Good day, ladies and gentlemen and welcome to the Valero Energy Corporation's First Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] As a reminder, today's conference maybe recorded. I'd now like to introduce your host for today's conference Mr. Homer Bhullar. Sir, please go ahead.

Good morning everyone. And welcome to Valero Energy Corporation's first quarter 2019 earnings conference call. With me today are Joe Gorder, our Chairman, President and Chief Executive Officer; Donna Titzman, our Executive Vice President and CFO; Lane Riggs, our Executive Vice President and COO; Jason Fraser, our Executive Vice President and General Counsel, and several other members of Valero's senior management team. If you've not received the earnings release and would like a copy, you can find one on our Web site at valero.com. Also attached to the earnings release are tables that provide additional financial information on our business segments. If you have any questions after reviewing these tables, please feel free to contact our Investor Relations team after the call. I would now like to direct your attention to the forward-looking statement disclaimer contained in the press release. In summary, it's 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 opening remarks.

Thanks Homer and good morning everyone. Our system is flexibility and the teams relentless focus on safety enable us to deliver positive earnings in an otherwise weak margin environment during a period of heavy maintenance. The first quarter presented us with tough market conditions, differentials on medium and heavy sour crude oils were compressed by a number of factors including OPEC and Canadian crude production curtailments and Venezuelan sanctions. We also started the year with gasoline inventories at record high levels and the gasoline crack at historic lows. Despite this challenging backdrop our premier assets and prior investments that have improved our feedstock and product flexibility enable us to achieve positive earnings and operating cash flow. We demonstrated the flexibility of our system by processing a record volume of 1.4 million barrels per day of North American sweet crude oil as well as a record amount of Canadian heavy crude in the quarter. The Diamond Pipeline and Line 9B continued to provide cost advantage Cushing and Canadian crudes to the Memphis and the Quebec City refineries respectively. We also continue to maximize product exports into higher net back markets in Latin America. Our investments that are expected to grow the earnings capability of the company continue to move forward. The Houston alkylation unit and the Central Texas pipelines and terminals projects remain on track to be operational in the second and third quarters respectively. The Pasadena terminal, St. Charles alkylation unit and Pembroke cogeneration unit are all on track to be complete in 2020. The Diamond Green Diesel expansion and the Port Arthur Coker are expected to be complete late 2021 and 2022 respectively. Turning to capital allocation, we continue to adhere to our discipline framework. Our annual CapEx for both 2019 and 2020 remains at approximately 2.5 billion and…

Thanks Joe. For the first quarter of 2019 net income attributable to Valero stockholders was $141 million or $0.34 per share compared to $469 million or $1.09 per share in the first quarter of 2018. First quarter 2018 adjusted net income attributable to Valero stockholders was $431 million or $1 per share. For reconciliations of actual to adjusted amounts please refer to the financial tables that accompany this release. Operating income for the refining segment in the first quarter of 2019 was $479 million compared to $811 million for the first quarter of 2018. The decrease from first quarter of 2018 was mainly attributed to significantly weaker gasoline margins and narrower medium and heavy sour crude differentials. Refining throughput volume averaged 2.9 million barrels per day which was lower than the first quarter of 2018 primarily due to maintenance activities. Throughput capacity utilization was 91% in the first quarter of 2019. Refining cash operating expenses of $4.15 per barrel or $0.32 per barrel higher than the first quarter of 2018 mostly due to maintenance related expenses and lower throughput in the first quarter of 2019. The Ethanol segment generated $3 million of operating income in the first quarter of 2019 compared to $45 million in the first quarter of 2018. The decrease from first quarter of 2018 was primarily due to lower ethanol prices. Ethanol production volumes averaged $4.2 million gallons per day in the first quarter of 2019 an increase of 104,000 gallons per day versus the first quarter of 2018 primarily due to added production from the three ethanol plants acquired in November 2018. As noted in the earnings release we are reporting the renewable diesel segment beginning this quarter. The segments generated $49 million of operating income in the first quarter of 2019 compared to $195 million…

[Operator Instructions] Our first question comes from line of Doug Leggate with Bank of America Merrill Lynch. Your line is now open.

