Oct 28, 2008
Executives
Ashley Smith - Executive Director of Investor Relation Mike Ciskowski - EVP and CFO Rich Marcogliese - EVP and COO Joe Gorder - EVP, Marketing and Supply Bill Klesse - CEO Gene Edwards - EVP, Corporate Development and Strategic Planning
Analysts
Mark Flannery - Credit Suisse Roger Read - Natixis Bleichroeder Jeff Dietert - Simmons & Co. Paul Cheng - Barclays Capital Paul Sankey - Deutsche Bank Chi Chow - Tristone Capital Neil McMahon - Sanford Bernstein Eric Mielke - Merrill Lynch Mark Gilman - Benchmark Company Jacques Rousseau - Soleil-Back Bay Research Ann Kohler - Caris & Company
Operator
Good morning. My name is Christy and I will be your conference operator today.
At this time, I would like to welcome everyone to Valero Energy's Conference to announce its Third Quarter 2008 Results. 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].
Thank you. I will now turn today's conference over to Mr.
Ashley Smith, Executive Director of Investor Relation.
Ashley Smith - Executive Director of Investor Relation
Okay, thank you Christy. Good morning and welcome to Valero Energy Corporation's third quarter 2008 earning conference call.
With me today are Bill Klesse, our Chairman and CEO; Mike Ciskowski, our CFO; Rich Marcogliese, our COO; and other members of our executive management team. If you have not received the earning 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 that 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 statements disclaimer contained in the press release. In summary, it says that statements in the press release and on this conference call that state the company's or management's expectations or predictions of the future are forward-looking statements intended to be covered by the Safe Harbor provisions under Federal Securities Laws.
There are many factors that could cause actual results to differ from our expectations, including those we've described in our filings with the SEC. Now, I will turn the call over to Mike.
Mike Ciskowski - Executive Vice President and Chief Financial Officer
Thanks Ashley and thank you for joining us today. As noted in the release, we reported third quarter 2008 earnings of $2.18 per share.
Excluding the $305 million pre-tax gain on the sale of the Krotz Springs Refinery, our third quarter earnings were $1.86 per share. Due to long-term agreements between Valero and Alon the results of operations related to the Krotz Springs Refinery have not been presented as discontinued operations.
Third quarter 2008 operating income was $1.8 billion or $1.5 billion excluding the gain on the sale of the Krotz Springs Refinery which compares favorably to the $1.2 billion reported in the third quarter of 2007. The increase in operating income was due to the company's higher throughput margin per barrel of $13.11 which was up $3.17 per barrel or 32% versus the third quarter of 2007.
The main driver of the higher throughput margin compared to the third quarter of last year was the increase in margin per distillates such as diesel and jet fuels. Partially offsetting the higher distillate margins were lower margins for gasoline.
Third quarter throughput volumes averaged around $2.6 million barrels a day which was 257,000 barrels per day lower than the third quarter of 2007 and 159,000 barrels per day below the second quarter of 2008. The decrease in volume compared to both of the prior periods was primarily due to the reduction in capacity from the sale of the Krotz Springs Refinery and lower operating rates caused by the hurricane.
Refining cash operating expenses were $4.96 per barrel higher than our guidance primarily due to writing off costs associated with the deferred capital projects, expenses associated with the hurricanes and then lower than anticipate throughput due to the hurricanes. General and administrative expenses excluding corporate depreciation were a $169 million.
The $52 million increase from the second quarter was mainly due to increases in legal, environmental tax and incentive based compensation cost approximately half of which was attributable to favorable adjustments in the second quarter that did not recur in the third quarter. For the third quarter, total depreciation and amortization expense was $370 million and interest expense net of capitalized interest was $81 million, both in line with our guidance.
The effective tax rate was 36%. Regarding cash flows for the quarter, capital spending was $749 million which includes $76 million of turnaround expenditures.
We spent $74 million to purchase 2 million shares of our stock and since the end of the quarter we have purchased an additional 8.3 million shares which takes our total purchases for the year to nearly 23 million shares. We've currently have approximately $3.5 billion of repurchased authorization in addition to our ongoing anti-dilution program.
Regarding future uses of cash, we have significantly reduced our estimate for our 2008 and 2009 expenditures on capital and turnaround costs. We estimate 2008 expenditures will now come in around $3 billion down $800 million versus our previous guidance of $3.8 billion and down $1.5 billion from our original estimate of $4.5 billion.
Although we continue to remain flexible with our 2009 numbers, we estimate that next years' spending on capital and turnarounds will total approximately $3.5 billion lower than our previous update of $4 billion. Regarding our balance sheet at the end of September our total debt was $6.5 billion.
We ended the quarter with a cash balance of $2.8 billion and our debt to capitalization ratio net of cash was 15.8% which was down from the second quarter ratio of 20.5% and one of the lowest in the company's history. To further strengthen our financial position, during the quarter, we increased the amount of committed credit facilities by 10% to $3.2 billion.
Including uncommitted amounts our total credit facilities as of September 30th were $4.4 billion. Although we had no barrowings on these facilities, we did have $1.2 billion in letters of credit leaving us with approximately $3.2 billion in total availability.
