The Zhitong Finance App learned that US refining giant Valero Energy (VLO.US) released a performance report before the US stock market on Thursday. The energy giant recorded record profits in the third quarter, which can be described as highlighting that the limited supply of refined oil products worldwide under the geopolitical conflict situation is being transformed into profit and cash flow advantages for US refineries. Valero Energy's revenue and adjusted earnings per share significantly exceeded the market's unanimous expectations.
According to financial reports, the third quarter of 2026 achieved revenue of 46.098 billion US dollars, an increase of 43.3% over the same period last year. It was 32.168 billion US dollars in the same period last year, which is about 7.9% higher than MarketBeat's consolidated market forecast of 42.71 billion US dollars. The Group's operating profit increased from US$1,509 billion in the same period last year to US$9.073 billion, up 501.3% year on year; net profit to mother increased from US$1,095 billion to US$6.828 billion, up 523.6% year on year. Adjusted diluted earnings per share (EPS) reached $23.90, up 553.0% from $3.66 in the same period last year, and about 13.4% higher than LSEG's consolidated forecast of $21.07.
The refining business is the core driving force behind this round of profit jumps. The business's third-quarter operating profit reached US$8.782 billion, an increase of 445.5% over US$1.61 billion in the same period last year. Other businesses improved at the same time: the renewable diesel business changed from a loss of 28 million US dollars to a profit of 353 million US dollars in the same period last year; the operating profit of the ethanol business reached 272 million US dollars, an increase of 48.6% over the same period last year.
Profit growth also translated into cash inflows — the company's operating cash flow reached US$6.932 billion in the third quarter, up 268.5% year on year, and US$1,881 billion in the same period last year, indicating that the current refining boom has significantly enhanced the company's ability to generate cash, providing financial support for capital investment, shareholder returns, and debt repayment.
Below is the full IBM earnings call (AI tool assisted translation):
I. Executive speeches
Ryan Riggs, CEO and Chairman:
In the third quarter, the business teams in each reporting section of the company performed excellently. The market fluctuations that occurred in the previous quarter and the trend of low inventories of refined oil products continued into the third quarter. The team focused on execution, and the refinery's operating rate was close to a historic high, and continued to guarantee the market supply of key transportation fuels.
The ethanol sector achieved record quarterly production in the third quarter, which not only guaranteed fuel supply but also contributed to overall performance. Financially, the company remains stable. This quarter continued to deliver on long-term shareholder commitments while strengthening cash reserves. As we look ahead, we maintain a constructive view of the long-term future of the business. Refining fundamentals remain favorable, supported by low inventories of refined oil products, limited excess refining capacity, and continued demand for transportation fuels.
Compared to other regions in the world, the United States is in an advantageous position in the current market environment. The Gulf Coast of the United States is still one of the most advantageous regions in the world, benefiting from sufficient domestic crude oil production and a cost-effective supply of raw materials. Combining the strategic refining system with the flexibility of the commercial team, these advantages support our ability to respond to market changes and resilience to customer needs.
In terms of strategic capital projects, we completed the St. Charles refinery FCC plant optimization project on time and within budget in the third quarter. The $230 million investment has boosted production of high-value products, including alkylated oil and gasoline. We will continue to evaluate more strategic opportunities to further enhance the competitiveness and long-term value of the refining system. But while evaluating these opportunities, we are still adhering to a rigorous investment process that has been effective for more than a decade.
Overall, the third quarter results highlight the quality of assets and our consistent performance in operations, business and finance. This is the result of more than ten years of adhering to a long-term strategy. Let me now give the floor to Homer.
Homer Brar, Senior Vice President and CFO:
In the third quarter of 2026, net profit attributable to Valero shareholders was US$6.8 billion, or US$2,389 per share; the same period last year was US$1.1 billion, or US$3.53 per share. Excluding the adjustments listed in the financial report schedule, net profit attributable to shareholders after adjustments for the third quarter was US$6.8 billion, or US$2,390 per share; the same period last year was US$1.1 billion, or US$3.66 per share.
The refining sector had operating profit of 8.8 billion US dollars in the third quarter, compared to 1.6 billion US dollars in the same period last year; the average refining and processing volume in the third quarter was 3 million barrels per day; and the refining cash operating cost was 5.03 US dollars per barrel.
