Jul 27, 2010
Executives
Joseph Gorder - Executive Vice President of Marketing & Supply S. Edwards - Executive Vice President of Corporate Development & Strategic Planning Michael Ciskowski - Chief Financial Officer, Principal Accounting Officer and Executive Vice President Richard Marcogliese - Chief Operating Officer and Executive Vice President Kimberly Bowers - Executive Vice President and General Counsel William Klesse - Executive Chairman, Chief Executive Officer, President and Chairman of Executive Committee Ashley Smith - Vice President of Investor Relations
Analysts
Edward Westlake - Crédit Suisse AG Douglas Terreson - ISI Group Inc. Jacques Rousseau - RBC Capital Markets Corporation Paul Cheng - Barclays Capital Evan Calio - Morgan Stanley Mark Gilman - The Benchmark Company, LLC Chi Chow - Tristone Capital Faisel Khan - Citigroup Inc Douglas Leggate - BofA Merrill Lynch Jeffrey Dietert - Simmons & Company International Paul Sankey - Deutsche Bank AG Blake Fernandez - Howard Weil Incorporated
Operator
Good morning, and welcome to the Valero Energy Corporation's Second Quarter 2010 Earnings Conference Call. And I would now like to introduce your host, Mr.
Ashley Smith. Sir, please go ahead.
Ashley Smith
Thank you, Brandy. Good morning, and welcome to Valero Energy Corporation's Second Quarter 2010 Earnings Conference Call.
With me today are Bill Klesse, our Chairman and CEO; Mike Ciskowski, our CFO; Rich Marcogliese, our COO; Gene Edwards, 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'd 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 described in our filings with the SEC. Now I'll turn the call over to Mike.
Michael Ciskowski
Thanks, Ashley, and thank you for joining us today. As noted in the release, we reported second quarter 2010 income from continuing operations of $530 million or $0.93 per share.
I should note that the $53 million after-tax gain from discontinued operations shown in the financial tables relates to the Delaware City assets that were shut down in 2009 and sold in June of this year. Second quarter 2010 operating income was $921 million versus an operating loss of $192 million in the second quarter of 2009.
The $1.1 billion increase in operating income was mainly due to higher margins for distillate and secondary products, such as petrochemicals, asphalt and lube oils as well as improved sour crude discounts. The improvement we saw in diesel margins was most significant.
If you look at the benchmark ULSD [ultra-low-sulfur diesel] margins on the Gulf Coast, they nearly doubled from $6.16 per barrel in the second quarter of 2009 to $12.14 per barrel in the second quarter of 2010. Secondary margins also made strong contributions.
For example, propylene margins improved 156%, and lube oil margins increased 104% versus the second quarter of the 2009. Sour crude oil discounts also improved during the second quarter.
The Maya heavy sour crude oil discount to WTI [West Texas Intermediate] expanded from $4.57 in the second quarter of 2009 to $9.75 in the second quarter of 2010. Another way to look at this is as a percentage of the WTI price, so the Maya discount increased from 7.7% of WTI in the second quarter of 2009 to 12.5% of WTI in the second quarter of 2010, which is a 62% improvement year-over-year.
Our second quarter 2010 refinery throughput volume averaged 2.3 million barrels per day, which is slightly higher than the top end of our guidance as the strong margins incentivized higher run rates. However, compared to the second quarter of last year, volumes were down 55,000 barrels per day, mainly due to the continued idle status of our Aruba refinery.
Refinery cash operating expenses in the second quarter of 2010 were $3.55 per barrel, which was well below our guidance. This was primarily due to the higher throughput volumes and lower-than-expected maintenance, catalyst and chemicals and energy costs.
We are pleased to see that our focus on cost reductions is showing results. In fact, we're on pace to exceed our target of $100 million in pretax cost savings in 2010.
The combinations of numerous company-wide initiatives and commitment by our employees has yielded nearly $90 million in cost savings through June and there is more to come. Looking at our other business segments.
Retail had its best-ever second quarter, with operating income at $109 million which is 68% higher than the second quarter of 2009, primarily due to higher fuel margins in the U.S. Our Canadian Retail operations also performed well during the quarter.
Our Ethanol segment had $35 million of operating income in the second quarter of 2010, which is $13 million higher than the second quarter of 2009, but down from the first quarter of this year due mainly to compression in margins between ethanol and corn prices. Despite very competitive industry conditions, our Ethanol business has been profitable and we are pleased with the performance of this business.
General and administrative expenses, excluding corporate depreciation, were $131 million in the second quarter and in line with our guidance. So we're $34 million higher than the first quarter, due mainly to the favorable effect of a $40 million insurance settlement during the first quarter.
