Jan 29, 2008
Executives
Ashley Smith - Director of IR Mike Ciskowski - EVP and CFO Bill Klesse - Chairman and CEO Joe Gorder - EVP, Marketing and Supply Rich Marcogliese - EVP and COO Gene Edwards - EVP, Corporate Development and Strategic Planning
Analysts
Doug Leggate - Citigroup Douglas Terreson - Morgan Stanley Chi Chow - Tristone Capital Jeff Dietert - Simmons & Company International Daniel Vetter - J.P. Morgan Paul Cheng - Lehman Brothers Arjun Murti - Goldman Sachs Neil McMahon - Sanford Bernstein Mark Gilman - Benchmark Company Mark Flannery - Credit Suisse Ann Kohler - Caris & Company
Operator
Good morning. My name is Christie and I will be your conference operator today.
At this time I would like to welcome everyone to the Valero Energy Corporation Announces Fourth Quarter 2007 Results Conference Call. All lines have been placed on mute to prevent any background noise.
After the speakers' remarks there will be a question-and-answer session [Operator Instructions]. I would now like to turn today's conference over to Ashley Smith.
Please go ahead.
Ashley Smith - Director of Investor Relations
Thank you, Christie. Good morning and welcome to Valero Energy Corporation's fourth quarter 2007 earnings conference call.
With me today are Bill Klesse, our Chairman and CEO, Mike Ciskowski our CFO and other members of our executive 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.
There are also tables attached to the earnings release which provide additional financial information on our business segments. If you have any questions after reviewing these tables please feel free to contact Investor Relations after the call.
Before we get started, 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 states 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 which could cause actual results to differ from our expectations, including those we've described in our filings with the SEC. Now I'll turn the call over to Mike.
Mike Ciskowski - Executive Vice President and Chief Financial Officer
Thanks, Ashley and thank you all for joining us today. As noted in the release, our fourth quarter earnings came in at $1.02 per share.
For the full year 2007 earnings were $7.72 per share from continuing operations and $1.16 from discontinued operations. As discussed on the last call, the gain on the sale and the operations of the Lima, Ohio refineries are classified as discontinued operations in the financial tables that accompany the earnings release.
Fourth quarter 2007 operating income was $884 million compared to $1.4 billion reported in the same period of 2006. The $540 million reduction in operating income was due in large part to the lower throughput margin per barrel of $9.20 which was down a $1.46 per barrel versus the fourth quarter of 2006.
Margins for gasoline and many of the company's secondary products, such as asphalt, fuel oils and petrochemical feedstocks, were lower this quarter as the prices for those products did not increase in proportion to the cost of the feedstocks used to produce them. Fourth quarter 2007 operating income was also affected by a $123 million increase in refinery operating expenses from the fourth quarter of 06 which was driven by higher maintenance expense and energy costs.
Going through some of the key numbers for the fourth quarter, refinery throughput volumes averaged to 2.8 million barrels per day or 38,000 barrels per day lower than the third quarter. This reduction was mostly because of maintenance activities in the fourth quarter.
Refinery operating expenses, excluding non-cash costs, were $4.11 per barrel. The $0.50 per barrel increase over the third quarter was primarily due to increased maintenance expense and energy costs and lower throughput volumes which were partially offset by a decrease in the sales tax accrual expense arising from charges in the third quarter.
General and administrative expenses, excluding corporate depreciation, were $164 million. The $12 million increase from the third quarter was primarily due to an increase in equity-based compensation expense and an increase in charitable contributions which were partially offset by a decrease in environmental reserves arising from the charge that was taken in the third quarter.
Total depreciation and amortization expense was $358 million and interest expense net of capitalized interest was $95 million. The $28 million decrease in net interest expense versus the third quarter was primarily due to additional interest expense incurred in the prior quarter arising from the previously mentioned sales tax accruals.
Our effective tax rate on continuing operations was 29% in the fourth quarter which was below guidance from the prior quarter due in large part to a favorable reduction in the Canadian tax rate which was implemented in mid-December. Regarding cash flows for the fourth quarter, capital spending was approximately $890 million which includes $180 million of turnaround expenditures.
For the full year 2007 capital spending came in at $2.8 billion, including approximately $520 million for turnarounds. For 2008 our capital expenditure forecast has come down a little, and we now expect our total capital spending to be around $4.5 billion.
In the fourth quarter, we continued our stock buyback program by spending $1 billion to purchase 15.4 million shares of our common stock. For the full year 2007 we returned more than $6 billion to our shareholders through $270 million in dividends plus $5.8 billion to purchase over 84 million shares which represents 14% of our outstanding shares at the end of 2006.
So far during the first quarter of 2008, we have purchased 2.2 million shares. But we've had to be out of the market the past two weeks due to our quiet period prior to releasing fourth quarter earnings.
With respect to our debt position at the end of December, our total debt was $6.9 billion, and we ended the quarter with a cash balance of $2.5 billion. At the end of the year, our debt-to-cap ratio net of cash was 19.2% which is an increase of 2.5% from the end of the third quarter bringing us closer to our target ratio of 25%.
