Ashley Smith - VP of IR Bill Klesse - Chairman and CEO Rich Marcogliese - COO Mike Ciskowski - CFO Joe Gorder - EVP, Marketing and Supply

Doug Terreson - ISI Jeff Dietert - Simmons Doug Leggate - Bank of America/Merrill Lynch Edward Westlake - Credit Suisse Paul Cheng - Barclays Capital Mark Gilman - The Benchmark Company Paul Sankey - Deutsche Bank Blake Fernandez - Howard Weil Franklin Russo - RBC Capital Markets Chi Chow - Macquarie Capital Alexander Inkler - Sanford Bernstein Ann Kohler - Caris & Co Daniel Burke - Johnson Rice

Thank you, Angelic. Good morning and welcome to Valero Energy Corporation’s first quarter 2010 earnings conference call.

With me today are Bill Klesse, our Chairman and CEO; Mike Ciskowski our CFO; Rich Marcogliese our COO; Gene Edward ,our Executive Vice President of Corporate Development and Strategic Planning; Joe Gorder, our Executive Vice President of Marketing and Supply and Kim Bowers our Executive Vice President and General Counsel. If you have not received the earnings release and would like a copy, you can find one on our website at valero.com, also attached to the earnings release are tables that provide additional financial information on our business segments.

If you have any questions after reviewing these tables please feel free to contact me 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 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.

Thanks Ashley and thank you for joining us today. As noted in the release we reported a first quarter 2010 loss from continuing operations of $101 million or $0.18 per share.

I should note that the $12 million aftertax loss from discontinued operations shown in the financials tables relates to the Delaware City assets that were shut down in the fourth quarter. The first quarter 2010 operating loss was $32 million versus $593 million of operating income in the first quarter of 2009.

The decline in operating income was mainly due to lower margins on most of our refined products in all four of our operating regions. Looking at our highest volume region, Benchmark Gulf Coast, ultralow sulfur diesel margins versus WTI decreased 41% from $12.61 per barrel in the first quarter of 2009 to $7.49 per barrel in the first quarter of 2010.

While Gulf Coast gasoline margins versus WTI decreased 12% from $8.14 per barrel in the first quarter of 2009 to $7.13 per barrel in the first quarter of 2010. The hardest hit region was the West Coast where gasoline margins versus WTI fell 45% and diesel margins versus WTI fell 38% in the first quarter of 2010 when compared to the first quarter of the last year.

So far in April, margins have improved versus the first quarter in most of our regions, for example the Gulf Coast ultralow sulfur diesel margin versus WTI has increased 33% to $9.95 per barrel while the Gulf Coast gasoline margins versus WTI increased to 20% to $8.58 per barrel. On the West Coast, diesel margins versus WTI increased to 40% to $11.83 per barrel while the gasoline margins have remained relatively flat.

Our first quarter 2010 refinery throughput volume averaged to 2.1 million barrels per day which is in line with our guidance. However compared to the first quarter of 2009, volumes were down 254,000 barrels per day mainly due to the continued idle status of the Aruba refinery.

Our first quarter 2010 results were negatively impacted by downtime at some of our key refineries. We estimate the lost income from the first quarter downtime was just over $200 million.

Refinery cash operating expenses in the first quarter of 2010 were $4.41 per barrel in line with our guidance, but were $0.41 per barrel higher than the first quarter of 2009 results due mostly to the lower throughput volumes. Looking at other business segments, retail had a record first quarter with operating income at $71 million which is $15 million higher than the first quarter of 2009 primarily due to higher fuel margins in both the US and Canadian operation.

Our ethanol segment had $57 million of operating income in the first quarter which was our second best quarter since we entered the ethanol business. I should also point out that we purchased 3 additional plants in the first quarter taking our total to 10 plants with 1.1 billion gallons per year of capacity.

Like our previous acquisition these are large plants located in the corn belt and we bought them at deep discounts to replacement costs. Two of the plants were idle, but we have restarted them and ten plants are now operating.

General and administrative expenses including corporate depreciation were $97 million in the first quarter which was $40 million lower than the fourth quarter and lower than our guidance due to a favorable insurance settlement of $40 million. For the first quarter total depreciation and amortization expense was $357 million which was in line with our guidance, net interest expense was a $127 million which was higher than our guidance and the fourth quarter of 2009 due to increased interest expense related to our recent debt offered.