The renewable diesel sector had an operating profit of US$353 million in the third quarter, with an operating loss of US$28 million in the same period last year; renewable diesel sales averaged 3.4 million gallons per day.
The ethanol sector's operating profit for the third quarter was US$272 million, compared to US$183 million in the same period last year; ethanol production averaged 4.8 million gallons per day.
Management and administrative expenses for the third quarter were US$308 million, depreciation and amortization expenses of US$684 million, net interest expenses of US$144 million, income tax expenses of US$2.1 billion, and an effective tax rate of 23%.
Net cash provided by operating activities in the third quarter was US$6.9 billion, including the adverse effects of US$526 million from working capital and adjusted net operating cash of US$205 million corresponding to the shares of DGD's other joint ventures. Excluding the above items, adjusted net operating cash for the third quarter was US$7.3 billion.
In terms of investment activities, capital investment in the third quarter was US$432 million, of which US$371 million was used to maintain business (including maintenance, catalysts and compliance-related costs), and the rest was used for business growth. Excluding DGD's shares of other joint ventures and capital investments corresponding to other variable interest entities, Valero's share of capital investment was US$429 million.
In terms of financing activities, we adhere to a strict capital allocation framework, and shareholders' cash returns correspond to the current quarter's dividend rate of 52%. In the third quarter, the outstanding principal of the $100 million bonds due in July and the 426 million US dollar bonds due in September were also repaid; another 146 million US dollars will expire later this year, and funds raised from bonds voluntarily issued in the first quarter in a low interest rate environment will be used to repay them.
On the balance sheet side, total debt at the end of the quarter was US$8.6 billion, financial lease liabilities US$2.4 billion, and cash and cash equivalents of US$9.8 billion. As of September 30, 2026, the debt capitalization ratio after excluding cash was 4%, reflecting this year's cash accumulation.
Although the long-term cash target of $4 billion to $5 billion remains unchanged, we continue to maintain cash above the upper limit of this range to preserve flexibility in a volatile market environment, which is consistent with the message conveyed throughout the year while fulfilling dividend commitments. Overall, the company had sufficient capital at the end of the quarter, with $5.3 billion in additional liquidity in addition to cash.
In terms of performance guidance, we still expect Valero to account for capital investment of approximately US$2 billion in 2026, including maintenance, catalysts, compliance, joint ventures, and the estimated costs of DHT plant maintenance at the Port Arthur refinery, of which approximately US$1.7 billion will be used to maintain the business and the rest for growth projects.
DHT plant maintenance in Port Arthur is still scheduled to be completed before the end of the year. The total cost of maintenance is estimated at about US$250 million, which is already included in the maintenance capital guidelines; as in the previous guidelines, it is expected that most of the costs will be covered by insurance, and the refinery will continue to operate at normal processing volume during this period.
Growth projects continue to focus on shorter cycle opportunities to improve crude oil and product flexibility, optimize product portfolio value, and maximize utilization of existing conversion capacity. At the same time, we continue to promote efficiency improvement and production expansion projects in ethanol plants. These investments should enhance asset profitability.
In terms of operational modeling for the fourth quarter, we expect refining and processing volumes to be in the following range: 1,855 million to 1.905 million barrels per day along the Gulf Coast, 440,000 to 460,000 barrels in the Midland region, 100,000 to 110,000 barrels on the West Coast, and 480,000 to 500,000 barrels in the North Atlantic. Refining's cash operating costs are expected to be around $4.85 per barrel in the fourth quarter.
The renewable diesel sector is expected to sell about 325 million gallons in the fourth quarter, with operating costs of $0.53 per gallon, including non-cash costs such as depreciation and amortization of $0.23 per gallon. The ethanol sector is expected to produce 4.9 million gallons per day in the fourth quarter, with an average operating cost of $0.38 per gallon, including non-cash costs of $0.04 per gallon. Net interest expenses for the fourth quarter were approximately US$135 million, and total depreciation and amortization was approximately US$700 million.
Finally, management and administration expenses are expected to be around $1.1 billion in 2026.
