going execute another drop sometime in the second half of the year, probably later in the second half of the year.

But what our real focus is, is on the distribution increase and we're committed to growing into that 25% plus this year for the next couple of years. So we're very comfortable with the pace we've got right now..

Okay, thanks very much Joe..

Thank you. Our next question is from Paul Cheng of Barclays. Please go ahead..

Hey guys good morning..

Hi Paul..

Joe, couple of years I think the company when looking at California has always said is not really a core for the long haul, and you're looking for, if someone give you a okay price that you would sell, is there any change in the view from management about how you look at California from a long-term standpoint.

And if it is now part of your long-term portfolio? Is there any initiative for you that you're picking to improve the result relative to your key value seems to be lacking in there?.

Yeah, well Paul we've said this before that on the west coast we have very good assets and we have very good management teams operating those assets. And frankly we view our portfolio on the west coast as an option when the margins are strong on the west coast. And certainly we're experiencing that today and we had a very good first quarter.

If you don't mind Paul what I'll do is let Lane just speak to our capital approach to the west coast..

Hey Paul it's Lane. We just continue to be very disciplined in our capital. We look for small opportunistic enterprise to improve margin capture but we in, terms of like any major capital program we - in the event that we spend much money we have better opportunities in our Gulf Coast and Mid-Continent.

So I would say though one of the things you'll see in terms of our margin capture because we need to make so much gasoline you'll see our capture versus an index probably got better. The first quarter is really a story of on the west coast to the west coast gasoline fracs..

The second question, Mike going back into the cash position, is there a lag or you can share what is the comfort level of the cash that you want to hold?.

Well, I don't really have guidance for you on like a minimum cash balance but you can start with the $2 billion that we use in our debt calculation. And then we would like to keep some cushion in that given the volatility of our business..

Okay, thank you..

Thank you. Our next question is from Chi Chow of Tudor, Pickering, Holt. Please go ahead..

Hey, thanks, good morning..

Good morning Chi..

I have a couple of questions on the North Atlantic market. You've realized strong double digit margins in that region for two quarters running now. Tad one [ph] and European cracks been pretty robust over this period.

What do you think is the sustainability of those tighter product markets in that Atlantic Basin region?.

Well, I think there is a number of reasons for what we have seen in the first quarter and I think some of it is sustainable, you know obviously we had strong turnaround maintenance in that area as well, colder weather helped - always helped with demand but I think you are seeing good demand response in a lower crack price which is certainly constructive moving forward.

I think the other thing that is happening the U.S. dollar strength versus the Europe it helped us with our operating costs, it is and - Pembroke as well. So I think there is a lot of encouraging signs on it..

This is Joe, the one thing I would add to Gary’s point, which are all correct is that the Pembroke asset is a very good asset and what we acquired when we bought that refinery was an integrated system. So when you think about merchant refining in Europe you really shouldn’t think about Pembroke in that regard.

The distillate barrels that we produce are moved in inland and certainly a significant volume of the gasoline moves inland. So it is a little bit difference set-up than some might be experiencing..

Are you concerned about distillate crack spud weakness going forward with all the global capacity that’s come online over the year, last year or so..

I would say we are not that concerned about the distillate cracks in our system. I think there is a couple of things, the U.S. market has been so strong we still see good export demand. However, we have been somewhat priced out of the market because our market has been so strong.

So I think we think moving forward we will see a combination of a better demand domestically and we will see that our export volumes will pick-up again as the U.S. market falls off a little bit..

What were your export volumes for the quarter on gas and diesel?.

It is our gasoline was down a little bit at 94,000 barrels a day. The reason for that was really just because of the strength in the U.S. market.

You know again this is an optimization for us and we would kind of say the way we optimize that it is more demand push rather than supply push and the export markets really weren’t strong in on gasoline to pull the barrels away from goal. Our distillate volume were fairly flat about 205,000 barrels a day ULSD.

If you look at the ULSD plus kerosene we were up, 255,000 [ph] barrels a day, so fairly consistent there. The change we saw for a lot of the first quarter in Europe was in open, so we are usually 64 between Latin America and Europe 70% of our volume actually went to Latin America and we did see that for the Europe that we predict foreseeing..