In addition to this amount, we have $900 million of capacity under our accounts receivable sales program. Our primary revolvers do not mature until 2012 and these revolvers consist of contractual obligations from a large and diversified group of bank with no single bank holding more than 5%.
Regarding our term debt, upcoming the charges are relatively low and consist of 209 million coming due in the second quarter of 2009 and then only 33 million in 2010. Also in 2009, per terms of the indenture we are required next October to offer to purchase $100 million of our bond.
In early October, Moody's recognized our solid financial position by raising our investment grade credit rating a notch from BAA3 to BAA2 with the stable outlook. For the rating upgrade, Moody's cited many of the same factors that we believe differentiate Valero from other independent refiners.
Key factors include our large complex operating skill, regional margin diversification, ample liquidity, low leverage with sufficient cash flow coverage. In summary, our company continues to be profitable and in a solid financial position despite the turbulence in the financial markets and the massive sell-off in energy stocks.
We do not have to sell assets or take any desperate actions. Our financial strength provides us the ability to move through difficult economic and industry conditions and this is a clear advantage over many other energy companies and independent refiners.
Now I turn over to Ashley to cover the earnings model assumptions.
Ashley Smith - Executive Director of Investor Relation
Okay, thanks Mike. For modeling our fourth quarter operation, you should expect Gulf Coast refinery throughput volume of approximately 1.425 million to 1.475 million barrels per day.
Mid common throughput volume should average between 410,000 and 420,000 barrels per day, our West Coast throughput should average between 270,000 and 280,000 barrels per day. Northeastern crude volume should average in the range of 560,000 to 570,000 barrels per day.
Refining cash operating expenses are expected to be about $4.50 per barrel which is lower than the third quarter due to a combination of higher crude petroleum, lower expected energy cost and the absence of hurricane related cost. With respect to some of our other items in the forth quarter, we anticipate G&A expense to be around $160 million.
Net interest expense should be around $80 million and total depreciation and amortization expense should be around $370 million, and for the forth quarter we estimate a 32% tax rate. That concludes our prepared remarks.
Christy will now open the call for questions. Question And Answer
Operator
[Operator Instructions]. Your first question comes from the line of Mark Flannery of Credit Suisse.
Mark Flannery - Credit Suisse
Yes, good morning. I would like to talk about the CapEx reduction if possible.
Can you give us an idea of what you will not be doing now in 2008 and 2009? Are we talking about project cancellations, deferrals, or are we talking about an extra hard look at maintenance.
Maybe just a little color on what's not going to happen?
Rich Marcogliese - Executive Vice President and Chief Operating Officer
Well, sure Mark, this is Rich Marcogliese. I can give you a sense for that.
I would say the bulk of what we are doing our project deferrals although there have been a couple of project cancellations that we can never... on the cancellation side, we originally included a today new delayed coker at our Port Arthur Refinery.
We still think that this with a long range vision for the plant but we've actually deleted that project from our capital budget. In addition, associated with our MSAT 2 project, this is the mobile source air toxics.
So we had anticipated Benzene recovery plus the production of paraxylene. We have deleted the paraxylene portion of that project.
And I will now go with centralized Benzene extraction and marketing at our Saint Charles Refinery. So I think those two would be representative of things that we have decided to take out of the capital budget.
Beyond that we have a number of project deferrals that I would share. It includes pushing off a planned crude [ph] or revamp at our Memphis Refinery from 2009 to 2011.
We're going to push back the hydrocracker project to Port Arthur from 2010 to 2011. There are also plans for upgrades that are...
Quebec Refinery primarily the asphalting unit and a sulfur plant that will be put off sometime within the next five years as will be a products pipeline from Quebec to Montreal. So what we have got here is a combination of a couple of deletions from our capital budget but primarily it represents a number of deferrals on discretionary investments.
Mark Flannery - Credit Suisse
Right. Maybe I could just have a related follow-up which is...
how close do we getting to minimum necessary CapEx levels now? Would you say...
in other words, how much more is there in that to defer if you found that to be necessary?
Rich Marcogliese - Executive Vice President and Chief Operating Officer
Sure. I can give you a couple of figures on that.
We would say our sustaining capital level is around 1.4 billion to 1.5 billion. Now that's exclusive of environmental related investments which are going to be up the order of $500 million to $600 million over the next three years as we complete our EPA 114 program.
So I would say over the next three years the minimum is around $2 billion.
Mark Flannery - Credit Suisse
Great. Thank you very much.
Operator
Our next question comes from the line of Roger Read of Natixis Bleichroeder.
Roger Read - Natixis Bleichroeder
Good morning gentlemen. I guess kind of following on that line, what do you see in the way of turnarounds?
I guess a little more on the near term, let's say the first part of '09 but also just how you might be scheduling on your turnarounds a little differently given the environment we're in today.
Rich Marcogliese - Executive Vice President and Chief Operating Officer
Actually turnaround activity like is pretty light in the fourth quarter. We are well into a downturn at our Wilmington refinery on the cat cracker and Alpine Woods [ph].
