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Valero Energy Corp  (NYSE:VLO)
Q3 2018 Earnings Conference Call
Oct. 25, 2018, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen and welcome to the Third Quarter 2018 Valero Earnings Conference Call. (Operator Instructions)

And I would now like to introduce your host for today's call, Mr. John Locke. Sir, you may begin.

John Locke --

Good morning. And welcome to Valero Energy Corporation's third quarter 2018 earnings conference call. With me today are Joe Gorder, our Chairman, President and Chief Executive Officer; Donna Titzman, our Executive Vice President and CFO; Lane Riggs, our Executive Vice President and COO; Jay Browning, our Executive Vice President and General Counsel and several other members of Valero's senior management team.

If you've not received the earnings release and would like a copy, you can find one on our 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 our Investor Relations team after the call.

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 Joe for opening remarks.

Joseph Gorder -- Chairman, President, Chief Executive Officer

Thanks, John and good morning, everyone. We had solid safety and operational performance in the third quarter. Refinery utilization exceeded 99% and we set a new record for light sweet crude processing as discounts relative to Brent remain very attractive. We also delivered strong financial results, outperforming the third quarter of last year, despite a margin environment that was generally less favorable. Our use of the Diamond Pipeline and Enbridge Line 9B again contributed meaningfully to the performance of our Memphis and Quebec City refineries as these pipelines provided access to discounted Cushing and Canadian sweet crudes respectively. We look forward to the start-up of the Sunrise Pipeline expansion which is scheduled for November 1. This pipeline will add another 100,000 barrels per day of Permian pricing exposure to our Mid-Continent refineries and displaced an equal volume of less competitively priced crude.

We continue to deliver on our commitment to grow Valero's earnings capability through growth investments and acquisitions, while delivering returns to stockholders. The Diamond Green Diesel expansion was completed in August, bringing the current renewable diesel production capacity to 16,500 barrels per day. Development continues on a project to add a parallel facility and further expand the production capacity to a total of 44,000 barrels per day. A final investment decision is expected before year end.

In September, our Board of Directors approved a project to construct a 55,000 barrel per day coker and a sulfur recovery unit at the Port Arthur refinery for a total cost of $975 million. Upon completion in 2022, the refinery will have two parallel crude vacuum coker trains. The additional coker capacity is expected to improve turnaround efficiency and provide margin benefits from increased heavy sour crude processing capability and reduce intermediate feedstock purchases. Earlier this month, we agreed to acquire three ethanol plants from Green Plains with a total nameplate capacity of 280 million gallons per year at a cost of $300 million plus working capital estimated at $28 million. These plants utilized ICM and Delta-T technologies and are located in the corn belt, enabling us to transfer best practices from our existing portfolio and capture commercial and operational synergies We expect to fund this acquisition with cash and anticipate closing the transaction in the fourth quarter of 2018, subject to customary closing conditions and possible FTC review.

Construction of the Central Texas pipelines and terminals in the Pasadena products terminal remains on track and work continues to progress on the Houston and St. Charles alkylation units and the Pembroke cogeneration plant. These projects are scheduled for completion in 2019 and 2020.

Moving to Valero Energy Partners. We announced last week the execution of a definitive agreement and plan of merger to acquire all of the outstanding publicly held common units of VLP at a price of $42.25 per unit. The transaction is expected to close as soon as possible after meeting customary closing conditions. Given the paradigm shift under way in MLP markets, Valero evaluated a range of options before the partnership and Valero concluded that a merger would provide the best outcome for Valero shareholders and the LP unit holders. This transaction offers compelling benefits for Valero shareholders in terms of cash flow synergies in a simplified structure. At the same time, the merger addresses MLP investor sentiment that has shifted away from favoring the high distribution growth and equity funded dropdown model to a model that favors slower distribution growth and self-funded organic growth. The merger also offers a premium to VLP's average trading prices and immediate conversion of VLP's equity to cash.

Now turning to cash returns to stockholders. We paid out 55% of our year-to-date adjusted net cash provided by operating activities and we continue to target an annual payout ratio of between 40% to 50% of adjusted net cash provided by operating activities. As we look forward to the fourth quarter and into 2019, we remain optimistic. Global economic activity continues to grow at a reasonable pace. In the U.S., unemployment rates are at record lows. Domestic and international product demand is strong. Gasoline export volumes are expected to increase seasonally while distillate exports should moderate as winter demand picks up in the Northern Hemisphere. Despite margins incentivising maximum distillate production at relatively high industry utilization, days in supply for distillate remain new five-year lows.

And with that, John, I'll hand the call back to you.

John Locke --

Thank you, Joe. For the third quarter, net income attributable to Valero stockholders was $856 million or $2.01 per share compared to $841 million or $1.91 per share in the third quarter of 2017.Operating income for the refining segment in the third quarter of 2018 was $1.3 billion compared to $1.4 billion for the third quarter of 2017. The $90 million decrease is mainly attributed to lower gasoline and secondary products margins, partially offset by wider discounts for sour and sweet crude oils versus Brent.

Refining throughput volumes in the third quarter of 2018 averaged 3.1 million barrels per day and throughput capacity utilization was 99%. Throughput volumes were 207,000 barrels per day higher than the third quarter of 2017 when the operations of five of our U.S. Gulf Coast refineries were impacted by Hurricane Harvey. Refining cash operating expenses of $3.67 per barrel were $0.08 per barrel lower than third quarter of 2017, primarily due to higher throughput in the third quarter of 2018.

The ethanol segment generated $21 million of operating income in the third quarter of 2018 compared to $82 million in the third quarter of 2017. The decrease of $61 million was mainly due to lower ethanol prices in the third quarter of 2018. Operating income for the VLP segment in the third quarter 2018 was $90 million compared to $69 million in the third quarter of 2017. The increase of $21 million was mostly attributed to contributions from the Port Arthur terminal assets and Parkway Pipeline, which were acquired by VLP in November of 2017.

For the third quarter of 2018, general and administrative expenses were $209 million and net interest expense was $111 million. Depreciation and amortization expense was $517 million and the effective tax rate was 24%. With respect to our balance sheet at quarter-end, total debt was $9.1 billion and cash and cash equivalents were $3.6 billion of which $128 million was held by VLT.

Valero's debt-to-capitalization ratio net of $2 billion of cash was 24%. At the end of September, we have $5.3 billion of available liquidity excluding cash of which $750 million was available for only VLP. We generated $496 million of cash from operating activities in the third quarter. Included in this amount is $729 million use of cash to fund working capital. Excluding working capital, net cash provided by operating activities was approximately $1.2 billion.

Moving capital investments, which excludes acquisitions, we made $604 million of growth and sustaining investments in the third quarter. Sustaining investments of $435 million include $171 million of turn around and catalyst cost. The balance of capital invested in the quarter was for growth.