And one more question on the North Atlantic, can you talk how the 9 million [ph] reversal is going to impact your crude sourcing options going forward?.

Yes, I will give you little update on that you know we are still waiting for regulatory approval on land from the National Energy Board in Canada. We don’t know the timeline on that. We feel like there is a good chance the NEB could approve that by mid-May.

With a mid-May approval that would mean we really won’t see any impact from line 9 in the second quarter. But we are optimistic we will start to receive oil in the third quarter, gives us a lot more flexibility in Quebec to be able to have the access to those Western Canadian and Bakken grades and not just relay on rail and U.S.

Gulf Coast sourced barrels..

Okay, thanks. I appreciate it..

Thank you. Our next question is from Ryan Todd of Deutsche Bank..

Okay, thanks. Good morning gentlemen. Maybe if I could follow-up first with a follow-up question on VLP, is there earlier we talked about the potential for any evaluation of the wholesale fuel distribution EBITDA as a potential to drop the VLP.

Maybe can you talk a little bit about whether that has done evaluation and any rough guidance to what that figure might look like?.

Yeah, Ryan this is Mike again. You know we are still evaluating that in the appropriate structure that we would consider to drop in the MLP. So I do not have a number that I can give to you on this call..

Okay, great. I appreciate and then maybe just a general I mean we see the margin on the screen which looks supportive.

But can you give us maybe just an update on what you are seeing a month in the second quarter in terms of the general operating environment?.

Yes, I think we are - the cracks continue to be strong and we continue to see good discounts on the crude. The big change probably has been in the crude market, some of the discounts could commence and we're run the lot more light sweet crude in our system today than what we did in the first quarter.

But again I think we're seeing good demands both in the export markets and domestic demands. And so feel very encouraged about the profitability moving forward..

Okay great, thanks. I appreciate it..

Thanks Ryan..

Thank you. Our next question is from Jeff Dietert of Simmons & Company. Please go ahead..

Good morning..

Good morning Jeff..

I had a strategic question. I think historically Valero’s been a little bit more of a refining pure play relative to some of the peer strategies that have been more integrated. You guys have sold off NuStar interest in Corner Store. And I was just hoping for an update on now Valero strategy is evolving going forward.

What do you think about integration through the value chain do you expect a materially larger mid-stream business..

Jeff that's a good question. I mean very clearly we are fuels manufacturing company. And certainly that involves refining it also involves our renewable fuels business. So that is it is such a significant part of the portfolio today to see any significant shift from that it just really - is not in the cards now.

To answer your question on the mid-stream business. I do think we're going to see our midstream business expands significantly over the next several years.

And as we've said our strategy in mid-stream is really to develop projects and acquire assets that are supportive of Valero's core businesses and I think if you look at the investments that we've made to date it would certainly support that.

That being said the refining portfolio is large enough and the renewables portfolio is large enough that it provides plenty of opportunity for growth within that midstream business. I don't think you should expect us though to be looking upstream from where we are today in any material way or significantly downstream from where we are today.

Although opportunities present themselves and you look at it but certainly that's not part of our plan today..

Thank you and secondly, looking through your refinery throughput guidance for the second quarter, it looked relatively conservative and my question is what are the LPs suggesting that you should max run, under what conditions would you run more aggressively or perhaps less aggressively..

I think in terms of throughput probably be the biggest thing. And change as we see a pretty good rate level on some of our plants depending on if we're maximizing heavy sour versus light sweet especially like at $4 Jeff. It can change our throughput significantly when we start maximizing light sweet over heavy sour.

I would say that was the only thing I can speak..

Thanks for your comments..

Thanks Jeff..

Thank you. Our next question is from Brad Heffern of RBC Capital Markets. Please go ahead..

Good morning everyone..

Good morning..

So just following up on the couple of previous answers looking for a little more color. I think in the first quarter you all talked about just the sheer number of water borne that were trying to find their way into the Valero system.

Is the fact that you're running less water borne now and more domestic suggest that maybe the global crude environment is and is oversupplied as it was a few months ago..

I think there has been a couple of events that are kind a driving the crude differentials. First, the medium seller market in the Gulf due to the market structure a lot of people were pulling their barrels off the market trying to hold them in collective role. So it kind of tightened up the medium sours. Now the storage is getting full.