It's not turnaround on those units per se. We have an air quality project that we have to install to reduce particulates and actually that...
so the unit is down to install a new electro-static precipitator. Beyond that, we have a planned accrued unit turnaround at Delaware City and that wraps things up.
Our turnaround related expenditure this year should end up at around $400 million. Now as it turns out the 2009 will be a more significant year for turnaround activity.
It will begin with a turnaround at our heavy oil cracker at Corpus Christi in January followed by a crude unit turnaround and coker turnaround in Texas City in February. Our St.
Charles refinery will have a coker outage for crude replacement in June and then we have a cat cracker turnaround at Delaware City planned out in September. If you look at our turnaround expenditures on a year-to-year basis, 2008 again would be kind of a low point at around $400 million.
Next couple of years will be in the $600 million to $700 million range. And it just relates to the timing of the individual refineries when their major units require maintenance.
Roger Read - Natixis Bleichroeder
Okay. And as...
I mean, have you noticed or would you make any changes given the let's say weaker environment we're in today regarding how long you would do a turnaround or would you slow down the pace at which you're working in order to... you have no reason to be back on in 30 days if it takes 35 and you can do it a little cheaper or is it generally a pretty fixed cost as you go through this?
Rich Marcogliese - Executive Vice President and Chief Operating Officer
Well... I mean there may be some examples of maintenance where we would work them on straight day shift as opposed to around the clock but typically, especially on the crude and coker side, you're going to want to get those units back on line as quickly as possible.
So you typically work them around the clock like we do. And I think you would do the same for cat cracker turnaround.
So, I think you would be very, very selective on small units where you would work them on a straight time or daylight basis.
Roger Read - Natixis Bleichroeder
Okay and then since we've seeing relatively weak gasoline retail numbers out of the master card, yes, certainly the EI hasn't given us a warm fuzzy feeling. Recently I was wondering as we come away from the hurricane impacts, especially as they kind of constricted available supply in the Southeast U.S., have you all seen any indication as gasoline prices have been coming down?
Any sort of either directional improvement or year... probably not quite year-over-year improvement, there maybe sequential improvement seasonally adjusted over the last couple of weeks?
Rich Marcogliese - Executive Vice President and Chief Operating Officer
I don't have the last couple of weeks of data but like in October, our volumes on a same store basis were down about 1.5 %.
Roger Read - Natixis Bleichroeder
Okay. Thank you.
Rich Marcogliese - Executive Vice President and Chief Operating Officer
Yes.
Operator
Your next question comes from the line of Jeff Dietert of Simmons.
Jeff Dietert - Simmons & Co.
Jeff Dietert with Simmons. Good morning guys.
Rich Marcogliese - Executive Vice President and Chief Operating Officer
Good morning Jeff.
Jeff Dietert - Simmons & Co.
I was wondering if we could get an update on cost inflation or deflation at this point on some of the major projects. And should we expect the capital cost to decline or are they largely locked in on the Saint Charles and Port Arthur projects?
Rich Marcogliese - Executive Vice President and Chief Operating Officer
Yes, Jeff, I'll make a couple of comments on that. The general trends we see in the market that commodity pricing is beginning to come down let's say steel prices I think they have paid in their own way down.
I would not say though that we've seen any impacts on labor rates at this point for construction labor to do physical work. But we are also seeing indications out of the engineering contractor of community that their cues are diminishing and we get reports that their actually looking to define work into next year.
So my sense is some of the inflationary drives that we have seen have in fact peaked and maybe we're going to see a little bit on the down side. As it relates to our specific projects, we're not in the position at this point to indicate that they are going to be any higher than we've previously identified.
Jeff Dietert - Simmons & Co.
One of your recent presentations included a comment that financial flexibility provides options when opportunities become available with the revaluation of assets that's happened over the last four months. Could you talk about what input opportunities are starting to look interesting?
Rich Marcogliese - Executive Vice President and Chief Operating Officer
Well we are refining and marketing company. And at least as of today we don't have any indication of anything that is available.
But we would be as we've said in every call, interested in looking at the right assets. We invest in long-term, very capital intensive business.
So if there's an opportunity we're interested.
Jeff Dietert - Simmons & Co.
And you would stay... continue to focus on large high complexity refining similar to what you've done historically, no delusion to the existing complexity in the portfolio?
Rich Marcogliese - Executive Vice President and Chief Operating Officer
I don't have the specifics, so I guess I would say the way you're phrasing the question, yes, in a way. But if the base is solid, if we see a way to catch your synergies above crude purchases to marketing to eventually upgrading, we'd be interested.
So, I wouldn't answer your question with an empathic, yes, I think, it's more involving.
Jeff Dietert - Simmons & Co.
Thanks for your comments, Bill.
Operator
Your next question comes from the line of Paul Cheng of Barclays Capital.
Paul Cheng - Barclays Capital
Hey guys. Can I get some balance sheet item, working capital, long term debts, the inventory of market lending in excess of the book lending?