Hey, good morning guys. This is Clay on for Doug. Thanks for taking my question. I've got a one and a follow up. I really want to talk about the gasoline rally recently. When you had to deconstruct them in the recent move higher seasonality and constraint have played a big role and both of these are non-discretionary. And what I think the market is worried about and why the rally has stalled is that the potential for industry utilization to ramp up and kill the crack. So what I'm hoping that you could speak to and help us understand? Or maybe some of the factors that could keep this from happening in particular, I'm looking at the Inland spreads and the quality spreads on the water and because of this I think I have a hard time believing that there is the incentive to next run. And maybe we got a glimpse of this on your fourth quarter where throughput was within guidance and not ahead which has been the case recently. And I guess, if this point is true then maybe this rally has a bit more durability than people think.

Gary you want to.

Yes, sure. Well, I can tell you its a lot more fun talking about gasoline in April than it was in January and we certainly feel good about the gasoline market. When we talk in January as you mentioned we were looking at a year-over-year overhang of 18 million barrels of gasoline. Since that time, since February we've seen refiner utilization average 87%. Now gasoline inventory is 11 million below where it was last year at this time. In addition to that, you're heading into a portion of the year where we would expect seasonal demand trends to follow where we'd see a pickup in demand as you head into driving season. In addition to that you should see yield fall-off some as we're transitioning to summer grade gasoline. You have less butane in the pool. So, I think through driving season, we feel very good about the gasoline situation as you get into the fourth quarter we would expect if you would see some normal seasonal patterns there as well and you begin to build inventory. I think this year, we do feel like there is an opportunity on gasoline that we haven't seen before because of the IMO 2020 bunker spec change. Our view is that low sulfur feedstocks are currently going to SECs where we priced against their low sulfur fuel blend value alternative and that ability to swing the low sulfur feedstocks out of the SECs and into the low sulfur fuel market will be supportive to the cracks longer term as it results in lower SEC utilization and lower gasoline production. But when it comes to gasoline or all aspects of the business, we manage for the long-term there's certainly a lot of moving parts here, but we feel like we're very well positioned. Global demand remains healthy. Valero is the lowest cost producer and we're strategically located export product globally especially to the markets in Central and South America. So we feel pretty good about it.

Got it. And this is a follow-up looking at the screen today, gasoline cracks and diesel cracks seems to have finally converged. What does this mean for your [indiscernible] this summer, do you still have these signals remain in next [indiscernible] mode?

This he hasn't answered.

Okay. So we're swinging -- we have swung the heavy cat naphtha into gasoline.

Thanks Gary.

Our next question comes from the line of Prashant Rao with Citigroup. Your line is now open.

Good morning. Thanks for taking the question. I guess I wanted to talk about the crude side. Joe, you mentioned a strong -- taking strong advantage of Canadian crudes on the heavy side and here we're also seeing Maya setting the discount a bit more so. I wanted two parts to this question, one wanted to know kind of a check on how much Canadian you were running in the quarter and what your thoughts are going forward? And then, two, any thoughts on the recent sort of reversion and discounting on Maya and how that might play out as we go through the year?

Yes. Prashant, good question. Gary, you and Lane want to take.

Yes. So we did just under 190,000 barrels a day of heavy Canadian, 49 of that was crude by rail that we delivered to Port Arthur with the remainder being pipeline delivered barrels. We would expect those volumes to continue in that range actually ramp up a little bit especially with the Venezuelan barrels off of the market. On the Maya formula, there's not a lot of help in terms of additional medium and heavy sour supply coming onto the market, but where we see the opportunity for the quality dips to improve is really heavy, high sulfur fuel moving weaker. And we came off the highs, where we were trading at 96% of Brent. Earlier this week, we were down to 89% of Brent. And our expectation is as you move closer to that IMO 2020 fuel spec change that high sulfur fuel would continue to get weaker and that will help the quality discounts move weaker as well.

All right. Thank you. Appreciate that. And then, the follow up I guess [Technical Difficulty] on feedstock side and maybe switching over to Diamond Green Diesel. Looking at what kind of underlying profitability, it looks like feedstock cost there being able to get not only profitable even before the low sulfur fuel, let me say low carbon fuel credit before the blenders credit as well. I kind of want to just get a sense of strategy and how things have developed in terms of the diversity of feedstock sourcing how that, what it takes to build up that network and sort of progress along those lines it looks like there's been some solid progress over the last -- obviously, for several years, but now that you are disclosing it as a separate segment kind of wanted to think about how we should look at that longer term of this year and further on.