II. Q&A session
Wells Fargo Securities Analyst Sam Margolin: Crude Oil Spreads and Freight
Is the recent abnormal change in crude oil price spreads a cyclical phenomenon driven by freight rates, or is it a structural change brought about by an increase in the supply of heavy crude oil?
Randy Hawkins, Vice President of Crude Oil and Raw Materials Supply and Trade: Markets are still extremely volatile, and Middle East events and global trade flows are the focus of daily attention. Over the past few weeks, strait crude oil circulation has continued to rise. Media reports indicate that last week's traffic volume was higher than pre-war levels, in addition to the recent release of strategic oil reserves (SPR). Overall, regardless of price differences or trade flows, the crude oil supply in the market is quite abundant.
Currently, the main line of the market is shipping. As circulation in the strait increases, the inefficient operation of ship-to-ship transfers in the Gulf of Oman takes up global capacity, and more tankers are needed to transport the same crude oil; combined with insurance risk premiums, transit delays, and higher fuel costs, they all drive up freight costs. Take very large tankers (VLCCs) as an example. Transportation costs from the Gulf of America to Asia now average $30 to $35 per barrel, compared to an average of around $5 per barrel in 2025. The rise in freight rates is widely evident in various markets and ship types around the world, especially heavy oil transportation, causing global crude oil pricing to be seriously misplaced: refineries seek nearby procurement, and sellers are forced to cut prices to offset freight costs.
For us, our main production capacity is concentrated in the US Bay, where we can access a wide range of crude oil varieties and qualities, and it has now become a major crude oil exporter. Since crude oil must be priced according to export, the sharp rise in freight charges has forced the expansion of various types of crude oil, making Meiwan one of the cheapest crude oil costs in the world, especially for heavy sulfur-containing crude oil. Compared to Asia, the Gulf of America has a freight advantage when it obtains heavy crude oil from Latin America. These foreign crude oil prices must also be compensated for the sharp rise in freight rates. As Ryan said, the US Bay is still one of the most advantageous crude oil markets in the world, and this round of rising freight rates has further strengthened this.
Looking ahead, we maintain a constructive view of the long-term outlook for crude oil price spreads, as incremental supplies are dominated by heavier, more sulfur-containing crude oil, especially Canada, Venezuela, and the Middle East, which further supports the value of our complex US Gulf system.
Wells Fargo Securities Analyst Sam Margolin: Cash Positions and Balance Sheets
The company holds a large amount of cash, and even just receiving interest rates on treasury bonds is a considerable figure. Is the current high cash position a short-term point in time, or does management intend to maintain extraordinary cash positions for a long time to preserve flexibility?
Senior Vice President and Chief Financial Officer Homer Brar: The original intention of accumulating cash at the beginning of this year was to carefully manage commodity price fluctuations. When commodity prices fall rapidly, which is usually accompanied by an outflow of working capital and cash, we need to ensure that even if there is a significant cash outflow, the ability to return cash to shareholders is not limited, and even more strongly to give back to shareholders under such circumstances.
While the environment is still constructive, we are satisfied with the current level of dividends, maintaining more than 50% dividend payouts and continuing to accumulate cash. There are very few debts due in the next year or more. They are about 150 million US dollars due later this year, and slightly more than 500 million US dollars due next year, so there is plenty of flexibility. At the same time, we will not change the way we invest capital because we have plenty of cash. Simply put, other uses of cash are limited; although fluctuations have not completely subsided, we are able to return more positively to shareholders if fluctuations return and gradually move closer to the long-term cash target of $4 billion to $5 billion. In any case, the long-term cash target has not changed, and the accumulated excess cash will eventually be returned to shareholders.
UBS analyst Manaf Gupta: Regional refining profit margin differentiation
The profit margin of US refining is rising, and some Asian and European peers have not performed well after inversion in freight rates. Is there a differentiation in the global refining market: some regions have high profit margins and can operate at full capacity, while other regions have difficulty obtaining crude oil and are expensive?
Executive Vice President and Chief Operating Officer Gary Simmons: We are seeing the same situation as you, which gives us a high level of confidence in the sustainability of the current cracking spread environment. Some low-complexity refining capacity in the Far East has profit margins in the range of 2 to 3 US dollars per barrel after adding the freight costs of crude oil into and out of refined oil products; in addition, natural gas prices in these regions have begun to rise, further raising the lower limit required for cracking price differences to force these refineries to maintain high operating rates, and the world currently needs this production capacity to maintain operation.
