Valero Energy (VLO) Q3 2026 Earnings Call: Q&A Summary

Q: Sam Margolin of Wells Fargo asked whether recent crude differential movements and high freight rates are structural due to heavy supply or cyclical constraints.

A: Randy Hawkins stated that the market is well supplied with oil and the main driver is freight rates, with VLCC transport costs from the Gulf Coast to Asia averaging around $30 to $35 per barrel compared to a 2025 average of around $5 per barrel. He noted this gives the U.S. Gulf Coast a significant crude cost advantage, particularly on heavy sour grades.

Q: Sam Margolin of Wells Fargo asked Homer Bhullar about the strategy behind carrying a large cash position and whether it is a meaningful long-term structure.

A: Homer Bhullar explained that the initial cash build was to prudently manage commodity price volatility and potential working capital draws, ensuring the company can maintain or increase shareholder returns. He reiterated that all excess cash will ultimately be directed to owners over time while maintaining a long-term cash target of $4 billion to $5 billion.

Q: Manav Gupta of UBS asked if there is a bifurcated margin scenario globally between well-positioned regions and struggling international refiners facing high freight and natural gas costs.

A: Gary Simmons agreed, noting that low-complexity refiners in the Far East are facing margins in the $2 to $3 a barrel range due to high freight and rising natural gas costs, providing a high floor for crack spreads and ensuring the world needs that capacity to run.

Q: Manav Gupta of UBS asked if management has seen any signs of demand destruction in U.S. or export markets.

A: Gary Simmons stated there are no signs of demand destruction, noting U.S. wholesale gasoline 7-day average sales are up 4% year-over-year while distillate sales are up 2%, with strong export demand to Latin America and Europe.

Q: Neil Mehta of Goldman Sachs asked about fourth-quarter volume guidance and whether 2027 will be a heavy turnaround year for the industry.

A: Gary Simmons noted that fourth-quarter throughput is supported by light maintenance and strong asset utilization, while consultants estimate about 1.5 million barrels per day of global refinery turnarounds were deferred, pointing to a heavier turnaround season next year.

Q: Neil Mehta of Goldman Sachs asked for advice on modeling the fourth quarter given strong start-of-quarter indicators.

A: Gary Simmons highlighted tailwinds including butane blending into gasoline, Arctic diesel premiums in the North Atlantic, discounted heavy sours, and recovering jet fuel rates.

Q: Theresa Chen of Barclays asked what explains recent downside volatility in crack spreads and whether it stems from strategic reserve releases or trade flow changes.

A: Gary Simmons responded that downward pressure is driven by headlines regarding strategic reserve releases and the lifting of Russian sanctions, but underlying fundamentals and trade flow adjustments support a recovery.

Q: Theresa Chen of Barclays asked how seriously the market should take discussions about reopening idled U.S. refining capacity.

A: Rich Walsh and Lane Riggs addressed the Benicia refinery, explaining that it is safely idle with no plans to restart due to a tough operating environment, and noted that restarting any idled refinery requires significant reinventorying, restaffing, and turnaround work, making it difficult to impact prompt market conditions.

Q: Phillip Jungwirth of BMO Capital Markets asked about Valero's Venezuela throughput versus capacity and the confidence required to invest in heavy crude processing.

A: Randy Hawkins stated that Valero set a new processing record for Venezuelan crude in the third quarter, though fourth-quarter economics shifted slightly as wider Canadian discounts made Canadian barrels more competitive. Lane Riggs added that debottlenecking heavy sour capability remains an area of interest.

Q: Phillip Jungwirth of BMO Capital Markets asked for the outlook on Diamond Green Diesel (DGD) margins and factors affecting third-quarter performance.

A: Eric Fisher explained that third-quarter DGD margins were impacted by an outage and storm in DGD 3 that forced higher foreign feedstock runs, which do not capture the Production Tax Credit, alongside volatility in D4 RINs. He noted that DGD is expected to remain structurally strong and positive into 2027.

Q: John Royall of Piper Sandler asked if management is surprised by the lack of demand response despite higher gasoline and diesel prices.

A: Gary Simmons acknowledged that management has been surprised by the resilience of demand and does not know at what price level demand destruction might occur.

Q: John Royall of Piper Sandler asked about the timing, magnitude, and color regarding potential capacity growth in ethanol.

A: Eric Fisher stated that 45Z tax credits are encouraging producers to pursue capacity creep through small, quick-hitting capital projects, alongside carbon sequestration projects targeted for late 2027 to mid-2028 to grow volumes and lower carbon intensity for exports.

Q: Matthew Lovseth Blair of Tudor, Pickering Holt asked whether higher freight rates are a headwind for North Atlantic and West Coast refineries and how freight impacts product export netbacks.

A: Gary Simmons explained that higher freight gives Gulf Coast refiners a netback advantage into Latin America while creating volatility for European diesel arbs. Randy Hawkins added that Pembroke and Quebec City face minor freight exposure, though time-chartered vessels help buffer spot rate impacts.

Q: Matthew Lovseth Blair of Tudor, Pickering Holt asked about offline Russian refining capacity and diesel export projections.

A: Gary Simmons noted that Russian refining capacity offline averaged about 1.4 million barrels per day below 2024 levels, and diesel exports remain 600,000 to 700,000 barrels per day below last year, representing trade flow shifts rather than incremental supply.

Q: Joseph Laetsch of Morgan Stanley asked how the St. Charles FCC project is performing relative to expectations and where future growth CapEx will be deployed.

A: Gary Simmons stated that St. Charles EBITDA in the third quarter exceeded the final investment decision expectations, with the greatest benefits materializing during gasoline season. Lane Riggs added that future projects will focus on feedstock flexibility to reduce dependence on purchased vacuum gas oil.

Q: Joseph Laetsch of Morgan Stanley asked how Valero views potential M&A opportunities across refining, renewable fuels, and ethanol given excess cash.

A: Lane Riggs reiterated a preference for the advantaged Gulf Coast system and openness to ethanol opportunities, emphasizing that any M&A will adhere to disciplined hurdle rates and capital allocation frameworks.

Q: Doug Leggate of Wolfe Research asked what elevated industry runs mean for maintenance cycles and reliability risks heading into 2027.

A: Gary Simmons stated Valero has not altered its turnaround schedule or maintenance philosophy, but noted that deferred turnarounds across the industry could lead to a heavier maintenance season next year.

Q: Doug Leggate of Wolfe Research asked how a higher mid-cycle environment might impact cash return policy between dividends and share buybacks.

A: Homer Bhullar responded that the dividend is maintained as a durable, one-way ratchet supported by debt capacity and peer yields, while share repurchases serve as a flexible mechanism to deliver total long-term returns.

Q: Jason Gabelman of TD Cowen asked if diesel crack spreads risk compression as crude prices trend higher given resistance near $5 a gallon in New York Harbor.

A: Gary Simmons agreed that rising crude costs without corresponding product price increases could compress refinery cracks.

Q: Jason Gabelman of TD Cowen asked if Valero would consider consolidating private refining assets in the North Atlantic or Quebec market if they became available.

A: Lane Riggs stated that the North Atlantic is a liked region and Valero would evaluate opportunities that meet disciplined investment criteria and enhance trading flexibility and shareholder value.