As to first quarter operations, for modeling purposes, you should expect to see Gulf Coast refinery throughput of approximately 1.45 million to 1.5 million barrels per day. Gulf Coast throughputs will be affected by plant maintenance especially at our Port Arthur refinery where work on the coker drums will reduce throughputs for around three months beginning in early February and in also at Aruba due to the last week's fire near the vacuum tower that will reduce throughput for approximately three months.
Mid-Continent throughput should be around 410,000 barrels per day. West Coast throughput should average between 240,000 and 250,000 barrels per day.
The Northeast system should average in the range of 550,000 to 560,000 barrels per day. Refinery cash operating expenses are expected to be about $4.40 per barrel, an increase of about $0.30 per barrel from the fourth quarter due to higher maintenance expense and lower throughput.
With respect to some of the other items for the first quarter, we anticipate G&A expense to be around $160 million. Net interest expense should be around $95 million, total depreciation and amortization expense around $360 million.
And finally, for the first quarter you should be using a 34% tax rate for modeling purposes. The increase in the tax rate from the fourth quarter is due to the non-recurring deferred tax benefit in the Canadian tax rate change implemented in the fourth quarter of 2007.
And now I'll turn the call over to Bill.
Bill Klesse - Chairman and Chief Executive Officer
Thank you, Mike. Good morning.
As Mike said our financial results were excellent in 2007. We have strong earnings and many parts of our operations contributed to the success.
For example, our retail group had their best results ever with nearly $250 million in annual operating income. Our retail restructuring activities last year contributed to this success.
We also increased our dividend by 50%, sold the Lima refinery and purchased more than 84 million shares of our stock, basically honoring our commitment to you for a $6 billion buyback. If you combine our purchases in 2006 and 2007 we have purchased nearly 120 million shares or 20% of our common stock that was outstanding at the end of 2005.
We continue to return cash to the shareholder. With regard to optimizing our refining portfolio, we continue to look at strategic alternatives for Aruba, Memphis and Krotz Springs.
Going forward we will continue to review our assets, identifying ways to optimize our operations, and increase our shareholder returns as we invest in our core refineries. Unfortunately, we continue to experience operating issues at our refineries, the most recent being the fire at Aruba refinery.
This fire resulted from a maintenance repair effort on a control vault which resulted in a leak of a very hot vacuum tower bottles, the material when it leaked, auto-ignited resulting in the fire. This fire has shut down the refinery, and we expect to resume partial operations in about two weeks with full operations expected in about three months.
For 2008 current industry conditions are setting the stage for a rebound in gasoline margins. We are experiencing the usual build in winter-grade gasoline inventories ahead of the industry wide maintenance that typically begins in late January.
These inventories will be worked down during the first quarter maintenance period as the industry transitions into making summer-grade gasoline. It is also important to remember that it is more difficult to produce the summer-grade gasoline because of the tighter specifications in ethanol use, placing a premium on key blending components, such as alkylate and raffinates.
We also continue to see strong diesel margins which created an incentive to maximize diesel production at the expense of gasoline. With total gasoline and diesel inventories in the U.S.
and Europe less than at this time last year and with the seasonal increase in demand, we expect more favorable gasoline margins this spring and summer as reflected by the forward curve. However, there is no debate today that the West Coast margins have been very low causing run cuts and further optimization.
For Valero, we have completed and started up our Wilmington Alky expansion that will allow us to better blend summer gasoline. As we await spring and summer demand, we have reduced operating rates at our Benicia refinery to contain inventories.
Also, as this has happened, California gasoline cracks have improved from the recent lows. We continue to see large discounts for a heavy sour crude oils that we process.
For example, the mono heavy sour crude oil discount to WTI average for December was over $14 per barrel. The MARS medium sour crude oil discount to WTI averaged over $6 a barrel and these discounts are holding up well.
We also feel that sour crude discounts should remain wide in 2008, due to the new Gulf of Mexico medium sour crude production coming online, and because of the value of residual oils not keeping pace with crude oil prices. East of the Rockies, light sweet crudes like Brandt, LLS have been selling at a premium to WTI due to the strong global demand for distillates.
These high crude oil prices have been pressuring margins at our non-WTI sweet crude refineries. We also expect prices for products, like petroleum coke, petrochemical feedstocks, sulphur and others to increase as they catch up with a higher price of crude oil.
In our business, it is always about supply and demand, and we expect good refined product demand this year. If we have a recession, lower demand will likely have some adverse effect on margins, but actions by the Federal Reserving and Congress are attempting a head off a slowdown.
As we look at several consultants' margin forecasts for the year, the forward curves for gasoline and diesel remain in line with all of these expectations and economic forecasts for the U.S. and the world continue to show economic growth.
Also, note that imports of gasoline to Mexico and imports of distillate to China continue to grow. So, we continue to have growing global petroleum demand with most forecast in the 1.2 million to 1.6 million barrel per day range.
We expect an excellent spring, summer gasoline season and a continuation of higher distillate margins. With that, we will open the call to questions.
Question And Answer
Operator
[Operator Instructions]. Your first question comes from the line of Doug Leggate of Citigroup.
Doug Leggate - Citigroup
Thanks. Good morning guys.
Bill Klesse - Chairman and Chief Executive Officer
Good morning, Doug.