Mike Ciskowski - Executive Vice President and Chief Financial Officer
Okay, our current assets less cash is $11.9 billion. Our current liability is less, our current maturities is $11.6 billion, long-term debt and capital leases is $6.5 billion and then our book value of our hydrocarbons inventory, I think, you asked is $4.7 billion...
and excess total market value is about $12.2 billion. So the excess market value over book value is $7.5 billion.
Paul Cheng - Barclays Capital
$7.5 billion. And the $11.9 billion and $11.6 billion, that means that your net working capital went down as a positive $300 million dollar?
Mike Ciskowski - Executive Vice President and Chief Financial Officer
That's right.
Paul Cheng - Barclays Capital
And in the $305 million pre tax gain related to the sale of the cost bill [ph], I believe you guys also have sold forward at the earn out for $200 million or something like that, is that gain is including in this $305 million or is not?
Mike Ciskowski - Executive Vice President and Chief Financial Officer
It is not in the $305 million.
Paul Cheng - Barclays Capital
And that when are you going to recognize it or do you --?
Mike Ciskowski - Executive Vice President and Chief Financial Officer
Let me correct that, it is in the $305 million, I'm sorry.
Paul Cheng - Barclays Capital
Okay sounds good.
Mike Ciskowski - Executive Vice President and Chief Financial Officer
The gain is in the $305 million.
Paul Cheng - Barclays Capital
So the gain related to the earn out is already in that?
Mike Ciskowski - Executive Vice President and Chief Financial Officer
Yes.
Paul Cheng - Barclays Capital
Can you tell us that is there any material inventory or hedging gain in the number? I mean given the oil price come down so sharply typically that have some inventory gain from most people.
So do you guys have recognized anything here?
Mike Ciskowski - Executive Vice President and Chief Financial Officer
We did not have a life of decrement. We did reduce the inventory through the to quarter cost to our LIFO base.
So there's not a material affect on our P&L.
Paul Cheng - Barclays Capital
How about on the P+1 because I think in... you guys don't go P+1 but still have some crude purchase impact, that oil prices come down I presume?
Mike Ciskowski - Executive Vice President and Chief Financial Officer
We do not do P+1. Joe?
Joe Gorder - Executive Vice President, Marketing and Supply
Paul I'm not exactly sure what you're asking though? Are you...
you're looking for... did we have a gain on the reduction of inventory volumes in the quarter?
Paul Cheng - Barclays Capital
That's correct. And also that the way that with crude price comes down, did your get some sort of a transitionary or temporary benefit in the quarter.
Rich Marcogliese - Executive Vice President and Chief Operating Officer
Yes Mike mentioned I think the LIFO effect. But that...
outside of that we... in order for us to get a gain on the reduction of crude inventory, we need to take a decrement and we didn't do that.
We did not take a decrement.
Paul Cheng - Barclays Capital
I see. Very good, thank you.
Operator
[Operator Instructions]. Your next question comes from the line of Paul Sankey of Deutsche Bank.
Paul Sankey - Deutsche Bank
Hi, good morning everyone. The language here though seems very negative and one thing I was just wondering about is the fact that distillate margins are holding up.
You seem to be implying that you think that's just related to winter and it's only a matter of time, let's say by the middle of next year before they... those...
they become the last strengths to leave us. Can you just give me your perspective on that?
Particularly also related to trade in distiller and that has been a big part of storing it? Thanks.
Bill Klesse - Chief Executive Officer
Paul I'm not sure where are negative. So I guess that's in the eye of the beholder.
But we had a terrific quarter really and our operations, we did have a hurricane. So we had plans down but Rich's group got our plants back.
We continue to improve our operations as we go forward. We're investing, fixing plans that I talked about in the past.
We're under invested for years to the margins. Our gasoline crap when you look at crude is very weak.
The industry must cut back. We have cut back on reformers.
Unless we need the hydrogen, reformers in our refinery have the weakest economics. Distillates, sure, we're going into winner, inventories are good from our perspective.
It gets cold every winter. We expect to see good demand.
By the time you get to next spring, I'd like to think maybe this is where you're getting me being a little pessimistic. I'd like to think that we're having some economically recovery tomorrow.
It is always about demand in our business and if your assumption is that we're going to have very, very poor economic activity in the world then eventually margins were weekend. But I don't see it that way.
I think by then we're surely going to have some recovery going on and that will affect distillates. Distillates are still tight and also don't forget, Europe continues to be short distillate, South America is short distillate, Chili is going to buy distillates next for their winter or summer.
So... but the industry needs to watch its utilization rates.
There's no question.
Paul Sankey - Deutsche Bank
So distillate's still strong because demand is still less?
Bill Klesse - Chief Executive Officer
Not in the United States but it's been strong in places in the world and now they're entering Europe... entering winner.
Like distillates were strong because demand was there this from Europe and South America. And don't forget for Valero, there's two other components.
One is the heavy sour, medium sour differentials and their wingers [ph] will go on to the fourth quarter and first quarter as the asphalt season ended. And the other thing that's really important to remember there's always other products we remain; asphalts, propylenes, lubes and all of that with the falling oil price or raw material price, those product prices have not fallen as much and the number sling for us is huge even in the third to the second was $500 million.
Mike Ciskowski - Executive Vice President and Chief Financial Officer
$560 million.