The effective tax rate benefit on continuing operations in the first quarter was 32%. Regarding cash flows for the first quarter, capital spending was $611 million which includes $229 million of turnaround and catalyst expenditures and for the year our capital spending target remains at $2 billion.

We received a federal income tax refund of $923 million and we spent $260 million to acquire 3 ethanol plants. The ethanol spending includes $9 million of working capital.

So the total cost to acquire these plants comes to $280 million which includes a $21 million deposit that was paid in the fourth quarter of 2009. We also paid $28 million in dividends in the first quarter.

Also during the quarter we completed a debt offering totaling $1.25 billion and subsequently called $473 million of debt. Including the premium we spent $294 million in the first quarter to regain $287 million of debt and in the second quarter we will pay $190 million to regain a $186 million.

These redemptions will result to lower interest expense over the life of the note. With respect to our balance sheet at the end of March total debt was $8.4 billion.

We ended the quarter with a cash balance of $1.9 billion and we had over $4 billion of additional liquidity available. And at the end of the quarter, our debt-to-cap ratio net of cash was 31%.

In summary, our financial health and liquidity remained very good despite the challenging environment we have experienced. We expect to be profitable in April and make money for the fourth quarter.

Our priority is continue to reducing costs running our assets safely and reliably and maintaining our financial strength. We continue to believe that our cost savings initiative and the strategic actions that we have taken should make the company profitable in 2010 even if we were to experience a low margin environment like 2009.

So now I will turn it over Ashley to cover the earnings model assumption.

Okay thanks Mike, for modeling our second quarter operations you should expect refinery throughput volumes to fall within the following ranges. Gulf Coast at 1.275 million to 1.325 million barrels per day.

Mid-continent at 3,80,000 to 3,90,000 barrels per day, North East at 3,30,000 to 3,40,000 barrels per day and West coast at 2,60,000 to 2,70,000 barrels per day. Refinery cash operating expenses are expected to be around $4.15 per barrel which is lower than last quarter due mainly to higher expected throughput volumes.

Regarding our ethanol operations in the second quarter, we expect total throughput volumes of 3.15 million gallons per day and operating expenses should average approximately $0.37 per gallon which includes $0.03 per gallon for non-cash costs such as depreciation and amortization. With respect to some of other items in the second quarter we expect G&A expense excluding depreciation to be around $135 million.

Net interest expense should be around $120 million and total depreciation and amortization expense should be around $365 million. Regarding our tax rate in this margin environment, small changes and assumptions are yielding a very wide range of results from effective tax rates.

So at this point we prefer not to provide guidance which may not be meaningful. We will now open call for questions Angelic.

Differentials have widened which should enhance performance for you in the coming periods. On this point, the spread for light versus (inaudible) seems to have widened more than for some of the other global heavy crude oils.

So my question's twofold. What do you guys think that supports widening of the spread?

Second, what, if any implication, do you think the difference in spreads between the regional heavy crude oil such as Maya can continue to trade at record levels there, but have some of the others in? Would you just spend a minute on that spread?

The heavy sour discounts improved for a couple of reasons. One we had in (inaudible), two we had fuel-length in Singapore and third we had a flat market structure.

Now you have the Maya discounts looked pretty good today. We were shown about $10 a barrel when compared to WTI and that’s a little bit distorted, they are actually stronger than that if you compare them to some of the foreign suite, because we got the dislocation of WTI.

So we had factors that affected the discount and improved it. Now today if you look at that, the primary one that still remains is the fuel oil length.

The Maya length is cleaned up a little bit and the market structures [didn’t carry], but here again if you compare Maya to a foreign suite, it looks more attractive and it would relative to WTI. Now as far as the foreign barrels go, like [big] heavy, Doug we are not seeing those barrels over here anymore and you know that.

If I compare Maya to some of the other heavy sours that we do look at running is right in the ballpark. Venezuelan grades, some of the Columbian grades, we are not seeing it disjointed relative to those.

Along a similar line, Rich, or Joe, could you talk about how the Maya spreads and the resid spreads are impacting your utilization of your coking units, and maybe compare 4Q last year to 1Q this year and where you are now as far as utilization of the cokers?

We have increased coker runs in general. If you go back to the last year we had our small coker in the Corpus Christi East plant and two drum coker I mean it was down for probably six months.