Doug Leggate - Citigroup
Couple of questions. I guess that the first one, one-off items in the quarter, could you just kind of quantify what the total impact was of LIFO effects?
And I think there was an issue in the Mid-Continent as well as relating to insurance. Mike if you could take on them?
Mike Ciskowski - Executive Vice President and Chief Financial Officer
Okay. Yes we did have a small LIFO detriment due to some reduced inventories.
So that was worth only about $20 million in our operating income. But we did have also an advance payment that we received in regard to the McKee insurance claim.
That was worth about $44 million.
Doug Leggate - Citigroup
They are both pre-tax numbers Mike?
Mike Ciskowski - Executive Vice President and Chief Financial Officer
Those are pre-tax numbers. So, when you add those two together you are talking about $0.09 per share.
Doug Leggate - Citigroup
Okay. So, pretty small I guess.
Mike Ciskowski - Executive Vice President and Chief Financial Officer
Pretty small.
Doug Leggate - Citigroup
Okay. The second thing is what you...
you mentioned about the West Coast. You said yourself that you guys have been cutting runs.
I think Desoto came and said the same thing. Do you see any evidence that maybe others that haven't made that kind of disclosure are also cutting runs to tighten up their markets?
Mike Ciskowski - Executive Vice President and Chief Financial Officer
We wouldn't know what the other people are doing.
Doug Leggate - Citigroup
Okay. I guess that the final one then is you mentioned in your release about inventory management and what you expect to hop in, in terms of winter gasoline and so on.
I think there has been some speculation that summer-grade gasoline is building pretty heavily. Can you just give your commentary on how you are dealing with that situation whether you are doing anything different this year than for example you did last year particularly related to blending components like alkylates and so on?
Bill Klesse - Chairman and Chief Executive Officer
Joe Gorder is going to answer you.
Joe Gorder - Executive Vice President, Marketing and Supply
Yes, I mean, Doug we are not doing anything different. I mean, we are continually focused on inventory management throughout the year, particularly both at this point in time as we get ready for the transition.
But we are not doing anything different.
Doug Leggate - Citigroup
Okay. That's great.
That's it from me. Thanks very much.
Bill Klesse - Chairman and Chief Executive Officer
Thank you, Doug.
Operator
Your next question comes from the line of Doug Terreson of Morgan Stanley.
Douglas Terreson - Morgan Stanley
Congratulations on your results guys.
Bill Klesse - Chairman and Chief Executive Officer
Thanks Doug.
Douglas Terreson - Morgan Stanley
Mike mentioned a reduction in capital expenditures to $4.5 billion. And so for clarification, is that an all inclusive of number?
That is, does it include turnarounds and catalysts? And second, why did that projection decline?
That is, was it related to efficiencies in the capital program delays or what have you? So if you could just elaborate on that, that would be helpful?
Mike Ciskowski - Executive Vice President and Chief Financial Officer
Sure. I'll make some comments on it.
Doug, this is Richard Marcogliese.
Douglas Terreson - Morgan Stanley
Hi Rick.
Rich Marcogliese - Executive Vice President and Chief Operating Officer
One that is an all end number on our capital outlook. And then I would say we're just seeing a general situation that as we identify projects we put together implementation timelines.
And at times we find that the actual implementation, including engineering deliverables and equipment procurement is a little slower than we anticipated. But there isn't anything consciously being done to slow the expenditures.
It's just the actual play out of how the projects are being developed.
Douglas Terreson - Morgan Stanley
Okay.
Bill Klesse - Chairman and Chief Executive Officer
I would also add Doug last year we told you many times our capital budget was $3.5 billion. And we spent $2.8 billion.
So beyond the reasons that Rich just gave you, we are very careful on how we are spending our money. And we go through the economics of our discretionary capital.
Douglas Terreson - Morgan Stanley
Good point. And second Valero was one of the first companies to implement initiatives to enhance returns, and you can call it your key initiatives plan.
The billion dollar income improvement plan that you have talked about. And so my question regards this plan and specifically progress that was made in 2007 and in the four areas that is gross margin capture energy efficiency, mechanical availability non-energy operating costs.
And if you don't have the numbers nearby or where you thought you would be at this time, and have there been surprises? Then if so where?
Mike Ciskowski - Executive Vice President and Chief Financial Officer
Sure. I can make some general comments on that.
And as a background comment we had always said that of that billion dollar program it was not ratable in terms of 20% every year for the next five years. That it was going to be more back end loaded because it does relate to certain major retrofits that we have got to do to certain of our refineries.
But what I would say is we did not make significant progress in 2007.
Douglas Terreson - Morgan Stanley
Okay.
Mike Ciskowski - Executive Vice President and Chief Financial Officer
I can point to the energy area we are through operational improvements and energy efficiency. We have got to gain of about $50 million on an annual basis, as part of the $1 billion effort.
But we did not make the anticipated improvements in operational reliability. And so we can report some positive progress on energy but not in the other areas.
Douglas Terreson - Morgan Stanley
Okay. Great, thanks a lot guys.
Bill Klesse - Chairman and Chief Executive Officer
Thank you Doug.
Operator
Your next question comes from the line of Chi Chow of Tristone Capital.
Chi Chow - Tristone Capital
Good morning and thanks.