For the second quarter, total depreciation and amortization expense was $367 million which was in line with our guidance. Net interest expense was $116 million, which was slightly below our guidance and lowered in the first quarter of 2010, due partly to lower interest rates and higher-than-anticipated capitalized interest.
The effective tax rate on continuing operations in the second quarter was 34.2%. Regarding cash flows for the second quarter.
Capital spending was $517 million, which includes $140 million of turnaround and catalyst expenditures. For the year, our capital spending target has been revised to $2.3 billion to incorporate spending for various strategic projects, including hydrocracker projects at our St.
Charles and Port Arthur refineries and additional turnaround maintenance at our Benicia, Aruba, Memphis and Port Arthur refineries. Also during the second quarter, we spent $223 million to pay down debt, paid $28 million in dividends and received $220 million in proceeds from the sale of the Delaware City assets.
With respect to our balance sheet at the end of June, total debt was $8 billion. We ended the quarter with a cash balance of $2 billion, and we had over $4.4 billion of additional liquidity available.
At the end of the second quarter, our debt-to-cap ratio net of cash was 28.6%. So far in the third quarter, benchmark margins have moderated versus the second quarter of 2010 in most of our regions.
For example, the Gulf Coast ULSD margin versus WTI have decreased to 22% to $9.51 per barrel, while the Gulf Coast gasoline margins versus WTI has increased 17% to $8.47 per barrel. We're continuing to see good sour crude oil discounts, with Maya discounts as a percentage of WTI holding fairly steady with the second quarter.
One region that is up versus the last quarter is the West Coast, where gasoline margins versus WTI increased 23% to $20.36 per barrel, partially offset by diesel margins that had decreased 12% to $12.69 per barrel. Unfortunately, ongoing maintenance work at our Benicia refinery is limiting our ability to capture this margin, but we anticipate being back up to full rates by late August.
In summary, we had a really good second quarter that demonstrated the earnings power of our assets, following the strategic actions and cost-reduction efforts we've taken over the last 12 months. No doubt, there is more work to be done to continue to improve our competitiveness, but we've made great progress and we are proud of what our employees have accomplished so far.
Going forward, we will remain focused on running our assets safely and reliably, maintaining our financial strength and investment-grade credit rating, reducing our costs and improving our portfolio of assets. And now, I'll turn it over to Ashley to cover the earnings model assumptions.
Ashley Smith
Okay. For modeling our third quarter operation, you should expect the refinery throughput volumes to fall within the following ranges: Gulf Coast at 1.325 million to 1.375 million barrels per day; Mid-Continent at 410,000 to 420,000 barrels per day; Northeast at 370,000 to 380,000 barrels per day; and the West Coast at 250,000 to 260,000 barrels per day.
Refinery cash operating expenses are expected to be around $3.85 per barrel, which is higher than the second quarter due mainly to refinery maintenance expenses at Benicia and Aruba and higher expected energy prices. Regarding our Ethanol operations in the third quarter, we expect total throughput volumes of 3.15 million gallons per day.
And operating expenses should average approximately $0.36 per gallon, including $0.03 per gallon for noncash COGs such as depreciation and amortization. With respect to some of the other items in the third quarter, we expect G&A expense excluding depreciation to be around $135 million.
Net interest expense should be around $115 million. Total depreciation and amortization expense should be around $365 million.
And our effective tax rate should be approximately 35%. We will now open the call for questions, Brandy.
Operator
[Operator Instructions] Our first question comes from the line of Jeff Dietert with Simmons.
Jeffrey Dietert - Simmons & Company International
I was hoping you could update us on the strategic review at Paulsboro and Aruba, and if there's any update you can give there and include your capital spending expectations on Aruba.
William Klesse
This is Klesse. For Paulsboro, we continue to look at our alternatives there.
We've been very open at the fact that we're trying to find an alternative. For Aruba, what we are doing there is doing turnaround work in preparation to be able to operate the refinery.
That work should be done sometime here in September. And during this period between now and then, we'll make the actual decisions whether or not we're going to start up.
But we are preparing to do that. And then on the M&A side of that, we are clearly still looking for a partner or somebody to come in to that operation with us.
We are a much more stable tax environment there for the next 20 years. And so I think the value of the asset has been approved, and the government of Aruba has worked with us very well for Aruba and helped us with the asset.
As to capital spending, the question is for this year or just in Aruba?
Jeffrey Dietert - Simmons & Company International
For Aruba, just the capital expenditures or turnaround expenses to get it up to operating condition.
William Klesse
Yes, Jeff, our estimate is $50 million.
Jeffrey Dietert - Simmons & Company International
Also could you update us on -- you've been exporting distillate out of the Gulf Coast. Could you talk about where your July and August volumes are?