With regard to financing activities, we returned $775 million to our stockholders in the third quarter. $341 million was paid as dividends with the balance used to purchase 3.8 million shares of Valero common stock. As of September 30, we had approximately $2.8 billion of share repurchase authorization remaining.

We continue to expect 2018 capital investments to total $2.7 billion with about $1.7 billion allocated to sustaining the business and $1 billion to growth. Included in this total are turnarounds catalysts and joint venture investments.

For modeling our fourth quarter operations, we expect throughput volumes to fall within the following ranges. U.S. Gulf Coast at 1.76 million barrels to 1.81 million barrels per day, U.S. Mid-Continent at 440,000 barrels to 460,000 barrels per day, U.S. West Coast at 265,000 barrels to 285,000 barrels per day and North Atlantic at 480,000 barrels to 500,000 barrels per day. We expect refining cash operating expenses in the fourth quarter to be approximately $3.80 per barrel.

Excluding the acquisition of the three ethanol plants from Green Plains, which is expected to close in the fourth quarter, our Ethanol segment is expected to produce a total of 4.1 million gallons per day in the fourth quarter. Operating expenses should average $0.37 per gallon which includes $0.05 per gallon for non-cash costs such as depreciation and amortization.

For 2018, we expect the annual effective tax rate to be about 23%. For the fourth quarter, we expect G&A expenses, excluding corporate depreciation, to be approximately $220 million, net interest expense is estimated at $110 million and total depreciation and amortization expense should be approximately $525 million.

Lastly, given recent declines in ethanol and biodiesel RIN cost, we are reducing expected RINs expense for the year to between $450 million and $550 million.

That concludes our opening remarks. Before we are going to call the questions, we again respectfully request that our callers adhere to our protocol limiting each turn in the Q&A to two questions. If you have more than two questions, please rejoin the queue as time permits. This helps us ensure other callers have time to ask their questions.

Questions and Answers:

Operator

(Operator Instructions) Our first question comes from the line of Roger Read with Wells Fargo. Your line is now open.

Roger Read -- Wells Fargo -- Analyst

Yes, thanks. Good morning and nice quarter as usual.

Joseph Gorder -- Chairman, President, Chief Executive Officer

Thanks, Roger.

Roger Read -- Wells Fargo -- Analyst

Joe, if you could, one thing you didn't talk about in the overview, it is certainly very topical here, the IMO 2020 thought process. So, story comes out, administration doesn't like it, no surprise there, but the IMO is meeting this week. Can you talk about maybe how -- what we're seeing and what your expectations are how that fits together and if there's any change in how you're looking at the potential impact about this time next year and early 2020?

Joseph Gorder -- Chairman, President, Chief Executive Officer

No, Roger good question. We'll let Jason to speak a little bit about that.

Jason Fraser -- Vice President-Public Policy & Strategic Planning

Okay. Hi, Roger, this is Jason. I'm sure (inaudible) them following that meeting, you just referenced the Marine Environmental Protection Committee's meeting is going on all week in London. And I'm sure you all have experienced the same as we have. It's a closed meeting, so information trickles out and dribs and drabs at different times but this is what we've gleaned from it, from what we've been able to ascertain. Looks like there's been two very positive developments come out of that Committee so far. Looks like the carriage band will go into effect on its original proposed date of March 1, 2020. There was a proposal, I believe of Bangladesh to delay it, that was defeated. And it'll be officially voted on either today or tomorrow to lock it in. So, we think that's a very big deal, since it gives the port states a powerful tool to help them force the new specs. You don't have to prove the ship burn non-compliant fuel, they just have to look and see -- just having it in the fuel tank on board is a breach of the regulation, more so unless the ship has a scrubber. That's going to be helpful law with maintaining compliance. The second bit of good news relates to this experience building phase, proposal that caused quite a bit of commotion and that's what was referred to in that Wall Street Journal article. Now, exactly how this proposal would work was never really clear to us, the proponents themselves actually took the step of issuing a clarifying statement, saying it wouldn't delay or phase in a spec change. Nevertheless, there was a lot of worry that this might (inaudible) at least a potential delay or watering down of the standards. So, there was a lot of debate on it at the meeting and the report we got yesterday was that the Committee reached an agreement at the end of the day that the proposal will be limited to data collection and analysis and cover nothing else. So there'll be nothing about a phase in or initially be relaxed inducement. So, our main takeaway so far is the that Committee seems to remain firm in its commitment to fully implement the spec change on January 1 of 2020 and to make sure the right enforcement tools are available.

Roger Read -- Wells Fargo -- Analyst

Great, thanks. Second, unrelated question, you've got two acquisitions coming actually this quarter, the ethanol and the DLP deal. How should we think about the 40% to 50% payout of cash flow in terms of dividends and share repos relative to the commitments this particular period with the acquisitions were you thinking about the acquisition is a balance sheet event and the CFFO is the normal process?

John Locke --

Yes, Roger, no that's another good question. And you know, we've been very consistent in our messaging and our execution around our capital allocation framework and really what we're talking about here is the discretionary uses. You know there's no consideration of affecting our maintenance CapEx or turnarounds or the dividend in a negative way. So, this really is focused on the discretionary uses. And if you look at what we've done, we've got really good growth projects. The Diamond pipeline is performing very well. We've got the coker project which has significant returns that's under development. We've got the (inaudible) Central Texas pipeline and many more really good growth projects that are under way. If you look at it from an acquisition perspective, which is another component of the discretionary piece and we got the ethanol plants which Martin can talk about here in a bit but we were able to buy ethanol plants in a down market and when we're looking at acquisitions, as always what we're trying to do. And then on the repurchases, we've got the payout ratio which is overriding, but we've been very ratable in our acquisition of our shares and we're focused on buying debt. So, what I would say here is that you should expect that our behavior to remain consistent going forward with what we've done in the past.

Roger Read -- Wells Fargo -- Analyst

Awesome. Thanks.

John Locke --

Okay, buddy.

Operator

Thank you. And our next question comes from the line of Paul Cheng with Barclays. Your line is now open.

Paul Cheng -- Barclays -- Analyst

Hi guys, good morning.

Joseph Gorder -- Chairman, President, Chief Executive Officer

Hi, Paul.

Paul Cheng -- Barclays -- Analyst

I'd have to apologize that first question is somewhat similar to what Roger has asked on the IMO, but I want to focus that, Jason, you guys have a lot of contact in D.C. and in the White House and all. And I know Joe met with President Trump for a number of times. Can you give us some insight that what exactly the White House trying to do or what is the proposal they have in mind in terms of slowdown the rollout, I mean what kind of mechanism or what kind of program that they have in place or what they're thinking?