Bill Klesse - Chief Executive Officer
$560 million of improved gross margins just on those other products from the third quarter and the second as the oil price is falling. So...
and it's obviously continued here in the fourth quarter. So there's a lot of positive things going on.
The only weakness really is when you look at it is gasoline.
Paul Sankey - Deutsche Bank
Yes I guess what I think about you being negative is that you're cutting CapEx and you're building cash on your balance sheet, it's not actually the actions we've... a bullish outlook.
Can you just talk a little bit more about how much cash you would want to or how high you will take the cash on your balance sheet? I can understand it's a defensive move, but can you just talk a little bit more about the balancing that you're doing between the CapEx and between the buyback and I'll leave it there.
Thanks.
Bill Klesse - Chief Executive Officer
Well, let me... okay, so if you're asking me about cutting capital relative to cash, I think we're looking at the world brand and having cash is very, very proven for everybody on the line that's an investor or an employee, our company is financially solid and we're going to weather this storm that is going around the world.
You asked specifically how much cash? I don't think I ever have enough cash.
So we're going to build cash here and we're going to maintain as we said in our release. The balanced approach that this management team has used for the last three years, where we've increased our dividend which I'll add is yielding now at just about 4% to our dividend.
We're buying back stock, we're invested in our assets and we're trying to find good long term share holder value projects that we can do at our key refineries. So I think I am not going to answer you specifically to a number but I am going to say to you that the management team is going to continue the strategies that we have done the last three years.
But, with uncertain times, we are clearly holding more cash.
Paul Sankey - Deutsche Bank
Okay, but really the best. Thank you.
Operator
Your next question comes from the line of Chi Chow of Tristone Capital.
Chi Chow - Tristone Capital
Well thank you. Back on the diesel issue, could you give us some idea of the level of exports...
just what exports in the third quarter and what you're seeing here in the fourth quarter of the company?
Joe Gorder - Executive Vice President, Marketing and Supply
Yes, hi Chi, this is Joe. We had extensive exports really through the early part of the quarter and it slowed down towards the end as the arb closed a bit.
But I mean, we were exporting over 20 cargos a month during that period. If you look at what our maximum capacity for exports of distillates is, it's somewhere maybe around between a 175,000 and 200,000 barrels a day.
The arb recently has opened back up to Europe and so we're taking a good hard look at it again.
Chi Chow - Tristone Capital
Okay. Are you spending much to South America, here lately?
Joe Gorder - Executive Vice President, Marketing and Supply
It's less of laid to South America, more over Western Europe.
Rich Marcogliese - Executive Vice President and Chief Operating Officer
But because it's summer there now.
Chi Chow - Tristone Capital
Right, okay.
Bill Klesse - Chief Executive Officer
I mean I'm sure you are aware of the Bolivian natural gas, it's gone to Brazil and Argentina and Argentina shipping gas over to Chile which isn't happening. And so, it's been a electric generation heating situation.
LNG is very expensive. So, when you look at all these numbers, we see part of our future and I know some people question this, even among my management team, but we see part of the future is we're going to be a exporter of distillates, on US Gulf Coast.
Chi Chow - Tristone Capital
Okay, well if that's the case then why do you defer the hydrocracker project at Port Arthur?
Bill Klesse - Chief Executive Officer
Deferred, the one at Port Arthur only a year partly to manage a lot of things, also just watching our cash flow and to as you know there is a big project next door to us that's taking a lot of the crash. We also have an extremely large turnaround at Port Arthur next year in the first quarter, right?
Second quarter?
Mike Ciskowski - Executive Vice President and Chief Financial Officer
End of '09 and in early '10.
Bill Klesse - Chief Executive Officer
So we have a very large turnaround there and as we look at the situation we decide to slow that project and put our resources on the Saint Charles projects.
Chi Chow - Tristone Capital
Okay.
Bill Klesse - Chief Executive Officer
These are our big projects, Saint Charles are bidding for.
Chi Chow - Tristone Capital
Yes, I understand. Okay one other questions and this is kind of a longer term question or somewhat related to the elections.
Both candidates have been very supportive of the renewal field mandate and then from Obama longer term, how do you see the rollout of renewable impacting the refining industry over the next, I don't know, five years or so?
Bill Klesse - Chief Executive Officer
Well I'm not sure I'm going to add anything that you haven't already thought of. But it's...
ethanol clearly affects the gasoline balance. And so this year it's going to average 590,000 barrels a day.
It has basically taken market share from oil refiners; next year goes up some more. But the...
I am very vocal on this. The philosophy's been flawed, the tax incentive is huge, the consumer's paying for this and it doesn't do anything for the environment.
Now having said all of that, if it is in fact only be part of the fuel mix, we're going to fizz around how to play the game.
Chi Chow - Tristone Capital
When you say when you have enough to play the game, does that mean you could potentially invest in this renewables industry in the future? C: Bill Klesse: We might, and also we think second generation.
But it all depends on economics. We are an economically driven company here.
Chi Chow - Tristone Capital
All right. Okay, I guess one other follow up.
If McCain gets elected, seems like he is going to --
Bill Klesse - Chief Executive Officer
I don't think this question's relevant for that.