UBS Analyst Manav Gupta: Signs of Damaged Demand
Are there any signs of damage to demand, and what is the overall situation of US domestic demand and export demand?
Executive Vice President and Chief Operating Officer Gary Simmons: From the wholesale side, there is little sign of a loss in demand. In terms of gasoline, the average 7-day sales volume of the US wholesale network increased 4% year on year, while Canada and the UK remained the same year on year. I mentioned that demand in the UK was damaged in the second quarter, but demand in the UK recovered well in the third quarter. Demand for gasoline showed strong resilience to high oil prices, and export demand was also very strong. All export markets received good imports from the US Bay. Gasoline cracking price differences have declined slightly. Some are seasonal (out of peak driving season), and are also affected by the increase in butane blending in winter gasoline specifications, but gasoline fundamentals are still very strong: there is currently no transatlantic arbitrage to transport gasoline from northwest Europe to PADD 1, and there is no storage economy for early production and storage of summer gasoline, which is beneficial for spring. More importantly, October has already left the peak driving season and entered the high RVP gasoline season. The gasoline market is still in a long-term water supply structure, which indicates that the immediate gasoline supply is very tight, all of which are beneficial to the long-term prospects of gasoline.
The trend in distillate oil is similar. The average sales volume of the wholesale network increased by about 2% year on year on year, and the British and Canadian systems remained the same year over year. The only decline in sales was heating oil for use in the UK, which fell about 10% year over year. Our commercial team believes that the reason is warm winter weather and customers delay refueling tanks as much as possible, which means that once cold weather hits, demand in the UK may surge. Demand for diesel exports is also very strong, both in Latin America and Europe. As a result, there are no signs of damage to demand for us; in fact, some leading indicators (GDP is flat and most trucking surveys have rebounded) indicate that diesel demand is performing well.
Goldman Sachs Analyst Neil Mehta: Fourth Quarter Production and Industry Overhaul
The production guidelines for the fourth quarter were slightly higher than expected. Is operation at full capacity and the restoration of DHT devices helpful; due to the high operating intensity of the industry in 2026, will 2027 be a major year of industry maintenance?
Executive Vice President and Chief Operating Officer Gary Simmons: Let's talk about DHT first. We don't expect the machinery to be completed until the end of the fourth quarter, so it's not included in the guidelines. The fourth quarter is a light maintenance season for us, and we will fully operate the equipment at the current profit level. At the industry level, we have publicly stated that we will never postpone maintenance and will proceed as planned. According to consulting agency data, refinery maintenance of about 1.5 million barrels per day around the world has been delayed, which means that current maintenance activities are slightly lighter than normal, and next year is expected to usher in a heavier maintenance season.
Goldman Sachs analyst Neil Mehta: Fourth quarter modeling considerations
The indicators for Chumei Bay and mainland China both rose this quarter. Although the season usually declined, the start was strong. What are your suggestions for modeling the fourth quarter?
Executive Vice President and Chief Operating Officer Gary Simmons: The main downturns in the fourth quarter include: a boost from gasoline butane blending; the North Atlantic system usually had a good boost after starting to produce premium Arctic diesel; heavy sulfur-containing crude oil on the feedstock side brought many optimization opportunities; and the re-correction of aviation fuel grade price differentials. Performance was differentiated in terms of secondary products. Propylene and naphtha weakened slightly, but aromatic hydrocarbons strengthened. Overall, the catch rate for the fourth quarter was dominated by smooth winds.
Barclays Bank Analyst Theresa Chen: Decay spreads fluctuate downward
Combining the resilience of demand and the rising lower limits of international refineries due to high freight rates and natural gas costs, how do you explain the recent downward fluctuations in cracking price spreads, and how will these factors evolve in the short to medium term?
Executive Vice President and Chief Operating Officer Gary Simmons: The downward pressure on the cracking spread mainly comes from news sources, such as statements such as the release of strategic reserves and the lifting of Russian sanctions. If actual data is digested, actual releases are clearly understood, and the lifting of sanctions is more of a change in trade flow, it is expected that the cracking spread will gradually be repaired.