Joseph Gorder -- Chairman, President, Chief Executive Officer

Okay. Sure. And I don't think they've come to a conclusion yet. And one thing we shouldn't do is read too much into this one story with an anonymous source from the administration as being a statement of their policy. From our discussions, we don't think the administration's reached (inaudible) conclusions yet. They are (inaudible) understand the economic impact of the potential changes but there's nothing yet. Now, the word was they were supporting that experience building phase and in that context, there seem to be -- that it would lead to some type of delay or lax enforcement upfront, but looks like that is very clearly shut down within the Committee and importantly, we were told the U.S. delegation actually supported this conclusion of basically morphing that proposal into something that only dealt with data gathering. So, I think it's an ongoing discussion. They don't have a firm commitment yet or a firm position yet and they're just trying to understand the situation.

Paul Cheng -- Barclays -- Analyst

Jason, just curious that in the conversation you have with the White House staff have -- does any occasion come out as a (inaudible) option saying that U.S. could even drop out from the ECA definition. Can the President have the authority to just use executive order to get out if he wants to?

Jason Fraser -- Vice President-Public Policy & Strategic Planning

It is pretty complicated. I don't think they're having discussions about that yet, anything that extreme and we try to understand this is very complicated, this international treaty law and I can tell you what we've been able to glean although we're definitely not experts on it. It sounds like it could pull out or the U.S. could pull out of the entire treaty, the MARPOL treaty or the entire Annex. You don't have the option to just pull out of the IMO 2020 sulfur regulation and that would take 12 months' notice and there's no certainty around whether the Senate would have to approve that or go along with it. But the point is, if you pull out of the entirety Annex VI, which is the nearest thing you could deal with that covers all of the international marine, air pollution requirements. So, the ramifications would go way beyond the IMO sulfur -- the 2020 regulations. So, it wouldn't be taken lightly by the administration and it would have ramifications way beyond that spend. So, I think that it would take a lot of thinking and see if they want to do that. And even if you did pull out of the treaty, the other complication is the lot of the requirements and regulations or provisions of the treaty have been incorporated into separate federal statutes. So even if the President withdrew from the treaty, the statute can't be changed except by (inaudible) Congress, so they would still be in place. So, it's a very long and messy process to go down that road.

Paul Cheng -- Barclays -- Analyst

Thank you. My second question that maybe is for either Gary or Lane. (inaudible) seems like it's being (inaudible) very expensive. (inaudible) is attractive for you to run it now or that what you can have other alternative you would be able to fund that's far more attractive? Are you running it at all? And then maybe as a (inaudible) after the roll in of VLP, will the reporting format of the Company would be changed that you just roll everything into refining and no longer report a VLP or logistic result on a separate item? Thank you.

Joseph Gorder -- Chairman, President, Chief Executive Officer

Thank you, Paul.

R. Lane Riggs -- Chief Operating Officer, Executive Vice President

Yes, Paul, thank you, Maya question is certainly the volatility between Brent and WTI and the Midland Cushing spread along with the oil getting strengthened has wreaked havoc on the Maya formula. And so we would certainly say that Maya is not priced competitively in the market today. We had several conversations with PMI, I think they're well aware that their barrels are not being priced competitively into the U.S. Gulf Coast and they will make adjustments as we move forward. I also think that Maya is not really as relevant of a marker for heavy sour crude as it used to be. Certainly in our system, the only heavy sour barrels that we buy that are priced off the Maya formula are the barrels that we get from Mexico, the remainder the barrels are not priced off of Maya. And today, Canadian heavy barrel in the U.S. Gulf Coast has $8 to $10 advantage over Maya. So we still see a good incentive to push heavy sour crudes into our refining system, but I would agree, Maya is not price competitive today.

Joseph Gorder -- Chairman, President, Chief Executive Officer

And then I guess the next question was (inaudible) was relative to --.

Donna Titzman -- Executive Vice President and CFO

The segment reporting question, yes, so we're still in the process of evaluating the segment reporting going forward once the VLP is no longer publicly listed. We don't have anything to share with you at this moment but that is something that we are looking at.

Paul Cheng -- Barclays -- Analyst

Thank you.

Joseph Gorder -- Chairman, President, Chief Executive Officer

Okay, buddy.

Operator

Thank you. And our next question comes from the line of Doug Terreson with Evercore ISI. Your line is now open.

Doug Terreson -- Evercore ISI -- Analyst

Good morning, everybody.

Joseph Gorder -- Chairman, President, Chief Executive Officer

Hi Doug.

Doug Terreson -- Evercore ISI -- Analyst

I wanted to get your views on market fundamentals and specifically while distillate demand and inventories appear pretty positive, the converse seems to be true for gasoline although net exports for both seem to be pointing in the right direction. So my question regards really demand trends in the domestic and the regional market that you guys were involved in these two products and also whether you sense that prices allocated demand somewhat in North America and Latin America in recent months, meaning whether we've seen some demand destruction of any sort? So just kind of an overview on gasoline and distillate, please.

Gary Simmons -- Senior Vice President

Sure. This is Gary. I think basically demand is kind of where we'd expected it to be going into this year, you had a little bit of demand growth compared to last year about 1%. The real surprise, especially on the gasoline side, is this very high refinery utilization. So year-to-date, we've averaged 93% refinery utilization, 2.6% higher than where we were last year. With that increase in refinery utilization, gasoline production is up about 2% over where it was last year. And even though you had an increase in demand, you had about a 2 to 1 increase in production over demand is causing the surplus in the inventory build. As we move into the fourth quarter, I think you've seen gasoline cracks get very weak, some of that is typically as you move out a driving season, you see weaker demand for gasoline. And then you also have the potential to even swell the gasoline production further as you move out into RBC transition and get (inaudible) into the pool. I think there are a few bullish signs in the gasoline market, inventory has actually drawn in the last couple of weeks and a lot of that is due to what you alluded to. We've seen very good gasoline exports, in the last three weeks in a row we've averaged about 1 million barrels a day of gasoline being exported. In our system, we're seeing very strong South American demand, of course in South America they're moving into their summer driving season, which has been supportive of the gasoline crack. You know, and when you look at gasoline inventory on a days of supply basis and you take those exports into account, we are about the five-year average range on apparent days of supply. On the supply side, it looks like we could be getting some help as well. The last set of (inaudible) data I looked at, it looks like North-West Europe hydroskimming margins had turned negative, conversion -- even conversion refinery economics are about breakeven in the U.S., we're seeing very tight margins on reformers and cat crackers. And even in the U.S., the hydroskimming refinery, if you don't have advantage crude supply, those economics are getting challenged as well. So I think you'll see some gasoline come off the market. In fact in the last week of DOE stat, you did see gasoline drop fairly significantly, gasoline yield drop fairly significantly. And then I think you're starting to see some indications that some run cuts in the industry as well. The Brent curve moved from backwardation to contango, which may be indication that you're getting some run cuts that are starting to pressure down the front part of that Brent curve.

Doug Terreson -- Evercore ISI -- Analyst

Okay. Can you spend just a second on distillate as well?