Now it is running full coker at Texas City, running full Port Arthur crude rates and coker rates have gotten back to traditional maximum. So yes, we are purchasing crudes to fill coking capacity because it makes economic sense now with the differentials.

If I remember, on the second question, the Paulsboro process, it seems like you've got bids in. Should we assume something's relatively imminent there?

Jeff we are working on the process still and I will tell you that we’ll make our decision here in the second quarter.

On the northeast, it looked like the capture rate there was a little better, I guess, than we've seen historically. Can we talk just a little bit about what the absence of Del City has meant there in terms of the system?

But if you can also maybe just frame it in terms of the contribution from Paulsboro. It was the only region that was profitable this quarter.

So I'm curious to know how Paulsboro performed with that backdrop?

Well on the part about Del City I don’t think we necessarily see any impact on that, to go through the heart of your question we made money in Canada and we lost money in Paulsboro.

If I would just stay with that, there was no mention in the release about the inventory sale coming out of Del City. Can you give us some color, I'm assuming you got the revenues, was there any contribution in terms of margin from that inventory disposal?

In the North Sea or on the inventory liquidation at Del City we had hedged all those barrels, so there is P&L effect.

A couple months back, you were quoted as talking about aiming for something like a $3.50 operating cost on the count on a cash basis. Can you just give some maybe color, some update as to whether that's the number you like or rather see as a target and what kind of timeframe and what kind of process you see towards getting there?

Well that clearly a number I still think it is attainable, but when you have lower operating rates in our refining system, we have to adjust for all of that. We continue to make improvements everywhere, we have goals throughout our system.

I think some of you know that we took action in the fourth quarter of last year at Paulsboro reducing our operating costs there. So, we have made projects underway that are adjusting our operating costs.

We have a target throughout the company of $100 million, but then that’s really addressing mostly things that are at corporate. We also have on top of that optimization, molecule management, strategic sourcing, many other initiatives that will bring it down.

But as a goal if we are operating full rate, we’d like to get our cash operating costs down to $3.50 when you have natural gas in its price range. But it’s hard to say give you a good number when we have reduced operating rates.

I guess economic recovery is picking up, perhaps. How is that changing your thoughts around Aruba, around $2 billion of CapEx, whether you can drive CapEx lower next year or whether you see some other uses for that cash?

Perhaps a word on whether ethanol you're done, whether further acquisitions are perhaps unlikely now, or whether you are going to carry on in something around your international thoughts at this stage in terms of international growth is there are opportunities there?

Yes, Valero sell fuels and clearly as the economic activity continues to increase, it will help our business. Today in distillates, we're seeing farm demand, railroad demand very strong.

Trucking is lacking. On gasoline, unemployment still at the 9.7% or whatever the number is.

Being very high number and the high prices are restrained on gasoline. However we do see as the economy recovers, the volume's picking up.

So, yes we are optimistic, here, we have better margins today. As Joe just said we have better seller discounts today, we are making money here as our releases says in April and we expect to be profitable as Mike said in the second quarter.

And I’ve told everyone that we expect to be profitable for the year. Looking at our thoughts on Aruba, we still do not have what we would call solid economics to operate Aruba.

So we can tell you to look at our alternatives there. Most likely the alternatives that we tend to be looking at goal on the line of processing.

We’ll make that decision here as to how that plan goes forward, most likely in June. About ethanol, we are very pleased with our ethanol business.

Gene Edwards and the team have done an excellent job getting us in that business. It's been a solid contributor for us, it’s still in the profit.

I think some of you know there is a huge blending margin today. Ethanol’s economic and so we continue to look at opportunities in that business.

We have built a strong staff here and so we feel one, that ethanol is going to be part of fuel mix in the United States and two, there is still some opportunity out there for us to continue to grow that business. Capital spending, our number this year, out target is about $2 billion.

We complete several big projects this year, the scrubber at Venetia and the heater furnace that's associated with it is very large. We completed MSAT-2 by the end of the year so that will give us the ability to come in with a lower capital.

However we do have some big turnarounds next year. But having said that, we also have a couple of projects that we are halfway through and so we are scaling those into our view.

So if our profitability continues as I stated a few minutes ago and we have the cash. It is our intent to eventually complete our hydrocracker projects at Port Arthur and St.