Chi Chow - Tristone Capital
Well, you're right but just a way --
Bill Klesse - Chief Executive Officer
Go ahead Chi, we'll charge them. We'll give you our consensus anyway.
Chi Chow - Tristone Capital
Alphabetically please. The key re-peels the tariff, the ethanol tariff and the subsidy?
What sort of impact do you think that would have on the ethanol market?
Mike Ciskowski - Executive Vice President and Chief Financial Officer
Without a subsidy it has the trading and parity with gasoline. Most of that you hear is actually traded under gas and so then change too much.
But diesel and gasoline prices are down to $140 range, ethanol $175, $170 somewhere there. So if there was no mandate, no subsidy.
Did you mention mandate or did you... let's talk of mandate basically the lender tax payment whatever the market is, so I think it's going to continue to cover cash cost over reform.
Chi Chow - Tristone Capital
Do you probably... it's a...
took away the import duty, it's been more imported ethanol coming long term.
Bill Klesse - Chief Executive Officer
But these kind of things, we will see what happens and then we will react.
Chi Chow - Tristone Capital
Okay. Well, thanks for the discussion.
I appreciate it.
Operator
Your next question comes from the line of Neil McMahon of Sanford Bernstein.
Neil McMahon - Sanford Bernstein
Hi, good morning. Got a few questions.
First, a clarification, Bill I think you just mentioned a few answers back, that you were seeing still diesel strength in Europe and I was just sort of questioning, is that... what's that based on?
Bill Klesse - Chief Executive Officer
I was speaking to the summer, third quarter on the... where we have been exporting volumes, but Joe mentioned that the arb was open, so --
Joe Gorder - Executive Vice President, Marketing and Supply
Yes, the arb's open to Europe now. And so we are seeing less of it...
less of our demand going south and more of it going, I guess, to the east.
Neil McMahon - Sanford Bernstein
Okay. And maybe just a question with regards to heavy crude and with OPEC supposedly cutting back on production, can you walk us through what do you anticipate happening with the light heavy differential and residual pricing and availability over the next six months?
Gene Edwards - Executive Vice President, Corporate Development and Strategic Planning
This is Gene Edwards. I think it's being driven more by the residual components than it is the heavy supply and with the demand where the weak economy is down everywhere and that's the reason we've seen the resid discount stay in this $20 range even though crude's dropped from $140 down to $70.
So we are seeing the percentage basis it spread over acquired debt. I think the mild...
it's going through.. gone from 10% of crude up to about 20% of crude and so I don't think the really heavy is really being cut; incrementally the crude in the Middle East is medium sour and that's...
So I think it's going to return stable in the right way right now which is very good from our percentage basis from where we were just a few months ago.
Rich Marcogliese - Executive Vice President and Chief Operating Officer
As Jim mentioned fuel oil is such a significant component of gasoline and the mild discount that we are in, the discounts came in on that. We had a compressed mild discount but now its opened back up to Mexicans we're purchasing and consuming a lot of fuel oil early in the quarter and they quit doing that now.
So we've seen it open back up.
Neil McMahon - Sanford Bernstein
Okay. And just finally maybe a question for Bill, given where the share price is, you could potentially do two things.
The first is increase the buyback rate quite substantially. Even if you think that the stocks are good value at these levels.
But secondly since your market cap is now just over $8 billion, what sort of [indiscernible] going private?
Bill Klesse - Chief Executive Officer
Let me just answer the first question. We have demonstrated and continue to demonstrate that we think our stock's a good buy.
I... what Mike has mentioned we have already bought $8 million shares this quarter here in early October.
Then of course we had the blackout. But we've purchased 22 million, 23 million this year which is a little over 4% of our standing shares.
So, we continue to do the things that you are asking. The only difference is same question that Paul asked is that there's a lot of uncertainty around here about access to markets and so we're holding more cash.
The other side of this is it takes us a long time on projects, we're very capital intensive business in refining. These projects take us anywhere from 2 to 4 years.
Let's just say on average three to three-ish and it's just such a long lead time that, as we look out towards the future and try to anticipate the market we shape, we're going to continue to invest in our key refineries and that's what we're doing. But it's about balance.
It's about doing a little of our orders but it's all for the long-term and that is to one piece of this I would really emphasize that everything we do here is geared to our long term shareholder value.
Neil McMahon - Sanford Bernstein
I totally agree with everything you say, but the fact is that you are trading at about just over a half gross value. So somewhere in the market it doesn't seem to agree with you for some reasons.
And I am just wondering if it gets to a situation where... to do all the things you want to do over the longer term, maybe the best course might be to take the company private so you can get on with doing what you are doing with sort of excess of fuel in the market and where the share price is going?
Bill Klesse - Chief Executive Officer
Well, there's a lot of companies that are being in the same situation. I don't take this as an appropriate form to debate this.
Neil McMahon - Sanford Bernstein
Okay then. Thanks.
Operator
You're next question comes from the line of Eric Mielke of Merrill Lynch.