Gary Simmons -- Senior Vice President

Yes. So, distillate I think if you look at where distillate inventories (inaudible) both on an absolute basis and certainly on a days of supply basis were very low. We really just haven't been able to replenish distillate inventories since the hurricane last year. We continue to see very good export demand for distillate as well as domestic demand and certainly in the Atlantic basin, as you're moving more into (inaudible) season, we would expect demand to be very strong for distillate. Then again on the distillate side, I think if you do get some hydroskimming refineries and some refinery run cuts, that will even be more supportive to the distillate market as well because you could take some of the distillate production offline as well.

Doug Terreson -- Evercore ISI -- Analyst

Sure, thanks a lot, guys.

Joseph Gorder -- Chairman, President, Chief Executive Officer

Thanks, Doug.

Operator

And our next question comes form the line of Doug Leggate with Bank of America Merrill Lynch. Your line is now open.

Doug Leggate -- Bank of America Merrill Lynch -- Analyst

Thanks. Good morning everybody. Joe, I'm sorry my first ones, and I have more question as well. So I wonder if I could take advantage of Jason being on the line. Jason, the situation as it relates to, I think Paul's question earlier about the White House and so on, our understanding is that, it's really -- the enforcement is really done to members. Do you have any thoughts on what the signaling from the U.S., whether they pulled out or not? Does it really come down to the penalties or the enforcement mechanism, which could ultimately be eased if -- as one method of a kind of work around them, I'm just trying to think about how the rule making evolves over the next 12 months, any thoughts you may have on that would be appreciated.

Jason Fraser -- Vice President-Public Policy & Strategic Planning

Yes, no, you're right, that's a key component. And historically, the U.S. has been one of the most (inaudible) enforcers of MARPOL through the Coast Guard and the EPA. And you can -- think about how shipping works. And like I said, all shipping within the U.S. is already covered by this tighter self-respect which seem to be fine with, the 0.1% in the ECA. The only other shipping as they involve the stuff going to and from the U.S. and if the U.S. didn't want to enforce it, especially now we have the carriage rule in place, the flag state would have authority to enforce it and wherever that ships -- the other end of the voyage, wherever it's coming to or from, that port state would also be able to enforce it and have the carriage rule that help it. So you'd say even if the U.S. chose not to enforce, which would be very uncharacteristic of us, there should still be a lot of mechanisms in place to do it.

Doug Leggate -- Bank of America Merrill Lynch -- Analyst

Okay, a lot of moving parts. We'll see how it plays out. But I guess my second question is also kind of related, if I may, and it really gets to Doug Terreson's question about the gasoline market. It's maybe one for Gary, but whoever wants to chime in. Our own understanding is that there's a broad consensus, this is the best thing to happen to European refineries in 20 years. There was an expectation utilization is going to go up at the same time as a lot of U.S. light sweet crude is going to make its way to European markets at the end of next year. How do you see that impacting the Atlantic basin gasoline market? Unrelated to IMO, if I may, is it a kind of an offset which is to swing the cat feed into the bunker fuel market as a viable solution to perhaps resolving some of the potential tightness (inaudible)? And now I'll leave it there. Thanks.

Joseph Gorder -- Chairman, President, Chief Executive Officer

Thanks, Doug.

Jason Fraser -- Vice President-Public Policy & Strategic Planning

Yes, I think the way you characterized it is very similar to the way we see it. I think it looks like for the next several months, certainly first quarter -- fourth quarter to first quarter, gasoline market is going to remain weak and certainly as European refiners run more that U.S. light sweet crude, you had the potential for more gasoline on the market and it is really when you start getting into the fourth quarter and people start reacting to change for IMO, and you pull some of the VGOs out of the cat to get them into the bunker market that gasoline balances start to tighten back up along with some demand growth.

Doug Leggate -- Bank of America Merrill Lynch -- Analyst

So does that top the upside risk on potential diesel margin spike as it relates to IMO demand?

Jason Fraser -- Vice President-Public Policy & Strategic Planning

I don't really know that it spikes, no, I don't really know that I understand what you're asking.

Doug Leggate -- Bank of America Merrill Lynch -- Analyst

So the perception is that diesel margin spike on the back of a swing away from high sulfur fuel oil into marine diesel. But if we were cutting by cat feed on weak gasoline markets, does it not solve part of the problem?

Gary Simmons -- Senior Vice President

Yes, I think most of the forecasts that we think says that that will happen, but it will help make up for the shortfall in the marine bunker and high sulfur fuel being pulled out of the market, combination of that with ULSD going to the marine market as well.

Doug Leggate -- Bank of America Merrill Lynch -- Analyst

All right. A lot of moving parts. Thanks, fellows. Appreciate the answers.

Operator

Thank you. And our next question comes from the line of Benny Wong with Morgan Stanley. Your line is now open.

Benny Wong -- Morgan Stanley -- Analyst

Hi good morning. Thanks guys. I was wondering if you could share some thoughts around your CapEx plans next year now with the logistics business rolled up and the (inaudible) particularly on the gross side and how that's (inaudible) between your business segments? And if you may, longer-term just any thoughts around the allocation split, how that will evolve with the new business structure?

John Locke --

Hi, Benny. This is John. We really don't have our capital guidance out there yet for 2019. If you look at what we've done here the last couple of years, it's been sort of in this 50/50 allocation, logistics and refining. I mean, we've got a project set out there obviously that's part of the bigger strategic plan, but we only have guidance on this year.

Benny Wong -- Morgan Stanley -- Analyst

Okay. Thanks.

Operator

Thank you. And our next question comes from the line of Manav Gupta with Credit Suisse. Your line is now open.

Manav Gupta -- Credit Suisse -- Analyst

Hi, guys. Sorry, I don't have an IMO question, my question is more on the very strong performance on the North Atlantic side. I just wanted to understand was it both the assets equally contributing or was it you capturing the European cracks really well or was it also the Quebec City benefiting from the light light spread. Any color you can provide on the very strong results on the North Atlantic region?

R. Lane Riggs -- Chief Operating Officer, Executive Vice President

Hi, Manav, this is Lane. So really what you saw in our North Atlantic strong crack attainment with our exposure to this wide Brent TIR and really it's Line 9 reversal that we invested in (inaudible) access to the -- the distressed Canadian crudes coming out of that region of the world. So that was really what drove us not only to have exposure to the price of those crude but also to run a little bit more rate as a result of that.

Manav Gupta -- Credit Suisse -- Analyst

And one follow-up, sir. E-15 was recently announced by President Trump and there were some concerns that it might eat up into a small portion of the gasoline demand. But I know you guys have very strong views that it's not going to be as material as people think, there are a lot of challenges to E-15, so if you could give some color on that also, please?

Joseph Gorder -- Chairman, President, Chief Executive Officer

Sure. We'll let Jason talk to you a minute about that.