Charles with the timing being somewhere late 2012 at Port Arthur and somewhere in the late 2013 at St. Charles.

These projects still have very good rates of return, so we are going to work on them.

First, Mike, can you give me some [partnership] item. What is the working capital including cash?

And long-term debt, of the $8.4 billion how much is long-term debt? What is the equity in your [partnership] and what is the market inventory in excess of the book?

Total current assets at the end of March was $11.3 billion and cash balance was $1.9 billion. Total current liabilities was $8.1 billion.

What is the current liability?

Yes the total current liability is $8.1 billion and then our current maturities are $635 million. So our networking capital is right at $2 billion.

Okay so short term debt is $635 million.

That’s right $635 million.

So that means that your long-term debt is $7.8 billion?

Right. That’s correct and the market value on our inventory is about $9 billion.

Okay how about your shareholder equity?

Yes about $14.5 billion.

Just wanted to make sure I understand so your working capital would be $3.2 billion including cash and everything?

That’s correct, if you do not exclude the cash or the current maturities that’s right.

Secondly, that money in your first quarter, is there any trading or hedging or loss? Also, do you have any outstanding position for the second quarter for any hatching or trading position currently on?

The first quarter results from our trading activities was a profit of about $5 million.

I have mentioned in the past that we do participate in the paper markets. We have some decisions on, but they are not significant and frankly I view them as confidential.

So Bill, you mean that for the second quarter that as of right now the existing one is not a huge amount whatever you have outstanding?

That’s correct.

Bill, I think you had mentioned that you could be interested in share of European asset. Can you give us any update?

Have you further pursued that process or you still have interest or not?

We are still interested in looking at so many of the assets that are for sale in Western Europe. I think you know it is a whole bunch of them and so we will continue to look however but we will be very careful.

It is only looking at quality asset. There will be assets that do not require a lot of capital and I assure you that we will be survivors and there will be assets that will generate a rate of return if we do anything.

While I fully believe your forecast of profitability, Mike, can you give me an idea where you stand in terms of possible future carryback loss potential as of the end of last year?

I think our current forecast shows that we are going to have a taxable income this year, so we don’t expect to have any carry back.

I will always say that there is a significant amount of potential carryback if we were to have a tax law. Because there is a new tax laws from last year that allows five-year carryback and the large portion of our over $900 million income tax receivable were from earlier years and so we still have a substantial amount if we do actually have the tax laws.

Has the liquidation of the Del City inventories been fully completed?

We still have a little bit to go, I think about a $100 million is what my estimate is current value.

That’s left to go, Mike?

That’s left to go.

Slightly over a million barrels.

It appears as if there's an unusual seasonal pattern to the reported margins in the mid-continent division where the first quarter in virtually every year that I've looked at seems to be one of the strongest quarters. Is that something you see also, and is there any particular reason you can cite for it?

We have the contango in the market which helped to some degree on the mid-continent plant.

It has been pronounced lately than early in the first quarter

Other than that I don’t really see product margins, being that big premiums to the Gulf coast, just the normal arbitrage.

Mark, even now they are fairly flat. If you look at Gulf coast versus mid-continent the only difference really that I see is the seven pound, eight pound versus nine pound back.

But nothing that tends to repeat itself from the first quarter each year that might be responsible for a much higher degree of margin capture in a first quarter period?

No we are not aware, we will have to go back track and look at that Mark.

Bill, you've often taken an industry leadership role, not least in terms of really rallying the industry, not to overproduce, I was wondering in the context of the sale of Delaware City, why you didn't simply shutter the refinery once and for all given that the price you got was pretty low and I would have thought the potential welcome-term benefits of shutting that particular refinery would have outweighed the benefit you got from the sale?

It’s a fair question, but PBF was willing to pay a price for a terminal as we were looking at it and then a shutdown refinery that was in our shareholder’s interest when we looked to that versus all other options. So as we said in some of our releases that we believe we got a very fair value for this, for the state it was in, so we elected to sell to PBF.

You're saying now there will be a competitor on the east coast?

I think you have to ask PBF what they are going to do with the refinery.

When you sold, do you expect them to run as a refinery, was your expectation that it will just be a terminal.

We sold it as shutdown refinery with the terminal

Just a more macro question if I could. It seems that one of the reasons, the strengths that we're seeing in refining margins right now is related to international demand.