Barclays Bank Analyst Theresa Chen: Idle refining capacity restarts
How should the Trump administration view the seriousness of cooperating with companies to restart US refining capacity that has been idle for the past ten years; more broadly, how can the shortage of market supply be addressed most effectively?
Executive Vice President and General Counsel Richard Walsh: The focus here is on the Benicia refinery. I would like to remind everyone that the refinery has been safely idle since April, and we have no plans to restart it. Before and after the shutdown was announced, we had extensive communication with the state government, federal government, and private parties, with no real results. The operating environment on the West Coast is difficult, and we are not optimistic about the potential for a restart; moreover, the restart requires re-preparation of materials, re-recruitment of employees, and large-scale maintenance, which is not a simple process.
CEO and Chairman Ryan Riggs: To add, restarting almost any shut down refinery takes time, making it difficult to resolve immediate supply issues. We haven't received much communication from the government about restarting other refineries, but we've heard the same news as you. However, the idea that these refineries can be entered at any time and put into operation immediately is not in line with reality. We'll wait and see how it evolves over the long term.
BMO Capital Markets Analyst Philip Junworth: Venezuelan Crude Oil Processing
Venezuela announced a number of upstream investment plans and production growth targets. What is the current relationship between crude oil processing volume and production capacity in Venezuela, and what conditions are needed to confidently invest in improving the processing capacity of heavy crude oil?
Randy Hawkins, Vice President of Crude Oil and Raw Material Supply and Trade: The supply of Venezuelan crude oil within the US Gulf system is still good, and we are encouraged by new investment to increase production in Venezuela. We have been the largest consumer of Venezuelan crude oil for a long time, and are far ahead in the US Gulf; in the third quarter, Venezuelan crude oil was extremely competitive compared to other heavy sulfur-containing alternatives, and the Valero system set a new record for Venezuelan crude oil processing volume. The economy changed in the fourth quarter. High freight rates particularly impacted the heavy crude oil market. At one point, the US Bay Canadian crude oil rate was extended to 27 to 30 US dollars below Brent, making Canadian crude oil more competitive than Latin American crude oil. Our system is flexible and can switch between different types of oil. This is an important competitive advantage, and we will continue to look for opportunities to increase consumption of these crude oils in the future.
CEO and Chairman Ryan Riggs: Additionally, the heavy sulphur sector is one of the highlights of our projects and even mergers and acquisitions. We view it as the direction of raw material optimization, and we are looking for opportunities to remove bottlenecks and expand our processing exposure to heavy sulphur crude oil.
BMO Capital Markets Analyst Philip Junworth: DGD Profit Margin Prospects
What is the DGD profit margin outlook, what is the one-time noise in the capture rate in the second and third quarter, and how will this indicator trend in the fourth quarter?
Eric Honeyman, Senior Vice President of Renewable Operations and Low-Carbon Fuels: There were many one-time benefits in the second quarter, such as IEEPA recovery, model updates, and year-to-date calibrations, which led to an unusually high level in the second quarter. Furthermore, there is a lag in the entry of raw materials into DGD pricing, compounding market fluctuations, causing a lot of noise to capture profit margins. In the second quarter, raw materials purchased in the first quarter were still significantly cheaper than the target, and conflict-related sentiment weakened at the time. Although ULSD declined to DGD basic commodity prices, it also calmed down some position pricing fluctuations. In the third quarter, the opposite was true. Due to the suspension of production of DG3 and the storm, they were forced to use a higher proportion of foreign raw materials from the water, and the foreign raw materials were unable to enjoy PTC, causing PTC to capture lower than the profit margin index; in addition, discussions on whether to redistribute SRE caused D4 to drop sharply, and the impact of fluctuations in the product pricing process on the lag was also obvious. Overall, it all comes down to lag and fluctuations in ULSD and D4. Looking at the fourth quarter, the D4 RIN structure is high, and the DGD profit margin is still very positive, and the cash flow is positive; the real advantage of the refining sector is that Meiwan has the strongest availability of raw materials. Combined with Darling (Darling) as the largest domestic raw material producer (PTC benefits domestic raw materials), we are continuing to maximize the processing volume of Darling raw materials and vegetable oil to cope with the D4 shortage that will continue until 2027.
