Theresa Chen: Thank you.
Operator: The next question is coming from Neil Mehta of Goldman Sachs. Please go ahead.
Neil Mehta: Yes. Congrats on great results. And one of the things that stood out to us was the capture rates continue to be very good. And I recognize some of that is operational performance, but some of that’s commercial and Lane guaranteed, I know there’s some sensitivities around that, but a lot of your competitors spend a lot of time talking about what they’re doing on the commercial side. So just be curious, if anything you can share about how you’re optimizing what continues to be a very dynamic environment.
Lane Riggs: Hey, Neil, it’s Lane. So I’m not going to, you know, I’ll start by saying thank you. And I will say that, you know, I wouldn’t trade our commercial team for any other team in the industry. I sort of spoke about this in the past. You know, everyone in our company understands the position they play. I think sometimes some, I’ve been in organizations where that’s not really clear and you can get a lot of interference running between the supply chain. That’s not true at Valero. Everybody has a position they play and they understand how to do it well. Refining focuses on reliability and operating. Envelopes and expenses, our P&E coordinates between the groups that make the signals, and our refining commercial groups execute the signals.
And it’s pretty clear on how all that’s supposed to work. And so I would tell you that that’s really the key to our execution. And, of course, finally, everybody in the corporation is incentivized with the same goals. We don’t have different groups having their own sort of incentives. So that’s how we get alignment all the way through. So glad to have them.
Neil Mehta: Yeah, no, it shows up. So thank you. Then the follow-up just on North Atlantic, it was particularly strong this quarter relative to the benchmark. You know, the benchmark, I think, was $16, and the realized gross margin was well above that. So just curious if there’s anything you’d call out in Montreal or UK that drove the strength there.
Greg Bram: Hey, Neil, this is Greg. So we saw accrued costs improve in that region, primarily in Cannes, where you saw that occur more than you did in Pembroke. And then you brought up commercial margins. They were very strong for the quarter as well for that region. And then some of the compliance costs for the programs over there, costs were lower than we’ve seen in prior periods. And all those things combined to drive up that capture rate in the North Atlantic.
Gary Simmons: Yeah, and I’ll just add, you know, Syncrude trading at $7 below Brent, you know, and a discount to that to Brent with a high distillate yield crude is a real benefit to our system.
Neil Mehta: Yeah, that makes sense. Thanks, guys. Thanks.
Operator: Thank you. The next question is coming from Doug Leggate of Bank of America. Please go ahead.
Doug Leggate: Hey, guys. Good morning. Thanks for taking my questions. I’m not sure who wants to take this one, Lane, but I want to ask perhaps an obvious question about shipping disruptions and what it means for perhaps not Valero specifically, but just in a more macro sense. How do, you know, the situation with the Red Sea bidding up clean tanker rates and so on, what does that do to the movement of product and the implications for a system which is perhaps more dependent on imports than it has been at any time, at least since I’ve covered this sector?
Gary Simmons: Yeah, so, you know, we’re not really running crude from that region, so it hasn’t really had an impact to us in terms of supply of crude. But the big impact, especially on the crude side of the business, has just been freight rates. You know, we had a period of time where you could export from the U.S. Gulf Coast to Northwest Europe crude, you know, in the low $2 a barrel range. That spiked to $6 a barrel. And you could see that in Brent TI. So, you know, I would tell you probably for our system, net is an advantage because it gives us a crude cost advantage versus our global competitors.
Doug Leggate: Okay. I realize it’s kind of hard to quantify, so we’ll continue to watch, but thanks for that answer. Lane, my follow-up is for you or maybe for Jason, given it’s cold, but 40% to 50% payout, it seems that, at least on our numbers, you are easily able to sustain the payout at the higher level, especially now that you’ve restated your $2 billion CapEx plan. So I’m just curious, what’s the reficient [ph] to kind of reset that range that your system clearly is capable of supporting in terms of the payout?
Lane Riggs: I’m going to let Homer answer that.
Homer Bhullar: Hey, Doug. I mean, I think obviously our target is set on a long-term range, right? And so the 40% to 50% think of it as like a long-term target. But to your point, and as I mentioned earlier, we’ve consistently come in above that. And, again, I think when you have a strong balance sheet as it is right now, we’re not going to build cash. So I think you should reasonably expect shareholder returns to come in above that target.
Doug Leggate: That’s what we expect. Thanks so much. I appreciate you taking my questions, guys.
Operator: Thank you. The next question is coming from Manav Gupta of UBS. Please go ahead.
Manav Gupta: So I wanted to ask about the renewable diesel side of the business. The capture on the DJD dropped to about 49%. And now Homer has done a very good job of explaining to the market how the lag works. So if we add back that lag effect and that 64%, the actual capture would have hit something like 93%. So when we look past 4Q, the margin is up materially. And if we assume an 80%, 90% capture, ignoring the lag, would that imply that first quarter in terms of renewable diesel margin would be much stronger than the earnings that came for the fourth quarter?
Eric Fisher: Hey, Manav. This is Eric, and I would just say yes. Yeah, that’s a very good – yeah, we see a lot of the same curve that you described. And really the change for renewable diesel for Valero is with the first full year of DJD3 in operation, we run a lot higher percentage of foreign feedstocks, and that supply chain is just naturally longer. So the most attractive, lowest CIA feedstocks are coming from foreign imports, and I think that’s creating this longer lag than we’ve seen in DJD historically. So your analysis, I think, is correct.
Manav Gupta: Perfect. Thank you. Just a quick follow-up here is last year we had an abnormally warm winter. Now when we look at this first quarter, as you guys have mentioned, industry is taking a heavier turnaround versus last year, and then you could have a much colder weather out, as we are all seeing there. So year-on-year comp for the first quarter, again, could be better than even last year. I’m just trying to understand the dynamics versus last year versus this as it relates to the heating oil demand.
Gary Simmons: Yeah, that’s kind of the way we see it. The big difference between last year and this year is we had the winter storm early in the quarter last year, which took refining capacity offline and kind of created the big inventory reset. You didn’t have that this year, but then in our mind you’ll see more of a draw as we get into February and March with the turnaround activity and a little colder weather.