We noticed the problem in Chile, Mexico, Venezuela, Brazil, I think Nigeria might be importing gasoline. Could you just talk about Atlantic basin and Pacific basin and trades we are seeing in terms of exports from the US?

Paul we are seeing you know strong demands for distillates primarily from South America, but also here just recently from Europe. If you look what we did in the first quarter we exported about 80,000 barrels a day on average of distillate, but those numbers are much lower in January and increased through March.

If you look at what we are estimating right now for May we are probably at 185,000 barrels a month and you cited some of the issues and we have problems in Chile. Venezuela has refinery problems.

Isla is shut down. So you’ve got draws in that market that are pulling significant volumes and here again, the arm to Europe is open by about a penny and a half now.

And that’s been a recent phenomenon and so we are moving barrels that way also.

What do you attribute the European strengths to?

Well the refineries are still being cut back, they are not at high utilization rate still.

You know it’s hard to get great data, but we do know that a lot of the distillate has been on the water has cleaned up and been consumed.

Just to be clear, those numbers you're talking about are Valero numbers, right?

Valero numbers.

That must be a record high, right?

No actually last summer we probably did 200,000 to 220,000 barrels a day.

Of distillate?

Yes.

And what about gasoline side?

In the first quarter we did 20 gasoline cargos which is a high for us.

How big's the cargo?

55,000 barrels a day.

To what extent do you think this is sustainable? Obviously, we know the demand side is coming back, but in terms of the outages, Chile obviously is going to come back in a matter of months.

Right.

Do you know what's going on in Mexico and Venezuela?

In Mexico we had a lot of turnarounds. Venezuela has had refinery operating problems.

Isla of course had the power outage and that took a lot of volume out of the market, I mean Isla refinery produced 85,000 barrels a day of gasoline and a 100,000 a day of diesel fuel. That’s not the marketplace today and they were using that to supply other South American countries, so the US Gulf coast right now is filling the void in production there.

Is it sustainable, we understand that perhaps by the end of May it will be back up operating, Chile is going to take a while I think to get their production volumes back up and then Venezuela itself I really don’t know.

Final one for me there was some interesting chatter I think you referenced even today about Iran and Reliance. Is there anything you can add on what might be going on there?

It seems that Reliance is seeking to send more volumes into the Atlantic basin. I don't know if you seeing this show up, any commentary on that?

We haven’t seen them show off. I haven’t heard anything about that to be quite honest with you.

Everything I hear is Iran continues to be supplied and some of their old suppliers maybe reducing the volumes, but someone else steps in to fill the void and so I am not sure there’s really been a lot of changes in gasoline movement in Iran.

The Canadian retail margins seemed exceptionally strong in the quarter. I'm just curious if you could point out anything that was occurring during the quarter and if that's continuing to persist into 2Q?

The Canadian margins you should remember include (inaudible) and so when you look at the number that’s the home heating business and our margin for the home heating is significantly harder than it is for fuel. So then as you go into the second quarter, third quarter, they change as your volume drops for home heating, then going back into the fourth quarter.

So that’s really the main difference you have as the home heat business in the winter so even though Quebec was warmer this winter than last winter there's still that seasonal effect.

Okay, so we should see some drop off there?

Yes, on a relative basis.

The second one for you Joe mentioned the dislocation on WTI, presumably stemming from the storage situation that seems to be building again over at Cushing. As I recall, I believe you guys run quite a bit of WTI through your mid-con system, and I'm just trying to see if you're recognizing a real benefit from that so far this quarter?

And I think you already mentioned the contango, but obviously that's blowing out as well, I'm assuming that's providing somewhat of a benefit as well.

Yes, Blake we would do, I mean we will see the benefit as the contango on the domestic crudes and we do run quite a bit of TI into McKee, Ardmore.

Most of my questions have been answered, but I just wanted to follow up on the capital budget. You've talked before on the $2 billion capital budget this year, about 1.85 of that is kind of this day in business capital level and that's expected to move down going forward.

If you take Paulsboro and Aruba out of the equation, how low can that 1.85 go?

Well if you look at our DD&A, it comes up to the whole [company] at about a $1.4 billion and so our target will clearly be as the regulatory capital comes out of the mix that we could bring, get this down into the $1.4 billion of $1.5 billion area. Now that assumes we don’t have anything new on the regulatory and that we finished those kind of thing.