Bill Klesse - Chairman and Chief Executive Officer
Hello Chi.
Chi Chow - Tristone Capital
Hey Mike you mentioned the insurance payment in the mid-con. Was that a one-time event or are there more payments coming?
Bill Klesse - Chairman and Chief Executive Officer
Well that... we are still in the process of adjusting the client.
That was just an advance payment. So the total claim was again disclosed is larger obviously larger than the $44 million advance payment.
Chi Chow - Tristone Capital
So we will see more coming down the road. Is there any timing on when that might close your --
Bill Klesse - Chairman and Chief Executive Officer
I do not know. I don't have a good feel for on the timing.
Some time probably in the first half of the year.
Chi Chow - Tristone Capital
Okay. And this is flowing through gross margin.
Is that correct?
Bill Klesse - Chairman and Chief Executive Officer
Yes.
Chi Chow - Tristone Capital
And why is that, it seems like that's a out of period extraordinary type items?
Bill Klesse - Chairman and Chief Executive Officer
Just the adjustment that we wrote through our cost of sales with BI adjustment.
Chi Chow - Tristone Capital
And then Bill you mentioned the situation on California. Can you give us your best explanation on what exactly has happened with buy demand fundamentals out there in the early part of January?
Bill Klesse - Chairman and Chief Executive Officer
Well I can give you a couple of comments. But if you look at last year in the first half of the year, imports were very high into the West Coast and California's 65% - 70% on the West Coast.
So imports were very high. As you got into the second half imports were really just about in line with previous years.
Then they had very high price in California. And so we have actually seen a decline in gasoline demand in California.
Now whether that's attributable totally to the high price or because of some of the housing issues where people don't drive the house... to build houses.
We also understand that some of the light rail usage has increased where it's about. But we believe and also the Prius has made some impact in California.
So when we added all we actually believed there was a decline in demand in California last year. Now you get to the first quarter...
first couple of weeks of January and prices are still in the $3 range. People habits have changed some and of course refineries were operating pretty darn well.
And remember in California there is a dramatic shift here in vapor pressure rigs as we go into February in Southern California and March in Northern California. So there is a lot of supply that is in the market in January.
Chi Chow - Tristone Capital
Did you see any increase in supply getting back up in the California from Kinder Morgan expanding the east line? I don't know.
Mike Ciskowski - Executive Vice President and Chief Financial Officer
No, we haven't seen that yet.
Bill Klesse - Chairman and Chief Executive Officer
But I would not... I would say to you, yes as movements increased in Arizona, at least in there would be...
there is always some balance in here but we are dealing with very small numbers too. But over time more supply is coming from the East and Arizona.
Chi Chow - Tristone Capital
Okay great. Thanks for your comments.
Operator
Your next question comes from the line of Jeff Dietert of Simmons & Company.
Jeff Dietert - Simmons & Company International
Hey, it's Jeff Dietert. I want a follow up on Chi's question just on California.
It appears that there is a big difference between winter grade... low vapor pressure margins in summer grade higher...
excuse me I said that wrong. There is a big difference between winter-grade gasoline cracks and summer grade gasoline cracks.
There is a lot of content going in the forward curve. It would seem to provide an incentive to produce summer-grade gasoline early and avoid winter-grade gasoline.
Is that something you have already started or when do you plan to start?
Bill Klesse - Chairman and Chief Executive Officer
Well the answer would be sure there is an incentive which you have to be able to hold it. And if you are looking at the stocks today and had five gasoline inventories that are 35 million barrels which is as high as we have seen.
It's 3.9 million barrels over the last year. And I guess this is last week's data.
And so it's just the ability to hold the gasoline. But yes, we would...
if we have a spot, we would hold low vapor pressure, higher octane blending components. You are exactly right Jeff.
Jeff Dietert - Simmons & Company International
Shifting to some of your major growth projects, could you give us an update on timing and cost estimates any changes to the Port Arthur, St. Charles and Quebec projects?
I think St. Charles is the only one that's Board approved and what do you think for Board approval on Port Arthur and Quebec?
Mike Ciskowski - Executive Vice President and Chief Financial Officer
Sure, Jeff I will give you some specifics on it. You know as you've observed our St.
Charles project was approved at $1.4 billion. We haven't identified any change in the cost outlook associated with that.
That project by the way would be targeted for completion some time in 2010. We are in the final stages of development of our proposal on the Port Arthur project that will include a identical gas oil hydrocracker to the one that we have approved for St.
Charles. It will also include a grassroots delayed coker which will be a clone of the project that we built in Texas city in 2003.
That project is going to be in the vicinity of $2 billion. We are hopeful that we can develop that for Board review some time before the end of the first quarter, and that project would be set for 2011 implementation.
For the Quebec refinery, we are looking at a combination of a dias [ph] faulting unit and gas oil hydrocracker for that refinery. It is much earlier in developmental phase that project to current cost assessment is below $2 billion.
But I don't have a good number that I would feel comfortable when divulging at this point because we are still in the process of finalizing our cost estimates. That would be a project that if we continue to develop it at the pace that we are on it would be more of a 2012 type delivery in the field.
Lastly, I want to mention that we are looking at a major project to make a significant move into aromatics production, benzene, toluene and xylene including going all the way into paraxylene production. This is a project that we are looking at for our St.