They continue to hold up nicely.
Joseph Gorder
Yes, Jeff, this is Joe. The second quarter volumes were good, okay?
We were over 16,000 a day of gasoline and over 160,000 barrels a day of distillate. They're somewhat tempered in July and August, although still at very good levels.
And if you look at some of the factors in the market that have supported the exports over the last couple of quarters, there's still present. Venezuela still struggles to export both gasoline and diesel and are continuing to get it from the U.S.
Gulf Coast. The refineries are still down.
Mexico's demand exceeds its supply, and it continues to import products. So although we've seen we are close to Europe, for example, now, we still do have significant volumes swimming out on the water.
Operator
Our next question comes from the line of Doug Leggate with Bank of America.
Douglas Leggate - BofA Merrill Lynch
I really just wanted to talk a little bit about the outlook for third quarter. Inventories have been building pretty aggressively here, if you believe the DOE's numbers.
And you guys are looking to take -- based on your guidance, it looks like utilization's gone up into the mid-90s. Can you just talk a little bit about what your thoughts are in terms of outlook?
And you've been up. I guess, Bill, in particular you've been vocal about needing to take a leap when the market perhaps looks a little tenuous and the rates' too sluggish demand and so on.
So just some thinking behind what your utilization, would be helpful.
William Klesse
Well, I don't think the utilizations are high. So actually...
Michael Ciskowski
Roughly like the second quarter.
William Klesse
So your numbers are correct then. Well, inventory have been building, but we're still in the heart of the gasoline season.
And as Joe just mentioned, we continue to see reasonable exports, especially from the U.S. Gulf Coast.
But there is no question, as we said in our press release, that we need the economy to get going here. We need people to get back to work.
But we still think that third quarter is going to be okay for us.
Douglas Leggate - BofA Merrill Lynch
So you've kind of nailed the nub of my question, Bill. What is the export dynamic right now?
Is it holding back as good it did in Q2? Just maybe a little bit color would be appreciated.
Joseph Gorder
It's not bad, okay? If I were to look at it on an absolute basis, I mean, I would tell you July was slightly down from June, but June was in a very good level.
So we're still seeing it relatively strong, I would say.
Douglas Leggate - BofA Merrill Lynch
The only follow-up I have is, you obviously had some unfortunately downtime towards the back end of the quarter. Are you able to quantify lost opportunity cost?
Michael Ciskowski
Sure, I can go ahead and address that, Doug. The unscheduled downtime impact was primarily related to a cat unit outage at the McKee refinery.
That was in the middle of June and extended through the first part of July. It added about $15 million impact on the second quarter business.
And then also, we saw a downtime on the fluid coker in Benicia. That had occurred on June 20.
That had about $15 million impact on the quarter. Now the Benicia coker outage will extend until the late part of August.
So it will about 60-day outage, so we'll see some carryover into the third quarter numbers. In total for the second quarter, unscheduled downtime would be around the $50 million level, kind of...
Operator
Our next question comes from the line of Doug Terreson with ISI.
Douglas Terreson - ISI Group Inc.
I just want to close the loop on the export question one more time. Joe said something that I had a question about.
Just to kind of put it in perspective, the year-on-year difference on exports of you guys. And Joe mentioned Mexico.
But besides Mexico, are there other Latin American markets that have become relevant to you guys? And if so, what are they, and temporary or permanent?
Joseph Gorder
Doug, I hate to get into this into too much detail, because we work very hard to establish these relationships where we know we can export the barrels on a consistent basis. But if you'll allow me to just be broad in my brush here, it is the South American countries.
Obviously, the closer, the better the economics. But we've taken barrels a little bit further also.
And the things that I mentioned, the factors that I mentioned that continue to support the exports are there. And it's anybody's guess at what point in time there might be stabilization of some of those activities.
I don't know when and if the Venezuelans are going to restart and run Isla in a reliable way, and when they will improve their internal operations. Addition to the supply issues there, we also have demand increasing down in those markets.
And so if the Gulf Coast, because of its low-cost structure and its complex refineries, it's very competitive and allows us with decent cost of products to move into those markets. And I think we'll continue to do that.
Operator
Our next question comes from the line of Evan Calio with Morgan Stanley.
Evan Calio - Morgan Stanley
My first question is just kind of regulatory, political. I mean, I know the EPA recently stated they rejected Texas air quality, granted to the TCEQ [Texas Commission on Environmental Quality] under the Clean Air Act after 19 years of granting those permits.
And while I know it's still early in that reconciliation process, I mean, do you have any comments on how this process could develop, or how these changes may affect your six Texas refineries?