Jason Fraser -- Vice President-Public Policy & Strategic Planning

Yes. You're right, back on October 11, the White House announced they were going to direct the EPA to start a rule-making to get the E-15 RVP while we are in place for next summer. And this is something the ethanol gas have been fighting for a long-time, it's been at the top of their list. We don't think it's going to be a sudden big increase in ethanol penetration. But first of all, there are lots of reasons E-15 hasn't taken off already, it's not just related to this RVP waiver. Retailers have concerns about equipment compatibility, there's risk to engines that aren't warranted for the fuel, who is liable for it if you have an issue. Questions about consumer demand. But -- and there's only about 1% of the stations in the U.S. have E-15 now, about 1,400 stations. And when you figure out what will it take to offer E-15, there's varying questions, basically, you have to spend some money and you have to spend a lot of money or little money kind of depending on the configuration of your station. But there's going to have to be some capital spend and that brings us to the legality of this rule. There's a big debate about whether the EPA has the authority to grant this RPP waiver for E-15, like some people think they do and then a lot of people also think that it's going to had to be done by Congress because the RVP waiver for E-10 is actually included in our (inaudible) statute itself. So one thing that's certain is whenever the EPA rule goes final, there is going to be a bunch of people still, lots of lawsuits challenging EPA's authority to do this. It's going to take a couple of years for that to work its way through the courts before you get a final answer. So now put yourself in the shoes of one of these retailers who's got to spend money to be able to offer E-15. Now are you going to spend money with the risk of having stranded capital because in a couple of years a court may void it. So, I think that's going to be some type of a chilling effect on the capital roll out which will keep things -- keep the roll out from being very aggressive along with just the general problems with the E-15 we talk about a lot.

Manav Gupta -- Credit Suisse -- Analyst

Thank you, guys. This was very insightful. Thank you.

Joseph Gorder -- Chairman, President, Chief Executive Officer

Thank you.

Operator

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

Prashant Rao -- Citigroup -- Analyst

Good morning. Thanks for taking the question.

Joseph Gorder -- Chairman, President, Chief Executive Officer

You bet.

Prashant Rao -- Citigroup -- Analyst

Just wanted to circle back on the PADD 1, the Atlantic Basin, as part of that, I appreciate the color on what the strength there was. Wanted to just sort of drill down on the product side, you'd be able to get your distillate yields up, gasoline volumes down, obviously optimizing to the dynamics there, but just wanted to get an understanding of if there's anything on the product pricing (inaudible) that market that they're also helping realized margin there and then how to think about that on a go forward basis versus broader regional dynamics?

R. Lane Riggs -- Chief Operating Officer, Executive Vice President

It's Lane again. I think the only other comment I'll make is that our Quebec refinery, the way we have that refinery configured, it may have distillate yield for the kind of crude that it runs. So any time you get into a market where the gasoline crack is depressed in relation to the Heat Crack, our refinery will perform very, very well. And as we all know, I mean the Heat Crack has sort of been outperforming the Gas Crack here of late. So when you think about that base going forward, that's really one of the big drivers for that performance in that area is Quebec's distillate yields.

Prashant Rao -- Citigroup -- Analyst

Okay, thanks. And I guess a follow-up also not an IMO question, but wanted to ask if it's had Western Canadian heavy and sort of near-term and then maybe looking to 2019 plans to getting more WCS down into the Gulf Coast (inaudible) we've been hearing a lot about rail ramp and incremental transport volumes. I just wanted to see if you had any color there or an update on what we can expect. I'm thinking about this also longer-term with respect to the Port Arthur Coker decision?

Gary Simmons -- Senior Vice President

Yes, this is Gary. I think in the short-term, really you're going to depend on rail to clear the production in Western Canada and I think you'll continue to see that market constrained. We're certainly ramping up our rail volumes some, we did about 30,000 barrels a day in the third quarter. We expect to get that up to 40,000 barrels a day in the fourth quarter. And then it looks like there is some additional rail being dedicated to that market early next year, but I think you know before you see a meaningful shift in the Western Canadian differentials, you're going to have to have one of the pipeline projects done and it looks like the first opportunity for that would be the Line 3 replacement, the Enbridge project, which looks like the earliest that would happen will be late next year.

Prashant Rao -- Citigroup -- Analyst

Okay. Thanks very much, gentlemen.

Joseph Gorder -- Chairman, President, Chief Executive Officer

Thank you.

Operator

Thank you. And our next question comes from the line of Brad Heffern with RBC Capital Markets. Your line is now open.

Brad Heffern -- RBC Capital Markets -- Analyst

Hey, good morning everyone. Joe, I was wondering if you could just spend a minute walking through the rationale for buying in VLP versus potentially doing something with the IDR reserve, other options are available to you? And then additionally, you mentioned in your prepared comments that there will be some cash flow synergies. So I was wondering if you could give some sort of quantification of that?

Joseph Gorder -- Chairman, President, Chief Executive Officer

Yes, you bet. I'll take the first part and then I'll let Donna take the second part. But if you go back to the original plan with VLP was to use the MLP structure and its lower cost to capital to develop projects that supported Valero's core business. And whenever we did a project at VLP or at Valero for subsequent drop to VLP, it was always with a, does it benefit Valero and help integration into the supply chain going forward? So that was where we started, OK? We got it out there. We had this great base of logistics assets that we could dropdown and opportunities enable us to provide the MLP investor with a clear line of sight to ratable growth. We had a sub 3% yield on VLP's equity and we were executing as promised. Then, the MLP market's appetite changed significantly from a drop down driven high growth, sponsored MLP equity to a self-funded low growth model with corporate and governance rights. And the cost of capital was also higher than that of VLO. So, we looked at this for a year or more. We are very patient, we watch carefully for any catalyst change that would support a shift back to our original design, and we saw none. So, we looked at every available option, we agree that the best outcome for both Valero Energy and the VLP owners was the buy in. VLP unit holders get a premium to the average trading in the market and VLO stockholders get an accretive transaction. So, it was a win-win, which are very hard to find and is dealt with a problem we've got or that we had, which was we had an entity out there that we needed to retain control over and we weren't able to grow it. So Donna, you want to take the second piece?

Donna Titzman -- Executive Vice President and CFO

Yes, and regards to the other options that we looked at, so a lot of talk in the market had been about eliminating the IDR. You know, unfortunately that doesn't solve the underlying issue with being able to fund growth because we feel that wouldn't have access to the equity markets. Some other options that we've seen MLPs choose are converting to (inaudible). As Joe mentioned, these assets are key to us, and maintaining control over them is absolutely key, this support a lot of our primary refinery and we didn't want to put the MLP into a structure that jeopardize Valero maintaining control over those assets. So, we looked at a lot of different options as Joe indicated. We took our time doing so, we spent the last year or so looking at all of the options whether or not we really thought that the MLP equity market would recover at any time soon and we kept coming back to buying in was the best solutions for both the unit holders and the shareholders of Valero.

Joseph Gorder -- Chairman, President, Chief Executive Officer

You know, Brad, it's interesting in that every solution that one might consider is unique to their individual circumstances. And somebody else might choose to do it differently, VLP was small enough and it afforded us this opportunity. If it was huge, we probably wouldn't have had the opportunity to do something like this or we had to do it differently. So anyway, we think we made the right decision and the timing was such that we were able to execute it now, and we decided to go ahead and do it.