Charles refinery. It would also be part of our strategy to comply with the so called MSAT regulations on benzene.
This is the mobile source air toxics which would be an investment that we are targeting for 2011. So, those are comments I would make by way of an update.
Jeff Dietert - Simmons & Company International
Very good, thanks for your comments.
Operator
Your next question comes from the line of Daniel Vetter of J.P. Morgan.
Daniel Vetter - J.P. Morgan
Good morning.
Bill Klesse - Chairman and Chief Executive Officer
Good morning.
Daniel Vetter - J.P. Morgan
Yes I was hoping if you could comment on the implementation of the renewal fuel standard. Do you anticipate meeting the targets set forth by that standard?
And how is Valero and its progress in making sure that it blends the required amounts of ethanol that fall under your... that you are responsible for?
Mike Ciskowski - Executive Vice President and Chief Financial Officer
Daniel we are very comfortable with 2007. As we look forward to 2008, I mean bottom line is we like to blend ethanol into the fuel wherever it's economic to do that.
And the real issue becomes where is it viable to do that. As you know there is significant logistical constraint not only on the moving of ethanol in the markets but in converting terminals to be able to blend the ethanol.
And so we are very focused on our obligation, and we want to do it where we can and we are doing everything we can try to make that happen.
Daniel Vetter - J.P. Morgan
Right, thank you.
Operator
[Operator Instructions]. Your next question comes from the line of Paul Cheng of Lehman Brothers.
Paul Cheng - Lehman Brothers
Hey good morning gentlemen.
Bill Klesse - Chairman and Chief Executive Officer
Good morning, Paul.
Paul Cheng - Lehman Brothers
Mike I think this is for you. We talked about say the two one-off items or three, on inventory gain in the Canadian tax and also the insurance.
Is there any meaningful trading profit, whether it's from hedging or from just purely trading during the quarter?
Mike Ciskowski - Executive Vice President and Chief Financial Officer
No there is no meaningful number there.
Paul Cheng - Lehman Brothers
There is no meaningful number okay. On the, Bill what I think that's maybe several months or maybe two or three months ago you were talking about how you are breaking down the company asset into core and non-core refining asset.
There are about 10 of them just in the core. How should we look at the non-core?
Does that suggest that all the non-core may ultimately may not have a pace in the company or should we look at it somewhat differently? I mean how should we view that?
Bill Klesse - Chairman and Chief Executive Officer
Well we have on looking today for strategic alternatives for Aruba, Krotz Springs and Memphis and we are working those actively. Gene Edwards is doing that.
And for the other plants such as Houston, Three Rivers, they are not necessarily core but they are integrated with our operations. For instance Houston is integrated with Texas city even though they are about 45-50 miles of arcs.
We have pipelines connecting them. The same is true for Three Rivers.
While I was getting at in those comments is as we go forward, any discretionary capital would be spent at the core plant in this case, Corpus Christi or Texas city. Delaware City is a key refinery for us, and we're trying very hard to improve it.
The assets there have lots and lots of potential and the people are doing a good job. However, the Paulsboro refinery, we're trying to decide what the long term future is.
Paul Cheng - Lehman Brothers
Okay and all those decisions will come after you finish with what you are going to do with Aruba and Memphis and Krotz Springs or that you could go concurrently?
Bill Klesse - Chairman and Chief Executive Officer
No I think this is a process that we are going through as we continue to plan our business. As Rich mentioned it's entry into the aromatics business.
And so the organization is only capable of doing so many things. And so we would tend to move forward with the three that I have mentioned while we are trying to figure out what our true options are on the other plants.
Paul Cheng - Lehman Brothers
Bill is there any update about Aruba?
Bill Klesse - Chairman and Chief Executive Officer
You mean as far as where we are?
Paul Cheng - Lehman Brothers
Yes.
Bill Klesse - Chairman and Chief Executive Officer
On the fire we had?
Paul Cheng - Lehman Brothers
No no, not the fire but in terms of the potential sales?
Bill Klesse - Chairman and Chief Executive Officer
Well it's looking a strategic alternatives. Gene?
Gene Edwards - Executive Vice President, Corporate Development and Strategic Planning
Yes I can tell the work in process, we'd have to work through the issue we had last week of the fire. But we are continuing to look for opportunities there.
We don't [indiscernible].
Paul Cheng - Lehman Brothers
Gene, have you guys opened the data room and invite people in already or that is still in the process?
Gene Edwards - Executive Vice President, Corporate Development and Strategic Planning
We have not opened the data room yet.
Paul Cheng - Lehman Brothers
You haven't opened the data room yet, any date being set?
Gene Edwards - Executive Vice President, Corporate Development and Strategic Planning
No.
Paul Cheng - Lehman Brothers
Okay. And final one maybe this is for Gene actually maybe not.
For ethanol blending I think there is a question asked before. Bill currently that...
what is the percent of your gasoline blended with ethanol already? And that are you meeting because I think with the new RFS into 9 billion gallon a year gets refined, I believe that you get a quota.
I don't know is that... how that works.
And if you test where are you in that? Are you 90% comprised or 70% or what's that number maybe?