Kimberly Bowers
Evan, this is Kim Bowers. [indiscernible] (00:26:57) is working pretty hard on this issue right now.
You can just imagine it is a very complicated political and regulatory issue. We are working with the regulators right now to try to address this as it relates to our six [indiscernible] (00:27:10) Permits.
We've not been approached by EPA directly on this issue just yet, but we are working to try to remedy the issues throughout this quickly as we can and to mitigate the callout for our refineries.
Evan Calio - Morgan Stanley
I mean, do you think there'll be some compromise reached from a Texas to federal level? Or this too early to tell?
Kimberly Bowers
I mean, I think so. I think EPA and TCEQ will work together very well for many years.
And I suspect at the end of the day they'll come back together again on this. I think there will be litigations.
The AG [Attorney General] filed yesterday on the pipes permit issue. And I think the issue will follow through the drill.
The litigations going to be part of it, but I suspect at the end of the day, we'll have some to find some way to resolve differences between the two agencies.
Evan Calio - Morgan Stanley
And my second question is really capital structure, as it falls in some of the prior comments. I know your cash balance is a $2 billion potential upside for many asset sales.
They're kind of ongoing in the process. I think you reported another strong quarter, and you're cautiously optimistic on demand.
So kind of revisiting the prior question that's been asked before, I mean, do you have any color on how you see deployment of cash, whether it be buyback, strategic acquisitions or just continuing to kind of run with a higher cash balance until we see in a more macro certainty?
William Klesse
This is Klesse. We will continue to run with a higher cash balance.
Clearly, we are looking at some of the refineries that are for sale. We've told people that.
But whether we are interested at the end of the day remains to be seen. Our capital spending, we had in the release, were about $2.3 billion.
And we expect to progress on our Port Arthur hydrocracker project here. So we continue to work on our assets.
By the end of this year, we'll finish the big scrub in Benicia and also have the MSA too. And then next year, you'll see us do more strategic projects that we really can improve our basic business.
But basically to your question, we're going to run with a higher cash balance.
Operator
Our next question comes from the line of Paul Sankey with Deutsche Bank.
Paul Sankey - Deutsche Bank AG
The cost savings that you've just about achieved for the year, how much more do you think you can do this year, assuming that you can do more? And also, if I remember back, I believe, Bill, that you talked about a back-end-loaded cost savings target of, I think it was at $1.5 billion over five years.
Can you refresh your views on that?
William Klesse
We had the project years ago, where we were saying we were to save $1 billion from the operations. And a lot of it was going to come from maintenance and other items.
And I conceded to all of you that we were having trouble achieving that goal. So we have basically dropped that program and it pulled it much closer in, and are working on what we've been giving as guidance more recently.
I mean, that's been an issue we're going to get $100 million savings. Last year, we got -- I'm looking around the room here.
We'll give you a number. $215 million.
And we have a very detailed list of where this is coming from, and we will exceed the $100 million this year. We'll probably be much closer to over $200 million again.
Sounds like it comes on the revenue lines, so it's not at all just costs. But we molecule management and things looking along those lines.
But we have a very diligent, focused approach here, but we've pulled that whole goal structure in much closer. When you look at the Salomon benchmarking though, we have a goal in this company that we're going to be first quartile.
And that's going to take us a few more years, but we are going to be a first-quartile refiner throughout our portfolio.
Paul Sankey - Deutsche Bank AG
I mean a run rate that would get you to the $1 billion, if you could keep doing that $200 million a year...
William Klesse
Yes. I think at the end of the day, we are going to do it, but we are having trouble articulating it.
It was moving around us, so we decided to abandon that and pull closer.
Richard Marcogliese
Paul, if I might add to that. This is Rich Marcogliese.
We are working through the number of our structural issues in the refining system. Earlier this year, we completed the remap of our Memphis cat cracker, which was a high-maintenance cat unit.
In the second quarter of next year, we'll do a revamp on the St. Charles, this millisecond cat cracker, which is also a high-maintenance unit.
And next year, we'll also complete the replacement of all six coker on Port Arthur refinery which has been a high-maintenance coker. So as we advance along in time, we are going to eliminate a lot of the high-maintenance-related issues that have come along with our acquisition process.
Paul Sankey - Deutsche Bank AG
Yes. I mean it sounds just from the fact that you've easily identified two cost-savings projects in the next year, the cat cracker pulls off so that you could do another $200 million next year.
Michael Ciskowski
Well, I do think there is potential to increase the amount of cost savings in the business and/or drive first quarter top line.
Paul Sankey - Deutsche Bank AG
Bill, in the process, you said some pretty salty things, and I know you've been asked about Washington already today, but you've had some pretty salty things to say about what's going on in Washington. I noticed that in today's comments, you didn't mention anything specific.