Brad Heffern -- RBC Capital Markets -- Analyst

Okay. And then any quantification of the synergy benefit?

Donna Titzman -- Executive Vice President and CFO

They're coming from a lot of different places. Obviously the leakage from the unit holder -- public unit holder distribution is a large piece of that. The public company cost is another piece of that and just the simplified structure cuts a lot of administrative costs out of the equation.

Brad Heffern -- RBC Capital Markets -- Analyst

Okay. Appreciate the thorough answer.

Operator

Thank you. And our next question comes from the line of Peter Low with Redburn. Your line is now open.

Peter Low -- Redburn -- Analyst

Hi, thanks for taking my questions. First one is on the ethanol acquisition. Can you give us some more color on the strategic rationale behind that and perhaps whether you can look to do more deals in the bio-fuel space in the future? And the second was just a quick one, in the release you talk about $700 million working capital build. Is that simply the impact of rising oil prices, so should we expect it to unwind in future quarters? Thanks.

Martin Parrish -- Valero Energy Corporation

Sure. On the ethanol, this is Martin. You know, we take a long-term view at this and if you step back and look at ethanol, it's going to be in the gasoline pool for a long time, right, and it's a core part of our strategy. So, the opportunity came up to buy three quality plants. So, we took it. We see corn ethanol as the most competitive (inaudible) source in the world. We expect ethanol demand to grow globally. If we look at exports of about 30% year-on-year for the last three years, exports will be 10% of production this year and you also see domestic production that's been growing at about 3.6% a year. This year that growth is going to slow at something to 1% or 1.5%; so that big increase in production slowing down. So, we think things are starting to improving on the supply demand balance and with that we'll get some margin improvement. So, it was just -- we're always looking at acquisitions. Our last one was in '14 for ethanol and it just became an opportunity that looked good and we took it. Down the future, we'll continue to look in this space and then the other thing we're obviously looking at the biofuels is what Joe mentioned, the decision on the Diamond Green Diesel too, that will become (inaudible) before the end of the year. That's it.

R. Lane Riggs -- Chief Operating Officer, Executive Vice President

And then Peter, you were asking about working capital?

Peter Low -- Redburn -- Analyst

That's right.

R. Lane Riggs -- Chief Operating Officer, Executive Vice President

What was your question again, sorry, just repeat it.

Peter Low -- Redburn -- Analyst

There's a quite a big build in the quarter, about $700 million. I was just wondering was that simply an effect of rising oil prices or should we expect that kind of unwinds over the next few quarters?

Donna Titzman -- Executive Vice President and CFO

That was a combination of some volume and some price impact and there should be a fair portion of that will reverse itself.

Peter Low -- Redburn -- Analyst

That's great. Thanks.

Operator

Thank you. And our next question comes from the line of Neil Mehta with Goldman Sachs. Your line is now open.

Neil Mehta -- Goldman Sachs -- Analyst

Good morning, team. First question I had was around Port Arthur and the decision around sanctioning the Coker project. Can you talk a little bit about the economics of it? How should we think about it either on ITT basis or incremental EBITDA for the capital that you're spending there?

R. Lane Riggs -- Chief Operating Officer, Executive Vice President

Hey, Neil, it's Lane. So the really the benefits are twofold. One is the feed-stock flexibility and there was an earlier caller that asked a question around how do -- our view of Canadian heavy sour in the Gulf Coast, and we certainly have a longer-term view there was going to be considerable amount of heavy sour in the Gulf Coast and in addition to that just overall for how that fits into our optimization of our Gulf Coast. We'd like to benefit it from the feedstock flexibility. And secondly is turn around efficiency. This is a two -- today this is almost a two train refinery with the exception of a big Coker, so anytime we're taking certain units offline to do turnarounds, there's a lot of synergies in having this additional -- it's essentially finally separate this refinery into two separate trains and build a few turnarounds in a more efficient manner. With respect to EBITDA, I'd characterize what we think the EBITDA around $325 million has been (inaudible) prices and I'm going to preface that by saying that mid-cycle doesn't include IMO. So we've always been -- we've been pretty vocal saying this is not really an IMO project, this is very much about optimizing our system. Obviously, if our outlook is to make $325 million in a mid-cycle case, then it's got a lot of upside in an IMO 2020 universe.

Neil Mehta -- Goldman Sachs -- Analyst

I appreciate that, Lane. And as a follow-up, is just on to Brent WTI differentials. There's two parts to this question. One is, how you see that evolving over the next six months to a year with the spread, obviously, at a very wide level and arguably, beyond transportation economics. But then, again, with the potential for Cushing to build in the intermediate term. And then the second is that you guys have done a good job of, whether it's through the Sunrise Pipeline or through the Diamond Pipeline actually getting access to those light barrels. So, can you just talk about how you're evolving the system to capture those inland discounts?

Gary Simmons -- Senior Vice President

Yes, Neil. This is Gary. I think we see with the start-up of the Sunrise Pipeline and then production increasing around Cushing, you will have more barrels beginning to make their way to the Cushing hub, certainly, as PADD 2 turnarounds wind down, you get some demand back, but most forecast I see shows that Cushing continues to build through next year. And I think you really have to get to the point of late next year when some of the large Midland Permian to the Gulf Coast projects come on that allow Permian production to clear to the Gulf and some of the barrels that are currently going to Cushing get pulled away before you see Cushing start to draw again. Yes, we -- and back to our system, Sunrise and Diamond and then, Line 9 have all increased our access to, certainly, the Midland and Cushing barrels, which has been a significant uplift for us.

Operator

Thank you, team.

Thank you. And our next question comes from the line of Paul Sankey with Mizuho. Your line is now open.

Paul Sankey -- Mizuho Securities -- Analyst

Hi, good morning, everyone. What -- for the IMO -- to make it simple for the IMO question, what's your current assumption for the number of barrels a day that are going to be affected here when we get to 2020? Just wanted to sort of simplify the whole question.

Jason Fraser -- Vice President-Public Policy & Strategic Planning

Well, I don't know that we have an absolute number that we gathered roughly 3.5 million barrels a day as marine bunker being consumed. And our view is, the majority of that has to switch to the 0.5 spec.

Paul Sankey -- Mizuho Securities -- Analyst

Yes. So, you -- and essentially, although you said the Coker project is not IMO-related, I guess you are expecting, essentially, the IMO change to go through at considerable scale, basically?

R. Lane Riggs -- Chief Operating Officer, Executive Vice President

Paul, this is Lane. What we really -- we do believe IMO will go-ahead. I think that's our view, but we didn't find or we didn't do this project because of IMO 2020. We just (inaudible).