Okay. Well, this is Martin. We've provided volume guidance today on an annual basis. We're also going to be publishing a DGD margin indicator on our Web site. We've been running at these higher rates now for six months feedstock is flowing fine. Our partnership with Darling Ingredients gives us an advantage in that space. They process about 10% of the world's meat byproducts. So we feel good about being able to source the feedstock. And looking forward to continued growth and expansion and we're looking at this expansion that Joe mentioned additional 400 million gallons a year that'll come on in late 2021.

And in terms of sort of beyond just the soybean indicator that you've given us sort of wondering if we could give it more color on how diversified we could get if you're able to share anything. I know that you've heard in other parts of the globe, if there's a lot of ingenuity in terms of what can be used as feedstock source. So I was just curious along maybe in those lines if you if you know how diverse it can get?

We're still running like we've said in the past. We're running about a third corn oil, a third use cooking oil and then a third beef tallow type -- beef tallow or choice white grease. So same mix as we've been running historically.

All right. Thank you very much. Appreciate it.

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

Hey, Joe, you talked about IMO 2020 in your opening comments. Yesterday there was a very positive development on that front. Ben Hawkings, the Deputy of Commercial Regulation and Standards at the U.S. Gulf Coastguard said that the Coastguard is getting ready to enforce the new fuel specifications and expects the industry to comply. He went on to say there is no possibility of slow rolling and he hopes for a harmonized global approach to enforcement. The way I see it, it's a big change from the stand some government officials were taking last October and they were talking about the phased implementation and possible delays. Some I'm trying to understand, do you believe the government is now more on board and the implementation program and so probability of success for rollout is materially higher than it was in October?

That's a very good question. I'll let Jason talk about some of the specifics.

That's right. Yes. We do agree with everything you said. We continue to expect IMO 2020 to be implemented and enforced. You don't schedule as most recently indicated by those comments by the Coastguard official you mentioned. It seems like things have quieted down with that administration and these EIA forecasts that come out over the last several months which didn't show a dramatic jump in prices. That's kind of calm the waters.

Thank you guys. Thank you for taking my question.

Our next question comes from the line of Blake Fernandez with Simmons Energy. Your line is now open.

Thanks guys. Good morning. I had two questions for you. One, just probably for Gary on the supply side, but obviously there is a lot of discussion now with the Iranian waivers and potential for OPEC to ramp back up. I just didn't know if you had any comments on supply dynamics and how you see that may impact your inputs and maybe some of the heavy dynamics underway.

Yes. So far we don't have any indication of additional OPEC barrels making their way to the market. We don't have any coming into our system as of yet and we'll wait to kind of hear that. I think they're meeting in early May to determine whether they're going to ramp up production.

Okay. Second question is on Diamond Green. I believe there was a bill submitted to the house on a potential two-year extension for the BTC and I didn't know if you had any updates or thoughts they are on lay of the land there?

Okay. This is Jason. Of course, we support the extension of the blenders tax credit. We did see that bill introduced in the House is also one that's been introduced in the Senate by Grassley and Wyden. And of course, this is one of Senator or Chairman Grassley's main initiatives or one of his programs, he will most aggressively push for. So we are hopeful that something will happen this year, of course with the change over leadership in the House, the Democrats have to sort through the Democrat leadership sort through their priorities for what they want to move this year. But we're hopeful something happens. And it is an issue that has bipartisan support which is very helpful with a split legislature like we have.

All right. Thank you, Jason. Appreciate it guys.

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

Thanks. Good morning guys. I just want to touch upon, I will follow up the question from Prashant about the widening Maya. I think we've seen widening sour differentials across the regions. Just wanted to get your perspective, what's driving this. Is it just really the weaker fuel oil prices or are you seeing other factors like corporate turnarounds or are you seeing simple refineries switching to a crude slate today ahead of IMO 2020.

Well, I think most of what we're seeing today is driven by several components in the formula we mentioned the high sulfur fuel getting weaker the Brent GI are widening also helps the Maya differential get weaker and then the final thing is Midland WTS is still part of the Maya formula. So as WTS gets weaker it helps as well. I think those are the key drivers and certainly high sulfur fuel oil should continue to get weaker and help the Maya spread wide now.

Hi. This is Lane. I will further color to that point. So right now medium sour you are asking about that as well. It's still a little bit out of the market with respect to its value relative to sweet and heavy. Those are the two most economic crudes. So there's still sort of an arbitrage that exists out there in the marketplace between medium and there is about 3% discount and you should see somewhat -- get some parity in all that, it all gets balanced again in the Atlantic basin.