John Royal, Peggy Investments Analyst: Price Elasticity of Demand
Gasoline and diesel prices have risen significantly but demand is relatively stable. Are you surprised that there has been no further demand response, and are there any price levels that may show elasticity in demand?
Executive Vice President and Chief Operating Officer Gary Simmons: We're really surprised that we haven't seen a response from demand, especially considering the numerous price-related reports. As for the price level where demand will be damaged, we don't know, because most people would have expected it to be there by this point.
John Royal, Peggy Investment Analyst: Ethanol Production Expands
What is the timing, scale, and more details of the opening mention that it may drive the growth of ethanol production capacity?
Eric Honeyman, Senior Vice President of Renewable Operations and Low-Carbon Fuels: The new PTC and 45Z credit incentivize all ethanol producers to increase production, and our main focus is on rising production capacity. Measured on a refinery scale, this type of capital investment is small and results are fast; at the same time, carbon sequestration projects are being promoted at multiple plant sites, and are expected to be implemented from the end of 2027 to mid-2028. These will increase ethanol production and reduce carbon intensity (CI), making them more attractive for exports. Ethanol export demand is still strong, and all of our production capacity is directed towards expanding exports.
Tudor Pickering Holt Analyst Matthew Blair: The Impact of Freight Costs on Systems and Exports
Do high freight rates pose a headwind to refineries in the North Atlantic and west coast, and can alternative crude oil be used; what impact do freight charges have on net repayment of refined oil exports in the US Gulf, and are they directly passing on or depressing the economy of US refined oil exports?
Executive Vice President and Chief Operating Officer Gary Simmons: In most cases, high freight rates give us an advantage in typical Latin American export markets, because we mainly compete with European crude oil, and we enjoy freight advantages. The only downside is diesel exports to Europe, leading to frequent opening of arbitrage windows and increased volatility. Europe's diesel is scarce and really needed, and when freight rates soar, its price must be adjusted to keep the arbitrage window open and maintain supply.
Randy Hawkins, Vice President of Crude Oil and Raw Material Supply and Trade: On the crude oil side, the Pembroke refinery and the west coast were indeed affected by high freight rates. Quebec City was less affected (the refinery is mainly supplied through pipelines), but the benefits of the Gulf of America far exceeded this impact. Furthermore, we have a large fleet of long-term charters, which can cushion part of the impact of the increase in spot freight rates.
Tudor Pickering Holt analyst Matthew Blair: Russian refining and diesel exports
What is the estimate of Russia's discontinued refining capacity and the time required to restore it, and how do you view the recovery of Russian diesel exports?
Executive Vice President and Chief Operating Officer Gary Simmons: According to the data, based on a three-month average, compared to the same period in 2024, Russia's average refining capacity of about 1.4 million barrels per day is offline, and the scale is still impressive. Most consulting agencies estimate that recovery will take quite a while, and we are unable to give a specific length of time. In terms of diesel exports, it has been announced that the scale is roughly equivalent to the July level. It is still lower than the same period last year, at an average of 600,000 to 700,000 barrels per day, which is not a large amount. As we have always stated, sanctions or the lifting of sanctions mainly change the flow of trade, rather than real incremental supply entering and leaving the market.
Morgan Stanley Analyst Joe Leach: St. Charles Project and Growth Capital
Did the St. Charles Refinery's installation performance meet expectations after completion of the FCC project in the third quarter, how should product yield or capture rates be improved in the fourth quarter and beyond; more broadly, what is the direction of future capital expenditure growth?
Executive Vice President and Chief Operating Officer Gary Simmons: Let's talk about the St. Charles project. The project has already been put into operation. Although it was not fully operational in the third quarter, the EBITDA generated during the quarter actually exceeded the project's Final Investment Decision (FID) expectations, and the performance was excellent. As mentioned by Lane, the project mainly makes full use of local alkylation production capacity, and the greatest benefits are usually reflected during the peak gasoline season, so the earnings in the second and third quarter will be higher than in the fourth quarter.