Paul Sankey -- Mizuho Securities -- Analyst

Right. So, is it then based on a heavy (inaudible) assumption? Can you talk a little bit about the mid-cycle that you referenced as being the rationale for the investment? And I have one follow-up which was just given the VLP take-back, could you keep going and actually buy MLPs now? Is that a (inaudible)? Thanks.

Joseph Gorder -- Chairman, President, Chief Executive Officer

Hope they are. So, mid-cycle is just the way we define a mid-cycle, it's sort of the average -- the last average of the last 10 years sort of pricing scenarios that we're trying to capture a full-blown refining cycle absent for what we consider to be major dislocations, primarily, I would say, in the domestic crude market, for example. And when we had a Brent TI blowout a few years ago out of 30, we drove that out for -- what we consider to be a mid-cycle. So, that's how (inaudible).

John Locke --

Paul, you got a follow-up for Lane or -- ?

Paul Sankey -- Mizuho Securities -- Analyst

No, I was going to ask about this idea that maybe, you keep going and buy some MLPs?

Joseph Gorder -- Chairman, President, Chief Executive Officer

Well, I mean we've always had that opportunity quite honestly, right? I mean we could have done it in VLO, and then, subsequently, drop the asset to VLT. We'll continue to look at them. But here, again, I think what our general view of the state is that we need logistics assets that provide better access for crude and feedstocks into the refinery and more access to markets with products moving out. And to the extent that there's an opportunity out there that scratches those, one of those two itches or both, I think we will really look hard at it. Otherwise, I don't think -- it's certainly not, what I would say, a specific point of focus we're looking at (inaudible) we need to go now, roll-up MLPs.

Paul Sankey -- Mizuho Securities -- Analyst

Understood. Thank you, Joe.

Joseph Gorder -- Chairman, President, Chief Executive Officer

Take care, Paul.

Operator

Thank you. And our next question comes from the line of Craig Shere with Tuohy Brothers. Your line is now open.

Craig Shere -- Tuohy Brothers -- Analyst

Good morning.

Joseph Gorder -- Chairman, President, Chief Executive Officer

Hi, Craig.

Craig Shere -- Tuohy Brothers -- Analyst

Could you all walk through the timelines for the buildout of contracted and acquired assets in Mexico and Peru? Maybe, elaborate on the potential export implications, both on volume and margin? And Joe, relating to your last comment, could you opine on the opportunity for additional Latin American infrastructure opportunities post the Peru investment?

Joseph Gorder -- Chairman, President, Chief Executive Officer

As far as timelines --.

Gary Simmons -- Senior Vice President

Yes, as far as timelines, we acquired the terminal, it's operational. There's the second terminal --.

Joseph Gorder -- Chairman, President, Chief Executive Officer

That's Peru.

R. Lane Riggs -- Chief Operating Officer, Executive Vice President

That's Peru, I'm sorry. And there's a second terminal in the northern part of Peru that we're in the process of reactivating and that should be first quarter of next year. So, we'll have over a million barrels of receipt facility group. In Mexico, the (inaudible) terminal, which was about 2.1 million barrels of storage, should be in service the end of this year, early first quarter of 2020. And then, the inland terminals, which combined between Puebla and Mexico City should be the end of 2020, first quarter of 2021.

Joseph Gorder -- Chairman, President, Chief Executive Officer

Okay. So, that's that. And then, Craig, we do continue to look for opportunities to put a stake in the ground internationally. Gary, you or Rich have any other comments on that? No? Okay. So, we'll continue to look -- I think really part of my focus, right now, and the team's focus is, OK, we've got the terminal of Peru, let's -- and we've bought an entire business. So, Gary's run and not only -- we got the terminaling operation, but we've got a marketing business that is associated with that. And it takes a while to get your arms around things and to be sure that we're maximizing the value of it. So, we're looking at that as a potential stake in the ground to allow us to do more on the western coastline of South America. And then, I think we'll look for opportunities to continue to drive to move to the eastern coastline down the road. But no specific plans right now.

Craig Shere -- Tuohy Brothers -- Analyst

Great. Thank you.

Operator

Thank you. And our next question comes from the line Phil Gresh with JPMorgan. Your line is now open.

Phil Gresh -- JPMorgan Securities LLC -- Analyst

Hi, good morning. Just a couple of clarifying questions or follow-ups. First one would be, obviously, between the ethanol plants and the growth opportunities in VLP, you've had a string of announcements recently. I think one of the questions has been out there is just -- can you -- with the organic pieces of this, can you fund this all within the construct of your existing capital budget framework? And I know you don't want to give specific 2019 guidance, I guess, yet, but just trying to clarify that key point. And then, Joe, just generally, I mean do you feel like there are other opportunities out there that you're looking at or are you just happened to have a string of things that just kind of came up recently?

Joseph Gorder -- Chairman, President, Chief Executive Officer

Well, so, we're not deviating from the capital allocation framework. And yes, to answer your question, even though we haven't provided guidance for '19, I think we generally provided ranges that we thought were -- is our capital ranges, and we're not deviating from that. So, still that's not going to change. I would say that it's the timing of these opportunities. Acquisitions are always opportunistic. And so, Mark and the team did a good thorough evaluation with Richard's team on the ethanol plants, and we had a willing seller. And so, we had an opportunity to buy numbers that were very attractive relative to deals we've looked at over the last couple of years. The VLP buy-in, it was just timely for us to do that. Again, we were patient. I mean it could have happened in June, right. But we wanted to wait and see if the market changed. And when we finally concluded that we had a basically a broken equity out there, and that VLP wasn't going to do for VLO what we expected it to do. It's time to move on and get out of it. And that's exactly what we did. So, it is more coincidental that these things happened at the same time than certainly a sign of things to come.

Phil Gresh -- JPMorgan Securities LLC -- Analyst

Okay, fair enough. Just the second question is just on the throughput guidance for the fourth quarter. Yes, I think you're assuming kind of at the midpoint, maybe, 96%, 97% type utilizations. I guess I'm just a little surprised by that because of the commentary around, maybe, some parts of the world needing to do run cuts. So, I guess honestly, Blair is a low-cost refinery. So perhaps, it's less impactful for you guys. We're just wondering how you're thinking about your throughput guidance in that context of the pretty weak gasoline cracks that are out there right now?

R. Lane Riggs -- Chief Operating Officer, Executive Vice President

Phil, this is Lane. I think when you think about throughput, it's primarily feedstock and crude, right? So, at this time, we think our assets are pretty competitive, and so our outlook is not that unchanged (inaudible) whatever turnaround activity we have in a particular region. Gary's comment earlier around where margins are -- predominately, we see a weak Northwestern Europe hydroskimming margins and Mediterranean hydroskimming margins. And then, we are starting to see sort of breakeven economic on conversion units in the entire Atlantic Basin. So, we'll just see how that affects our -- how to -- in reality, what our throughput is but the time we gave the guidance, that was kind of how we call the universe for the next three months.

Phil Gresh -- JPMorgan Securities LLC -- Analyst

Okay. Thanks.