You also have some turnaround maintenance going on to the Deepwater pipe ones in the Gulf that's kind of also tightening the market a little bit. And then the heavy sour side in the Myer [ph] of course you had the buyer on the platform in Mexico which has also disrupted production there.

So as my view is that these crudes as they compete with the light sweet we'll see the differentials come back as we move in the second quarter..

And okay that's great color. And then maybe for Joe, a lot of E&P's have seem pretty confidence of way that the crude export ban is going to be lifted in the near term maybe in 2015. Do you have any updated thoughts or anything you've been hearing about that..

Well I think we're probably hearing the same thing that you're hearing and we know that there is activity in the house and decided to bring the issue forward. But certainly the administration does doesn’t seem at all receptive to this. Anyhow just to be clear on our position we believe in free and open market.

As we talked about many times there’s currently legislation and regulation in place that hinders the petroleum markets from being free and open and these for the included things like the crude export ban, RFS, the Jones and others.

So we believe that looking at a specific issue relative to that overall issue is just not the right way to deal with this topic and you need to deal with all of the issues.

One thing about Valero is that we’ve continued to invest and we’re running significant quantities of domestic crude today and we continue to invest to enable us to run more of this crude. So we’re doing what we can to process it as are many other refiners.

And then really the last point on this is when you look at the general need for crude exports the U.S. remains a net importer of crude oil with about 7 million barrels per day coming in we certainly export much lower volumes than that. So the question becomes do you really need the export and I think that’s the question on everybody’s mind..

Okay, great that’s it from me, thanks..

Thank you. Our next question is from Doug Leggate of Bank of America Merrill Lynch. Please go ahead..

Thanks good morning everyone. Morning Joe..

Morning Doug..

If I could follow up on the last question on exports Joe from what we’re seeing it looks like light sweet imports from Middle East in particular, looking at Kuwait in particular this is one example, they actually seem kind of increasing I'm just curious as to what is your strategy around accessing light sweet or just generally crudes outside of the U.S.

and how do you think that impacts the crude export to-date? I think that’s one of the key issues as the net balance as opposed to just the issue itself?.

Sure Doug, I’ll let Gary, if you don’t mind we’ll let Gary speak to the imports..

Yes, so Doug I would tell that primarily what we see from Kuwait is really not light sweet is more medium sour barrels and I would tell you that we have had many discussions with them and they seem interested on maintaining or actually growing market share in the U.S.

on that grades of crude and the light sweet what we see happened is with all this volatility in the Brent TI moving in and out when the order comes in very narrow then we start to see incentives to import light sweet.

In the first quarter we definitely saw that and as I’ve discussed in the past the first place we generally see is at Kuwait and there were certainly times during the first quarter where the Brent TI got narrow and that incentivized to step back in and buy Brent related West African type crudes..

Okay I appreciate the answer.

Obviously we’re watching this one closely, but my follow up Joe is really on the return of cash to shareholders and it’s obviously the share price I guess like all other financial have done well from a lot of this trend in the first quarter and I think you said you guys said yourself in the prepared remarks the business is obviously volatile.

When you think about the last time your predecessor had a very substantial share buyback program and where are the share prices now in the flight to Euro again embarking on a very substantial share buyback program how do you think about balancing the timing and I guess the balance between dividends and other methods of returning cash as opposed to just right buying back stock at current levels and I’ll leave there, thanks..

All right Doug I’ll speak to it briefly and see if Mike has anything to add but the timing of the market is something that is almost impossible to do, right. I think the particular transaction you’re referring to might have been the accelerated share repurchase that we executed some years ago and we don’t have plans to do that.

Now I don’t want to get into being specific about our strategies around share repurchases other than that we’ve committed to this greater than 50% payout ratio which we said would be a blend of repurchases and the dividend.

We had a significant increase in the dividend at the end of January and we continue to look at cash and how we’re going to employ it. What the capital budget is very manageable in the current context so I think if you said what are your plans are I think our plan is to continue to buyback share certainly to meet that greater than 50% target.

Mike is there anything that you?.

I think that’s well said..

Okay..

Thanks a lot everyone..

All right Doug..

Thank you. Our next question is from Phil Gresh of JPMorgan. Please go ahead..