Eric Mielke - Merrill Lynch
Hi good morning. Starting on from that scene from share buybacks, I'm guessing you probably spent somewhere around 150 million and 200 million buying back stocks in October.
Is that a sort of a good run rate to think about on a quarterly or on a monthly basis going forward assuming that margin stay where they are currently?
Bill Klesse - Chief Executive Officer
No. I would not give you a projection.
As we've done this always ad hoc and we have 3.5 billion of authorization from our board that management still has here but we have done this ad hoc. And surely make the decision as we go along here and look at what's going on.
Eric Mielke - Merrill Lynch
And the reasons for buying in October then?
Bill Klesse - Chief Executive Officer
Because we hit $20.
Eric Mielke - Merrill Lynch
Okay.
Bill Klesse - Chief Executive Officer
And that number in October... early October was $21, I think, for the 8 million shares we bought.
Eric Mielke - Merrill Lynch
Very good.
Bill Klesse - Chief Executive Officer
And now we're less than that.
Eric Mielke - Merrill Lynch
Thanks so much.
Operator
Your next comes from the line of Mark Gilman of Benchmark Company.
Mark Gilman - Benchmark Company
Hello guys, good morning. Hey Bill, I'm just trying to get a little bit better understanding of what kind of planning scenario you have in mind with respect to 2009 and in particular that $3.5 billion capital program.
Are you looking for margins in '09 right now underlying that plan to be at, equal to, above, below, full year '08? Give me some color on that?
Bill Klesse - Chief Executive Officer
I would give you a color. We look at the forward curves just like you.
But if you had to ask me today, they'll be under this year.
Mark Gilman - Benchmark Company
And that's what underlies the $3.5 billion number.
Bill Klesse - Chief Executive Officer
That's what underlies our entire thinking about how we approach cash management, where we're going to spend the money when we look at our stock, everything and everybody is going to asking me up to that. And it's actually longer term and that's not just an '09 conversation.
It also affects '10 and '11 because of the length of time it takes us to do this.
Mark Gilman - Benchmark Company
Okay. And you won't quantify how much additional cash you want to hold through this period?
Bill Klesse - Chief Executive Officer
No. I will not.
Mark Gilman - Benchmark Company
Okay. If I could try just one more.
It looks from the third quarter data that the combination of resin and heavy feed at least on a percentage basis was running quite a bit higher than it had previously, would you expect in a more normal operating environment for that to remain true?
Rich Marcogliese - Executive Vice President and Chief Operating Officer
We have hurricanes getting into that.
Mike Ciskowski - Executive Vice President and Chief Financial Officer
Yes.
Bill Klesse - Chief Executive Officer
We have trouble supplying Memphis and Ardmore because remember the volumes come up from the Gulf Coast but I'll let Joe --
Joe Gorder - Executive Vice President, Marketing and Supply
Mark, I would tell you... I would say that we didn't change this late intentionally during the third quarter.
As Bill mentioned we have so many offering disruptions both on the heavy solid run because we had Texas City down, we have Port Arthur down, St. Charles down.
So... and Bill mentioned the sweet crude refineries that were down.
It's really hard to look at the third quarter data and say that we fundamentally changed something that we were doing. I think if you go back to earlier quarters and just look at our history, the rates going forward would be similar.
Bill Klesse - Chief Executive Officer
However we always looking... and remember, we run our keys, and we do all of this as you expect us to do, and we're always looking for '08 to keep heading up.
But we do get into asphalt balances and how much we can black crack and how much we can coke. But we're always looking to take advantage of these differentials.
And certainly the medium solid differentials opened up for us. So I think how we do all of this and we try very hard to maximize it.
Mark Gilman - Benchmark Company
I just want to clarify if I could, I think Rich's comments previously regarding the sustaining capital of $1.4 million to $1.5 million per year exclusively over environment mandated projects, does that include turns?
Joe Gorder - Executive Vice President, Marketing and Supply
Yes, it does. So in a good number for turnaround on average would be about $600 million a year.
Mark Gilman - Benchmark Company
Okay. And this was discussed I guess briefly and previously but nonetheless the crude oil should have been positive in the mid continent this period, was it?
Rich Marcogliese - Executive Vice President and Chief Operating Officer
It was slightly negative $16 million. And it was because we have got it here forgotten.
Joe Gorder - Executive Vice President, Marketing and Supply
Yes, Mark it was negative, it was negative $16 million. So about half of that was from the Mid Continent and half of it's from the Gulf Coast.
Mark Gilman - Benchmark Company
Okay. And Mike?
Bill Klesse - Chief Executive Officer
Slightly backward accrual period.
Mike Ciskowski - Executive Vice President and Chief Financial Officer
Yes, we were.
Mark Gilman - Benchmark Company
Okay. My...
I will leave it at that. Thanks guys.
Bill Klesse - Chief Executive Officer
Okay.
Operator
Our next question comes from the line of Jacques Rousseau of Back Bay Research.
Jacques Rousseau - Soleil-Back Bay Research
Good morning. Just wanted to see if you could let us know how much the hurricanes costs you both in terms of expenses and opportunity cost?
Rich Marcogliese - Executive Vice President and Chief Operating Officer
The opportunity cost on the hurricane was about $350 million. I don't have a front number on expenses.