Gene Edwards - Executive Vice President, Corporate Development and Strategic Planning
Paul listen we are... as I mentioned we are in good shape in 2007.
We are blending 25,000 to 30,000 barrels a day. You accommodate your obligation through probably a combination of the barrels that you are actually able to blend yourself and then the credits which you can buy in the open market.
And as the market for these RIN credits is they're called it is now becoming more active. And so here again we have got a plan to try to accommodate our obligations in 2007...
in 2008, and we are going to try to do it to the extent possible with blended barrels.
Paul Cheng - Lehman Brothers
Can you share with us that what is your quota for 2008 on your obligation?
Gene Edwards - Executive Vice President, Corporate Development and Strategic Planning
While we... would you mind if we calculate that.
We'll let Ash and Eric get back with you on that.
Paul Cheng - Lehman Brothers
Definitely, thank you. Thank you guys.
Bill Klesse - Chairman and Chief Executive Officer
Thanks Paul.
Operator
Your next question comes from the line of Arjun Murti with Goldman Sachs.
Arjun Murti - Goldman Sachs
Thank you. Just a follow up regarding the strategic reviews of the various refineries.
I realize you are considering a host of options but one of them would obviously be to sell the refineries. And just given the general concern that's out there about whether in recession or not and given some of the credit problems faced by many of the banks and other sources of financing, can you characterize how you think the level of interest is out there to get what would for you be adequate sales prices on any assets?
Obviously the government and no one else is forcing you to see these assets but presumably you don't have to sell under what would be an inadequate price. But most of the most logical buyers do seem to be smaller companies that would require some measure of external financing that may not be as easy to come by as it would have been 6 months ago.
Mike Ciskowski - Executive Vice President and Chief Financial Officer
I would characterize the level interest as being fairly high. There is a lot of interest from operating companies and financial players still as well.
Arjun Murti - Goldman Sachs
So you still see that as a very viable option?
Mike Ciskowski - Executive Vice President and Chief Financial Officer
Yes.
Arjun Murti - Goldman Sachs
That's great. You alluded to the stock buyback where you bought a couple of million shares in January.
Your below your debt to cap target, is meaningful additional stock buyback dependent on receiving proceeds from any refineries sales? Or are you willing to kind of get up to or close to your debt to cap target absent actually selling refineries through stock buyback?
Mike Ciskowski - Executive Vice President and Chief Financial Officer
Arjunright now, we still have 1.1 billion of capacity on the Board approved authorization of 6 billion, and we intend to go ahead and use that up here in the near term. We also have our anti-dilution program, which will get us closer to the 25% target.
Arjun Murti - Goldman Sachs
And then you evaluate things at that point in terms of what you may want to do subsequently?
Mike Ciskowski - Executive Vice President and Chief Financial Officer
Absolutely.
Arjun Murti - Goldman Sachs
That's great, thank you very much.
Operator
Your next question comes from the line of Neil McMahon of Sanford Bernstein.
Neil McMahon - Sanford Bernstein
Hi Just a few questions, the first is really looking at what you think the planned downtime for the industry in your main operating areas. Looks like over the coming months it's all seemed to have been a bit delayed in terms of planned downtime versus last year.
And are you seeing as still issues in the labor market in terms of constraining the timing of the downtime from construction personnel? Then I have got a follow-up as well.
Mike Ciskowski - Executive Vice President and Chief Financial Officer
Neil I will make a couple of comments about that. I mean we can only really speak to our own turnaround schedule and 2008 will be kind of a low work load period for us considering the next few years.
We actually... significantly increased turnaround activity in 2009 and in 2010 where we have a couple of plant wide turnarounds in major cat cracker retrofits plant.
So, 2008 is an off cycle year for us but I really can't comment on the rest of the industry.
Bill Klesse - Chairman and Chief Executive Officer
But I can. Using an industry consultants report the first quarter this would be planned.
So, last year there was a lot of on plan too but if you look at plant it is higher in the first quarter of this year on crude and planned last year. It's lower in the second quarter than planned for last year and upgrading our conversion units versus plant for last year.
The plant this year is actually higher both in the first and second quarter. And I have chosen an industry survey.
Mike Ciskowski - Executive Vice President and Chief Financial Officer
Now you also asked about cost and productivity and I would tell you that we continue to see issues in turnaround execution particularly when you have got retrofit work plant as part of the turnarounds are... most recent example of that was that on the West Coast where we implemented an alky expansion project as part of a plant turnaround.
And we did see a work quality and productivity issues in that turnaround. So, I think that is still with us, as an industry.
Neil McMahon - Sanford Bernstein
And are you still seeing the same cost inflation trends that you saw last year or are they starting to flatten often, in terms of unit price, pieces of work that you need to do, either in turnarounds or new construction activity?
Mike Ciskowski - Executive Vice President and Chief Financial Officer
I would say on the new construction side, we continue to be observing increases in our construction estimates for the projects that we are looking at. So, I would not say that the escalation trend in the industry hasn't paid it yet and I don't personally see any plateauing.
From a turnaround execution point of view, I don't see a lot of labor rate direct pressure, it is more of the ability to do the work and get it completed.
Neil McMahon - Sanford Bernstein
Great, thank you very much.