Then we have our turnarounds, reliability, investments that could clearly be done in the $1.4 billion to $1.5 billion range.

So $1.4 billion, $1.5 billion total for all of the categories of sustaining turnarounds and regulatory?

Yeah we can get it down to that. That’s correct

Bill, you mentioned earlier that you were looking to resume the hydrocracker projects at Port Arthur and St. Charles.

What's the remaining spending you have at each plant?

Port Arthur for the full project about $900 million and St. Charles about $600 million and when you look at the economics, on the increment, say in the first part is already done even if we took into some tax-effect into considerations or the return is still in the high 20s and if you look at the entire project which is largely driven in a way by very low natural gas prices than equate the hydrogen and then equate the liquids, the project is in high teens.

So since we in a way have invested roughly 50% in these projects. At some point it would be our intent to finish it, but we are going to manage that with our available cash.

Can you comment on your outlook then on the distillate market going forward? Assuming you have a positive outlook if you can go forward with the projects?

Well of course we have a positive outlook. But right now, it’s trucking that’s lagging.

If you take the data 65% or so of US distillate demand is on road diesel. I mentioned already that the farming is strong at the moment and railroads have been strong and clearly the shipping industry is trying to be more efficient, but I am assuming that the US economy will eventually recover and that will see that going.

Distillates in the world are going to grow between two to three times at the rate of gasoline and Joe spoke about our export capabilities. As you know these hydrocrackers are plants that have excellent capability.

They also at Port Arthur rollout a very high [seeking] product to be produced. So when we look at the world, we believe we can export from the US Gulf Coast or service domestically.

So yes, we're optimistic, still in the world. So yes, we're optimistic, still in the world about diesel and distillates.

Second question on ethanol. Valero's in an interesting position of straddling the fence as one of the largest refiners and ethanol producers here in the US.

Just wondering what is your stance on increasing the blending limits of ethanol above 10%?

I am going to speak from (inaudible). I know you guys know that I am Chairman of the [MTR] and they have a different position.

We think that ethanol from Valero’s perspective is going to be part of the fuel mix. Actually today it is economic even at $3.50 corn.

The US farmer has demonstrated and even though people talk about the fuel the US farmer has demonstrated an ability to grow more corn, increasing yields and so we think that ethanol is viable in the fuel mix and so our position is that it should be increased. Then we will have the discussion about cars and which cars can take the fuel, but it is economic and then you also have other issues that we get involved in on this issue.

National Security, things (inaudible).

Just from the logistics and you mentioned the liability standpoint of the older vehicles. Do you think it's really feasible to push much more in beyond 10% over the next, I don't know, five years or so?

Surely we do and you will have that proper labeling at the (inaudible).

Just one question actually, going back to Delaware City given the strength of east coast margins in the last quarter, I'm just curious if you can give us some guidance as to whether Delaware City would have been profitable in the current environment?

Alex, this is Ashley. When we shut it, however our belief because of the operating costs and just the environment at that refinery, it still wouldn’t have been worth running even if we could have run it.

If you look at the plant it has one of our lowest liquid volume yields which you know is an issue in this high crude price environment.

First on the ethanol, I know you gave a throughput expectation or production of 3.15 million gallons for the quarter. It's my understanding that you were going to be basically ramping up production of some of the plants purchased earlier so the production numbers would be higher in the second half of the year.

Do you have any guidance as regards to that?

3.15 already represents the new plants at pretty much full capacity.

And the older plants as well?

Yeah, they are all running at capacity or slightly above and permits all the implants right now and that’s reflected in 3.15.

Given the environment, I know that over the last couple of years, there are a number of plants, if you have also looked at placing on the market beyond Aruba and Paulsboro, given the current environment, I mean, are you still basically looking at that opportunity or are you going to wait for better margin environment or are you happy with your current portfolio?

We are focusing on Aruba and Paulsboro, we assume that we will close our transaction here in May, so right now that’s where our focus is. However we have a portfolio plan and they are all not equally performing and that’s why we had many initiatives on throughout our system here.

But our focus is on the two that you mentioned.

By that focus shift, some of those refineries then shift up once you get those two plants settled, those transactions completed?