Is that because you're feeling a lot better about the way you believe refiners and Valero, in particular, are going to be treated perhaps post the BP issues? Or is it just a function of having a nice profit and not needing to talk about Washington?
William Klesse
I don't think it's the last thing at all. If we still had issues in Washington, we would be talking about it.
But I believe that, at least for this year, I'll say the realization of the impact of what was being discussed in Waxman-Markey or Kerry-Lieberman in fact settled in. And so there is not a consensus for this, and that we do not see anything that is going to happen this year, at least, prior to the elections.
And then we'll see what happens at the elections. But those bills are bad for the United States.
They're bad for jobs. They're bad for Valero.
They're bad for energy. They're just not in the interest, and it's hard for me to understand how these things get generated.
But today, we think it's a bad quarter, and there'll probably be an issue that'll come in after the elections.
Operator
Our next question comes from the line of Edward Westlake with Crédit Suisse.
Edward Westlake - Crédit Suisse AG
Just to continue on the baiting theme, maybe a question about dividends. I mean I'm just trying to think about, obviously, a strong quarter.
You're controlling costs, controlling CapEx. I know there's some projects you have to do.
You talked about high cash balances. But at what point, do you think it's prudent to raise the dividend from the current level that -- is it a debt-to-equity discussion?
Or is it really around just economic confidence and sense of the metrics that you're looking at?
William Klesse
I think it would be both of the two items. It would be our total debt and also our confidence.
But this is a board item, and we would -- with those two in mind, as they progress, that's when we would look at it. But I will tell you today, we, management, will not recommend to our board a dividend increase.
Edward Westlake - Crédit Suisse AG
And the rationale being the debt is still too high?
William Klesse
Debt is high in this environment, and also there's still a lot of uncertainty. We need an economic recovery.
This business sells fuels. All of you that write about us, recommends us and invest in us, we sells fuels, and we need this economy to get moving.
Edward Westlake - Crédit Suisse AG
Obviously, you're seeing a lot of NGLs coming to the mix, both obviously in terms of the U.S. E&Ps targeting additional NGL growth, the Eagle Ford, and you've also got international NGLs.
How much of an opportunity or how should we think about the capture of that in terms of your margins going forward?
William Klesse
I guess we would be then talking about butanes and -- but what's happened is, as we've had to drop vapor pressures to basically accommodate ethanol, we've actually had to push out on the blending fuel pool: butanes, pentane, isopentanes and things like that. So to be honest, that's not something we're focused on.
Edward Westlake - Crédit Suisse AG
So if you needed to run higher throughputs of that, you'd need to adjust the capital base of the company, and there'd have to be wide discounts on the available liquid streams.
William Klesse
The discounts would have to get much wider, but remember, there is a mandate to use ethanol. So even with wider discounts, probably the olefins, the petrochemical side would see more of a benefit than I'd say the refining side.
Operator
Our next question comes from the line of Paul Cheng with Barclays Capital.
Paul Cheng - Barclays Capital
You've been looking at Europe for several years. And when you're looking at that market, have you changed in your view whether it is an attractive market for you to make acquisition?
And also, when you're looking at -- there's a lot of seller out there. Have you sensed that the bid-ask price between the buyer and the seller is start to getting closed or still quite wide apart?
William Klesse
We are still interested in Europe, but only for a quality asset or assets that we think can actually could fit into our portfolio and lifts our portfolio. Valero is a refining company, and we process oils into fuels.
I think you guys all know that 81% of our volume is either gasoline, diesel or turbine fuel. But Europe is a big economy.
It's a very large market, it's "15 million barrel a day" market. Diesel demand is still growing, and along gasoline, gives you the North Atlantic arbitrage.
Political risk diversification, as Paul asked me earlier, I mean there is a higher level of risk in United States than it used to be. The market intelligence knowledge that we gain, weaker assets are shutting down.
We're starting to see that. We saw one of our competitors make an announcement about one of their facilities over in Europe.
And the bottom line would be a major diversification for us, so we're still interested. But as I've told many of you when we met one-on-one, Valero is going to only do something that we absolutely believe is in our shareholders' interest.
Paul Cheng - Barclays Capital
And not so much about the level but that, in general, have you seen the bid-ask price in Europe getting closer? Or that is still quite wide apart?
S. Edwards
Paul, this is Gene. We've been looking at a lot of assets over there, and so we know what's on the market.
But as of today, there has been no transactions. So it's really kind of hard to tell what the bid-offer spreads really are.
You don't really know what the end of the bidders maybe at. We kind of know what we see values at.