Hi good morning..

Good morning Phil..

First question just on the midstream M&A potential. Appreciate the color you've given already just a follow up, would you rather have more EBITDA drop at this point before you consider midstream M&A at VLP.

Are you comfortable within out of EBITDA there already and to extent that you would consider midstream M&A would you likely or do have developed any other Valero level given the cash that you have available right now..

Phil, this is Mike. I think at this point in VLP stage they've probably would prefer to do the drops and get a little bit more sizable before they start taking on third party acquisitions.

As you know the drops come with the minimum volume commitments they you may not all even get in the third party deal, depending on the deal so given their size I would say the drops are the more likely have that they will go..

Got it okay. And just one final question the export ban. I guess the question is really like if you think about the ban being lifted if it were to happen.

Would this materially change how you manage your business whether its growth projects or refine your logistics potential M&A aspirations just generally how do you think about the way you're managing your business today versus in that kind of a world and how you think about crude differentials..

Well Just I'll fly over this and then let Gary speak to it if he would like to also our strategy is to optimize our operations. And that is a broad statement I know when it goes to our crude and feedstock slate it goes to our disposition of our products and it goes to our capital investments.

And so I think what you would see certainly there is nothing that we're doing today that I would say we need to change in a crude export environment. We'll have to see what the market does and how the market will respond to that.

I mean I guess you're pushing you'll be pushing additional crude barrels into the markets that seems to be well supplied today. And so the question are might this how the market is going to react to that and honestly if I don't think we're smart enough to tell you what that will be.

Gary you…?.

No, I agree. I think overall even if the export ban is lifted we would continue to have a location advantage running the domestic crudes. We continue to have significant operating costs advantage with the cheap natural gas. And then we're very happy with our portfolio of refining assets that are very complex very efficient refineries..

And whether there is have a - material change on your real crude differentials?.

No, I don't think so I think overall the crude have to continue it compete or stays in refineries and so we're going to be the beneficiary in that..

Okay great thanks a lot..

Thank you. Our next question is from Sam Margolin of Cowen. Please go ahead..

Good morning. I wanted to ask you about the notes offering, familiar within the context of the gated process that you guys have talked about a lot.

How was the pricing sort of relative to your expectations, did it change anything as far as return hurdles and maybe opening up some more capital intensive optimization plans or even or even on the M&A side? I mean it was a pretty in line with what you're expecting..

Yes, the interest rates were well and pretty much where we expect for that offering coming at. I mean the funds will be used for general corporate purposes including the refinancing of our current maturities. I do not think that the issuance of that debt will increase any gated capital project or anything like that.

It was just an opportunity to issue debt at low rate..

Okay thanks a lot. And I don't think I heard you guys mentioned Methanol in the prepared remarks. So I'm assuming this question is again it gave any far. But I'll ask anyway. Is there anything incremental there to update us with there with or is it still just in the evaluative stages and or wait on the final decision..

Hey Sam this is Lane so I'll just give a bit of an update. It's kind of where it's been. We anticipated our funding decisions here late in the second quarter.

I'll just add any real consider this project going forward and our strategy we'd obviously more likely have a partner and we I would add that in terms of comment, that we're still on track to review this project here in the late second quarter..

All right, perfect, thanks..

Thank you. Our next question comes from Roger Read of Wells Fargo. Please go ahead..

Good morning..

Hello, Roger..

Just wanted to follow-up, I guess, Jeff Dietert’s question about potential higher throughputs and what signals maybe we need to look forward here either in terms of Brent LOS relationship or are there other sort of last mile pipeline issues in the Gulf Coast to think you hit you know higher throughput number in the second quarter here potentially hitting a higher number I would say..

I don’t really know what link come in the only thing I can think we are definitely signaling higher runs of light sweet crude which can have a late leverage at some of our heavy sour refiners but I don’t know of anything else that would signal significantly different throughputs..

No, right now our economic signals maximum throughput and Gary mentioned in the earlier answer there are obviously a rate thing that occurred in whether we were running light, medium or heavy sour crudes that obviously doesn’t impact on our overall throughput..

Okay, thanks. And then back to the OpEx initial comments mentioning under $4 for several quarters on a row here and then you know FX strength that helped out Pembroke.