Great. Thanks. And my follow up questions just a little bit extension on Blake's question. Just wanted to get a temperature check on DC. It seems like from where I'm sitting, the EPA is a little bit more moderated with headlines of them signaling took and can issue less small refinery waivers and potentially walking back the proposal to freeze their CAFE standards. Just wondering how your discussions with them has changed and if they're kind of shifting their focus order approach a little differently going forward? Thanks.

This is Jason, again. And we hadn't seen them really ship their approach. They're definitely under pressure probably under constant pressure from the ethanol side. On the smaller farther waivers they have been for years, but they seemed to understand that the responsibility to grant smaller final exemptions is part of the statute, it's been reaffirmed by Congress and the court several times, have been several appellate cases on the issue. And so, we're encouraged by administrator Wheeler's comments at his confirmation hearing that he plan to follow the law. He understood how those programs are supposed to work and we hope the agency continues to act as they have in the past which is to grant the waivers where they seem to be appropriate.

Great. Thanks a lot guys.

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

Yes. Thanks. Good morning. I guess we could go back a little bit. Gary you mentioned earlier that you were running max diesel obviously diesel cracks for a little below what they have been. I mean not weak by any standard, but it was just one of you can dive in a little bit what you're seeing in terms of diesel or distillate demand both here in the U.S. and then in terms of export demand?

Sure. Yes. I think we had a little milder winter in the North Atlantic basin than what we typically had which hurt demand a little bit. That was certainly offset by lower production with the lower refinery utilization. I think moving forward certainly you're entering a time of the year where we typically see a little softer distillate demand as you don't have the heating oil demand. I think where this year is different with the market structure and the strong carry in the market, I think the [indiscernible] market will remain supported because as it weakens the barrels will be bid into storage. And so I think you'll see diesel continue to be supportive in the short-term and then you'll get the demand kick later in the year as we approach the IMO 2020 date.

When speaking on the IMO front, when do you think we really start to see it in the forward curve? You mentioned earlier I think everybody would agree with you, I saw over oil discounts puts pressure on the lights or the sweet sour down, but like when do you think that shows up in the forward curve because one of the questions we've been getting from investors is, remind this from my IMO, when do I believe that IMO ammo is actually real in a sense I need to see it occur before I want to invest wholeheartedly on that front.

So what we understand is really the last loads of high sulfur fuel oil that head to the Far East for shipping probably occurred in late September. So you start to see an impact on the high sulfur fuel market sometime in that late September, early October region. And then on the distillate side, I think it's probably in November, December type timeframe before you start to see an impact on the diesel side.

Okay. That's helpful. And I guess that's my two questions and I won't take up the slot formerly used by an analyst who's on a break right now.

Thanks Roger.

See you guys. Thanks.

See you.

Our next question comes from the line of Peter Low with Redburn. Your line is now open.

Hi. Thanks for taking my two questions. The first was just on the balance sheet. Giving is getting towards the top-end of your guided range. I just want to know how comfortable you are with it at current levels and how you expect to prioritize de-gearing versus buybacks over the coming quarters. The second was on the projects due to completion this year particularly the Houston alkylation unit. Can you give us any color on the extent to which you expect those to impact capture rates and earnings? Thanks.

Okay. So, Donna you want to -- yes, you want to.

So, yes, we're very comfortable we are on the balance sheet in the context of leverage we design that target 20% to 30% to give us plenty of flexibility for growing our business and taking advantage of acquisitions as they come along. So, we're very comfortable we're at. We're at 27%, we're paying some debt off today. So that's going to bring the debt back down to 26%. And Joe, what is the other...

Yes. The other he was dovetailing it in, Peter, you tell me if this is wrong, it sound like you are dovetailing it into the share repurchases. And we've been pretty clear all along that we weren't going to leverage the balance sheet to do share repurchases. I think that's why you saw the repurchases slightly less in the first quarter, we used the adjusted free cash flow metric as our target and that's how we're going to live with. We're running the business for the long-term and we feel that all of the components that we've identified, all of the goals we've set for ourselves are relevant and we don't want to deviate from that. So as cash flow picks up, I think you should expect that flywheel of share repurchase to increase also. But I wouldn't tie the two directly together the debt to cap and the share repurchase quantity. I hope that answers the second question.