Operator
Your next question comes from the line of Mark Gilman of the Benchmark Company.
Mark Gilman - Benchmark Company
Hi guys, good morning. I had a couple of things.
Rich that aromatics project you are talking about, is that a standard BTX type things plus paraxylene and us moving molecules from a gasoline pool into the petrochemical pool?
Rich Marcogliese - Executive Vice President and Chief Operating Officer
Yes, that's a good question Mark. I mean as we are looking at our mix of projects going forward what you are seeing from us is first an emphasis on diesel production over gasoline production.
These hydrocrackers that we are building will be designed such that they maximize yield of ultra-low-sulfur distillate. But then also kind of looking at the gasoline that could come along with these projects rather than just stop at the gasoline level we are trying to maximize our uplift into petrochemicals.
So, in this case, we will have a... we anticipate a rather large investment in a high severity reformer and then a BTX extraction complex but then taking it all away through to paraxylene.
Mark Gilman - Benchmark Company
Okay. Can you give me a rough idea for the fourth quarter, how much SOTE and how much MARS crude you ran?
Joe Gorder - Executive Vice President, Marketing and Supply
Well we ran about 250,000 barrels a day of SOTE crude and... let me go to MARS...
we ran about 10 a day MARS.
Mark Gilman - Benchmark Company
Very thanks Joe. I've noticed that there is some pretty pronounced changes in the fourth quarter in both the feedstock lineup for the systems as a whole as well as the product yield.
On the feedstock side the other feeds are up substantially as a percentage and on the product side the other products are up significantly. Can, one of you guys Rich, Joe, Bill talk about what that was all about whether it's something that's likely to remain in place going forward?
Mike Ciskowski - Executive Vice President and Chief Financial Officer
Rich I will start. I don't think it will remain in place going forward.
And if you look it at the situation of fourth quarter, we had two operating issues, we had to work around. We ended up running VGOs in lot of cases, to fill conversion units.
They were around crude. So that's why your other feedstocks were up.
The other yields, I mean a lot of that I think if you look at the same reason essentially that if you had some operating issues, you increased your outlook of the other products. Rich.
Rich Marcogliese - Executive Vice President and Chief Operating Officer
Yes Mark I can add a little more color on the subject. You asked about the SOTE runs.
So we did have a large crude unit down in Paulsboro. It's the LUG still in the Paulsboro refineries, so the SOTE runs were off as a consequence of that turnaround and it was about a three week turnaround large crude unit in the LUG block.
Also it was a general period of increased turnaround activity in the fourth quarter relative to the third quarter that was very prominent on the West Coast both in Wilmington where we had cat and alky outage and the Benicia where we had the fluid coker down for a plant turnaround. Then we had a number of unplanned events which impacts some of the mix of input.
We had a power outrage on Aruba in October. We have had continuing issues with coke drums in Port Arthur and then we also had a power disruption that affected our Texas City refinery in December.
A lot of these impacts did reflect themselves in the amount of heavy crude that we run directly and you compensate that for that with more purchases of intermediates.
Mark Gilman - Benchmark Company
So all of the things being equal this was a pretty anomalous set of numbers both on the yield and the feedstock side.
Rich Marcogliese - Executive Vice President and Chief Operating Officer
I would say so.
Joe Gorder - Executive Vice President, Marketing and Supply
Yes I don't think you are seeing a fundamental shift here.
Mark Gilman - Benchmark Company
One more if I could. What percentage of ULSD as a percentage of your total distilate pool?
Joe Gorder - Executive Vice President, Marketing and Supply
98 and we are almost completely there Mark.
Mark Gilman - Benchmark Company
Do you expect a shrinkage in ULSD premiums versus to oil to remain or is this something that in your mind has a seasonal element to it?
Mike Ciskowski - Executive Vice President and Chief Financial Officer
Well I mean the differentials were wider in the beginning and we had always anticipated as we got further into the program and commission new facilities that we would see some shrinkage in those differentials. And we have most recently we commissioned the brand new distillate hydrotreater in Corpus Christi in December and most of our production is at the ULSD level.
Gene Edwards - Executive Vice President, Corporate Development and Strategic Planning
I think you will see something now... when you hot sulphur and you roll out to [ph] favor in the summer time you probably will see a lot of this jump during the weather.
I don't think that you are... that's all we are going to see $0.20 like we had last year level.
Mark Gilman - Benchmark Company
Okay guys, thanks a lot.
Operator
[Operator Instructions]. Your next question comes from the line of Mark Flannery of Credit Suisse.
Mark Flannery - Credit Suisse
Hi good morning. I've got a question on CapEx and I know last year you indicated that we should be expecting multiple years of about $0.5 billion-nish of CapEx.
From what you've mentioned today with some of these bigger projects I assume that's what we should still be expecting let's say beyond 2008.
Bill Klesse - Chairman and Chief Executive Officer
Beyond 2008 I think you should anticipate will be between $5 billion and $6 billion for 09. 09 is a high turnaround year for us too.
So we are only four weeks into 2008 but since guidance year, we'll be between $5 billion and $6 billion.
Mark Flannery - Credit Suisse
Okay. Great and just switching back to the fourth quarter results and parts of this question have already been asked.