I kind of sense that it is more of a buyer's market but -- yet, there's been those transactions. It's impossible to say what the ask really is.
Paul Cheng - Barclays Capital
Rich, I think in the second quarter, you guys been able to buy some distressed Latin America heavy oil and that help your profitability in the Gulf Coast. Any kind of estimate that you have in terms of the incremental benefit in the quarter because of that?
And for Mike, is there any trading or hedging gain or loss in the quarter?
Joseph Gorder
Paul, this is Joe, and I'll address that, the crude oil discount question. We were able to secure some cargoes of heavy sour crude at distressed prices.
And I would tell you probably delivered into the Gulf on a -- and we're starting to move it in today, but delivered in margin improvement over maybe a Maya price might be, $2 to $4 a barrel.
Paul Cheng - Barclays Capital
Joe, what's the volume that you have done in the second quarter for that kind of benefit?
Joseph Gorder
I'm sorry, the...
Paul Cheng - Barclays Capital
The volume. When you say $2 to $4, I'd assume that you're just talking about those in excess of Maya.
So how many cargoes? Or what is the minimum barrel that you have done in the quarter?
Joseph Gorder
We didn't run that in the second quarter.
Paul Cheng - Barclays Capital
You didn't run in the second quarter, so it would be a third quarter event.
Joseph Gorder
Correct.
William Klesse
You asked this other question onto the gain. So, Mike?
Michael Ciskowski
Yes, Paul, this is Mike. On our trading, we had $39 million of income this quarter.
So we had a good quarter.
Paul Cheng - Barclays Capital
And, Mike, do you have a preliminary 2011 CapEx number that you can share?
William Klesse
We're not -- I told people it's going to be in the same range of what we are doing, but we are actually in the middle of this strategic planning. So we do intend to try to advance our hydrocracker projects that we basically have 40% or so invested in already.
Paul Cheng - Barclays Capital
So from that standpoint, should we assume, Bill, it's going to be somewhat higher than this year?
William Klesse
No, I would say it's going to be in this range.
Paul Cheng - Barclays Capital
Aruba. Bill, can you share with us the thought process behind the decision to undergo the full plant turnaround now.
You've been holding off until recently. So is there -- what may have changed there for you to trigger that action?
William Klesse
In Aruba, because we'll have a contribution margin, and we are also able to, as I said, reach this agreement with the government going forward here. So people -- these are negotiations and people are acting in good sense.
Operator
Our next question comes from the line of Jacques Rousseau with RBC.
Jacques Rousseau - RBC Capital Markets Corporation
What would be the same-store sales at your stations in the second quarter?
Michael Ciskowski
Yes, in the second quarter, on an overall basis, it was up 0.7% in the second quarter of '10 versus the second quarter of '09. That's in the U.S.
In Canada, it's actually up about 4.9%.
Jacques Rousseau - RBC Capital Markets Corporation
For the new capital budget of $2.3 billion, can you break that down by the four categories you normally do, strategic, sustaining, turnaround and regulatory?
Michael Ciskowski
Yes, the regulatory is pretty much about the same. Sustaining is down about $100 million.
Turnaround's up about $100 million, and strategic is up about $200 million.
Operator
Our next question comes from the line of Blake Fernandez with Howard Weil.
Blake Fernandez - Howard Weil Incorporated
Bill, you alluded to the closures we've begun to see in Europe and the potential for maybe some more to happen with so many assets on the market. Does that cause you to kind of reconsider Paulsboro?
And you're kind of -- maybe get a little bit more constructive on the East Coast?
William Klesse
It's a very fair question, but we are still committed to looking at strategic alternatives for that plant.
Blake Fernandez - Howard Weil Incorporated
And then my follow-up was on -- I know you'd kind of addressed cap and trade earlier. I'm curious about the new financial regulations.
There's been some press reports suggesting that refiners would be kind of negatively impacted, with having to post additional collateral for trading. Are you anticipating any real material impact from the new regulations?
Michael Ciskowski
Not right now, we're still evaluating the financial reform. But most of our trading activities is already cleared through an exchange, and so we don't see a big incremental increase in our margin requirements.
Operator
Our next question comes from the line of Marc Gilman with The Benchmark.
Mark Gilman - The Benchmark Company, LLC
Joe, or anyone else, give me an idea how much Maya and Arabian crude you ran systemwide in the quarter? And how that compare to prior periods?
Joseph Gorder
Maya was about 225,000 barrels a day in the quarter, and that's fairly consistent, maybe up a little bit from where we were in the first quarter. The Arabian crude was about 165,000 barrels a day, and that was fairly consistent with where we were.
Now that's the Saudi crude. We got Kuwaity barrels and so on also, but it was all fairly consistent with where we were in the first quarter.