Yes.

So, on the final question on the Houston alkylation on schedule to start up here in the second quarter specifically at the end of May, maybe give it for a June 1 startup. So what does that mean in terms of our results that means you're going to have about a third of the benefit in the second quarter and then you'll have the full benefit in the third and fourth quarter and it will absolutely go directly to capture rate. So some of our project like coppers don't go directly to improving our capture rate, we get additional volume, but this will because you're taking NGLs and getting all the way to sort of a premium gasoline component value so that should show up in our capture rates in the Gulf Coast.

That's great. Thanks guys.

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

Hey, good morning everybody. I had a supply question too. The last quarter's call there was some probing about the Venezuela sanctions and how that might affect you, but it looks like there's a lot of offset supply coming on from Brazil. Brazil production from 2018 was deferred it looks like it's coming on now. Is that a suitable substitute for you, are you looking at that at all, or does the spec not really work? I'm just wondering like what are the developments in your sort of Atlantic basin Latin America crude supply story since the last quarter's call and the Venezuela sanctions?

Yes. So, I would tell you since the Venezuelan sanctions about a third of the barrels we are getting from Venezuela then replaced by running incremental domestic lights, we about a third of it is incremental heavy Canadian, and then, a third of it is just opportunistic cargos and some of that production that you're talking about in Brazil fits into that opportunistic cargo. We've definitely seen more volumes of Brazilian crude coming into the Gulf and also our West Coast.

Okay. Thanks so much. And then, this is a -- it's been a recurring theme now for a while that you MidCon segments really starting to break out and capture versus historical rates are -- is up a lot. It obviously has a lot to do with Diamond Pipeline. Other operators outside of the Diamond partnership. Talk about Diamond a lot, it's an interesting strategic piece for other infrastructure that wants to loop into it, or connect it to some other ideas. Are you guys still in sort of a strategic dynamic review process with Diamond or are you very satisfied with the role it's playing in Valero today and you don't necessarily want to include it in other operators plans for trying to get crude to the eastern Gulf.

There's two pieces to that question, right. There's the -- I mean the conversation around strategic use of the pipeline. But I mean, our initial emphasis for the pipeline was to assure crude supply in a particular crude supply into the Memphis refinery. You guys want to talk about that at all.

Yes. That's gone extremely well. And we saw a stronger contribution of Diamond Pipeline in the first quarter '19 than we did in the first quarter of '18 and some of that's the water Brent TIR. The other change in our system was the Sunrise Pipeline which came online in the fourth quarter of '18. That not only improved our ability to get Midland Cushing, Midland barrels to Ardmore and McGee, but we are now able to get Midland barrels to Memphis and we certainly saw an uplift from that in the first quarter. Now, I'll let Rich handle the second part.

Sure. So it was in January there was -- open season was on the cap line was announced. And part of that reversal open season was to tie the Diamond into that cap line. So plane has got an open season out there that will conclude next week. I think its Monday, the 29, and so they'll see whether or not there's enough interest to expand the cap -- expand the Diamond Pipeline, which would then tie into a cap line reversal. So that would be the strategic part of expanding the pipeline to get Cushing barrels to the Gulf Coast.

So Sam, I mean from our perspective, the key is as Gary stated is just to be sure that we retain our ability to ship the volumes that we need into the Memphis refinery and then as an investor in the pipeline, I think we'll look at the options associated with a possible expansion.

Thanks guys. That is exactly my question. Okay. Thanks everybody.

Our next question comes from the line of Brad Heffern with RBC Capital Markets. Your line is now open.

Hey, morning everyone. Maybe for Gary. I was just wondering if you can give thoughts on West Coast product supply. Obviously, there's been a lot of outages, we've seen some larger import activity on the gasoline side and obviously, if the West Coast gets behind it can struggle to catch up during driving season. So any thoughts on how that plays out through the year?

Yes. So I think like we've always talked, the West Coast is a little long refining capacity but when you have maintenance activities at times at the market and we've seen maintenance activities on the West Coast and inventories are low heading into gasoline season which I think you know bodes well to a fairly strong gasoline season on the West

And then, looking at the Gulf Coast crude runs this quarter, you guys ran the most sweet, you've ever run. He ran the least medium. I'm just curious, if that's sort of the most barbell that the system can get. Or is there still room for more light and less medium if the spreads are telling you that?