So could you kind of walk us through is there anything that you have operationally challenged and succeed or we are looking at you know it is cheap natural gas and it is an FX item flowing through this healthcare lower OpEx and I know throughput’s being high also helps on a per barrel basis but if there is anything else you can offer that will be great..

This is Lane.

I want to say we are always vigilant on operating cost is our culture we work every day, every month, every hour, to make sure that we are busy maintaining our fixed and our structural operating it is into natural gas prices in the first quarter versus the fourth in last year throughputs were a little bit and so partially offset by that and we will absolutely maintain our focus volume and having lower operating cost..

But nothing specifically you think about it is just general pressure on the system?.

No, no..

Okay, thank you..

Thank you. Our next question comes from Blake Fernandez of Howard Weil. Please go ahead..

Hi, guys, good morning. Two questions for you if I could; one, you mentioned in the press release the benefit of the secondary product pricing and I assume that is just kind of some spill over from the glut in crude prices but now that we are starting to see kind of reversal in the crude markets and moving higher.

Are you starting to see a bit of a reversal on that secondary product pricing here into 2Q?.

Well I would definitely say that you know when you get out into the products other than gasoline [indiscernible] PATCO, LPG a lower slot price environment tend to have these products trade closer to group value and it helps track realization and as crude moves up and the reserve will also be true..

Okay. Gary, secondly just a follow-on for me previous exports commentary the shift that we have seen basically away from Europe.

Can you just talk a little bit about the upper - needed there in other words to drive the economics to incentivize transport over to Europe is it basically like a $1, $2 a barrel that is needed and then maybe as a follow-on to that.

Do you have any sense I know you mentioned indigenous demand growth here, but do you have any sense that maybe from European utilization rates moving up there or any of the new global facilities beginning to penetrate that market do you have any color there? I appreciate it, thanks..

Yeah, I guess I will start with that.

I think we just still feel like our traditional exports markets are there for us as long as it is economic for us to supply those markets and we have seen a move back to where we are Europe it is open you know it basically is just looking at the differences in the two markets, freight and then we are also taking to effect the RINS.

And so the higher RINS prices that we are seeing today helps incentivize exports basically to Europe. So you know freight generally were lower $2 you know to get a barrel to Europe and the RINS in the 71 that range that kind of give you the differential that’s needed to support exports..

Okay, thanks..

Thank you. And our next question is Paul Cheng from Barclays. Please go ahead..

Hey, guys, I have two quick follow-up.

One, Joe can you give us or maybe this is for Lane, the [indiscernible] expansion are we done that, or that what is the schedule there?.

No, we’re finished there, this is Lane by the way Paul, we finished that in the third quarter this year..

All right. And maybe that this is for Gary. Gary, are you guys currently, given the current defense.

Are you exporting crude oil from the Gulf Coast to Quebec? And that also after the Line 9 reversal complete do you still need to export from the Gulf Coast or that you will get sufficient Western Canadian crude into Quebec?.

Yes. Paul so we are exporting from the Gulf to Quebec in the first quarter little over a 70% of our diet was crude sourced from Canada and the US gulf and post Line 9 we would still anticipate that we would see some flow of oil from the U.S. Gulf Coast to Canada over the water..

Can I ask a final question?.

Just for you.

Thank you. In the last two years when we look at from the first to the second quarter, your margin capture rate seems highest on an average drop by about 10%. Into the first quarter this year that do you have a far more heavy down time especially in the Gulf Coast and in the second quarter your - is going to be much higher.

So should we still assume that your margin capture rate would be the pattern will be similar to the last two years that drop of roughly above 10% from the first quarter therefore or that it should deviate somewhat differently?.

Yeah, Paul so generally what would be happening in the transition for the first to second quarter you go through our VP [ph] transition on the gasoline and decrease ethane blending which drive down our crack repayment.

You’re correct that as we have lighter turnaround main region in the Gulf it should offset some of that where we come out I don’t know but I’ve to look at it..

Okay. Thank you..

Thanks Paul..

Thank you. We have no further questions. I will now turn the call back over to John Locke..

Hey, great. Thanks Christine. We appreciate those who called in today and everyone listening. If you have additional questions please contact me or Karen in the IR department..

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