There was a very little refinery damage. So at the order of about $20 million.
Jacques Rousseau - Soleil-Back Bay Research
Thank you.
Operator
Your next question comes from the line of Ann Kohler of Caris & Company.
Ann Kohler - Caris & Company
Good morning gentlemen. Just a question regarded the start up of alliance and what your expectations are regarding the amount and location of the flow of that product?
Joe Gorder - Executive Vice President, Marketing and Supply
Well, the start up has delay and we make... doing some 1000 barrels a day of gasoline, doing some 1000 barrels a day of distillate and --
Rich Marcogliese - Executive Vice President and Chief Operating Officer
We export it.
Joe Gorder - Executive Vice President, Marketing and Supply
We got to export it. Do you have anything --
Rich Marcogliese - Executive Vice President and Chief Operating Officer
They are going to export it to the highest export market in the same state [ph] facility, yes. They will probably stay in Asia and Europe and gasoline they will take it to whatever market's the highest one.
Bill Klesse - Chief Executive Officer
But don't... we would never wish them ill but it's a big refinery and as we pointed out they are late from what they said and there's going to be big complex operation starting up.
Also things are happening still in the world. Next because volumes continue to increase, South American volumes increased.
We have lots of things going on. So, it will do exactly what Gene says just like our business has always done.
That it moves through the best markets and then those markets are moved to other markets. And I think Ann it's a little hard for us to know any more than you know.
Ann Kohler - Caris & Company
Okay. Great.
Thank you. I appreciate it.
Operator
[Operator Instructions]. Your next question is a follow up from the line of Paul Cheng of Barclays Capital.
Paul Cheng - Barclays Capital
Two short ones. Mike on the anti-dilution, how much...
can you give us an estimate that how many shares you have to buy back per quarter over the next say three or four quarters.
Mike Ciskowski - Executive Vice President and Chief Financial Officer
Yes it's roughly it is 300,000 shares. It's a fairly small amount every quarter.
Paul Cheng - Barclays Capital
Quarter, it is only 300?
Mike Ciskowski - Executive Vice President and Chief Financial Officer
Yes.
Paul Cheng - Barclays Capital
And Bill, just theoretically, let's assume if under the very best situation your cash flow from operation actually would be lesser than your capital spending. Under that scenario, should we assume you would still be willing to do share buybacks or that that's not going to be the case under the current credit market situation and the economy?
Bill Klesse - Chief Executive Officer
It's a very fair question, Paul. It's just I don't have to face it today, I'm not going to answer me.
What we would do if that's the case, we have cash. We'll look at our projects.
We'll look at where our stock is. We'll look at our future.
And we'll make the decision we think in the shareholders' interests.
Paul Cheng - Barclays Capital
I see. Okay.
Fair enough. Thank you.
Operator
Your next question is a follow up from the line of Mark Gilman of Benchmark Company.
Mark Gilman - Benchmark Company
Mike you referred, I believe, in your introductory comments to the right of some deferred capital costs in the SG&A line.
Mike Ciskowski - Executive Vice President and Chief Financial Officer
Right.
Mark Gilman - Benchmark Company
Can you tell me what that number was and why if the projects have deferred you're actually writing it off?
Mike Ciskowski - Executive Vice President and Chief Financial Officer
What I can tell you the second piece is because we had tax reduction. All right.
The total was at roughly 43 million and it's associated with primarily the terrace island [ph] unit at Saint Charles which we discussed earlier.
Rich Marcogliese - Executive Vice President and Chief Operating Officer
And I think there was piece on the delayed coker primary order.
Mike Ciskowski - Executive Vice President and Chief Financial Officer
It comes out to about $42 million.
Rich Marcogliese - Executive Vice President and Chief Operating Officer
$43 million. Yes, that's right.
Mike Ciskowski - Executive Vice President and Chief Financial Officer
$43 million is in our numbers that we on projects were deferring them, we actually just wrote off.
Mark Gilman - Benchmark Company
Okay. The Northeast margin at first glance looks to be in the context of the environment really quite high in the quarter.
Is that just the lube effect or is there something else there that we should be aware of?
Mike Ciskowski - Executive Vice President and Chief Financial Officer
Well it is the lube effect but it's also because we ran it back during the entire quarter and of course as you know, margins went up.
Rich Marcogliese - Executive Vice President and Chief Operating Officer
The second quarter was also impacted by the coker turnaround in Delaware City. So in the absence of that makes the third look a little bit better.
Mike Ciskowski - Executive Vice President and Chief Financial Officer
Okay, at $0.03 [ph].
Mark Gilman - Benchmark Company
Okay thanks guys.
Mike Ciskowski - Executive Vice President and Chief Financial Officer
Thanks Mark.
Operator
There no further question at this time. I would like to turn the conference back over to the management for any closing remarks.
Mike Ciskowski - Executive Vice President and Chief Financial Officer
That concludes our call. If you have any further questions, feel free to contact Investor Relations.
Thank you for joining our conference call.
Operator
Thank you again for participating in today's conference, you may now disconnect. .