Ann it wouldn’t shift because we are trying to improve our portfolio as we every single day. But we will make judgments as to those assets as we go forward.

I wonder if you could revise one of the drivers, mentioned for the light or light heavy spread, the length in the fuel market and rest of the outlook there? Can that continue or will far east turnarounds begin to cut into that length as you look into forward into Q2?

I think we expect it to continue, the fuel oil market is long in Singapore, it is also long now in the US gulf coast. And so I mean it could clean up with some time but in the periods that we are looking at right now we expect it to continue.

You look at US inventories right now, they’re eight million barrels higher than last year which is a pretty sizable number and lot of it is because US demand is still very weak because of very low natural gas prices, so not much resid being consumed here. And we’ve been importing resid at higher levels than over last year as well because of Singapore’s full, Europe is long resid all the time, so the barrels have to come here because Singapore is already full.

So it will take a while for the resid to clean up. I think we are going to see this continue for the next few months at least.

The only other one I had as follow-up, did you have on hand the number for cash proceeds generated for most specifically the Del City inventory liquidation in the first quarter? Just want to get a look at the underlying net working capital that looks to occur in Q1.

Yes, $365 million was liquidation in the first quarter and then as we mentioned earlier we’ve about another $100 million to go.

Just a couple of clarification points, please. On Aruba, looking at your operating cost guidance, are you assuming that Aruba is you still have some costs down there?

What should we think about the implications for the second half of the year there?

We do have costs down there presently at Aruba, roughly about $22 million per quarter in DD&A and then in the first quarter we had about $20 million of cash operating expenses. So the total was about $38 million loss at Aruba.

We did have some margin there in our marine and terminalling business.

Your guidance for the second quarter, the OpEx guidance that Ashley gave, I'm assuming that Aruba's still in there, I guess, it’s until June? What happens beyond that?

That number would continue most likely through the third quarter.

Just going back to light heavy differentials, the Keystone pipeline fill, how do you see things playing out there when that's done in terms of how it might impact your ability to access western Canadian for example?

It’s going to be beneficial to us to have the Keystone pipeline in place. The timing of it, they are line filling right now, the part that goes down to Steel City and then connects into Patoka and Wood River, the Cushing connection will be in early 2011 I believe and then the next segment that’s going to be worked on is the segment that runs from Cushing down to the US Gulf Coast and our thoughts are that we maybe able to get volume on that before the entire bullet line is complete, at the end of ‘12 or the beginning of 2013.

You know in addition to the Canadian crude that will be beneficial to us longer term though we’ve got the increases in the Columbian production, we’ve got Brazilian heavy suite coming into the market. First we got the Canadian and then we got the medium sour production increases that we are going to see out of Iraq.

So as we look at the market for the medium sours and the heavy sours going forward we tend to be fairly optimistic.

Can you give us an update on the Quebec FCC?

The Quebec FCC is back in service, market was down for a total of 67 days and came up on April 11.

Okay is there tax due on the sale to PBF?

No.

No tax on that, Mike?

It will be a very small amount. We do have a small gain on this to where the transaction is currently proposed, contemplated.

How much mileage did you run in the first quarter and how does that compare to what you are doing now?

A little over 200,000 barrels a day in Maya in the first quarter and Joe for now?

Same about 225,000.

Hey Bill, just want to ask a follow up on the ethanol. If the EPA less in next week give a waiver to increase the ethanol branding from 10% to 15%, but the auto industry would not give any guarantee on their vehicle to change it accordingly, will you or will Valero as a company, if the economy is there, willing to brand up to a 15% or that you would say there's too much of the legal liability and you don’t want to take that chance or you will wait until the auto industry gives the guarantee before you bring that.

Just trying to understand which one will be the hurdle?

We are well aware of the experience with MTBE, where it was authorized and there was no effective product liability. So we’ll have to just wait and see what the rules look like, we will see what the autos really do and we will see, that’s why I was answering Chi earlier, there is going to have to be an awful lot of labeling involved if in fact it does become or does enter the market.

So in other words even if the EPA changed the regulation tomorrow that you guys would pick up maybe of the more cautious wait and see attitude.

Now that’s absolutely true. We will be extremely cautious.

I just want to thank everyone for listening to today’s call. If you have any other questions, feel free to contact me and the Investor Relations department.

Thank you.