CEO and Chairman Ryan Riggs: Adding to that, we are optimistic about the project direction is raw material flexibility. Before the Russian-Ukrainian conflict, the crude oil needed to fill the US refining capacity depended largely on decompression gas oil (VGO) and other intermediates from the region. Therefore, despite generous profit margins, it was sometimes necessary to purchase VGO in stock this summer, and the FCC's profit was low. One direction we are optimistic about is to improve system resilience, reduce dependence on VGO, and seek ways to increase VGO production. As mentioned above, we are optimistic about increasing production of heavy sulphur crude oil in Venezuela and Canada, and will look for opportunities to remove bottlenecks and improve heavy sulphur processing capacity.
Morgan Stanley analyst Joe Leach: M&A opportunities
Given strong cash generation and excess cash accumulated on the balance sheet, what are the potential M&A opportunities in the refining, renewable fuels, and ethanol sectors?
CEO and Chairman Ryan Riggs: We have always paid attention to the various opportunities that have arisen in the market, and are particularly optimistic about the US Bay system. This position has never been vague. We believe that it is the most flexible and can create the most value when optimizing within the system, and we will continue to seek opportunities in this direction. We are also optimistic about the ethanol business and will continue to pay attention. However, we will adhere to strict capital discipline, and even if we hold a large amount of cash, we will not change the threshold return rate, return indicators, and capital allocation framework that has been used for more than ten years.
Wolf Research Analyst Doug Legate: Reliability and Unplanned Parking
What does a high operating rate mean for maintenance cycles and system reliability, can the industry continue to maintain a high operating rate; looking ahead to 2027, is there any risk of unplanned parking?
Executive Vice President and Chief Operating Officer Gary Simmons: Our maintenance philosophy has not changed, and maintenance is being carried out as planned, so the reliability of the system is not expected to change. If the consultation data says that an average of 1.5 million barrels of maintenance is postponed per day, we may face certain reliability issues and a heavier maintenance season next year.
Wolf Research Analyst Doug Legate: Dividends and Buyback Policies
The market's expectations for the middle of the cycle have been significantly reset. Will this affect the way cash is returned to investors; if it is true that it is in a higher mid-cycle environment, how will the dividend policy be adjusted compared to the repurchase policy?
Senior Vice President and Chief Financial Officer Homer Brar: We view dividends and buybacks as an integral part of overall shareholder returns. Based on the reasons mentioned by Gary, Randy, and Lane, we have a higher view of the middle of the cycle, but we are still in a cyclical industry. Theoretically, higher mid-cycle periods also increased debt capacity, but we didn't add leverage. Like balance sheets, we want dividends to be durable in times of boom and bust; dividends are a permanent commitment we have made and defended with balance sheets (this was the case during the pandemic, when our ability and willingness to pay dividends were challenged). Therefore, dividends are a one-way ratchet, and we want dividend growth to be measurable across cycles; at the same time, we will refer to the dividend rate closest to our peers. We are roughly in between. Overall, dividend growth will be more measurable, while ensuring predictable and attractive total returns is key to our shareholder value proposition, and we will continue to use buybacks as a more efficient and flexible means to supplement overall dividends.
TD Cowen Analyst Jason Gabelman: Diesel Price Cap and Profit Margin
It is difficult for diesel prices in New York Port to remain stable at $5 per gallon (about $200 per barrel), and crude oil continues to rise, and there seems to be some damage at this level; if crude oil continues to rise, there is a possibility that diesel profit margins will be compressed. Is this a risk compared to the current cracking price gap?
Executive Vice President and Chief Operating Officer Gary Simmons: This judgment is reasonable. We have always believed that one of the factors favorable to refineries in this round of conflict is that crude oil has not risen to the high level it could have been achieved. If crude oil rises sharply for some reason, it may indeed cause refining and cracking price differences to be compressed.
TD Cowen Analyst Jason Gabelman: North Atlantic M&A
How many private assets are there in the North Atlantic and Quebec markets, with strong refining profit margins, or business collaborations. Is this also an area that will be considered for integration if suitable assets appear?
CEO and Chairman Ryan Riggs: Yes, this is an area we're optimistic about. If assets are available and meet our investment standards (we will remain disciplined to ensure they are reasonable throughout the economic cycle and not just attracted by immediate circumstances), we will consider them. We already have a good presence in the region, and we are naturally interested if it can add flexibility, enhance trading capacity, and create shareholder value.