But the market is obviously surprised today by how much you beat benchmark margins by and some of this is to do with the runs that you are managing on the inputs. But can you talk us through a little bit let's say where the market may have been underestimating your ability to outperform the benchmark?
Mike Ciskowski - Executive Vice President and Chief Financial Officer
I think our margin realization dipped [ph] asset towards the end of the quarter as the lower average crude prices in the last half of the December relative to the last half of November. So this did result in lower cost of sales improving our margin realization.
Mark Flannery - Credit Suisse
So would you say you are more aggressively managing your crude inputs rate today than there would have been a year ago?
Bill Klesse - Chairman and Chief Executive Officer
Gorder,better not say yes to that.
Joe Gorder - Executive Vice President, Marketing and Supply
Mark the answer is no, absolutely no.
Bill Klesse - Chairman and Chief Executive Officer
We manage that aggressively everyday.
Mark Flannery - Credit Suisse
Right and do you I mean... do you think you got more opportunity in 08 than today you would have had in 07 to bring that down into margin or is the outlook roughly the same?
Rich Marcogliese - Executive Vice President and Chief Operating Officer
I will say the biggest opportunity we have is just to run the throughput we are capable of, I mean it's just running the barrels.
Joe Gorder - Executive Vice President, Marketing and Supply
Yes, I agree with Rich.
Bill Klesse - Chairman and Chief Executive Officer
I don't know if you noticed but we are going to take the coker... the coker at Port Arthur is a three module six drum coker.
We are going to take each module offline for about 25 days and do a complete repair on the drums from the inside out. And that's going to cut our throughput at that refinery by 100,000 barrels a day.
And so I didn't get the right number here. And so what Rich just told is we have had trouble at some of our place, and if we could run these plants our reliability of our profits would even be a lot better.
Because where we get is most of the time is on the very heavy sour in.
Mark Flannery - Credit Suisse
Do you have any targets that you would like to share with us sort of liability improvements or...
Joe Gorder - Executive Vice President, Marketing and Supply
Well reliability improvement is really rolled up in to this $1 billion improvement efforts, so it's a big component of that gap closure.
Bill Klesse - Chairman and Chief Executive Officer
Well I can honestly tell we fix these as we had these issues like this example of Port Arthur. We are going to fix it correctly, and we screwed around with it long enough and our team has elected to do this where we will have it repaired and now carry us then to the turnaround in 09 when we actually replace the drums.
But this is an engineering design on these coke drums. It just doesn't hold up to the cycles.
Mark Flannery - Credit Suisse
Great. Okay thanks a lot.
Operator
Your next question comes from the line of Ann Kohler of Caris.
Ann Kohler - Caris & Company
Good morning gentlemen. I am not sure whether you covered this in your earlier remarks.
But could you kind of give a little bit of detail? I know you spoke about the demand in California, but what you are seeing in the rest of your retail system, sort of a same store basis for gasoline volumes, quarter, fourth quarter to fourth quarter and what you are seeing so far in the first.
Mike Ciskowski - Executive Vice President and Chief Financial Officer
Okay in the U.S. resale, this is on a per store per day basis, our fuel sales were down about 5% in the fourth quarter of 07 versus fourth quarter of 06.
On a total year basis, it was pretty flat comparing 07 versus '06. And then in January we were slightly down from the fourth quarter levels, but that's fairly typical to this time of year where the demand is little bit slower.
Ann Kohler - Caris & Company
And what you attribute to the 5% same store drop in fourth quarter to?
Mike Ciskowski - Executive Vice President and Chief Financial Officer
Well I think a lot of it has to due to the increasing gasoline prices that happen here towards the end of the year and just the concerns about the economy and whether or not we are actually getting into recession or not.
Ann Kohler - Caris & Company
Okay great. Thank you.
I appreciate that.
Mike Ciskowski - Executive Vice President and Chief Financial Officer
You are welcome.
Operator
Your next question comes from comes from the line Mark Gilman of Benchmark & Company.
Mark Gilman - Benchmark Company
Hey Mike, what region was the LIFO of benefit taken in?
Mike Ciskowski - Executive Vice President and Chief Financial Officer
It would have been across all of our regions, east of the Rockies.
Mark Gilman - Benchmark Company
And it looks to me like there was a major working capital liquidation or drawdown in the fourth quarter. Is that accurate and do you expect it to be reversed in the first?
Mike Ciskowski - Executive Vice President and Chief Financial Officer
You're right. We did have a little inventory slowdown which resulted in about $450 million source of funds in the fourth quarter.
Going forward, we will continue to monitor our inventory levels, and I don't anticipate it being reversed in a major way in the first quarter.
Rich Marcogliese - Executive Vice President and Chief Operating Officer
No Mark, we got into levels that we are comfortable operating in at the end of the year. And it's the combination of the high cost and leads to the working capital obligation and the market structure was backward and it didn't pay to carry.
So we have managed this as aggressively as we could.
Mark Gilman - Benchmark Company
Okay guys. Thank you.
Operator
There are no further questions at this time.
Ashley Smith - Director of Investor Relations
Okay. We will conclude the call now.
Thank you for listening to today's call and please feel free to contact our Investor Relations Department, if you have any additional questions.
Operator
This does conclude today's conference call. You may now disconnect.