This is Lane. We were clearly in that mode, I thought I have alluded that earlier max. W have some turnaround activity or control refineries and turnaround. So, when you see us come out into the second or third quarter, our refineries come out of all this, you could see us have additional capacity where we're have that strategy. So we have some more room to do that.

Okay. Thanks a lot.

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

Hey thanks a lot. Appreciate that the opportunity. So a couple of questions. I guess the first is, you had a number of organic projects that have come online over the course of last year and so just trying to think about what the earnings power would have been in the first quarter independent of some of those growth projects so we can isolate the growth on a commodity agnostic basis. Can you just talk about if the earnings power is structurally improved relative to a year ago and some of those projects have come online?

You guys want to talk about the impact of the project? I think [indiscernible] different than the last few quarters maybe we will summarize. Well, obviously, okay, I think the refinery, we only have the Wilmington and Cajon.

Yes. So the Sunrise definitely had a material impact on the first quarter results for us as you were able to capture that Midland to Cushing differential on the pipeline was space we have on Sunrise.

Neil, there's been a host of things though right. I mean we've got the Diamond Green Diesel expansion that we're seeing the benefits of also. And you've seen it multiple times but in the deck, we've got the fact that we believe that the projects that were completed produced another $340 million of incremental EBITDA. So, we -- if you compare year-over-year and how we performed in kind of a similar margin environment, I think you would find that the projects have contributed significantly to the earnings capability of the company.

Over pipeline projects and then the Diamond Green Diesel expansion.

Right.

Yes. That's helpful. And then, the follow-up question is, just on the cash balances, you guys have had around $2.8 billion. Is it fair -- is it a long-term target still to move towards $2 billion that's still the right level. I know you were running substantially higher than that before. But how do we think about that optimal cash balance number?

Yes. If you look at the $2.8 billion, so we know we issued some debt towards the end of March $1 billion that was slated to refinance the maturity that is in early 2020. Today, we pay -- we redeem that those notes today. So you kind of pro forma the cash, it was really closer to $1.9 billion at the end of March.

And Neil, we think that's still a reasonable target. And, we'll test around it both directions and just see if it holds up longer term. And then, the other thing to keep in mind is that we bought back the deal during the quarter and that was $950 million of cash. So there'll be times, when I think you'll see the cash balance increase, if we're looking at something like that. But otherwise the $2 billion is still probably a good point of reference for you guys to use in your modeling.

Perfect. Thanks guys.

Our next question comes from the line of Phil Gresh with JPMorgan. Your line is now open.

Hey, good morning.

Hi, Phil.

The first question with Diamond Green Diesel is here as a new segment. You gave us some color on throughput and then cost -- your JV partner, I think has given a view on EBITDA guidance of $1.25 to $1.40 per gallon, I believe. Your first quarter obviously was a bit below that maybe seasonality, you could talk to that. But is that a right way for us to be thinking about this business, is that something you'd agree with. Just a little color to help us think about this business longer term.

And this is Martin. I think that's a good way to think about the business you're right on the first quarter we were at $0.85 per gallon EBITDA that was negatively impacted by a hedge loss of $0.37 a gallon. So if you adjusted EBITDA would have been 122, I think a better way to look at it as the last six months because we had a big hedge positive in the fourth quarter. So if you look at the last six months the weighted average EBITDA was $1.24 a gallon. So right on top of the $1.25 and these hedge gain loss is not significant over the life of Diamond Green. It's just been these big moves in the ULS flat price in the last six months.

Okay. That's helpful. Thank you. The second question I guess would be a bit of a follow up to Roger's question where he was asking about how the strip is representing expectations for the diesel crack looking out to early 2020. I guess is it your view that that many times we talk about the strip is never right, but is it your view that this is not an accurate representation of what might happen to the diesel price or there are some prior comments about how maybe there's going to be more BGO feedstocks that will enter the diesel pool. Just curious how you think this actually plays out over the next six to 12 months. Thanks.

Yes. So, I would say that I think the diesel forward curve is not a very good representation of what we would expect the foreign markets would look like, you are seeing more contango start to edge its way into the market. I think that will continue as you get closer to the date, but I think we'll have a stronger diesel environment than what's currently reflected in the curve.

Okay. Thanks a lot.

Our next question comes from line of Jason Gabelman with Cowen. Your line is now open.