Mark Gilman - The Benchmark Company, LLC
How about Latin American, Joe?
Joseph Gorder
I don't lump it together that way, Mark. But if I told you that barrels from Colombia did increase, we're over 60 a day there.
Barrels from Venezuela continue to be right in that 100,000 barrels a day on the heavy sour. Those are really the two big ones that we have, Colombia and Venezuela.
Mark Gilman - The Benchmark Company, LLC
So there were no real significant changes to the crudes late second quarter, say, versus first?
Joseph Gorder
There were not.
Mark Gilman - The Benchmark Company, LLC
With that in mind, the margin capture rates in, particularly, Gulf Coast and Mid-Continent in this period, at least based on our tracking mechanisms, are just off the charts. And I guess in that regard, I'm wondering are there any inventory effects that might be built in to those numbers?
I know, Mike, you talked about secondary products in your discussion of the performance in the quarter, but frankly, those products tend to do better in a significantly declining crude oil price environment. And the second quarter looked more like a U in that regard, with not all heck of a lot of change across the period.
So any clarification on that subject, I'd appreciate.
Richard Marcogliese
Mark, this is Rich Marcogliese. There is an operational component comparing second quarter versus first quarter.
First quarter was a very heavy turnaround period for us. We have St.
Charles refinery down entirely in the first quarter, and we have the cat cracker at Port Arthur down in the first quarter or what was the 55-day turnaround. So you actually saw a big rebound in capacity utilization in the Gulf Coast that two of our more profitable refineries in the second quarter that impacted the results.
Joseph Gorder
Was Mark focused on the margin?
Mark Gilman - The Benchmark Company, LLC
Yes, I was.
Michael Ciskowski
And then you asked about the inventory. There's no material inventory adjustment in our second quarter numbers.
I think the discounts, the heavy sour crude discounts have been pretty good or strong in the second quarter, really contributed to our capture.
Mark Gilman - The Benchmark Company, LLC
Maybe Gene Edwards can pick this one up, there's been a lot of talk with respect to repealing the ethanol tax credit. And, Gene, or I guess anyone else, I wonder what your thoughts are in terms of what the implications of that would be in terms of ethanol pricing and margins.
It's a little bit of a complex thing to think about.
S. Edwards
Mark, this is Gene. The way we look at it, right now ethanol is trading for about $0.13 under gasoline.
And on top of that, there's the $0.45 blender's credit. So the ethanol plants really are not even capturing the credit.
The credit is being captured by the people that blend the ethanol. So from an ethanol manufacturing standpoint, it's almost irrelevant today.
It could be relevant in the future if things change and ethanol tightens up and even if you capture the full blending margin, plus capture the credit. I mean that'd be a great scenario from ethanol producers' standpoint, but in fact today, it's not being captured there.
So it doesn't factor into our ethanol plant economics at all.
Mark Gilman - The Benchmark Company, LLC
But Gene, you don't think there's any price implications at all of the potential repeal of that credit? Do you think the ethanol price x credit would remain unchanged in that scenario?
S. Edwards
Yes, I do, because you'd still have the blending margin of $0.30 a gallon to blend the ethanol even with current prices, whether the credit was there or not. but So you would not see blending back down on one barrel because of credit being gone.
Operator
Our next question comes from the line of Faisel Khan with Citigroup.
Faisel Khan - Citigroup Inc
Could you quantify what the impact was of the secondary products, such as these pet chem, asphalt, lube oils, in terms of the -- as a margin uplift or the EBITDA uplift in the quarter?
Michael Ciskowski
Quarter-to-quarter?
Faisel Khan - Citigroup Inc
Yes, that'd be great.
Michael Ciskowski
I guess the price range there, it's roughly $110 million, $115 million improvement quarter-to-quarter.
Faisel Khan - Citigroup Inc
On the OpEx per barrel, the $3.55, the sequential sort of improvement in that OpEx number, how much of it was natural gas related versus kind of you wrote [ph] (51:43) itself out?
Michael Ciskowski
I mean total costs were -- of all of those components that I listed in the speaker notes, energy was the smallest amount improvement.
S. Edwards
It was about $0.20 a barrel.
Michael Ciskowski
Yes, going from first quarter to second quarter, the fall in energy costs was about $0.20 barrel.
Operator
[Operator Instructions] Our next question comes from the line of Chi Chow with Macquarie Capital.
Chi Chow - Tristone Capital
Got a couple questions on the Gulf Coast system. What's the timing on the hydrocracker project at this point?
S. Edwards
Yes, on the hydrocracker projects, we're looking at late-2012 completion for Port Arthur, and we're envisioning a late-2013 completion on St. Charles.