Operator

Thank you. And our next question comes from the line of Chris Sighinolfi with Jefferies. Your line is now open.

Chris Sighinolfi -- Jefferies -- Analyst

Hey, good morning. Thanks for all the added color, guys. Two quick follow-ups, if I could. Obviously, there's been some questions on capital allocation realized, you're not deviating from your historic approach, and also we're not in a position to provide 2019 CapEx guidance, but just curious how views around leverage are influenced by the recent developments? It seems like, obviously, organic investments, acquisitions provide some opportunity for capital deployment. The share prices, obviously, pulled back and you've talked about opportunistic buys, historically. So, can you just remind us or revisit views around consolidated leverage?

Donna Titzman -- Executive Vice President and CFO

Yes. So, our target for leverage is between 20% to 30%. And we're at the lower -- at 24% to the lower half of that. We have a large cash balance today to fund a lot of the things that we're talking about as well as some borrowing capability.

Chris Sighinolfi -- Jefferies -- Analyst

Okay. So, no change, and I feel comfortable with it. Okay. Also following up on the E-15 question, appreciate the market views, they are very helpful. But I'm just curious how a potential approval of the President's proposal might impact your own ethanol operations, if at all? And then, also any views around additional ethanol acquisitions? I think, Joe, in your prepared remarks, you had noted federal review of the Green Plains plant acquisitions as a condition. So, I'm just wondering if there's any market concentration issues at any point that you think you might run into?

Martin Parrish -- Valero Energy Corporation

Okay. And this is Martin. I would say on the E-15, it really doesn't impact our ethanol production thought process (inaudible) go along with what Jason said on that, it's going to be a slow and very measured penetration into the market here in the United States. So, it really doesn't impact how we are looking at things. As far as future acquisitions, we keep looking at them. Still -- I mean the largest producers are still only 11%, 12% of the market space in the United States. So, it's probably not an issue.

Chris Sighinolfi -- Jefferies -- Analyst

Okay. Great. Thanks a lot for the added color, guys.

Joseph Gorder -- Chairman, President, Chief Executive Officer

Thanks, Chris.

Operator

Thank you. And our next question comes from the line of Jason Gabelman with Cowen. Your line is now open.

Jason Gabelman -- Cowen Inc. -- Analyst

Hey, guys. How's it going? If I could ask two quick ones, firstly, just on cash from ops. It looks like in addition to the working capital drag, there was an additional $200 million of cash drag that wasn't explained in the press release. I was wondering if you could provide any commentary around that? And then, secondly, just on gasoline demand growth, I know you referenced 1% growth kind of year-to-date, but it seems like that growth has been moderating a bit. Over the past couple months, are you seeing a similar trend? Thanks.

Gary Simmons -- Senior Vice President

Hey, Jason.

Joseph Gorder -- Chairman, President, Chief Executive Officer

You want to do the second one first?

Gary Simmons -- Senior Vice President

Yes, let's take the second one first.

Joseph Gorder -- Chairman, President, Chief Executive Officer

Gasoline.

Gary Simmons -- Senior Vice President

Okay. Yes, so, on gasoline demand, I would tell you that the only real visibility we have to that is through our wholesale channel. Quarter-over-quarter, our volumes were up 5%. So, our wholesale volumes were -- grew at better than the demand growth. We did see slight reduction in volume from the second quarter to third quarter only about 1%, but we really attributed to that. It looked like most of where we lost demand was in the southeast and were storm-related.

Jason Gabelman -- Cowen Inc. -- Analyst

Got it.

Donna Titzman -- Executive Vice President and CFO

And on the question about the remaining cash usage, we made a contribution to our pension plan in September, about $100 million, and the rest of which is a lot of miscellaneous items.

Jason Gabelman -- Cowen Inc. -- Analyst

All right. Great. Thanks a lot.

Joseph Gorder -- Chairman, President, Chief Executive Officer

Thank you.

Operator

Thank you. And our final question comes from the line of Matthew Blair with Tudor, Pickering, Holt. Your line is now open.

Matthew Blair -- Tudor, Pickering, Holt, & Co. -- Analyst

Good morning, everyone. Coming back to Prashant's question on WCS, you mentioned that we should expect a small near-term increase in rail volumes. But I was wondering, have you made any pipeline commitments on the future pipes like L3R, KXL or the (inaudible) expansion?

Gary Simmons -- Senior Vice President

Yes, this is Gary. We don't have any pipeline commitments, but we do have some arrangements with producers to where we would buy barrels in the Gulf when those pipelines are done.

Matthew Blair -- Tudor, Pickering, Holt, & Co. -- Analyst

Okay. And then, on the West Coast, we saw a pretty expensive ANS barrels in Q3. And then, I think today, we're back to a premium versus Brent. Any color on what's going on with ANS?

Gary Simmons -- Senior Vice President

Yes, I think that the West Coast market was actually the most impacted by some of the volume slowdown from the Middle East. Some of the Saudi barrels and Kuwaiti barrels that went out to the West Coast kind of took pressure off the ANS. So, as we see the Saudi volume Brent back up and more of those barrels making their way to the West Coast, I think it takes some of the pressure off of ANS.

Matthew Blair -- Tudor, Pickering, Holt, & Co. -- Analyst

Great. Thank you.

Operator

Thank you. And that does conclude today's Q&A session. And I'd like to return the call to Mr. John Locke for any closing remarks.

John Locke --

Thanks, Sandra. And thanks, everybody for calling in this morning. If you have any additional questions, please contact the IR team. Thank you.

Operator

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone, have a great day.

Duration: 65 minutes

Call participants:

John Locke --

Joseph Gorder -- Chairman, President, Chief Executive Officer

Roger Read -- Wells Fargo -- Analyst

Jason Fraser -- Vice President-Public Policy & Strategic Planning

Paul Cheng -- Barclays -- Analyst

R. Lane Riggs -- Chief Operating Officer, Executive Vice President

Donna Titzman -- Executive Vice President and CFO

Doug Terreson -- Evercore ISI -- Analyst

Gary Simmons -- Senior Vice President

Doug Leggate -- Bank of America Merrill Lynch -- Analyst

Benny Wong -- Morgan Stanley -- Analyst

Manav Gupta -- Credit Suisse -- Analyst

Prashant Rao -- Citigroup -- Analyst

Brad Heffern -- RBC Capital Markets -- Analyst

Peter Low -- Redburn -- Analyst

Martin Parrish -- Valero Energy Corporation

Neil Mehta -- Goldman Sachs -- Analyst

Paul Sankey -- Mizuho Securities -- Analyst

Craig Shere -- Tuohy Brothers -- Analyst

Phil Gresh -- JPMorgan Securities LLC -- Analyst

Chris Sighinolfi -- Jefferies -- Analyst

Jason Gabelman -- Cowen Inc. -- Analyst

Matthew Blair -- Tudor, Pickering, Holt, & Co. -- Analyst

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