Hey, thanks for taking the call. I wanted to ask I know there was a question about the West Coast, but I wanted to follow up on it. I believe your Venetia plant has been down for a little bit. I was wondering what the impact was on the quarter and if you have line of sight when that asset is going to come back online.

Well, this is Lane. So yes, we have about eight days of downtime in our Venetia refinery we had a crude leak in the furnace and so we had to bring the entire refinery down to repair. And so consequently we moved a turnaround that we had budgeted in the first quarter '20 into the timeframe. So we're essentially executing a turnaround so we should start the refinery up sort of mid May-ish or somewhere in the later maybe it will be somewhere in the May timeframe term start the refinery up. The other thing that we had happen in the quarter that didn't get a lot of press was we had our McKee refinery had an air blower -- main air blower Allergan. So -- and that was a big event as well in terms of our impact in the quarter an unusual event and thought it was $90 million. So if you're trying to sort of frame what the earnings potential for the first quarter could have been the bigger event in the first quarter actually was our McKee, again, it was about $90 million for the growth margin impact.

Got it. Thanks. And if I could ask a question on I believe you moved the Memphis turnaround from April of this year into 2020 and I thought that was an interesting data point just because it seems like your peers are doing the opposite trying to conduct their maintenance in the first half of this year. So, I'm wondering if you saw something in the market that made you alter maintenance plans there. And then, just what you're seeing more generally in the industry on maintenance activities in the first half of this year and maybe into the second half as well. Thanks.

Yes. So unfortunately I guess some bad information, our methods refinery goes into an SEC turnaround in about a week or so. But, we don't normally try to position take you know we'll maybe nudge turnarounds around certain things, but we aren't taking. We didn't make a huge effort to try to move our turnarounds and to accommodate IMO 2020 is because we have a lot of assets. So, but anyway that's kind of where we are on that in terms of the industry we don't really comment on other players and industry or what we think maintenance activity might be.

Got it. Thanks a lot.

Our next question comes right up Matthew Blair with Tudor, Pickering, Holt. Your line is now open.

Hey, good morning everyone. Thanks for taking my question here. So compared to a year ago, you ran substantially higher light sweet crude volumes or at least the share of your total crude slate and at the same time your default yield ticked up a little bit. And so I was wondering, can we draw a direct connection there that a higher distill yield with these lights or was that just noise your year-over-year.

Actually what we see is, we maximize light sweet. We tend to make the same amount of gasoline and less a little bit less distill. So a yield shift is probably more tied to hydro cracker utilizations and what units we actually had down for maintenance rather than a change in the crude slate.

Got it. Okay. And then just an accounting clarification, so there's this $2.5 billion of CapEx in the next two years. Does that include the 550 of spending for the Diamond Green Diesel expansion?

Yes, it will. Yes, it's not all in the year. Okay. And this is spread out over 2021.

Okay. Thank you.

Our next question comes from the line of Craig Shere with Tuohy Brothers. Your line is now open.

Good morning.

Hi, Craig.

What are the great comments about catalysts for improving cracks into the second half in 2020. I guess my question is more systemic in terms of the new mid cycle levels we might see aided by IMO 2020, or are you getting more confident that we could see some sustained benefit lasting three to five years here.

So really, I think that question goes to what's the sustainability of the tailwinds for IMO 2020.

Yes. I think it's hard for us to predict, how quickly shifts put in scrubbers. It looks like that's not going to be fast and that the impact of aim of 2020 will be longer lasting than what we initially assumed. But I don't know that we have a lot of great data on that.

Are ships even able to put in scrubbers the way we were thinking a year ago, it sounded like simpler the waste water disposal becomes an issue now?

It certainly that the most economic scrubbers are the open lube scrubbers which put the sulfur back into the ocean. And so, as questions have come up whether there are going to be allowed to do that, it certainly presents another degree of difficulty when people are trying to make those capital investments.

And last quick question. I noticed that the corporate expenses down sequentially and year-over-year, anything to read into efficiencies or cost controls?

We are always focused on efficiencies and cost controls. I just don't know if they would have been material enough that --

In the first quarter of '18, we actually had an environmental reserve adjustment, it is one of the special items that's reflected in the press release.

Okay.

Okay. Great. Thank you.

And that concludes today's question-and-answer session. I would like to turn the call back to Mr. Bhullar for closing remarks.

Great. Thanks Liz. We appreciate everyone joining in and feel free to contact the IR team, if you have any additional questions. Thank you.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. And you may now disconnect.