Chi Chow - Tristone Capital
How are you feeling about your long-term market position in the Gulf Coast, particularly with new capacity that's come online this year and looks like there's more to come in the years ahead from competitors?
William Klesse
We think our position is very good.
Chi Chow - Tristone Capital
What about from the smaller plants down there at Houston and Three Rivers, are you still feeling okay with those plant longer term?
William Klesse
Yes, we're comfortable with our portfolio here, except for the items that we've talked about previously. If you look at our Houston refinery, it really is tied with our Texas City refinery.
And it's actually been running very well, and our people there have just done an excellent job. At our Three Rivers refinery, we're somewhat tied to Corpus Christi, but that's also where we make DTX.
And so if you look at the structure there, we've actually made some decent money selling benzene here. So these plants have been doing a good job for us, and we have a major effort under way at Three Rivers, where all our people, where we're looking at how we operate the entire facility, which will get our costs even down more.
The guys just reminded me here, all these oil production that's going on in the Eagle Ford, actually, it has the potential to help Three Rivers also.
Chi Chow - Tristone Capital
One final question on the 2010 strategic projects you talked about, Bill. I guess in some of the other comments, you mentioned the FCC revamp at St.
Charles and coke drum replacement at Port Arthur. Are there additional projects beyond that, that you could elaborate on?
William Klesse
Sure, we're looking at, I've mentioned this in, again, previous calls, we're looking at a couple of small hydrogen plants at our facilities, both McKee and Memphis. There, the only hydrogen we have available is from reforming, and then the world we're live in here today, and we got into quite a discussion, I guess, a year or so go on this, but in the world we live today, you really you should be generating a hydrogen from natural gas, not from oil, and if you don't need the octane because of ethanol doing it.
So we have those projects in the mill. Rich, you want to...
Richard Marcogliese
Yes, I'd add a couple more, also associated with the St. Charles and FCC revamp, we're going to install a large power recovery turbine that will contribute about $10 million a year in operating income.
That is a plan we have there, so it's also another important project.
William Klesse
And we have some little things that are in there too. But they are to be -- tend to be -- you'll see us next year doing more, what I call it, they're economic.
We call them strategic but they're economic driven.
Chi Chow - Tristone Capital
Anything on the West Coast in particular?
Richard Marcogliese
Well, what I would say on the West Coast, what we're looking to get behind of is the completion of this large scrubber project at Benicia. That will complete construction in the fourth quarter of this year, which actually positions the refinery fairly well from an air emissions compliance point of view and will allow us to increase capacity utilization.
William Klesse
And then we have the turnaround in the refinery there in the first quarter next year, and this is a huge project. This is $650-million project counting the computer, and so we get that done this year.
We have a turnaround at the refinery in the first quarter. So there is a lot of expense capital going into Benicia.
Operator
Our next question is a follow-up from the line of Mark Gilman with The Benchmark.
Mark Gilman - The Benchmark Company, LLC
Rich, was there any cokers that were voluntary idled for any part of the second quarter?
Richard Marcogliese
No, we did not have any coker shutdowns in the second quarter. Now we always evaluate asphalt economics versus coker runs and we make moderate coker throughput based on that, particularly our Corpus Christi refinery.
But generally, we had good utilization of the cokers across the quarter in line with the Maya differentials.
Mark Gilman - The Benchmark Company, LLC
So it was basically as high a utilization rate on coking in that quarter as you would expect to achieve?
Richard Marcogliese
I'd say with the exception of where asphalt economics, we're superior to resid conversion. I would say it's the highest that we have ever seen for a coker throughput.
But certainly, it's been improved over the less 12 months.
Mark Gilman - The Benchmark Company, LLC
Are there any significant second half turnarounds other than the work at Benicia?
Richard Marcogliese
That is really it, and it's really it for the balance of the year. We'll get Benicia ramped up in the latter part of August.
A lot of planning is underway for a very large workload in the first quarter of '11. As I mentioned before, we'll have the millisecond cat cracker turnaround in St.
Charles. We'll have a crude unit in coke drum replacement turnaround at the Port Arthur refinery.
We've got plant-wide turnaround in Ardmore that will hit the first quarter of next year. So we've got a good opportunity now to get all of our planning done anticipating that activity later.
Operator
And ladies and gentlemen, we've reached the end of our allotted time for questions and answers. Mr.
Smith, did you have any closing remarks?
Ashley Smith
No, thanks, Brandy. I just want to thank everyone for listening to our call.
And if you have any questions, feel free to contact the Investor Relations department. Thank you.
Operator
Ladies and gentlemen, this concludes today's conference call. Thank you for participating.
You may now disconnect.